Annual Statements Open main menu

Iconic Brands, Inc. - Quarter Report: 2010 September (Form 10-Q)

iconic10qfinal.htm - Generated by SEC Publisher for SEC Filing

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION  

Washington, D.C. 20549

 

FORM 10-Q

 

x QUARTERLY REPORT UNDER TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  

 

FOR THE QUARTERLY PERIOD ENDED September 30, 2010 

 

OR

 

 

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 000-53162

 

 

ICONIC BRANDS, INC.

 

 

(Exact name of registrant as specified in its charter)

 

 

 

 

 

NEVADA

 

 

(State or other jurisdiction of incorporation or organization)

 

 

 

 

 

40 Marcus Boulevard

Hauppauge New York 11788

 

 

(Address of principal executive offices, including zip code.)

 

 

 

 

 

 

 

 

(Registrant’s telephone number, including area code)

 

 

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 last 90 days. Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o        No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer, “accelerated filer,” “non-accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer

¨

Accelerated Filer

¨

Non-accelerated Filer

¨

Smaller Reporting Company

x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

 

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 52,519,307 as of September 30, 2010.

 


 

 

 ICONIC BRANDS INC.

 

FORM 10-Q

 

September 30, 2010 

TABLE OF CONTENTS

 

PART I--FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

3

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

22

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

27

Item 4T.

Controls and Procedures

27

 

 

PART II--OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

28

Item 1A.

Risk Factors

28

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

28

Item 3.

Defaults Upon Senior Securities

29

Item 4.

Submission of Matters to a Vote of Security Holders

29

Item 5.

Other Information

29

Item 6.

Exhibits

30

 

 

 

SIGNATURES

 

31

 

 


 

 

PART I: FINANCIAL INFORMATION

 

 

ITEM 1. FINANCIAL STATEMENTS.

 

 

Iconic Brands, Inc. and Subsidiary

Consolidated Balance Sheets

September 30,

2010

December 31,

2009

(Unaudited)

Assets

Current assets:

             Cash

$

                       353

$

                  23,889

             Accounts receivable, net of allowance for doubtful accounts of                                                    

                $0 and $35,000, respectively

                            -

                254,268

             Inventories

                            -

                393,811

               Prepaid stock-based compensation arising out of consulting agreement (Note 9)

273,507  

-  

               Advance to overseas vendor toward purchases of inventories

-  

297,684  

             Prepaid expenses and other current assets (Note 5)

                784

                93,456

             Total current assets

                274,644

             1,063,108

Property, plant and equipment, net

                            -

                    7,273

License agreement costs, net of accumulated amortization of  

   $0 and $0, respectively

                            -

                            -

 

Restricted cash

                  50,000

                  75,000

             Total assets

$

                324,644

$

             1,145,381

Liabilities and Stockholders' Equity (Deficiency)

Current liabilities:

   Current portion of debt

$

                818,481

$

                803,064

   Accounts payable

             1,315,107

             1,290,680

   Accrued expenses and other current liabilities

             1,803,283

             1,500,652

             Total current liabilities

             3,936,871

             3,594,396

Long term debt

             1,636,200

             1,774,944

             Total liabilities

             5,573,071

             5,369,340

Stockholders' deficiency:

   Preferred stock, $.00001 par value; authorized 100,000,000   

      shares:

                           1

                           1

   Series A, designated 1 share, issued and outstanding 1 and 1

      shares, respectively

   Series B, $2.00 per share stated value; designated 1,000,000

      shares, issued and outstanding 916,603 and 916,603 shares,

      respectively

             1,833,206

             1,833,206

   Common stock, $.00001 par value; authorized 100,000,000

      shares, issued and committed to be issued and outstanding

      52,519,307 and 44,810,411 shares, respectively

                       525

                       448

   Additional paid-in capital

             8,801,525

             7,327,955

   Accumulated deficit

          (15,883,684)

          (13,385,569)

             Total stockholders' deficiency

            (5,248,427)

            (4,223,959)

     

Total liabilities and stockholders' deficiency

$

                324,644

$

1,145,381

  

  See notes to consolidated financial statements.

 

 
 

 

 

 

Iconic Brands, Inc. and Subsidiary

Consolidated Statements of Operations

(Unaudited)

 

 

 

Nine Months Ended September 30,

 

Three Months Ended September 30,

 

 

2010

 

2009

 

2010

 

2009

 

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

Sales

$

371,313

$

 497,549

$

32,863

$

161,379

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

235,744

 

 327,947

 

                22,217

 

                99,576

 

 

 

 

 

 

 

 

 

Gross profit

 

135,569

 

169,602

 

                10,646

 

                61,803

 

 

 

 

 

 

 

 

 

Selling, general and

   administrative expenses:

 

 

 

 

 

 

 

 

 

   Selling, marketing and

      promotion

 

419,250

 

231,103

 

                35,834

 

              107,308

   Administrative

      compensation and   

      benefits

 

428,254

 

 841,228

 

                14,046

 

              234,730

   Stock-based     

      compensation issued in

      connection with

      merger

 

-

 

2,063,411

 

                         -

 

                         -

   Professional fees

 

480,627

 

389,418

 

              161,982

 

              100,900

   Occupancy and

      warehousing

 

95,101

 

133,927

 

                26,546

 

                32,719

   Travel and      

      entertainment

 

62,891

 

90,707

 

                  2,227

 

                54,470

   Office

 

18,452

 

31,677

 

                  2,171

 

                11,901

   Licenses and permits

 

31,878

 

2,873

 

                     683

 

                  1,203

   Other

 

16,092

 

33,179

 

                  2,346

 

                  9,959

 

 

 

 

 

 

 

 

 

   Total

 

 1,552,545

 

3,817,523

 

              245,835

 

              553,190

 

 

 

 

 

 

 

 

 

Loss from   

   operations

 

(1,416,976)

 

 (3,647,921)

 

            (235,189)

 

            (491,387)

Interest expense

 

(264,346)

 

 (590,170)

 

              (26,193)

 

              (17,962)

 

 

 

 

 

 

 

 

 

 Loss on write-off of assets

   seized by lender on

   defaulted promissory

   note ( Note 3)

 

 (816,793)

 

 -

 

            (816,793)

 

                         -

 

 

 

 

 

 

 

 

 

Loss before   

   Income taxes

 

(2,498,115)

 

(4,238,091)

 

         (1,078,175)

 

            (509,349)

 

 

 

 

 

 

 

 

 

Income taxes

 

-

 

-

 

-

 

-

 

 

 

 

 

 

 

 

 

Net loss

$

(2,498,115)

$

(4,238,091)

$

 (1,078,175)

$

(509,349)

 

 

 

 

 

 

 

 

 

Net loss per common

   share - basic and

   diluted

$

(0.05)

$

(0.24)

$

(0.02)

$

 (0.01)

 

 

 

 

 

 

 

 

 

   Weighted average

      number of common

      shares  outstanding -

      basic and diluted

 

49,962,659

 

17,640,565

 

52,519,307

 

43,060,356

  See notes to consolidated financial statements.


 

 

 

Iconic Brands, Inc. and Subsidiary

Consolidated Statements of Changes in Stockholders' Equity (Deficiency)  

Nine Months Ended September 30, 2010

(Unaudited)

Series A

Series B

Preferred Stock,

Preferred Stock,

Common Stock,

Additional

$.00001 par

$2.00 stated value

$.00001 par

Paid-In

   Accumulated

Shares

Amount

Shares

Amount

Shares

Amount

Capital

Deficit

Total

Balance at December 31, 2009

             1

$

             1

             916,603

$

1,833,206

$

44,810,411

$

            448

$

7,327,955

$

  (13,385,569)

$

    (4,223,959)

Issuance of common stock and

    warrants in connection

   with $220,000 promissory notes

              -

              -

                         -

                 -

 

200,000

                2

78,928

                    -

          78,930

Issuance of common stock in

   satisfaction of convertible

   notes and accrued interest

              -

              -

                         -

                 -

152,546

                2

76,271

                    -

          76,273

Issuance of common stock and 

   warrants in connection with

   License Agreement with

   Tony Siragusa

              -

              -

                         -

                 -

250,000

                2

144,798

                    -

        144,800

Issuance of common stock to

   consulting firm in

   February 2010

              -

              -

                         -

                 -

 

300,000

                3

68,997

                    -

          69,000

Issuance of common stock and

   warrants to consulting firm in

   March 2010

              -

              -

                         -

-

 

2,000,000

              20

595,980

                    -

        596,000

Issuance of common stock in

   connection with extension of due

  date of $110,000 promissory note

              -

              -

                         -

                 -

 

250,000

                2

21,398

-

          21,400

Issuance of common stock and

   warrants in satisfaction of debt

   and accrued interest

              -

              -

                         -

                 -

 

4,556,350

              46

455,589

-

        455,635

Stock options and warrants

   compensation expense

              -

              -

                         -

                 -

 

                   -

                 -

31,609

                    -

          31,609

Net loss

              -

              -

                         -

                 -

                   -

                 -

                    -

    (2,498,115)

    (2,498,115)

Balance at September 30, 2010

             1

 $

             1

             916,603

 $

  1,833,206

  52,519,307

 $

            525

 $

     8,801,525

 $

  (15,883,684)

 $

    (5,248,427)

 

                                                                                                                                                                          See notes to consolidated financial statements.
 

 

Iconic Brands, Inc. and Subsidiary

Consolidated Statements of Cash Flows

(Unaudited)

Nine Months Ended September 30,

2010

2009

Cash flows from operating activities:

Net loss

$

         (2,498,115)

$

        (4,238,091)

Adjustments to reconcile net loss to net cash   

   used in operating activities:

Loss on write-off of assets seized by lender on    

   defaulted promissory note ( Note 3), less $1,552 cash     

   reduction

815,191

-

Depreciation

                  3,033

                 1,538

Amortization of license agreement costs

                25,538

                        -

 

Amortization of debt discounts charged to interest  

   expense

              185,938

             268,125

Stock-based compensation

              423,101

          2,474,965

Changes in operating assets and liabilities:

   Accounts receivable, net

           226,574

          383,197

   Inventories

           (62,758)

           233,084

   Prepaid expenses and other current assets

            151,272

               6,665

   Restricted cash and cash equivalents

                25,000

               25,000

   Accounts payable

                24,427

           (117,590)

   Accrued expenses and other current liabilities

302,631

610,969

Net cash used in operating activities

            (378,168)

           (352,138)

Cash flows from investing activities:

Property, plant and equipment additions

 -

             (5,150)

Cash flows from financing activities:

   Increases in debt, net

661,067

310,000

   Repayment of debt

          (306,435)

         (332,807)

   Sale of Units of common stock and warrants, net of

      placement costs

-

445,000

 Net cash provided by financing activities

              354,632

             422,193

Increase (decrease) in cash

              (23,536)

               64,905

Cash beginning of period

                23,889

               10,970

Cash end of period

$

                     353

$

               75,875

Supplemental disclosures of cash flow information:

   Interest paid

$

              23,190

$

           248,470

   Income taxes paid

$

                        -

$

                      -

Non-cash financing activities:

   Issuance of common stock and warrants in     

      connection with $220,000 promissory notes

$

                78,930

$

                        -

   Shares of common stock issued to noteholders in       

      satisfaction of debt and accrued interest

$

              531,908

$

          2,453,801

  

   Issuance of common stock and warrants in connection

      with License Agreement with Tony Siragusa

$

              144,800

$

                        -

   Securities issued to Capstone in connection with

             Termination Agreement and satisfaction of debt:

      Unsecured promissory note

$

                        -

$

         500,000

      Series B preferred stock

                        -

        1,833,205

      Common stock

                        -

           500,000

      Total

$

                       -  

$

          2,833,205

  See notes to consolidated financial statements.


 

 

 

 

Iconic Brands, Inc. and Subsidiary

Notes to Consolidated Financial Statements

September 30, 2010

(Unaudited)

 

 

1.  ORGANIZATION AND NATURE OF BUSINESS

 

Iconic Brands, Inc., formerly Paw Spa, Inc. (“Iconic Brands”), was incorporated in the State of Nevada on October 21, 2005. Our plan was to provide mobile grooming and spa services for cats and dogs. Our services were going to include bathing, hair cutting and styling, brushing/combing, flea and tick treatments, nail maintenance and beautification, ear cleaning, teeth cleaning, hot oil treatments, and massage. We did not have any business operations and failed to generate any revenues.  We abandoned this business, as we lacked sufficient capital resources.  On June 10, 2009, the Company acquired Harbrew Imports, Ltd. (“Harbrew New York”), a New York corporation incorporated on September 8, 1999 which was a wholly owned subsidiary of Harbrew Imports, Ltd. Corp. (“Harbrew Florida”), a Florida corporation incorporated on January 4, 2007.  On the Closing Date, pursuant to the terms of the Merger Agreement, the Company issued to the designees of Harbrew New York 27,352,301 shares of our Common Stock at the Closing, or approximately 64% of the 42,510,301 shares outstanding subsequent to the merger.  After the merger, Harbrew New York continued as the surviving company under the laws of the state of New York and became the wholly owned subsidiary of the Company.

 

In anticipation of the merger between Iconic Brands, Inc. and Harbrew New York, on May 1, 2009 the Board of Directors and a majority of shareholders of Harbrew New York approved the amendment of its Articles of Incorporation changing its name to Iconic Imports, Inc. (“Iconic Imports”). On June 22, 2009, this action was filed with the New York State Department of State.

 

Prior to the merger on June 10, 2009, Iconic Brands had no assets, liabilities, or business operations.  Accordingly, the merger has been treated for accounting purposes as a recapitalization by the accounting acquirer Harbrew New York/Iconic Imports and the financial statements reflect the assets, liabilities, and operations of Harbrew New York/Iconic Imports from its inception on September 8, 1999 to June 10, 2009 and are combined with Iconic Brands thereafter.  Iconic Brands and its wholly-owned subsidiary Harbrew New York/Iconic Imports are hereafter referred to as the “Company”.

 

The Company is a brand owner of self-developed alcoholic beverages.  Furthermore, the Company imports, markets and sells these beverages throughout the United States and globally.

 

Effective June 10, 2009, prior to the merger, Harbrew Florida affected a 1-for-1,000 reverse stock split of its common stock, reducing the issued and outstanding shares of common stock from 24,592,160 to 24,909, which includes a total of 317 shares resulting from the rounding of fractional shares.  All share information has been retroactively adjusted to reflect this reverse stock split.

 

On August 20, 2010 (see Note 11), the company and Seven Cellos LLC terminated the License Agreement relating to the distribution of an alcoholic beverage known as “Danny DeVito’s Premium Limoncello”. In the nine months ended September 30, 2010, this brand accounted for approximately 96% of total sales.

 

On August 20, 2010 (see Notes 3 and 8), Capstone Capital Group I, LLC, a holder of a Promissory Note with a then remaining balance of approximately $190,000, delivered a Formal Notice of Default to the Company demanding payment of the balance on or before September 1, 2010. On September 16, 2010, Capstone delivered a Notification of Disposition of Collateral to the Company notifying the Company of its attachment of the Collateral (including accounts receivable, inventories, equipment, and contract rights) and its intent to sell the Collateral to the highest qualified bidder in a public sale on September 28, 2010.

 

On September 14, 2010 (see Note 11), the Second District Court of Suffolk County New York issued a Warrant of Eviction removing the Company from its Lindenhurst, New York office.

 

 


 

 

 

Iconic Brands, Inc. and Subsidiary

Notes to Consolidated Financial Statements

September 30, 2010

(Unaudited)

 

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

(a)  Basis of Presentation

 

The financial statements have been prepared on a “going concern” basis, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.  However, as of September 30, 2010, the Company’s wholly owned subsidiary Iconic Imports had its assets taken by the secured lender Capstone Capital Group I, LLC in satisfaction of their promissory note which had been defaulted on by Iconic Imports, Inc., leaving negative working capital of $3,662,227 and a stockholders’ deficiency of $5,248,427.  Further, from inception to September 30, 2010, the Company incurred losses of $15,883,684.  These factors create substantial doubt as to the Company’s ability to continue as a going concern.  The Company plans to improve its financial condition by reorganizing and introducing new products.  Additionally, the Company intends to obtain new financing which will primarily be used to market and promote other new products.  However, there is no assurance that the Company will be successful in accomplishing these objectives.  The financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

 

(b)  Interim Financial Statements

 

The unaudited financial statements as of September 30, 2010 and for the nine months ended September 30, 2010 and 2009 have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with instructions to Form 10-Q.  In the opinion of management, the unaudited financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments,  necessary to present fairly the financial position as of September 30, 2010 and the results of operations and cash flows for the periods ended September 30, 2010 and 2009.  The financial data and other information disclosed in these notes to the interim financial statements related to these periods are unaudited.  The results for the three and nine months ended September 30, 2010 are not necessarily indicative of the results to be expected for any subsequent quarter of the entire year ending December 31, 2010.  The balance sheet at December 31, 2009 has been derived from the audited financial statements at that date.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the Securities and Exchange Commission’s rules and regulations.  These unaudited consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended December 31, 2009 included in our Form 10-K.

 

 


 

 

 

Iconic Brands, Inc. and Subsidiary

Notes to Consolidated Financial Statements

September 30, 2010

(Unaudited)

 

(c) Net Income (Loss) per Share

 

Basic net income (loss) per common share is computed on the basis of the weighted average   number of common shares outstanding during the period.

 

Diluted net income (loss) per common share is computed on the basis of the weighted average number of common shares and dilutive securities (such as stock options, warrants, and convertible securities) outstanding.  Dilutive securities having an anti-dilutive effect on diluted net income (loss) per share are excluded from the calculation.

 

For the nine months ended September 30, 2010 and 2009, diluted common shares outstanding excluded the following dilutive securities as the effect of their inclusion was anti-dilutive:

 

2010

2009

7% convertible notes and accrued interest

607,023

602,274

10% convertible notes and accrued interest

210,712

195,754

8% convertible note and accrued interest

6,115,726

-

Series B preferred stock owned by Capstone Capital Group I LLC (See notes 3, 8, and 9)

294,775,044

5,092,239

Stock Options

300,000

200,000

Warrants

19,522,184

11,810,834

Total

321,530,689

17,901,101

 

(d) Recently Issued Accounting Pronouncements

 

Certain 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.

 

 


 

 

 

Iconic Brands, Inc. and Subsidiary

Notes to Consolidated Financial Statements

September 30, 2010

(Unaudited)

 

3. LOSS ON WRITEOFF OF ASSETS ATTACHED BY LENDER ON DEFAULTED PROMISSORY NOTE

 

On September 16, 2010 (see Notes 1 and 8), Capstone Capital Group I, LLC, delivered a Notification of Disposition of Collateral to the Company notifying the Company of its attachment of the Collateral securing the defaulted promissory Note and its intent to sell the Collateral to the highest qualified bidder in a public sale on September 28, 2010. To date, Capstone has not notified the Company of the proceeds of such sale, if any, that may reduce the outstanding balance due Capstone of $190,411 at September 30, 2010.  Accordingly, the Company has recognized a default loss of $816,793 in the three months ended September 30, 2010, equal to the carrying value of the respective Collateral assets at September 16, 2010, as follows:

 

Cash                                                                  

$

1,552

Accounts receivable, net

 

27,694

Inventories

 

456,569

Advances to overseas vendor toward purchase of inventories

 

207,476

Property, plant, and equipment, net

 

4,240

License agreement costs, net

 

119,262

Total

$

816,793

 

At such time as the amount of the offsettable proceeds from the disposition of the collateral becomes known, the Company will decrease the debt due Capstone and will decrease the default loss recorded.

 

4.  INVENTORIES

 

Inventories consist of:

September 30,

December 31,

2010

2009

Danny DeVito's Premium Limoncello ( Liqueur) brand

$

-

$

13,626

Hot Irishman (Irish coffee) brand

-

125,718

Scotch Whiskey

-

108,470

George Vesselle ( champagne) brand

-

75,110

Other

-

145,013

        Sub-total

-

467,937

        Reserve for slow moving

-

(74,126)

Total

$

-

$

393,811

 On September 16, 2010, the Company wrote off inventories totaling $456,569 pursuant to the attachment of Collateral (see Note 3)

 

5.  PREPAID EXPENSES AND OTHER CURRENT ASSETS

 

Prepaid expenses and other current assets consist of:

 

 

September 30,

 

December 31,

 

 

2010

 

2009

Royalty advance

$

-

$

60,000

Other

 

784

 

33,456

 

$

784

$

93,456

On September 16, 2010, the Company wrote off advances to overseas vendors toward purchase of inventories of $207,476 pursuant to the seizure of collateral (see Note 3).

 

 

 


 

 

 

6.  PROPERTY, PLANT AND EQUIPMENT, NET

 

Property, plant and equipment, net, consist of:

 

September 30,

December 31,

2010

2009

Vehicles

$

-

$

126,295

Office and warehouse equipment

-

20,853

Total

-

147,148

Accumulated depreciation

-

(139,875)

Net

$

-

$

7,273

 On September 16, 2010, the Company wrote off property, plant, and equipment, net of $4,240 pursuant to the attachment of Collateral (see Note 3).

 

 


 

 

Iconic Brands, Inc. and Subsidiary

Notes to Consolidated Financial Statements

September 30, 2010

(Unaudited)

 

7.    LICENSE AGREEMENT COSTS, NET

 

License agreement costs, net, changed in the nine months ended September 30, 2010 as follows:

 

 

 

 

Fair value of 250,000 shares of common stock,

          500,000 5 year warrants exercisable at $1.00 per share, and

          500,000 5 year warrants exercisable at $1.50 per share

          Issued in connection with license agreement with

          Tony Siragusa dated January 15, 2010.        $  144,800
Amortization for the period January 15, 2010 to September 16, 2010                                                                                        (25,538)
Write-off of balance pursuant to the attachment of Collateral on September 16, 2010 (see Note 3)           (119,262)

          Balance, September 30, 2010        

$      -

 

                                                                                                                             

                                                                                                       

As more fully described in Note 11, the Company entered into a four year License Agreement with Tony Siragusa on January 15, 2010 in connection with the use of Tony Siragusa’s name relating to the sale of YO Vodka.  The fair value of the common stock ($50,000) and warrants ($94,800) at January 15, 2007 was capitalized and was being amortized over the four year term of the License Agreement as selling, marketing and promotion expenses.  The warrants were valued using the Black-Scholes option pricing model and the following assumptions: risk free interest rate of 2.44%, volatility of 100%, and term of five years.

 

8.    DEBT

 

Debt consists of:

September 30,

December 31,

2010

2009

Due under Discount Factoring Agreement

(A)              $

-

$

85,887

Convertible notes, interest at 7% to 14% due

    July 2, 2012 to July 2, 2013,net of unamortized

    discounts of $25,909 and $52,328,respectively

(B)           

124,091

160,172

Promissory note, interest at 20%, due January 29, 2009

100,000

100,000

Secured promissory note, Payable to Capstone Capital Group I, LLC 

       interest at 7% was due in installments until June 10, 2011-

(A)

190,411

334,523

         defaulted/collateral seized (See Note 3)

Convertible promissory note, interest of 7%, due September 13,2014,

       net of unamortized discount of $65,229 and $77,595, respectively

(B)

34,771

22,405

Loan payable, interest at 0%, due on demand

173,070

249,000

Loan payable, interest at 12%, due January 14, 2010

       net of unamortized discount of $0 and $26,823, respectively

-

73,177

Promissory notes, interest at 13%, due May 31, 2010

220,000

-

Convertible promissory note, interest at 8% ( default rate at 22%)

       due February 7, 2011

(B)

60,000

-

Convertible promissory notes, interest at 10%

       due October 25, 2007 to November 27, 2007

(B)

75,000

75,000

Due Donald Chadwell (5% stockholder at September 30, 2010)

        interest at 0%, no repayment terms.

763,000

763,000

Due Richard DeCicco (officer, director, and 30% stockholder at September 30, 2010)

        and affiliates, interest at 0%, no repayment terms

714,338

714,844

 

 

Total

$

2,454,681

$

2,578,008

Less current portion of debt

(818,481)

(803,064)

Long term debt

$

1,636,200

$

1,774,944

 

 

 


 

 

Iconic Brands, Inc. and Subsidiary

Notes to Consolidated Financial Statements

September 30, 2010

(Unaudited)

 

 

At September 30, 2010, the debt is due as follows:

 

Past due                                                                   

$

585,411

Year ending September 30, 2011

233,070

Year ending September 30, 2012

-

Year ending September 30, 2013

150,000

Year ending September 30, 2014

100,000

Year ending September 30, 2015

-

No repayment terms ( due two significant

     stockholders)

1,477,338

Total

2,545,819

Less debt discounts

(91,138)

Net

$

2,454,681

 

(A)  On January 22, 2007 the company entered into a Purchase order Financing Agreement with a term of two years that provided for advances of credit from Capstone Capital Group I, LLC (the "Secured Party") to the company.  Among other things, the agreement provided for fees to the Secured Party equal to 2.5% for the first 30 days (or part thereof) that each advance was outstanding and 1.25% for every 14 days (or part thereof) that such advance remained outstanding. On June 10, 2009, the Company entered into a termination agreement with Capstone (the “Termination Agreement”) whereby Capstone agreed to forgive the $2,833,205 balance owed it under the Purchase Order Financing Agreement in exchange for: (i) a $500,000 7% unsecured promissory note (the “Promissory Note”); (ii) 1,000,000 shares of Common Stock; (iii) $1,833,205 worth of Series B Preferred Stock; and (iv) a 3-year warrant to purchase up to 1,000,000 shares of Common Stock at an exercise price of $0.50 per share.  The Promissory Note was payable in 24 monthly installments of $10,000 commencing July 10, 2009, $100,000 on or before June 10, 2010, and the remaining $160,000 on or before June 10, 2011.  If the Company closes a financing prior to maturity of the Promissory Note, up to 50% of the proceeds are to be used to prepay the remaining balance of the Promissory Note. The Discount Factoring Agreement was dated January 22, 2007 and provides for financing of certain Company accounts receivable by Capstone Business Credit, LLC (the “Factor”).  Among other things, the agreement provides for commissions to the Factor equal to 2% for the first 30 days (or part thereof) that each such account receivable is outstanding and 1% for every 14 days (or part thereof) thereafter that such account receivable remains outstanding. Fees and commissions charged pursuant to the Purchase Order Financing Agreement and the Discount Factoring Agreement are included in interest expense in the accompanying consolidated statements of operations.

 

At September 30, 2010, Capstone holds 916,603 shares of Series B Preferred Stock which, based on the volume weighted average price per share for the preceding 20 trading days, are convertible into 294,775,044 shares of the company common stock. 

 

On August 20, 2010 (see Notes 1 and 3), the secured Party delivered a Formal Notice of Default to the Company demanding payment of the $190,411 balance on or before September 1, 2010. On September 16, 2010, the Secured Party delivered a Notification of Disposition of Collateral to the Company notifying the Company of its attachment of the Collateral (including accounts receivable, inventories, equipment, and contract rights) and intent to sell the Collateral to the highest qualified bidder in a public sale on September 28, 2010. To date, the Secured Party has not notified the Company of the proceeds of such sale, if any, that may reduce the outstanding balance due the Secured Party. At such time as the amount of the offsettable proceeds from the disposition of the Collateral becomes known, the Company will decrease the debt due Capstone.

 

(B)  $325,000 total face value of convertible notes outstanding at September 30, 2010 is convertible into shares of the Company’s common stock at a price of $0.50 per share. The other $60,000 face value of convertible notes outstanding at September 30, 2010 is convertible into shares of the Company’s common stock at a variable conversion price equal to 60% of the Market Price, as defined.

 

 

 


 

 

 

Accrued interest payable on debt (included in accrued expenses and other current liabilities in the accompanying consolidated balance sheets) consisted of:

 

 

 

September 30

 

December 31,

 

 

2010

 

2009

 

 

 

 

 

Convertible notes, interest at 7%

$

53,512

$

56,651

Promissory note, interest at 13%

 

23,250

 

-

Convertible note, interest at 8%

 

1,157

 

 

Promissory note, interest at 20%

 

24,986

 

10,082

Convertible promissory notes, interest at 10%

 

30,356

 

24,767

 

 

 

 

 

Total

$

133,261

$

91,500

 

 

 

 

 

 

 

 


 

 

 

9. STOCKHOLDERS’ EQUITY

 

On June 10, 2009, pursuant to the terms of the Merger Agreement, the Company issued to the designees of Harbrew New York 27,352,301 shares of Common Stock at the Closing.  Of this amount:

 

1.  24,909 shares were issued to Harbrew Florida stockholders,

2.  19,634,112 shares valued at $1,963,411 were issued to Company management and employees for services, including    

     15,972,359 shares to the Company’s Chief Executive Officer, 100,000 shares to the Company’s Chief Financial Officer,            

             and 2,586,753 shares to Donald Chadwell,

3.  2,086,973 shares valued at $208,697 were issued to Danny DeVito and affiliates for services,

4.  4,606,307 shares were issued to noteholders in satisfaction of $2,125,625 of debt and $177,529 of accrued interest, and

5.  1,000,000 shares were issued to Capstone as part of the Termination Agreement.

 

Also, pursuant to the terms of the Merger Agreement, the Company issued 1 share of Series A Preferred Stock valued at $100,000 to the Company’s Chief Executive Officer for services and 916,603 shares of Series B Preferred Stock valued at $1,833,206 to Capstone as part of the Termination Agreement.

 

The one share of Series A Preferred Stock entitles the holder to two votes for every share of Common Stock Deemed Outstanding and has no conversion or dividend rights.  Each share of the Series B Preferred Stock has a liquidation preference of $2.00 per share, has no voting rights, and is convertible into one share of Common Stock at the lower of (1) $2.00 per share or, (2) the volume weighted average price per share (“VWAP”) for the 20 trading days immediately prior to the Conversion Date.

 

 


 

 

 

Iconic Brands, Inc. and Subsidiary

Notes to Consolidated Financial Statements

September 30, 2010

(Unaudited)

 

In the three months ended September 30, 2009, a total of $122,500 of debt and $28,147 of accrued interest was converted into a total of 300,110 shares of Company common stock.

 

On August 19, 2009, the Company sold 1,000,000 shares of its common stock at $.50 per share, including 1,000,000 five year warrants with an exercise price of $1.00 per share (which was reduced to $0.01 per share on December 14, 2009 in connection with a $100,000 loan from the investor) and 1,000,000 five year warrants with an exercise price of $1.50 per share, to an investor for total proceeds of $500,000.

 

On October 6, 2009, the Company issued 1,000,000 shares of its common stock to a consultant pursuant to a one month consulting agreement for financial services. The Company included this issuance in its consolidated statement of operations for the year ended December 31, 2009 in professional fees at the $200,000 estimated fair value of the shares.

 

 On January 6 and 13, 2010, the Company issued a total of 200,000 shares of common stock, 100,000 five year warrants exercisable at $0.22 per share, and 100,000 five year warrants exercisable at $0.23 per share, along with two promissory notes in the amount of $110,000 each (one due March 31, 2010 and one due May 31, 2010), to an investor in exchange for a $200,000 loan.  The fair value of the common stock ($45,000) and warrants ($33,930), along with the $20,000 discount, were recorded as debt discounts, which are being amortized over the terms of the notes as interest expense.  The warrants were valued using the Black-Scholes option pricing model and the following assumptions: risk free interest rates of 2.6% and 2.55%, volatility of 100%, and terms of five years.

 

On January 15 and 25, 2010, the Company issued a total of 152,546 shares of common stock to three investors in satisfaction of a total of $62,500 of convertible debt and approximately $13,773 of accrued interest.

 

On February 8, 2010, the Company issued 250,000 shares of common stock and 1,000,000 warrants to Tony Siragusa pursuant to the License Agreement described in Note 7 above.

 

On February 24, 2010, the Company issued 300,000 shares of common stock to CorProminence pursuant to a 45 day consulting agreement dated January 4, 2010.  The $69,000 fair value of the common stock at date of issuance was expensed in full in the three months ended March 31, 2010 and included in professional fees.

 

 


 

 

 

Iconic Brands, Inc. and Subsidiary

Notes to Consolidated Financial Statements

September 30, 2010

(Unaudited)

 

On March 16, 2010, the Company issued 2,000,000 shares of common stock and 2,000,000 five year warrants exercisable at $0.25 per share to Cresta Capital Strategies pursuant to a one year extension of a consulting agreement.  The fair value of the common stock ($350,000) and warrants ($246,000) at date of issuance was capitalized as a prepaid expense (see note 5) and is being amortized over the one year term as professional fees.  The warrants were valued using the Black-Scholes option pricing model and the following assumptions: risk free interest rate of 2.37%, volatility of 100%, and term of five years.

On April 19, 2010, the Company satisfied debt totaling $455,635 through its commitment to issue to the respective 5 creditors a total of 4,556,350 of its common stock and 4,556,350 three year warrants exercisable t $0.20 per share. The Company expects to issue these shares and warrants once it pays its liability to its transfer agent.

 

On April 19, 2010, the Company agreed to issue to a noteholders 250,000 shares of its common stock in consideration of the noteholders extension of the due date ( from March 31, 2010 to May 31,2010) of a $110,000 promissory note. The $21,400 fair value of the common stock at date of commitment was expensed in the three months ended June 30, 2010 and included interest expense. The Company expects to issue these shares once it pays its liability to its transfer agent.

 

On June 22, 2010, 8 shareholders representing a majority of the issued and outstanding shares of common stock approved an amendment to the Company’s Articles of Incorporation to increase the number of authorized shares of common stock from 100,000,000 shares to 2,500,000,000 shares.

 

10. INCOME TAXES

 

No provision for income taxes was recorded in the nine months ended September 30, 2010 and 2009 since the Company incurred a net loss in these periods.

 

Based on management’s present assessment, the Company has not yet determined it to be more likely than not that a deferred tax asset attributable to the future utilization of the net operating loss carryforward as of September 30, 2010 will be realized. Accordingly, the Company has provided a 100% allowance against the deferred tax asset in the financial statements at September 30, 2010. The Company will continue to review this valuation allowance and make adjustments as appropriate.

 

Current tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs. Therefore, the amount available to offset future taxable income may be limited.

 

11. COMMITMENTS AND CONTINGENCIES

 

Lease – Company Evicted from Facility

 

The Company occupied its facilities in Freeport, New York up until March 2009 under a month to month agreement at a monthly rent of $14,350.  In March 2009, the Company moved its facilities to Lindenhurst, New York pursuant to a three year lease agreement providing for annual rentals ranging from $85,100 to $90,283.  Provided certain conditions were met, the Company had an option to renew the lease for an additional two years at annual rentals ranging from $92,991 to $95,781. On September 14, 2010, the Second District Court of Suffolk County issued a Warrant of Eviction removing the Company from its facilities.

 

For the nine months ended September 30, 2010 and 2009, rent expense was $69,639and $99,115, respectively.

 

Licensing Agreements

 

Danny DeVito Brand – On April 26, 2007 and as amended November 1, 2007, the Company entered into an exclusive License Agreement with Seven Cellos, LLC (“DDV”), pursuant to which the Company was granted a limited license of certain rights in and to Danny DeVito’s name, likeness and biography for use by the Company in connection with the Danny DeVito Premium Limoncello brand. The term of the Agreement was to continue through perpetuity unless otherwise terminated. In consideration for the license, the Company agreed to pay royalties as follows: 9a) 5% of Net Profits (as defined) to Behr Abrahamson & Kaller, LLP (“BAK”), (b) a payment of 50% of the remaining Net Profits to DDV after the payment described above; and (c) a payment of 2% of Net Profits to Sichenzia Ross Friedman Ference LLP after payment of 50% of Net Profits to DDV.

 

On August 20, 2010, the Company and DDV terminated the License Agreement. In the nine months ended September 30, 2010, the Danny DeVito Premium Limoncello brand accounted for approximately 96% of total sales.

 

For the periods presented, the Company calculated cumulative “Net Profits” from the brand to be negative and thus did not pay or accrue any royalty expense under the License Agreement.  The Termination Agreement provides that DDV has not waived or otherwise prejudiced any of its rights with respect to the Company's past conduct with respect to the brand, including DDV's right to accrued and unpaid royalties based upon its right to inspect Company records and conduct an audit of the Company reported agreement defined net profit.

 

 


 

 

Godfather Brand - On June 12, 2009, Iconic Imports, Inc., the wholly-owned subsidiary of the Company, entered into a merchandising license agreement (the “License Agreement”) with Paramount Licensing Inc. (“PLI”) granting Iconic Imports the non-exclusive right to use the title of the theatrical motion picture “The Godfather” in connection with the development, importation, marketing, and distribution of an Italian organic vodka and Scotch whiskey throughout the United States. Under the terms of the License Agreement, which has a term of 5 years ending on June 30, 2014 and may be extended to June 30, 2019 upon certain conditions unless it is sooner terminated, the Company agreed to pay PLI a royalty fee of five percent (5%) and guarantee a total of $400,000 in royalties due as follows; (1) $60,000 as an advance payment due upon signing of the License Agreement, (2) $100,000 due on or before November 1, 2010, (3) $100,000 due on or before November 1, 2011, and (4) $140,000 due on or before November 1, 2012. In addition, PLI was granted warrants to purchase shares of the Company’s common stock in substantially the same form as other warrants previously issued, which is (a) a five-year warrant to purchase 1,000,000 shares of our common stock at an exercise price of $1.00 per share; and (b) a five-year warrant to purchase 1,333,334 shares of our common stock at an exercise price of $1.50 per share. On August 12, 2009, the Company paid $60,000 to PLI as the advance royalty due under the License Agreement. The License Agreement became effective on this date as the advance payment was a condition precedent to the effectiveness of the License Agreement.

 

 


 

 

Iconic Brands, Inc. and Subsidiary

Notes to Consolidated Financial Statements

September 30, 2010

(Unaudited)

 

At September 30, 2010, the Company has not yet commenced sales of the product named “The Godfather”.  For the nine months ended September 30, 2010 and 2009, the Company expensed $60,000 and $20,000, respectively (included in selling, marketing and promotion expenses in the consolidated statement of operations) to provide for the ratable accrual of the $400,000 minimum royalties over the 5 year term of the License Agreement. The second royalty payment of $100,000 due on November 1, 2010 has not been paid.  At September 30, 2010, the Company has included $40,000 of accrued minimum royalties ($100,000 minimum royalties accrued for the 15 months from July 2009 to September 2010 less the $60,000 advance royalty paid August 12, 2009) in accrued expenses and the other current liabilities in the consolidated balance sheet.

 

Tony Siragusa Brand – On January 15, 2010, we entered into an exclusive License Agreement with Tony Siragusa, pursuant to which we were granted a limited license to certain rights in and to Tony Siragusa’s name, likeness and biography for use by us in connection with Tony Siragusa’s YO Vodka.  The term of the agreement is four (4) years.  In consideration for the license, we agreed to distribute net profits of the venture as follows: 42.5% to the Company, 42.5% to the licensor, 10% to William Morris Endeavor Entertainment, LLC and 5% to Brian Hughes.  In addition, we issued 250,000 shares of the Company’s common stock, 5 year warrants to purchase 500,000 shares of our Common Stock at a price of $1.00 per share, and 5 year warrants to purchase 500,000 shares of our Common Stock at a price of $1.50 per share.  Tony Siragusa agreed to use reasonable efforts to be available for a reasonable number of promotional appearances during each consecutive 12 months period, the duration of each will not exceed six days.  A condition precedent to Tony Siragusa’s performance under the agreement is our applying for a trademark for the brand name “YO Vodka”, with Licensor being designated as a 50% co-owner of such trademark.  We applied for the trademark on March 9, 2010 (trademark application number 77747523), which application is currently being reviewed by the U.S. Patent and Trademark Office.

 

For the nine months ended September 30, 2010, the Company calculated net profits from the brand to be negative and thus did not pay or accrue any royalty expense under the License Agreement. As of this date, the product has not been introduced to the market.  Under the License Agreement, Tony Siragusa has the right to terminate the agreement, upon 10 days written notice to the Company, if the Company fails to launch the distribution of and secure availability to the general public of the beverage throughout the United States prior to June 1, 2010.  The License Agreement does not provide for financial penalties that would be accruable by the Company in the event of a default.

 

Chief Executive Officer Employment Agreement - On January 23, 2008, the Company entered into an employment agreement with its chief executive officer Richard DeCicco.  The agreement provides for a term of 5 years, commencing on January 1, 2008.  The term can be extended by a written agreement of the parties.  The agreement provides for annual compensation ranging from $265,000 to $350,000.  In addition, if the Company enters into an agreement and further sells any brand in the Company’s portfolio, Mr. DeCicco will receive 5% of such sale.  Mr. DeCicco is also entitled to incentive bonus compensation, stock and/or options in accordance with Company policies established by the Board of Directors.  The agreement provides for the grant of a non-qualified ten year option to purchase up to 1,000,000 shares of common stock of the Company at an exercise price which shall represent a discount to the market price. Mr. DeCicco has the right to terminate the agreement upon 60 days notice to the Company for any reason.  Pursuant to the terms of the agreement, if Mr. DeCicco is absent from work because of illness or incapacity cumulatively for more than 2 months in addition to vacation time in any calendar year, the Company may terminate the agreement upon 30 days written notice.  The agreement also provides that the agreement may be terminated upon 90 days notice to Mr. DeCicco if: (A) there is a sale of substantially all of the Company’s assets to a single purchaser or group of associated purchasers; (B) there is a sale, exchange or disposition of 50% of the outstanding shares of the Company’s outstanding stock; (C) the Company terminates its business or liquidates its assets; or (D) there is a merger or consolidation of the Company in which the Company’s shareholders receive less than 50% of the outstanding voting shares of the new or continuing corporation. Mr. DeCicco shall be entitled to severance pay in the amount of 2 years compensation and medical and other benefits in the event of a termination of the agreement under certain circumstances.

 

 


 

 

 

Iconic Brands, Inc. and Subsidiary

Notes to Consolidated Financial Statements

September 30, 2010

(Unaudited)

 

Former Chief Financial Officer Employment Agreement - On October 1, 2007, the Company entered into an employment agreement with its chief financial officer William Blacker.  The agreement provides for a term of 3 years, commencing on October 1, 2007.  The term can be extended by a written agreement of the parties.  The Company agreed to issue options to purchase shares of its common stock to Mr. Blacker if and when the common stock becomes publicly traded, as follows: (A) upon execution of the agreement, 100,000 options at an exercise price of $0.05 per share; (B) on October 1, 2008, 100,000 options at an exercise price of $0.15 per share; and (C) on October 1, 2009, 100,000 options at an exercise price of $0.75 per share.  Pursuant to the terms of the agreement, Mr. Blacker is to receive an annual salary of $150,000.  Mr. Blacker has the right to terminate the agreement upon 60 days notice to the Company for any reason.  The agreement further provides that if the agreement is terminated for any reason other than willful malfeasance by Mr. Blacker, Mr. Blacker shall be entitled to receive severance pay in the amount of 6 months or the balance of the agreement’s term of existence, whichever is greater, and shall receive all benefits under the agreement. Mr. Blacker resigned September 15, 2010.

 

The $16,850 estimated fair value of the 300,000 options (using the Black-Scholes option pricing model and the following assumptions: $0.10 stock price, 4% risk free interest rate, 100% volatility, and term of 3.5 years) is being amortized over the 3 year term of the employment agreement as administrative compensation and benefits.

 

Litigation – The Company is party to a variety of legal proceedings that arise in the normal course of business.  We accrue for these items as losses become probable and can be reasonably estimated.  While the results of these legal proceedings cannot be predicted with certainty, management believes that the final outcome of these proceedings will have a material adverse effect on the Company’s consolidated results of operations and financial position.

 

 Unless otherwise noted, the following legal actions pertain to Iconic Imports, Inc, (formally Harbrew Imports, Ltd.,) 

On February 14, 2008, Chester Stewart, an individual, initiated a lawsuit, against Iconic Imports, Inc. in the State of Connecticut Superior Court (Docket No. D.N. HHD CV08-5018180S) alleging breach of a promissory note in the amount of $100,000. A Judgment was entered in Connecticut, and will be defended when the action is entered in New York. 

 

 On or about July 24, 2008, Elite Marketing Concepts, a wholesale distributor of wine, initiated litigation against Iconic Imports Ltd. in the Supreme Court of New York in Nassau County (Docket No. 08-009338).  The plaintiff has demanded payment in the amount of $32,270 for goods sold and delivered to us by the plaintiff.  On August 15, 2008, we reached an agreement to pay Elite $29,000 in two equal payments.  We paid the first $14,500 and due to non-payment a judgment was issued against us on June 5, 2009 in the amount of $9,679. On May 6, 2009 a payment of $4,129.12 was made bringing the balance to $2,549.88, as of this date, the final payment has not been rendered.

 

On October 23, 2008, Thermo Plastic Tech, Inc., a manufacturer of thermo plastic material, initiated litigation against Iconic Imports, Ltd. in the Superior Court of New Jersey Law Division, Civil Part, Union County (Docket No. UNN-L-3062-08). The plaintiff has demanded payment in the amount of $30,292 for goods sold and delivered to us by the plaintiff. The court issued a judgment against us in the amount of $30,292. A settlement agreement was reached in the amount of $12,500; final releases will be given with the last payment of $2,500 due June 1, 2010. To date, the final payment has not been rendered.

 

On August 5, 2009, the Estate of Mercer K Ellington initiated litigation, against both Iconic Brands, Inc. and Iconic Imports Inc. claiming the company used the name Duke Ellington without permission. The company has retained counsel, answered all the accusations, and has initiated a counter claim against the estate.

 

On August 12, 2009, Christina Hsu, a former employee, initiated an action claiming Iconic Imports, Inc. owed wages and consulting services in the amount of $20,000. The company has retained counsel and answered all the pleadings.

 

On October 28, 2009, Contri Spumanti S.P.A., a producer of wine, initiated litigation against Iconic Imports, Inc. in the Supreme Court of the State of New York County of Suffolk (index # 09-43045). The plaintiff has demanded payment in the amount of $37,516.14 for goods sold by the company. The Court issued a judgment in the amount of the claim. A settlement agreement was reached for the amount claimed for 8 payments of a similar amount commencing April 1, 2010; payments have not been made for the months of May and June. A levy has been placed against the checking account in the name of Iconic Imports, Ltd in the amount of $68,000 (twice the amount of judgment).

 

On October 29, 2009, Fred and Joseph Scalamandre Real Estate initiated litigation against Iconic Imports, Inc. claiming non payment of rent in the amount of $238,000 plus interest, fees, and real estate taxes for a specific time period. The company has recognized the total obligation on its books as of September 30, 2010, and has retained counsel.

 

 


 

 

On November 4, 2009, Toyota Motor Credit Corporation initiated litigation against Iconic Imports, Inc. in the amount of $17,104.09 claiming a default on the lease of an automobile. The company has retained counsel, and has answered all the pleadings.

 

On August 5, 2010, Coachman Luxury Transport initiated an action against Iconic Brands, Inc in the amount of $5,000 claiming non payment of monies due for rental of a bus. The company is not contesting the amount due.

 

On July 19, 2010, Sherwood Suffolk Co initiated an action against Iconic Brands, Inc in the amount of $7,518.56 for non payment of rent for the month of July. As today, the company owes Sherwood Suffolk Co, additional rent for the month of August in the amount of $7,518.56.

 

On September 14, 2010, Sherwood Suffolk was given a warrant of eviction by the Second District Court of Suffolk County, and Sherwood Suffolk presented the warrant to the Sheriff of Suffolk County to enforce. In addition to the warrant of eviction, the court awarded a judgment in the amount of $16,256.73 to Sherwood Suffolk Co.

 

On September 16, 2010, Capstone Capital Group LLC notified the Company that in accordance with the Formal Notice of Default dated August 20, 2010 , Capstone is exercising its right to attach and sell all the collateral referred to in the promissory note between the parties. The collateral consists of: all inventory, all equipment, machinery, fixtures, vehicles, furnishings, general intangibles, including trademarks, trade names, and anything else owned by Harbrew Imports Ltd, the predecessor name of Iconic Imports, Inc.

 

We believe that these matters will have a material adverse effect on our financial condition and operations.

 

 Apart from the legal proceedings noted in the previous paragraphs, we are not party to any legal proceedings, nor are we aware of any other contemplated or pending legal proceedings against us.

 

 

 

 


 

 

 

Iconic Brands, Inc. and Subsidiary

Notes to Consolidated Financial Statements

September 30, 2010

(Unaudited)

 

 

 

12.   STOCK OPTIONS AND WARRANTS

 

A summary of stock option and warrant activity for the year ended December 31, 2009 and for the nine months ended September 30, 2010 follows:

Stock

Options

Warrants

Outstanding at December 31, 2008

1,300,000

5,757,500

Granted and issued

-

6,173,334

Exercised

-

-

Forfeited/expired/cancelled

-

(165,000)

Outstanding at December 31, 2009

1,300,000

11,765,834

Granted and issued

-

7,756,350

Exercised

-

-

Forfeited/expired/cancelled

-

-

Outstanding at September 30, 2010

1,300,000

19,522,184

Stock options outstanding at September 30, 2010 consist of:

 

Date

 

Number

 

 

Number

 

 

Exercise

 

Expiration

Granted

 

Outstanding

 

 

Exercisable

 

 

Price

 

Date

October 1, 2007

 

 

100,000

 

 

 

100,000

 

 

$

0.05

 

 

April 1, 2011

October 1, 2007

 

 

100,000

 

 

 

100,000

 

 

$

0.15

 

 

April 1, 2011

October 1, 2007

 

 

100,000

 

 

 

100,000

 

 

$

0.75

 

 

April 1, 2011

January 1, 2008

 

 

1,000,000

 

 

 

-

 

 

$

0.10

(a)

 

June 30, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

1,300,000

 

 

 

300,000

 

 

 

 

 

 

 

 

 

(a)       Estimated since exercise price is to be determined based on future stock price.

 

 As of September 30, 2010, there was $40,817of total unrecognized compensation cost relating to unexpired stock options.  That cost is expected to be recognized $4,535 in 2010, $18,140 in 2011, and $18,142 in 2012.

 

 


 

 

 

Iconic Brands, Inc. and Subsidiary

Notes to Consolidated Financial Statements

September 30, 2010

(Unaudited)

 

Warrants outstanding at September 30, 2010 consist of:

 

Date

Issued

 

Number

Outstanding

 

Number

Exercisable

 

Exercise

Price

 

Expiration

Date

 

July 2, 2007

 

500,000

 

500,000

 

$1.00

 

July 2, 2012

 

July 2, 2007

 

500,000

 

500,000

 

$1.50

 

July 2, 2012

 

August 27,2007

 

550,000

 

550,000

 

$1.00

 

August 27,2012

 

August 27,2007

 

550,000

 

550,000

 

$1.50

 

August 27,2012

 

November 8 2007

 

811,250

 

811,250

 

$1.00

 

November 8 2012

 

November 8 2007

 

811,250

 

811,250

 

$1.50

 

November 8 2012

 

March 5, 2008

 

192,500

 

192,500

 

$1.00

 

March 5, 2013

 

March 5, 2008

 

192,500

 

192,500

 

$1.50

 

March 5, 2013

 

June 10, 2008

 

27,500

 

27,500

 

$1.00

 

June 10, 2013

 

June 10, 2008

 

27,500

 

27,500

 

$1.50

 

June 10, 2013

 

June 10, 2008

 

25,000

 

25,000

 

$1.00

 

December 10, 2013

 

June 10, 2008

 

25,000

 

25,000

 

$1.50

 

December 10, 2013

 

June 11, 2008

 

30,000

 

30,000

 

$1.00

 

December 10, 2013

 

June 11, 2008

 

30,000

 

30,000

 

$1.50

 

December 10, 2013

 

July 2, 2008

 

110,000

 

110,000

 

$1.00

 

January 2, 2014

 

July 2, 2008

 

110,000

 

110,000

 

$1.50

 

January 2, 2014

 

July 23, 2008

 

50,000

 

50,000

 

$1.00

 

January 23, 2014

 

July 23, 2008

 

50,000

 

50,000

 

$1.50

 

January 23, 2014

 

August 11, 2008

 

1,000,000

 

1,000,000

 

$1.00

 

August 11, 2013

 

June 10, 2009

 

1,000,000

 

1,000,000

 

$0.50

 

June 10, 2012

 

July 23, 2009

 

20,000

 

20,000

 

$1.00

 

July 23, 2012

 

July 23, 2009

 

20,000

 

20,000

 

$1.50

 

July 23, 2012

 

August 12, 2008

 

1,000,000

 

1,000,000

 

$1.00

 

June 12, 2009

 

August 12, 2008

 

1,333,334

 

1,333,334

 

$1.50

 

June 12, 2009

 

August 19, 2009

 

1,000,000

 

1,000,000

 

$0.01

 

August 19, 2014

 

August 19, 2009

 

1,000,000

 

1,000,000

 

$1.00

 

August 19, 2014

 

September 14, 2009

 

200,000

 

200,000

 

$1.00

 

September 14. 2014

 

September 14, 2009

 

200,000

 

200,000

 

$1.50

 

September 14. 2014

 

September 16,2009

 

200,000

 

200,000

 

$1.00

 

July 2, 2012

 

September 16,2009

 

200,000

 

200,000

 

$1.50

 

July 2, 2012

 

January 6, 2010

 

100,000

 

100,000

 

$0.22

 

January 4, 2015

 

January 13, 2009

 

100,000

 

100,000

 

$0.23

 

January 13, 2015

 

February 8, 2010

 

500,000

 

500,000

 

$1.00

 

February 8, 2015

 

February 8, 2010

 

500,000

 

500,000

 

$1.50

 

February 8, 2015

 

March 16,2010

 

2,000,000

 

2,000,000

 

$0.25

 

March 16,2015

 

April 19, 2010

 

4,556,350

 

4,556,350

 

$0.20

 

April 14, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

19,522,184

 

19,522,184

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2010, there was $68,004 of total unrecognized marketing cost relating to 2,333,334 of the unexpired warrants.  That cost is expected to be recognized $4,597 in 2010, $18,388 in 2011, $18,388 in 2012, $18,388 in 2013, and $8,243 in 2014.

 

 


 

 

Iconic Brands, Inc. and Subsidiary

Notes to Consolidated Financial Statements

September 30, 2010

(Unaudited)

 

13.          SUBSEQUENT EVENTS

 

Operations of Iconic Imports, Inc

 

        As a result of the eviction notice by the landlord Sherwood Suffolk and the concurrent attaching of its assets by the secured lender Capstone Capital Group I, LLC, Iconic Imports Inc. is not operational and will need to reorganize in order to continue. Iconic Brands, Inc. is in the process of relocating to 40 Marcus Boulevard, Hauppauge NY 11788.

 

License Agreements:

 

        Iconic Imports, Inc,’s Merchandising License with Paramount Licensing Inc. calls for a second payment of $100,000 on     November 1, 2010. As of this date, the payment has not been made.

 

      

 

 

 


 

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

The following discussion is an overview of the important factors that management focuses on in evaluating our business, financial condition and operating performance and should be read in conjunction with the financial statements included in this Quarterly Report on Form 10-Q.  This discussion contains forward-looking statements that involve risks and uncertainties.  Actual results could differ materially from those anticipated in these forward looking statements as a result of any number of factors, including those set forth under the section entitled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q.

 

OUR BUSINESS

 

Prior to the consummation of the Merger Agreement, Harbrew New York was a wholly-owned subsidiary of Harbrew Florida.  Harbrew Florida was incorporated in the state of Florida on January 4, 2007, under the former name Stassi Harbrew Imports Corp., pursuant to the Bankruptcy Court Approved Reorganization Plan for the Stassi Interaxx, Inc. (“Stassi”) reorganization confirmed on December 20, 2006. On May 17, 2007, Harbrew Florida acquired Harbrew New York, a New York corporation incorporated on September 8, 1999 engaged in importing and wholesaling spirits, wine and beer.  As a result, Harbrew New York became a wholly-owned subsidiary of Harbrew Florida.

 

On June 10, 2009, Merger Sub, Harbrew Florida, Harbrew New York and we entered into a Merger Agreement which resulted in Harbrew New York becoming our wholly owned subsidiary (the “Merger”).  The Merger was accomplished by means of a Merger Agreement in which Harbrew New York merged with and into Merger Sub and each share of Harbrew’s common stock issued and outstanding immediately prior to the closing of the Merger was converted into one share of Iconic Brands’ common stock.  Under the terms of the Merger Agreement and as a result of the Merger:

 

· 

Harbrew New York became our wholly owned subsidiary;

· 

In exchange for all of the shares of Harbrew common stock, each share of Harbrew’s common stock issued and outstanding immediately prior to the closing of the Merger was converted into one share of Iconic Brands’ common stock;

 

This transaction closed on June 10, 2009.

 

Prior to the merger on June 10, 2009, we had no assets, liabilities, or business operations.  Accordingly, the merger has been treated for accounting purposes as a recapitalization by the accounting acquirer, Harbrew New York, and the financial statements reflect the assets, liabilities, and operations of Harbrew New York from its inception on September 8, 1999 to June 10, 2009 and us thereafter.  References to our company are with respect to Harbrew New York to June 10, 2009 and us thereafter.

 

We are in the business of importing and wholesaling spirits, wine and beer to distributors in the United States on a national basis and to retail licensees both on and off premise in New York, through our wholesale license.  We are federally licensed, maintaining licenses to both import and sell to wholesale licensed distributors in 51 markets in the United States.  In addition to the federal import and wholesale licenses, we maintain a federal customs bonded facility license for our premises in Lindenhurst, New York.  Within the licensing category, we also maintain a New York State wholesale license and a New York State warehousing license, permitting us to warehouse products of other companies.

 

On July 9, 2010, The Board of directors approved the execution of a non-binding letter of intent (the “LOI”) by and between Iconic Brands, Inc. and Specialty Beverage and Supplement, Inc. (“SBSI”), a company dedicated to the production, distribution and marketing of functional drinks, energy drinks, sports drinks and wellness beverages, whereby Iconic proposes to purchase the assets and operations of SBSI. The LOI is intended as merely an outline of certain material terms of a proposed transaction and remains subject to, among other things, due diligence, execution of definitive transaction documents, and the satisfaction of customary terms and conditions.

 

Pursuant to the Letter of Intent, Iconic plans to enter into a definitive agreement to acquire the assets and operations of SBSI. Post-merger, the current operations of Iconic and SBSI will be shifted into two wholly owned subsidiaries of the new public company, one being the alcoholic beverage division, and the other the non-alcoholic beverage division. A third wholly-owned subsidiary will also be created for specialty products.

 

Immediately prior to or simultaneous with the closing of the transaction proposed by the LOI, Iconic will amend its Articles of Incorporation to increase the number of authorized shares of common stock to 2,500,000,000, and effect a 5-for-1forward split of its issued and outstanding shares of common stock.

 

This letter of intent was terminated by both parties (8K filing)

 

 

 

 


 

 

RESULTS OF OPERATIONS

 

Results of Operations for the Nine Month Period ended September 30, 2010 Compared to the Nine Month Period ended September 30, 2009

 

The following table set forth key components of our results of operations for the periods indicated, in dollars, and key components of

our revenue for the period indicated, in dollars. The discussion following the table is based on these results.

 

 

 


 

 

Iconic Brands, Inc. and Subsidiary

Consolidated Statements of Operations

(Unaudited)

Nine Months Ended

September 30,

Three Months Ended

September 30,

2010

2009

2010

2009

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Sales

$

              371,313

$

              497,549

$

                32,863

$

              161,379

Cost of goods sold

              235,744

              327,947

                22,217

                99,576

Gross profit

              135,569

              169,602

                10,646

                61,803

Selling, general and administrative expenses:

Selling, marketing and promotion

              419,250

              231,103

                35,834

              107,308

Administrative compensation and benefits

              428,254

              841,228

                14,046

              234,730

Stock-based compensation issued in connection with merger

                         -

           2,063,411

                         -

                         -

Professional fees

              480,627

              389,418

              161,982

              100,900

Occupancy and warehousing

                95,101

              133,927

                26,546

                32,719

Travel and entertainment

                62,891

                90,707

                  2,227

                54,470

Office

                18,452

                31,677

                  2,171

                11,901

Licenses and permits

                31,878

                  2,873

                     683

                  1,203

Other

                16,092

                33,179

                  2,346

                  9,959

 

Total

           1,552,545

           3,817,523

              245,835

              553,190

 

Loss from operations

         (1,416,976)

         (3,647,921)

            (235,189)

            (491,387)

 

Interest expense

            (264,346)

            (590,170)

              (26,193)

              (17,962)

 

Loss on writeoff of assets seized by lender on defaulted promissory note ( Note 3)

 

 

(816,793)

-

 

 

(816,793)

-

 

Loss before income taxes

         (2,498,115)

         (4,238,091)

         (1,078,175)

            (509,349)

 

Income taxes

                         -

                         -

                         -

                         -

 

Net loss

 

$

         (2,498,115)

 

$

         (4,238,091)

 

$

         (1,078,175)

 

$

            (509,349)

 

Net loss per common share - basic and diluted

 

 

$

                 

 

(0.05)

 

 

$

 

 

(0.24)

 

 

$

                 

 

(0.02)

 

 

$

                 

 

(0.01)

 

Weighted average number of common shares

outstanding - basic and diluted

        

 

49,962,659

        

 

17,640,565

        

 

52,519,307

        

 

43,060,356

See notes to consolidated financial statements.

 

Sales:

 

Sales decreased by $ 126,236 or 25% from $ 497,549 for the nine month period ended September 30, 2009 to $ 371,313 for the nine month period ended September 30, 2010. The decrease in sales for the nine months reflects the company’s inability to raise capital and support its brands. 

 

Cost of goods sold:

 

Cost of goods sold decreased by $92,203, or 28%, from $ 327,947 for the nine month period ended September 30, 2009 to $ 235,744 for the nine month period ended September 30, 2010. This decrease in COGS is consistent with the decrease in sales for the period as the Company could not raise sufficient funds to support its business.

 

 


 
 

 

Gross profit:

 

Gross profit decreased by approximately $34,000 or 20 %, from $169,602 for the nine month period ended September 30, 2009 to $135,569 for the nine month period ended September 30, 2010 mainly due a decrease in sales and cost of goods sold.

 

Selling, general and administrative expenses:

 

Selling general and administrative expenses for the nine month period ended September 30, 2010 and 2009 were $1,552,545 and $3,817,523 respectively, a decrease of $2,264,978 or, 59%. The majority of the decrease reflects the expense of stock-based compensation paid in the year 2009 of $2,063,411.

 

Income (loss) from Operations:

 

Loss from operations was $1,416,976 for the nine month period ended September 30, 2010 and $3,647,921 for the nine month period ended September 30, 2009. The decrease in the loss from operations for the period results from the decrease in sales, offset  by the decrease in expenses, principally the costs associated with the stock based compensation expense, as previously described.

 

Interest Expense:

 

Interest expense for the nine month period ended September, 2010 and 2009 was $264,346 and $590,170, respectively, a decrease of $ 326,824, or 55 %. The decrease in interest expense for the period was a result of a rate reset by our largest creditor, and the conversion of convertible debt, and notes to equity.

 

Loss incurred on write-off of assets seized on defaulted promissory note:

 

On August 20, 2010, the secured lender served the company with a formal notice of default, with a deadline of September 1, 2010 to pay in full all amounts outstanding on the promissory note originally referred to in the Termination Agreement dated June 5, 2009. As a result of the company not being able to satisfy the demand, Capstone Capital Group I LLC, on September 16, 2010 served the company with a Notification of Disposition of Collateral. Accordingly the book value of all the collateral referred to in the Termination Agreement of June 5, 2009 between Iconic Imports, Inc, the wholly owned subsidiary of Iconic Brands, Inc. have been written off against the debt of Capstone Capital Group I LLC, giving rise to the charge for the period of $816,793 (Note 3). Final determination of the loss, and or possible recovery will be made when the assets are liquidated and a final accounting is rendered by Capstone Capital Group I, LLC.

 

Net Income (loss):

 

Net loss was $ 2,498,115 for the nine month period ended September 30, 2010, compared to $4,238,091 for the nine month period ended September 30, 2009, a decrease of $1,739,976 or 41 %. The decrease in the net loss for the period was a result of the culmination of all the reasons previously described.

 

LIQUIDITY AND CAPITAL RESOURCES

 

As of September 30, 2010, we had negative working capital of $3,662,227 compared to negative working capital of $2,531,288 at December 31, 2009. Our balance of cash and cash equivalents at September 30, 2010 was $35,300.

 

Our primary uses of cash have been for selling and marketing expenses, employee compensation, new product development and working capital. The main sources of cash have been from the financing of purchase orders and the factoring of accounts receivable. In addition, we issued convertible notes and promissory notes to bridge the gap between our primary lender and our working capital requirements. All funds received have been expended in the furtherance of growing the business and establishing the brand portfolios. The following trends are reasonably likely to result in a material decrease in our liquidity over the near to long term.

 

 

·         An increase in working capital requirements to finance higher level of inventories and accounts receivable,

 

·         Addition of administrative and sales personnel as the business grows,

 

 

·         Increased in advertising, public relations and sales promotions for existing and new brands as the company expands within existing markets or enters new markets.

 

·         Development of new brands to complement our current celebrity portfolio, and

 

·         The cost of being a public company and the continued increase in costs due to governmental compliance activities.

 


 

 

 

Net Cash Used in Operating Activities

 

A substantial portion of our available cash has been used to fund operating activities. In general, these cash funding requirements are based on operating losses, driven principally by our sizeable investment in selling and marketing, and general expenses. The business has incurred significant losses since inception.

 

For the nine month period ended September 30, 2010, net cash used in operating activities was $378,168, consisting primarily of losses from operations of $2,498,115, offset by a non-cash charge for stock-based compensation of $423,101 decreases in receivables of $226,574, decreases in prepaid expenses and other current assets of $151,272, and increases in accrued expenses of $302,631

 

Net Cash Used in Investing Activities

 

For the nine month period ended September 30, 2010 and 2009, net cash used in investing activities was $0 and $5,150 respectively.

 

Net Cash Provided by Financing Activities

 

For the nine month period ended September, 2010, funds provided by financing activities amounted to $354,632 resulting from increases of debt.

 

We anticipate that we will need to make significant expenditures during the next 12 months, contingent upon raising capital.  These anticipated expenditures are for advertising, marketing, promotional items, overhead and working capital purposes. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all. We anticipate that we will require up to $7,500,000 for funding our plan of operations for the next twelve months, depending on revenues, if any, from operations.

 

By adjusting our operations and development to the level of capitalization, we believe we will have sufficient capital resources to meet projected cash flow deficits.  However, if during that period or thereafter, we are not successful in generating sufficient liquidity from operations or in raising sufficient capital resources, on terms acceptable to us, this could have a material adverse effect on our business, results of operations liquidity and financial condition.

 

We will still need additional investments in order to continue operations to break even. We are seeking additional investments, but we cannot guarantee that we will be able to obtain such investments.  Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, the downturn in the U.S. stock and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Further, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. If additional financing is not available or is not available on acceptable terms, we will have to curtail our operations.

 

Impact of Inflation

 

We expect to be able to pass inflationary increases for raw materials and other costs on to our customers through price increases, as required, and do not expect inflation to be a significant factor in our business.

 

 


 

 

Seasonality

 

Although our operating history is limited, we do not believe our products are seasonal.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements.

 

Recent Accounting Pronouncements

 

 Certain 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.

 

 


 

 

Critical Accounting Policies

 

Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates, assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

ITEM 4(T).  CONTROLS AND PROCEDURES.

 

Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) and Chief Accounting Officer (“CAO”) (the Company’s principal financial and accounting officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CAO concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CAO, as appropriate, to allow timely decisions regarding required disclosure.

 

 


 

 

PART II. OTHER INFORMATION

 See insert for updates

 

ITEM 1.   LEGAL PROCEEDINGS.

 

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business.  Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. The following legal actions pertain to the wholly owned subsidiary of Iconic Brands, Inc, Iconic Imports Ltd, formally Harbrew Imports Ltd, unless otherwise noted.

 

On February 14, 2008, Chester Stewart, an individual, initiated a lawsuit, against Iconic Imports, Ltd. in the State of Connecticut Superior Court (Docket No. D.N. HHD CV08-5018180S) alleging breach of a promissory note in the amount of $100,000. A Judgment was entered in Connecticut, and will be defended when the action is entered in New York. 

 

 On or about July 24, 2008, Elite Marketing Concepts, a wholesale distributor of wine, initiated litigation against Iconic Imports Ltd. in the Supreme Court of New York in Nassau County (Docket No. 08-009338).  The plaintiff has demanded payment in the amount of $32,270 for goods sold and delivered to us by the plaintiff.  On August 15, 2008, we reached an agreement to pay Elite $29,000 in two equal payments.  We paid the first $14,500 and due to non-payment a judgment was issued against us on June 5, 2009 in the amount of $9,679. On May 6, 2009 a payment of $4,129.12 was made bringing the balance to $2,549.88.

 

On October 23, 2008, Thermo Plastic Tech, Inc., a manufacturer of thermo plastic material, initiated litigation against Iconic Imports, Ltd. in the Superior Court of New Jersey Law Division, Civil Part, Union County (Docket No. UNN-L-3062-08). The plaintiff has demanded payment in the amount of $30,292 for goods sold and delivered to us by the plaintiff. The court issued a judgment against us in the amount of $30,292. A settlement agreement was reached in the amount of $12,500; final releases will be given with the last payment of $2,500 on June 1, 2010, as of this date, the final payment has not been rendered.

 

On August 5, 2009, the Estate of Mercer K Ellington initiated litigation, against both Iconic Brands, Inc and Iconic Imports, Ltd. claiming the company used the name Duke Ellington without permission. The company has retained counsel, answered all the accusations, and has initiated a counter claim against the estate.

 

On August 12, 2009, Christina Hsu, a former employee, initiated an action claiming Iconic Imports, Ltd owed wages and consulting services in the amount of $20,000. The company has retained counsel and answered all the pleadings.

 

On October 28, 2009, Contri Spumanti S.P.A., a producer of wine, initiated litigation against Iconic Imports, Ltd. in the Supreme Court of the State of New York County of Suffolk (index # 09-43045). The plaintiff has demanded payment the amount of $37,516.14 for goods sold by the company. The Court issued a judgment in the amount of the claim. A settlement agreement was reached for the amount claimed for 8 payments of a similar amount commencing April 1, 2010; payments have not been made for the months of May and June. A levy has been placed against the checking account in the name of Iconic Imports, Ltd in the amount of $68,000 (twice the amount of judgment).

 

On October 29, 2009, Fred and Joseph Scalamandre Real Estate initiated litigation against Iconic Imports, Ltd. claiming non payment of rent in the amount of $238,000 plus interest, fees, and real estate taxes for a specific time period. The company has recognized the total obligation on its books as of December 31, 2009, and has retained counsel.

 

On November 4, 2009, Toyota Motor Credit Corporation initiated litigation against Iconic Imports, Ltd. in the amount of $17,104.09 claiming a default on the lease of an automobile. The company has retained counsel, and has answered all the pleadings.

 

 

On August 5, 2010, Coachman Luxury Transport initiated an action against Iconic Brands, Inc in the amount of $5,000 claiming non payment of monies due for rental of a bus. The company is not contesting the amount due.

 

On July 19, 2010, Sherwood Suffolk Co initiated an action against Iconic Brands, Inc in the amount of $7,518.56 for non payment of rent for the month of July. As today, the company owes Sherwood Suffolk Co, additional rent for the month of August in the amount of $7,518.56.

 

On September 14, 2010, Sherwood Suffolk was given a warrant of eviction by the Second District Court of Suffolk County, and Sherwood Suffolk presented the warrant to the Sheriff of Suffolk County to enforce. In addition to the warrant of eviction, the court awarded a judgment in the amount of $16,256.73 to Sherwood Suffolk Co.

 

On September 16, 2010, Capstone Capital Group LLC notified the Company that in accordance with the Formal Notice of Default dated August 20, 2010 (subject of 8k filing), Capstone is exercising there right to attach and sell all the collateral referred to in the promissory note between the parties. The collateral consists of: all inventory, all equipment, machinery, fixtures, vehicles, furnishings, general intangibles, including trademarks, trade names, and anything else owned by Harbrew Imports Ltd, the predecessor name of Iconic Imports, Inc.

 


 

 

 

We believe that these matters will have a material adverse effect on our financial condition and operations.

and. Apart from the legal proceedings noted in the previous paragraphs, we are not party to any legal proceedings, nor are we aware of any contemplated or pending legal proceedings against us.

 

 

 

 

ITEM 1A. RISK FACTORS

 

Not applicable because we are a smaller reporting company.

 

ITEM 2.   UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS

 

On August 19, 2009, the Company sold 1,000,000 shares of its common stock at $.50 per share, including 1,000,000 five year warrants with an exercise price of $1.00 per share (which was reduced to $0.01 per share on December 14, 2009 in connection with a $100,000 loan from the investor) and 1,000,000 five year warrants with an exercise price of $1.50 per share, to an investor for total proceeds of $500,000.

 

 


 

 

 

On October 6, 2009, the Company issued 1,000,000 shares of its common stock to a consultant pursuant to a one month consulting agreement for financial services. The Company included this issuance in its consolidated statement of operations for the year ended December 31, 2009 in professional fees at the $200,000 estimated fair value of the shares.

 

On January 6 and 13, 2010, the Company issued a total of 200,000 shares of common stock, 100,000 five year warrants exercisable at $0.22 per share, and 100,000 five year warrants exercisable at $0.23 per share, along with two promissory notes in the amount of $110,000 each (one due March 31, 2010 and one due May 31, 2010), to an investor in exchange for a $200,000 loan.  The fair value of the common stock ($45,000) and warrants ($33,930), along with the $20,000 discount, were recorded as debt discounts, which are being amortized over the terms of the notes as interest expense.  The warrants were valued using the Black-Scholes option pricing model and the following assumptions: risk free interest rates of 2.6% and 2.55%, volatility of 100%, and terms of five years.

 

On January 15 and 25, 2010, the Company issued a total of 152,546 shares of common stock to three investors in satisfaction of a total of $62,500 of convertible debt and approximately $13,773 of accrued interest.

 

On February 8, 2010, the Company issued 250,000 shares of common stock and 1,000,000 warrants to Tony Siragusa pursuant to the License Agreement described in Note 6 above.

 

On February 24, 2010, the Company issued 300,000 shares of common stock to CorProminence pursuant to a 45 day consulting agreement dated January 4, 2010. The $69,000 fair value of the common stock at date of issuance was expensed in full in the three months ended March 31, 2010 and included in professional fees.

 

On March 16, 2010, the Company issued 2,000,000 shares of common stock and 2,000,000 five year warrants exercisable at $0.25 per share to Cresta Capital Strategies pursuant to a one year extension of a consulting agreement. The fair value of the common stock ($350,000) and warrants ($246,000) at date of issuance was capitalized as a prepaid expense (see note 4) and is being amortized over the one year term as professional fees. The warrants were valued using the Black-Scholes option pricing model and the following assumptions: risk free interest rate of 2.37%, volatility of 100%, and term of five years.

 

On April 19, 2010 the company satisfied debt totaling $455,635 through its commitment to issue to the 5 creditors a total of 4,556,350 shares of its common stock and 4,556,350 three year warrants exercisable at $0.20 per share. The Company expects to issue these shares and warrants once it pays its liability to its transfer agent.

 

On April 19, 2010, the Company agreed to issue to a noteholder 250,000 shares of its common stock in consideration of the noteholders extension of the due date (from March 31, 2010 to May 31, 2010) of a $110,000 promissory note. The $21,400 fair value of the common stock at the date of commitment was expensed in the three months ended June 30, 2010 and included interest expense. The Company expects to issue these shares once it pays its liability to its transfer agent.

 

On June 22, 2010, 8 stockholders representing a majority of the issued and outstanding shares of common stock approved an amendment to the Company’s Articles of Incorporation to increase the number of authorized shares of common stock from 100,000,000 shares to 2,500,000,000 shares.

 

These securities are issued in reliance on the exemption under Section 4(2) of the Securities Act of 1933, as amended (the “Act”). These securities qualified for exemption under Section 4(2) of the Securities Act of 1933 since the issuance securities by us did not involve a public offering. The offering was not a “public offering” as defined in Section 4(2) due to the insubstantial number of persons involved in the deal, size of the offering, manner of the offering and number of securities offered. We did not undertake an offering in which we sold a high number of securities to a high number of investors. In addition, these shareholders had the necessary investment intent as required by Section 4(2) since they agreed to and received share certificates bearing a legend stating that such securities are restricted pursuant to Rule 144 of the 1933 Securities Act. This restriction ensures that these securities would not be immediately redistributed into the market and therefore not be part of a “public offering.” Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities Act of 1933 for this transaction.

 

 ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

On November 25, 2008, the Company issued a $100,000 promissory note with 45-day duration to a lender. Principal and interest were not paid by the Company when due.

 

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

 

None.

 

ITEM 5.   OTHER INFORMATION.

 

None.

 


 

 

 

ITEM 6. EXHIBITS.

 

The following documents are included herein:

 

 

Exhibit No. Document Description
31.1 Certification of Principal Executive Officer pursuant to Rule 13a-15(e) and 15d-15(e), promulgated under the Securities and Exchange Act of  1934, as amended.
31.2 Certification of Principal Financial Officer pursuant to Rule 13a-15(e) and 15d-15(e), promulgated under the Securities and Exchange Act of  1934, as amended.
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer).
32.2  Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer).

 

 

 

 

 


 

 

 

SIGNATURES

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the Registrant and in the capacities on this____  day of  2010.

 

 

 

Iconic Brands, Inc.

 

 

 

By:  /s/Richard DeCicco

 

           Richard DeCicco

 

           President, Principal Executive Officer