As filed with the Securities and Exchange Commission on September 19, 2018
Registration No. 333-[•]
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington
, D.C.
20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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Iconic Brands, Inc
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(Exact name of registrant as specified in its charter)
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Nevada
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5180
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13-4362274
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(State or other jurisdiction of
incorporation or organization
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification No.)
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44 Seabro Avenue
Amityville, NY 11701
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(866) 219-8112
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(Address, including zip code, of registrant’s principal executive offices)
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(Telephone number, including area code)
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Richard DeCicco
Chief Executive Officer
Iconic Brands, Inc.
44 Seabro Avenue
Amityville, NY 11701
(866) 219-8112
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
COPIES TO:
Brian A. Lebrecht, Esq.
Clyde Snow & Sessions, PC
201 S. Main Street, 13th Floor
Salt Lake City, UT 84111
(801) 322-2516
Approximate date of commencement of proposed sale to the public:
From time to time after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.
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If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
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If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
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If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
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x
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(Do not check if a smaller reporting company)
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Emerging growth company
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act.
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CALCULATION OF REGISTRATION FEE
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Title of each
class of
securities to be
registered
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Amount
to be
registered
(1)
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Proposed
maximum
offering price
per share
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Proposed
maximum
aggregate
offering price
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Amount of
registration
fee
(2)
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Shares of Common Stock, par value $0.001 per share
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240,000,000
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$
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0.0036
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$
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864,000
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$
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107.57
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_______________
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(1)
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We are registering 240,000,000 shares of our common stock that may be issued to the selling shareholders named in this registration statement pursuant to shares of convertible preferred stock. Pursuant to Rule 416(a) of the Securities Act of 1933, as amended, this registration statement also covers any additional shares of the common stock which may become issuable to prevent dilution from stock splits, stock dividends and similar events.
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(2)
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Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate offering price.
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The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
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The information in this Prospectus is not complete and may be changed. The selling shareholders may not sell these securities until the registration statement filed with the SEC is effective. This Prospectus is not an offer to sell and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
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Preliminary Prospectus
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Subject to Completion
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Dated September 18, 2018
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PROSPECTUS
240,000,000 shares of common stock
This prospectus relates to the sale by the selling shareholders identified in this prospectus, or their assigns (each a “
Selling Shareholder
” and collectively the “
Selling Shareholders
”) of up to an aggregate of 240,000,000 shares of our common stock.
The Selling Shareholders may sell these shares using a number of different methods, and they will sell the shares at a fixed price of $0.01 per share, until our common stock is listed on a national securities exchange or is quoted on the OTC Bulletin Board, the OTCQX or the OTCQB, at which time the Selling Shareholders will sell their shares at a price based on the market price. We provide more information about how the Selling Shareholders may sell their shares of common stock in the section of this prospectus entitled “
Plan of Distribution
” beginning on page 17.
The Selling Shareholders received an aggregate of 2,400,000 shares (the “
Series E Shares
”) of our Series E Convertible Preferred Stock (“
Series E Preferred
”) and warrants to purchase 240,000,000 shares of our common stock (the “
Warrants
”). We are not selling any shares of common stock in this resale offering. We are registering shares that are issuable to the Selling Shareholders upon the conversion of the Series E Shares (the “
Conversion Shares
” or the “
Registered Shares
”). We, therefore, will not receive any proceeds from the sale of the Registered Shares by the Selling Shareholders. We are not registering herein the shares of common stock underlying the exercise of the Warrants. The Series E Shares and Warrants were issued to the Selling Shareholders in private transactions and the Registered Shares will also be issued to the Selling Shareholders in private transactions. Further details of the Selling Shareholders’ securities may be found in the section of this prospectus entitled “
Private Placement of Securities
” beginning on page 11.
We will bear all costs associated with this registration statement.
The offering price of the Registered Shares has been determined arbitrarily by us and the Selling Shareholders. The price does not bear any relationship to our assets, book value, earnings, or other established criteria for valuing a company. In determining the number of shares to be offered and the offering price, we took into consideration our capital structure and the amount of money we would need to implement our business plans. Accordingly, the offering price should not be considered an indication of the actual value of our securities.
Our common stock is currently quoted on the OTC Pink marketplace maintained by OTC Markets Group, Inc. under the symbol “ICNB.” The closing price of our common stock as reported on the OTC Pink Marketplace on September 14, 2018, was $0.0036.
The Selling Shareholders may be deemed “underwriters” within the meaning of the Securities Act of 1933, as amended (the “
Securities Act
”), in connection with the resale of the Registered Shares.
This offering will terminate on the earlier of (i) the date when all the Registered Shares have been sold pursuant to this prospectus or Rule 144 under the Securities Act, and (ii) the date that all of the securities may be sold pursuant to Rule 144 without volume or manner-of-sale restrictions, unless we terminate it earlier.
Investing in the common stock involves risks. Iconic Brands, Inc. is a development stage company with limited operations, limited income, and limited assets, and you should not invest unless you can afford to lose your entire investment. See “
Risk Factors
” beginning on page 5.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this Prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Our common stock is governed under The Securities Enforcement and Penny Stock Reform Act of 1990, and as a result you may be limited in your ability to sell our stock.
The date of this Prospectus is __________________, 2018.
Table of Contents
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed on behalf of the Selling Shareholders with the Securities and Exchange Commission (the “
Commission
”) to permit the Selling Shareholders to sell the Registered Shares described in this prospectus in one or more transactions. The Selling Shareholders and the plan of distribution of the Registered Shares being offered by them are described in this prospectus under the headings “
Selling Shareholders
” and “
Plan of Distribution
.”
You should rely only on the information that is contained in this prospectus. We and the Selling Shareholders have not authorized anyone to provide you with information that is in addition to or different from that contained in this prospectus. If anyone provides you with different or inconsistent information, you should not rely on it.
The shares of common stock offered by this prospectus are not being offered in any jurisdiction where the offer or sale of such common stock is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date of this prospectus regardless of the date of delivery of this prospectus or any sale of the common stock offered by this prospectus. Our business, financial condition, liquidity, results of operations and prospects may have changed since those dates. The rules of the Commission may require us to update this prospectus in the future.
PROSPECTUS SUMMARY
ICONIC BRANDS, INC.
This summary highlights selected information contained in greater detail elsewhere in this prospectus. This summary does not contain all the information you should consider before investing in our common stock. You should read the entire prospectus, including our financial statements and related notes and the information set forth under the heading “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” before investing in our common stock. In this prospectus, the “
Company
,” “
we
,” “
us
,” and “
our
” refer to Iconic Brands, Inc.
Overview
We are a beverage company with expertise in developing, from inception to completion, alcoholic beverages for ourselves and third parties. We also market and place the products into national distribution through long standing industry relationships. We engage in “Celebrity Branding” of beverages, procuring superior and unique products from around the world and branding products with internationally recognized celebrities.
Our mission is to be the industry leader in brand development, marketing, and sales of the alcoholic beverages by capitalizing on our ability to procure products from around the world. Our relationships with internationally recognized celebrities will be leveraged to add value to a product and create brand awareness in unbranded niche categories.
We intend to seek, investigate and, if such investigation warrants, acquire an interest in one or more business opportunities presented to it by persons or firms who or which desire to seek the perceived advantages of a publicly held corporation.
Brands and Products
Bellissima Prosecco
Bellissima Spirits LLC, our subsidiary, entered into a License Agreement with Christie Brinkley, Inc. an entity owned by Christie Brinkley, to use Brinkley’s endorsement, signature, and other intellectual property owned by it. Bellissima by Christie Brinkley is a line of Organic Prosecco. The line includes a DOC Brut, Sparkling Rose and a Zero Sugar, Zero Carb option which are all natural and gluten free with all certified organic and vegan.
BiVi Vodka
BiVi LLC, our subsidiary, owns the brand “BiVi 100 percent Sicilian Vodka.” BiVi LLC’s mission is to promote and support the sales endeavors of the distribution network through targeted and national marketing endeavors and working with the celebrity partner, Mr. Chazz Palminteri.
BiVi Vodka is the creation of Master Distiller Giovanni La Fauci. BiVi Vodka is made from semolina wheat grown out of the rich volcanic soil and pure mountain spring water of Sicily.
Corporate Information
Iconic Brands, Inc., formerly Paw Spa, Inc. (“Iconic Brands” or “Iconic”), was incorporated in the State of Nevada on October 21, 2005. Effective December 31, 2016, Iconic closed on a May 15, 2015 agreement to acquire a 51% interest in BiVi LLC, and closed on a December 13, 2016 agreement to acquire a 51% interest in Bellissima Spirits LLC. These transactions involved entities under common control of our Chief Executive Officer and represented a change in reporting entity.
BiVi LLC was organized in Nevada on May 4, 2015. Bellissima Spirits LLC was organized in Nevada on November 23, 2015.
Our corporate headquarters are located in New York, NY. Our mailing address is 44 Seabro Avenue, Amityville, NY 11701, and our telephone number is (866) 219-8112. Our website is www.jpgnicbrandsusa.com. Information contained on our website is not incorporated into, and does not constitute any part of, this Prospectus.
The Offering
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Securities Offered:
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Up to 240,000,000 shares of common stock that are issuable to the Selling Shareholders (the “
Registered Shares
”). The Selling Shareholders may acquire the Registered Shares upon conversion of the Series E Shares.
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Selling Shareholders:
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See “
Selling Shareholders
” beginning on page 14.
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Common Stock Outstanding
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Before Offering:
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1,509,941,153*
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After the Offering:
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1,749,941,153*
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Terms of the Offering:
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The Selling Shareholders will sell the shares at a fixed price of $0.01 per share, until our common stock is listed on a national securities exchange or is quoted on the OTC Bulletin Board, the OTCQX or the OTCQB, at which time the Selling Shareholders will sell their shares at a price based on the market price. The Selling Shareholders will determine when and how they sell the Registered Shares offered in this prospectus, as described in “
Plan of Distribution
” beginning on page 17.
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Use of Proceeds:
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The Selling Shareholders will receive all of the proceeds from the sale of the Registered Shares offered for sale under this prospectus. We will not receive any proceeds from the sale of Registered Shares by the Selling Shareholders in this offering. See “
Use of Proceeds
” on page 11.
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Risk factors:
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The Registered Shares offered hereby involve a high degree of risk. See “
Risk Factors
” beginning on page 5.
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Trading Symbol:
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ICNB
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* Based on 1,509,941,153 shares of common stock outstanding on September 14, 2018. We are authorized to issue 2,000,000,000 shares of common stock. If the Selling Shareholders were to exercise the Warrants, we would not have enough authorized shares to issue stock for the exercise of all the Warrants and the conversion of all the Series E Shares. Our management intends to effectuate a reverse split of our common stock in the near future to reduce the number of shares outstanding without reducing the number of shares authorized.
The Selling Shareholders may sell the Registered Shares from time to time in the over-the-counter market or other national securities exchange or automated interdealer quotation system on which our common stock is then listed or quoted, through negotiated transactions or otherwise at market prices prevailing at the time of sale or at negotiated prices. In any case, the Selling Shareholders will sell the shares at a fixed price of $0.01 per share, until our common stock is listed on a national securities exchange or is quoted on the OTC Bulletin Board, the OTCQX or the OTCQB, at which time the Selling Shareholders will sell the Registered Shares at a price based on the market price.
This offering will terminate on the earlier of (i) when all Registered Shares are sold, and (ii) on the first day of the month immediately following the date which is three years after the effective date hereof, unless we terminate it earlier.
RISK FACTORS
Any investment in our common stock involves a high degree of risk. You should consider carefully the following information, together with the other information contained in this registration statement, before you decide to buy our common stock. If one or more of the following events actually occurs, our business will suffer, and as a result our financial condition or results of operations will be adversely affected. In this case, the market price, if any, of our common stock could decline, and you could lose all or part of your investment in our common stock.
Currently, our focus is on the production and distribution of our alcoholic beverages. We face risks in selling our current products and in developing new product candidates and eventually bringing them to market. We also face risks that our business model may become obsolete. The following risks are material risks that we face. If any of these risks occur, our business, our ability to achieve revenues, our operating results and our financial condition could be seriously harmed.
Risk Factors Related to the Business of the Company
We face inventory risk, and if it fails to predict accurately demand for products, we may face write-downs or other charges.
We are exposed to inventory risks that may adversely affect operating results as a result of new product launches, changes in product cycles and pricing, limited shelf-life of certain of our products, changes in consumer demand, and other factors. We endeavor to predict accurately, based on information from retailers and reasonable assumptions, the expected demand for our products in order to avoid excessive inventory. Demand for products, however, can change significantly between the time of production and the date of sale. It may be more difficult to make accurate predictions regarding new products.
We are exposed to disruptions in our supply chain that could have a substantial adverse impact on our ability to produce our wines and the cost of our raw materials.
We are exposed to production risks, especially in the case of Bellissima Prosecco and Sparking Wines due to weather conditions. The growing and harvest of the grapes we need to make our wines are directly affected by the weather. Adverse weather conditions would decrease the availability of grapes, increase the cost of grapes, and have a negative impact on our profitability.
We produce our wines at two production facilities: one in Sicily, Italy (BiVi) and another in Treviso, Italy (Bellissima). A disruption from fire or other catastrophic event at one of these facilities would halt production and have a material adverse effect on our financial condition.
We have a history of losses, and may not achieve or maintain profitability in the future.
We have had a limited number of quarters or years of profitability and historically raised additional capital to meet its growth needs. Our losses from operations and our inability to raise sufficient working capital have resulted in negative equity and working capital positions as shown on our Balance Sheets at December 31, 2017 and June 30, 2018.
We expect to make significant investments in order to develop and expand our business, which, we believe, will result in additional sales, marketing and general and administrative expenses that will require increased sales to recover these additional costs. Once we become a fully reporting company, we expect to continue to incur legal, accounting, and other administrative expenses that are material. Our revenue has been subject to volatility in recent periods and this volatility may cause us to not cover our costs and successfully compete in the highly competitive alcohol market.
We face significant competition which could adversely affect profitability.
The wine industry is intensely competitive. Our wines compete in several super-premium and ultra-premium wine market segments with many other super-premium and ultra-premium domestic and foreign wines, with imported wines coming from the Burgundy and Bordeaux regions of France, as well as Italy, Chile, Argentina, South Africa and Australia. Our wines also compete with other alcoholic and, to a lesser degree, non-alcoholic beverages, for shelf space in retail stores and for marketing focus by independent distributors, many of which carry extensive brand portfolios. As a result of this intense competition there has been and may continue to be upward pressure on selling and promotional expenses. In addition, the wine industry has experienced significant consolidation. Many competitors have greater financial, technical, marketing and public relations resources. Our sales may be harmed to the extent we are not able to compete successfully against such wine or alternative beverage producers’ costs. There can be no assurance that in the future we will be able to successfully compete with current competitors or that we will not face greater competition from other wineries, beverage manufacturers and distributors.
Because a significant amount of our business is made through retail outlets any change in relationships with the retail partners could harm the business.
Our agreements with direct retail partners are informal and therefore subject to change. If one or more of the direct retail partners chose to purchase fewer products, or we are forced to reduce the prices, our sales and profits would be reduced and the business would be harmed.
We will need additional funding in the future, and if we are unable to raise capital when needed, we may be forced to delay, reduce or eliminate our product candidate development programs, commercial efforts, or sales efforts.
Producing and marketing our developed products is costly. We will need to raise substantial additional capital in the future in order to execute our business plan and help us and our collaboration partners fund the development and commercialization of our product candidates.
We may intend to finance future cash needs through public or private equity offerings and may also use debt financings or strategic collaboration and licensing arrangements. To the extent that we raise additional funds by issuing equity securities, our shareholders may experience additional dilution, and debt financing, if available, may involve restrictive covenants and may result in high interest expense. If we raise additional funds through collaboration and licensing arrangements, it may be necessary to relinquish some rights to our product candidates, processes and technologies or our development projects or to grant licenses on terms that are not favorable to us. We cannot be certain that additional funding will be available on acceptable terms, or at all. If adequate funds are not available from the foregoing sources, we may consider additional strategic financing options, including sales of assets, or we may be required to delay, reduce the scope of, or eliminate one or more of our research or development programs or curtail some of our commercialization efforts of our operations. We may seek to access the public or private equity markets whenever conditions are favorable, even if we do not have an immediate need for additional capital.
We may engage in strategic transactions that fail to enhance shareholder value.
From time to time, we may consider possible strategic transactions, including the potential acquisitions or licensing of products or technologies or acquisition of companies, and other alternatives with the goal of maximizing shareholder value. We may never complete a strategic transaction, and in the event that we do complete a strategic transaction, implementation of such transactions may impair shareholder value or otherwise adversely affect our business. Any such transaction may require us to incur non-recurring or other charges and may pose significant integration challenges and/or management and business disruptions, any of which could harm our results of operation and business prospects.
We are dependent on the services of key personnel and failure to attract qualified management could limit our growth and negatively impact our results of operations.
We are highly dependent on our Chief Executive Officer. We will continue to depend on his industry experience. At this time, we do not know of the availability of such experienced management personnel or how much it may cost to attract and retain such personnel. The loss of the services of any member of senior management or the inability to hire experienced operations management personnel could have a material adverse effect on our financial condition and results of operations.
We distribute our products through an entity wholly-owned and controlled by our Chief Executive Officer and if he were to leave, this relationship may end.
We have entered into a Distribution Agreement with United Spirits, Inc. (“United”) for United to distribute and wholesale our products and to act as the licensed importer and wholesaler. The Distribution Agreement provides United the exclusive right through 2025 to sell our products for an agreed distribution fee equal to $1.00 per case of product sold. United is owned and managed by Richard DeCicco, our controlling shareholder, President, CEO, and Director.
United is a variable interest entity (“VIE”) of the Company. Because we are the primary beneficiary of United, United’s assets, liabilities and operations have been consolidated in our financial statements. See Note 5 to the Consolidated Financial Statements for the three months ended June 30, 2018 and 2017. However, we do not own United and Mr. DeCicco has sole ownership and authority with respect to the operations of United. These decisions may impact the Company in a way that may not be favorable to all of our shareholders. Potential acquirers of the Company will not include United when determining the value of the Company and this may have an adverse impact on the value of consideration that shareholders may receive if the Company is acquired.
Risks Related To Our Common stock
The market price of our common stock may be volatile and may be affected by market conditions beyond our control.
The market price of our common stock is subject to significant fluctuations in response to, among other factors:
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variations in our operating results and market conditions specific to companies in our industry;
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changes in financial estimates or recommendations by securities analysts;
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announcements of innovations or new products or services by us or our competitors;
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the emergence of new competitors;
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operating and market price performance of other companies that investors deem comparable;
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changes in our board or management;
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sales or purchases of our common stock by insiders;
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commencement of, or involvement in, litigation;
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changes in governmental regulations; and
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general economic conditions and slow or negative growth of related markets.
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In addition, if the market for stocks in our industry or the stock market in general, experiences a loss of investor confidence, the market price of our common stock could decline for reasons unrelated to our business, financial condition or results of operations. If any of the foregoing occurs, it could cause the price of our common stock to fall and may expose us to lawsuits that, even if unsuccessful, could be costly to defend and a distraction to the board of directors and management.
If we are unable to pay the costs associated with being a public, reporting company, we may be forced to discontinue operations.
We expect to have significant costs associated with being a public, reporting company, which may raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern will depend on positive cash flow, if any, from future operations and on our ability to raise additional funds through equity or debt financing. If we are unable to achieve the necessary product sales or raise or obtain needed funding to cover the costs of operating as a public, reporting company, we may be forced to discontinue operations.
Our common stock is listed for quotation on the OTC Pink tier of the marketplace maintained by OTC Markets Group, Inc., which may make it more difficult for investors to resell their shares due to suitability requirements.
Our common stock is currently quoted on the OTC Pink tier of the marketplace maintained by OTC Markets Group, Inc. Broker-dealers often decline to trade in over-the-counter stocks given the market for such securities are often limited, the stocks are more volatile, and the risk to investors is greater. These factors may reduce the potential market for our common stock by reducing the number of potential investors. This may make it more difficult for investors in our common stock to sell shares to third parties or to otherwise dispose of their shares. This could cause our stock price to decline.
We may be unable to become eligible for quotation of our common stock on the OTCQB tier or a prominent national securities exchange and this will have a negative impact on our market price. The OTC Pink marketplace also does not provide as much liquidity as the OTCQB or national exchanges. Many broker-dealers will not trade or recommend OTC Pink stocks for their clients. Because the OTCQB and national exchanges generally increase transparency by maintaining higher reporting standards and requirements and imposing management certification and compliance requirements, broker-dealers are more likely to trade stocks on national exchanges and the OTCQB marketplace.
Our principal shareholders have the ability to exert significant control in matters requiring shareholder approval and could delay, deter, or prevent a change in control of our company.
Richard DeCicco, our Chief Executive Officer and Director, owns one (1) share of our Series A Preferred Stock (the only shares of our Series A Preferred Stock that is authorized, issued and outstanding). This share of Series A Preferred Stock gives Mr. DeCicco two (2) votes for every one (1) vote of our outstanding voting securities. As a result, he has the ability to influence matters affecting our shareholders, including the election of our directors, the acquisition or disposition of our assets, and the future issuance of our shares. Because he controls this share, investors may find it difficult to replace our management if they disagree with the way our business is being operated. Because the influence by Mr. DeCicco could result in management making decisions that are in his best interest and not in the best interest of other shareholders, you may lose some or all of the value of your investment in our common stock. Investors who purchase our common stock should be willing to entrust all aspects of operational control to Mr. DeCicco and our current management team.
We do not intend to pay dividends in the foreseeable future.
We do not intend to pay any dividends in the foreseeable future. We do not plan on making any cash distributions in the manner of a dividend or otherwise. Our Board presently intends to follow a policy of retaining earnings, if any.
We have the right to issue additional common stock and preferred stock without consent of shareholders. This would have the effect of diluting investors’ ownership and could decrease the value of their investment.
We are authorized to issue up to 2,000,000,000 shares of common stock, of which there were 1,509,941,153 shares issued and outstanding as of September 14, 2018. Another 480,000,000 shares may be issued and outstanding if the Series E Shares are converted to common stock and the Warrants are exercised. Further, approximately 21,000,000 additional shares may be issued if outstanding warrants other than the Warrants are exercised, and approximately 138,097,000 shares may be issued and outstanding if all of our other currently outstanding convertible debt are converted into common stock. We therefore have no additional authorized but unissued shares of our common stock. Any further issuances of shares of common stock would require that we first repurchase existing shares, or obtain the consent of a majority of our shareholders to increase our authorized common stock or effectuate a reverse split of our common stock. Our management intends to effectuate a reverse split of our common stock in the near future to reduce the number of shares outstanding without reducing the number of shares authorized.
In addition, our certificate of incorporation authorizes the issuance of up to 100,000,000 shares of preferred stock, the rights, preferences, designations and limitations of which may be set by the Board of Directors. We have designated and authorized, one (1) share of Series A Preferred Stock, 1,000,000 shares of Series B Convertible Preferred Stock, 1,000 shares of Series C Preferred Stock, and 10 shares of Series D Convertible Preferred Stock. As of September 14, 2018, there were issued and outstanding (i) one (1) share of our Series A Convertible Preferred Stock, (ii) no shares of our Series B Convertible Preferred Stock, (iii) 1,000 shares of our Series C Preferred Stock, (iv) 10 shares of our Series D Convertible Preferred Stock, and 2,400,000 shares of our Series E Convertible Preferred Stock.
The shares of authorized but undesignated preferred stock may be issued upon filing of an amended certificate of incorporation and the payment of required fees; no further shareholder action is required. If issued, the rights, preferences, designations and limitations of such preferred stock would be set by our Board and could operate to the disadvantage of the outstanding common stock. Such terms could include, among others, preferences as to dividends and distributions on liquidation. We have designated five series of preferred stock, four of which have shares issued and outstanding. A description of the terms, rights and preferences of these series of preferred stock are described under “
Description of Securities
” beginning on page 18.
Our officers and directors can sell some of their stock, which may have a negative effect on our stock price and ability to raise additional capital, and may make it difficult for investors to sell their stock at any price.
Our officers and directors, as a group, are the owners of 61,648,181 shares of our common stock, representing approximately 4.2% of our total issued shares, with shares of Series D Preferred Stock that they may convert to acquire another 1,571,571,404 shares of our common stock, representing approximately 51.0% of our total issued and outstanding shares of common stock after conversion. Each individual officer and director may be able to sell up to 1% of our outstanding common stock (currently approximately 15,099,412 shares) every ninety (90) days in the open market pursuant to Rule 144, which may have a negative effect on our stock price and may prevent us from obtaining additional capital. In addition, if our officers and directors are selling their stock into the open market, it may make it difficult or impossible for investors to sell their stock at any price. However, our officers and directors have entered into Lock-Up Agreements and have agreed to refrain from selling any shares of our common stock for 90 days after the effective date of the registration statement
Our common stock is governed under The Securities Enforcement and Penny Stock Reform Act of 1990.
The Securities Enforcement and Penny Stock Reform Act of 1990 requires additional disclosure relating to the market for penny stocks in connection with trades in any stock defined as a penny stock. The Commission has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. Such exceptions include any equity security listed on NASDAQ and any equity security issued by an issuer that has (i) net tangible assets of at least $2,000,000, if such issuer has been in continuous operation for three years; (ii) net tangible assets of at least $5,000,000, if such issuer has been in continuous operation for less than three years; or (iii) average annual revenue of at least $6,000,000, if such issuer has been in continuous operation for less than three years. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated therewith.
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this Prospectus, including the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” that are based on our management’s beliefs and assumptions and on information currently available to our management. Forward-looking statements include the information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, industry environment, potential growth opportunities, the effects of future regulation, and the effects of competition. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate” or similar expressions. These statements are only predictions and involve known and unknown risks and uncertainties, including the risks outlined under “Risk Factors” and elsewhere in this Prospectus.
Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee future results, events, levels of activity, performance or achievement. We are not under any duty to update any of the forward-looking statements after the date of this Prospectus to conform these statements to actual results, unless required by law.
USE OF PROCEEDS
This Prospectus relates to shares of our common stock that may be offered and sold from time to time by the Selling Shareholders. We will not receive any proceeds from the sale of shares of common stock by the Selling Shareholders in this offering.
The proceeds we have received pursuant to the issuance of the Series E Shares and Warrants, and the proceeds that we may receive from the exercise of Warrants, will be used for working capital and general corporate purposes. This anticipated use of net proceeds represents our intentions based upon our current plans and business conditions. If any of these factors change, we may reallocate some of the net proceeds. The portion of any net proceeds not immediately required will be invested in certificates of deposit or similar short-term interest bearing instruments.
We will pay for expenses of this offering, except that the Selling Shareholders will pay any broker discounts or commissions or equivalent expenses applicable to the sale of their shares.
PRIVATE PLACEMENT OF SECURITIES
Securities Purchase Agreement
On October 27, 2017, we entered into a Securities Purchase Agreement (as amended, the “
Purchase Agreement
”) with the Selling Shareholders pursuant to which we sold a total of 120,000,000 shares of our common stock (the “
Common Shares
”) and 120,000,000 Warrants for a total of $300,000 cash.
On May 21, 2018, we entered into a Share Exchange Agreement (the “
Exchange Agreement
”) with the Selling Shareholders and Amendment No. 1 to the Purchase Agreement. Pursuant to the Exchange Agreement, the Selling Shareholders exchanged the Common Shares for 1,200,000 Series E Shares. Each Series E Share is convertible into 100 shares of our common stock. In addition, we entered into an amendment to the Purchase Agreement. Under the amended Purchase Agreement, the Selling Shareholders bought an additional 1,200,000 Series E Shares and an additional 120,000,000 Warrants for an aggregate of $300,000 in cash.
The Registered Shares being registered in this registration statement are only the shares of common stock issuable upon conversion of the Series E Shares that were issued pursuant to the Exchange Agreement, and (ii) the shares of common stock issuable upon conversion of the Series E Shares that were issued shortly after effectiveness of the registration statement, pursuant to the Purchase Agreement.
The Warrants are immediately exercisable and have a term of five (5) years. The Selling Shareholders may exercise the Warrants at their option at any time into shares of our common stock. The exercise price is $0.01. However, on October 27, 2018, the exercise price will be permanently reduced to the lower of (i) the exercise price, as adjusted per the terms of the Warrants, and (ii) 50% of the average of the four lowest closing bid prices for our common stock on the primary trading market during the forty (40) trading days immediately prior to such date.
If we sell any of our common stock or equivalent at an effective price per shares less than the exercise price of the Warrants, then the exercise price of the Warrants will be reduced to the price of the shares sold, and additional warrant shares will be issuable so that the aggregate exercise price does not change. The Warrants also have the right to pro rata distributions of any dividend, stock, stock rights or other distribution to holders of our common stock.
Cashless exercise of the Warrants is available because after the six-month anniversary of the closing date of the Purchase Agreement, there was no registration statement registering the resale of the shares issuable upon exercise of the Warrants.
The Warrants and Series E Preferred also require that we reserve and keep available out of our authorized and unissued common stock a sufficient number of shares to provide for issuance of the shares issuable upon exercise of the Warrants and conversion of the Series E Preferred, requiring an initial reserve of 480,000,000 authorized shares.
Pursuant to the terms of the Series E Preferred and Warrants, we cannot sell or issue shares to a Selling Shareholder if such shares would cause the Selling Shareholder to beneficially own, as determined in accordance with Section 13(d) of the Exchange Act, more than 4.99% of our common stock. However, in the case of both the Warrants and the Series E Preferred, the Selling Shareholder can raise this limit to 9.99% but not until 61 days after giving us notice. We have not received such a notice. As a result, as of the date of this Prospectus, a Selling Shareholder cannot own more than approximately 84,000,000 shares after giving effect to any issuance to the Selling Shareholder. If our total number of outstanding shares of common stock increases, or if the Selling Shareholder subsequently disposes of shares acquired from us in the open market, then we would be able to sell more shares to the Selling Shareholder before reaching the 4.99% threshold.
Because of this limitation on the Selling Shareholders’ ownership of our stock, the Selling Shareholders may not be able to convert all of their Series E Shares or exercise all of their Warrants.
Registration Rights Agreement
On October 27, 2017, we also entered into a Registration Rights Agreement with the Selling Shareholders in connection with the Purchase Agreement. In the Registration Rights Agreement, we agreed to prepare and file a registration statement with the Commission covering the resale of all of the Registered Shares and the shares issuable upon exercise of Warrants. On May 21, 2018, we entered into Amendment No. 1 to the Registration Rights Agreement with the Selling Shareholders. Per the Registration Rights Agreement, as amended, we agreed to (i) file an initial registration statement by June 8, 2018 (a date which has been extended by mutual agreement of the parties), (ii) have it declared effective no later than 150 days after its filing, and (iii) keep it continuously effective until the securities are sold or may be sold under Rule 144 of the Securities Act without volume or manner-of-sale restrictions. If all of the securities cannot be registered on one registration statement, we agreed to file subsequent registration statements to register the remaining securities as promptly as allowed. We are only able to register the Registered Shares at this time. Shares issuable upon exercise of the Warrants will need to be registered separately or sold pursuant to an exemption from registration.
The issuance of the Warrants, the shares issuable upon exercise of the Warrants, the Series E Shares, and the Registered Shares to the Selling Shareholders under the Purchase Agreement is exempt from registration under the Securities Act, pursuant to the exemption for transactions by an issuer not involving any public offering under Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder.
DILUTION
The issuance of our common stock to the Selling Shareholders upon conversion of the Series E Shares and exercise of the Warrants will have a dilutive impact on our shareholders. As a result, our net income per share, if any, would decrease in future periods and the market price of our common stock could decline.
Our net tangible book value as of June 30, 2018 was approximately ($1,686,135), or ($0.0013) per share. Net tangible book value per share is determined by dividing our total tangible assets, less total liabilities, by the number of shares of our common stock outstanding as of June 30, 2018.
After giving effect to the issuance and conversion of the Series E Shares and the issuance and exercise of the Warrants, assuming receipt of exercise price payments on the Warrants of $2,400,000, and assuming the sale of all 240,000,000 shares of common stock by the Selling Shareholders at the sale price of $0.01, our pro forma as adjusted net tangible book value as of June 30, 2018 would have been approximately $713,865, or $0.0004 per share of Common Stock. This represents an immediate increase in pro forma as adjusted net tangible book value of $0.0017 per share to our existing shareholders and an immediate dilution of $0.0083 per share to our new shareholders.
SELLING SHAREHOLDERS
The common stock being offered by the Selling Shareholders are those shares of common stock issuable upon conversion of their Series E Shares. For additional information regarding the Series E Shares, see “
Private Placement of Securities
” on page 11 above. We are registering the shares of common stock in order to permit the Selling Shareholders to offer the shares for resale from time to time. Except for the ownership of the shares of common stock, Series E Shares and Warrants, the Selling Shareholders have not had any material relationship with us within the past three years.
The table below lists the Selling Shareholders and other information regarding the beneficial ownership of the shares of common stock by each of the Selling Shareholders. The second column lists the number of shares of common stock beneficially owned by each Selling Shareholder, based on its ownership as of September 14, 2018, assuming conversion of the Series E Shares and exercise of the Warrants held by the Selling Shareholders on that date, subject to limitations on exercises as set forth in our Series E Preferred and the Warrants.
The third column lists the shares of common stock being offered in this prospectus by the Selling Shareholders.
In accordance with the terms of a registration rights agreement with the Selling Shareholders, this prospectus generally covers the resale of shares of common stock issuable upon conversion of the Series E Shares held by the Selling Shareholders, subject to adjustment as provided in the registration rights agreement. The fourth column assumes the sale of all of the shares offered by the selling shareholders pursuant to this prospectus.
Under the terms of the Series E Shares and Warrants, a Selling Shareholder may not convert the Series E Shares or exercise the Warrants to the extent such conversion or exercise would cause such Selling Shareholder, together with its affiliates and attribution parties, to beneficially own a number of shares of common stock which would exceed 4.99% of our then outstanding common stock. The Selling Shareholders may sell all, some or none of their shares in this offering. See “
Plan of Distribution
” beginning on page 17.
As of September 14, 2018, there are approximately 1,448,292,972 shares of our common stock held by or currently issuable to non-affiliates, representing approximately 95.9% of the outstanding common stock. The 240,000,000 shares we are registering for resale by the Selling Shareholders represents approximately 16.6% of the outstanding common stock held by non-affiliates (and approximately 14.2% of the outstanding common stock held by non-affiliates after the issuance thereof).
All information with respect to common stock ownership of the Selling Shareholders has been furnished by or on behalf of the Selling Shareholders and is as of September 14, 2018. Because the Selling Shareholders may sell some or all of the shares included in this Prospectus, and because there are currently no agreements, arrangements or understandings with respect to the sale of any of the shares, no estimate can be given as to the number of shares available for resale hereby that will be held by the Selling Shareholders in the future. In addition, the Selling Shareholders may have sold, transferred or otherwise disposed of, or may sell, transfer or otherwise dispose of, at any time and from time to time, the common stock it holds in transactions exempt from the registration requirements of the Securities Act after the date on which it provided the information set forth on the table below. We have, therefore, assumed for the purposes of the following table, that the Selling Shareholders will sell all of the shares owned beneficially by it listed in the table below that are covered by this Prospectus. Shares in the table below refer to shares of our outstanding common stock.
|
Selling Shareholder
|
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Shares of Common Stock Beneficially Owned Prior to the Offering
|
|
|
Maximum Number of Shares of Common Stock Being Offered Hereby
(4)
|
|
|
Shares of Common Stock Beneficially Owned After Completion of the Offering
(5)
|
|
|
Percent of Outstanding Common Stock Beneficially Owned After Completion of the Offering
|
|
|
The Special Equities Group, LLC
(1)
|
|
|
79,303,298
|
(3)
|
|
|
160,000,000
|
|
|
|
0
|
|
|
|
0
|
%
|
|
Iroquois Master Fund Ltd.
(2)
|
|
|
79,303,298
|
(6)
|
|
|
120,000,000
|
|
|
|
0
|
|
|
|
0
|
%
|
|
Iroquois Capital Investment Group, LLC
(2)
|
|
|
40,000,000
|
(8)
|
|
|
40,000,000
|
|
|
|
0
|
|
|
|
0
|
%
|
|
Gregory M. Castaldo
(7)
|
|
|
79,303,298
|
(3)
|
|
|
160,000,000
|
|
|
|
0
|
|
|
|
0
|
%
|
___________________
|
(1)
|
Based on information provided to us, Jonathan Schechter and Joseph Reda are the individuals who share dispositive and voting power of the shares. Mr. Schechter and Mr. Reda disclaim any beneficial ownership of these shares. The address of The Special Equities Group is 106 Woods Drive, Roslyn, NY 11576.
|
|
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(2)
|
Based on information provided to us, Richard Abbe is the individual who holds dispositive and voting power of the shares. Mr. Abbe disclaims any beneficial ownership of these shares. The address of Iroquois Master Fund Ltd. and Iroquois Capital Investment Group, LLC is c/o Iroquois Capital Management, 205 E. 42
nd
Street, 20
th
Floor, New York, NY 10017.
|
|
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(3)
|
Amount shown consists solely of shares of common stock issuable upon conversion of the Series E Shares and exercise of the Warrants. The Selling Shareholder may receive up to 160,000,000 shares of common stock upon conversion of the Series E Shares and exercise of the Warrants (subject to certain adjustments under the terms of each). However, a Selling Shareholder may not convert the Series E Shares or exercise the Warrants, if the conversion or exercise would cause the Selling Shareholder to own more than 4.99% of our outstanding common stock after the conversion or exercise. The number of shares listed here is the maximum number of shares the Selling Shareholder could acquire through exercise of its warrants or conversion of its Series E Shares. See “
Private Placement of Securities
” on page 11 for more details on the Series E Shares and Warrants.
|
|
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(4)
|
Represents the maximum number of shares each Selling Shareholder may sell pursuant to this registration statement and represents shares of common stock that may be issuable pursuant to the Series E Shares and Warrants. See “
Private Placement of Securities
” on page 11 for more details.
|
|
|
|
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(5)
|
Assumes that all Series E Shares were converted, all Warrants were exercised, and all underlying Registered Shares were sold in the offering. However, a Selling Shareholder may not convert the Series E Shares or exercise the Warrants, if the conversion or exercise would cause the Selling Shareholder to own more than 4.99% of our outstanding common stock after the conversion or exercise. See “
Private Placement of Securities
” on page 11 for more details on the Series E Shares and Warrants.
|
|
(6)
|
Amount shown consists solely of shares of common stock issuable upon conversion of the Series E Shares and exercise of the Warrants. The Selling Shareholder may receive up to 120,000,000 shares of common stock upon conversion of the Series E Shares and exercise of the Warrants (subject to certain adjustments under the terms of each). However, a Selling Shareholder may not convert the Series E Shares or exercise the Warrants, if the conversion or exercise would cause the Selling Shareholder to own more than 4.99% of our outstanding common stock after the conversion or exercise. The number of shares listed here is the maximum number of shares the Selling Shareholder could own at any one time. See “
Private Placement of Securities
” on page 11 for more details on the Series E Shares and Warrants.
|
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(7)
|
Mr. Castaldo’s address is 3776 Steven James Drive, Garnet Valley, PA 19060.
|
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(8)
|
Amount shown consists solely of shares of common stock issuable upon conversion of the Series E Shares and exercise of the Warrants.
|
Beneficial ownership for the purposes of the table above is determined in accordance with the rules and regulations of the SEC. These rules generally provide that a person is the beneficial owner of securities if such person has or shares the power to vote or direct the voting thereof, or to dispose or direct the disposition thereof or has the right to acquire such powers within 60 days. Except as disclosed in the table above, we believe that the Selling Shareholders and their affiliates identified herein possess sole voting and investment power over all shares of common stock shown as beneficially owned by such Selling Shareholders and affiliates.
Resales
The Selling Shareholders and intermediaries through whom shares are sold may be deemed “underwriters” within the meaning of the Securities Act with respect to the shares offered by this Prospectus, and any profits realized or commissions received may be deemed underwriting compensation.
If required, we will add transferees, successors and donees by prospectus supplement in instances where the transferee, successor or donee has acquired its shares from a Selling Shareholder named in this Prospectus after the effective date of this Prospectus.
PLAN OF DISTRIBUTION
The Selling Shareholders and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of the Registered Shares on the principal trading market on which our common stock trades or any other stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales will be at a fixed price of $0.01 per share, until our common stock is listed on a national securities exchange or is quoted on the OTC Bulletin Board, the OTCQX or the OTCQB, at which time the Selling Shareholders may sell the Registered Shares at a fixed price, a price based on the market price or at a negotiated price. The Selling Shareholders may use any one or more of the following methods when selling shares:
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|
·
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ordinary brokerage transactions and transactions in which the broker‑dealer solicits purchasers;
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·
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block trades in which the broker‑dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
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·
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purchases by a broker‑dealer as principal and resale by the broker‑dealer for its account;
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·
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an exchange distribution in accordance with the rules of the applicable exchange;
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·
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privately negotiated transactions;
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·
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settlement of short sales;
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·
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in transactions through broker‑dealers that agree with the Selling Shareholders to sell a specified number of such shares at a stipulated price per share;
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·
|
through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;
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·
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a combination of any such methods of sale; or
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·
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any other method permitted pursuant to applicable law.
|
The Selling Shareholders may also sell shares under Rule 144 under the Securities Act of 1933, as amended, if available, rather than under this Prospectus.
Broker-dealers engaged by the Selling Shareholders may arrange for other brokers‑dealers to participate in sales. Broker‑dealers may receive commissions or discounts from the Selling Shareholders (or, if any broker‑dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA IM-2440.
In connection with the sale of the securities or interests therein, the Selling Shareholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the securities in the course of hedging the positions they assume. The Selling Shareholders may also sell securities short and deliver these securities to close out their short positions, or loan or pledge the securities to broker-dealers that in turn may sell these securities. The Selling Shareholders may also enter into option or other transactions with broker-dealers or other financial institutions or create one or more derivative securities which require the delivery to such broker-dealer or other financial institution of Registered Shares, which securities such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
The Selling Shareholders and any broker-dealers or agents that are involved in selling the Registered Shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the Registered Shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each Selling Shareholder has informed us that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the Registered Shares.
We are required to pay certain fees and expenses incurred for registration of the Registered Shares. We have agreed to indemnify the Selling Shareholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.
We agreed to keep this prospectus effective until the earlier of (A) the date on which the all of the Registered Shares have been sold pursuant to this prospectus or Rule 144 under the Securities Act, and (B) the date that all of the Registered Shares may be sold pursuant to rule 144 without volume or manner-of-sale restrictions. The Registered Shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling Shareholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of the common stock by the Selling Shareholders or any other person. We will make copies of this prospectus available to the Selling Shareholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).
DESCRIPTION OF SECURITIES
Our authorized capital stock consists of 2,000,000,000 shares of common stock, par value $0.001 per share, and 100,000,000 shares of preferred stock. As of September 14, 2018, there were issued and outstanding (i) 1,509,941,153 shares of our common stock, (ii) one (1) share of our Series A Convertible Preferred Stock, (iii) no shares of our Series B Convertible Preferred Stock, (iv) 1,000 shares of our Series C Preferred Stock, (v) 10 shares of our Series D Convertible Preferred Stock, and (vi) 2,400,000 shares of our Series E Convertible Preferred Stock.
Common Stock
. Each shareholder of our common stock is entitled to a pro rata share of cash distributions made to shareholders, including dividend payments. The holders of our common stock are entitled to one vote for each share of record on all matters to be voted on by shareholders. There is no cumulative voting with respect to the election of our directors or any other matter. Therefore, the holders of more than 50% of the shares voted for the election of those directors can elect all of the directors. The holders of our common stock are entitled to receive dividends when and if declared by our Board of Directors from funds legally available therefore. Cash dividends are at the sole discretion of our Board of Directors. In the event of our liquidation, dissolution or winding up, the holders of common stock are entitled to share ratably in all assets remaining available for distribution to them after payment of our liabilities and after provision has been made for each class of stock, if any, having any preference in relation to our common shareholders of shares of our common stock have no conversion, preemptive or other subscription rights, and there are no redemption provisions applicable to our common stock.
Preferred Stock
. We are authorized to issue 100,000,000 shares of preferred stock, par value $0.001 per share, of which we have designated and authorized, one (1) share of Series A Preferred Stock, 1,000,000 shares of Series B Convertible Preferred Stock, 1,000 shares of Series C Preferred Stock, 10 shares of Series D Convertible Preferred Stock, and 10,000,000 shares of Series E Convertible Preferred Stock.
Below are brief descriptions of each series of preferred stock. These descriptions are qualified in their entirety by the Certificates of Designation that set forth the terms of each series and are included as exhibits to the registration statement that includes this prospectus.
Series A Preferred Stock
The Series A Preferred Stock has a stated value amount of One Dollar ($1) per share. The holder of the Series A Preferred Stock is not entitled to dividends of any kind. The Series A Preferred Stock is not convertible and does not have any rights with in the event of any liquidation, dissolution or winding up of the Company. The holder of our Series A Preferred Stock votes together with the holders of our common stock and has two (2) votes for every share of common stock deemed outstanding and entitled to a vote on all matters submitted to the shareholders. Therefore, the holder of our Series A Preferred Stock will have at least two-thirds of all votes on any matter to be voted upon by the shareholders.
Series B Convertible Preferred Stock
The Series B Convertible Preferred Stock (“
Series B Preferred Stock
”) ranks senior to any other class or series of our stock as to distribution of assets upon liquidation, dissolution or winding up of the Company. Upon liquidation, and prior to any distribution to holders of other classes of stock, the holders of the Series B Preferred Stock will receive an amount equal to the sum of $1,000 per share of Series B Preferred Stock and an amount equal to all unpaid dividends on the Series B Preferred Stock, if any.
Holders of Series B Preferred Stock may at their option convert all or any portion of their shares of Series B Preferred Stock into common stock at any time or from time to time. The conversion price is Two Dollars ($2.00) per share, provided, however, if the market price shall be less than Two Dollars ($2.00) per share at any one or more conversion date then the Series B conversion price shall be equal to 100% of the VWAP per share of common stock, as traded on any national securities exchange, for the twenty (20) trading days immediately prior to the conversion date, or such other dollar amount (or fraction thereof) into which such Series B Preferred Stock conversion price may be adjusted.
Holders of the Series B Preferred Stock shall vote together as a separate class on all matters which impact the rights, value or conversion terms, or ranking of the Series B Preferred Stock, as provided herein. Except as set forth above, the Series B Preferred Stock shall not vote on any matter submitted to the stockholders of the Company and holder(s) of the Series B Preferred Stock shall have no other voting rights.
In addition, the holders of the Series B Preferred Stock are entitled to piggy-back registration rights.
Series C Preferred Stock
The holders of Series C Convertible Preferred Stock have preferential rights in comparison to holders of our common stock. Upon any Sale, as defined in the Certificate of Designation, the holders of the Series C Preferred Stock, in the aggregate, shall be entitled to receive out of the proceeds of such Sale (in whatever form, be it cash, securities, or other assets), a distribution from the Company equal to 76.93% of all such proceeds received by the Company prior to any distribution of such proceeds to all other classes of equity securities, including any series of preferred stock designated subsequent to this Series C Preferred Stock.
In the Certificate of Designation for the Series C Preferred Stock, a “Sale” means a sale of the majority of the assets held by, or majority of the membership interests (equity) of BiVi LLC. Other than with respect to a Sale, the Series C Preferred Stock will, with respect to rights on liquidation, dissolution and winding-up of the Company, rank on parity with the Common Stock.
Series D Convertible Preferred Stock
On December 13, 2016, our Board of Directors approved the creation of a new class of preferred stock in order to facilitate Closing of the Securities Purchase Agreement with Bellissima Spirits LLC and Bellissima Spirits LLC’s members under which the Company acquired a 51% Majority Interest in Bellissima Spirits LLC in exchange for the issuance of a total of 10 shares of newly designated Iconic Series D Convertible Preferred Stock. Each share of Iconic Series D Convertible Preferred Stock is convertible into the equivalent of 5.1% of Iconic common stock issued and outstanding at the time of conversion.
Series E Convertible Preferred Stock
On May 31, 2018, our Board of Directors created a new class of preferred stock, the Series E Preferred, in connection with the Exchange Agreement as discussed above under the section “
Private Placement of Securities
,” beginning on page 11. Each shares of our Series E Preferred is convertible into 100 shares of our common stock. However, the conversion of our Series E Preferred may not be converted into common stock if the conversion would result in the holder having beneficial ownership of more than 4.99% of our outstanding shares of common stock immediately after giving effect to the issuance of the conversion shares. A holder of our Series E Preferred may elect to increase this limitation to 9.99% of our outstanding shares of common stock, but such increase will not be effective until 61 days after notice of the election is given to the Company.
The Series E Preferred is not redeemable.
Each share of Series E Preferred is entitled to 100 votes on all matters to come before the common shareholders or shareholders generally. The voting rights of the Series E Preferred are subject to similar limitations placed on the conversion of Series E Preferred shares. A holder of Series E Preferred may not vote more than 4.99% (or 9.99% if the beneficial ownership limitation is increased by notice to the Company at least 61 days prior to taking effect) of all votes eligible to be cast on matters to come before the common shareholders or shareholders generally.
Shares of Series E Preferred are entitled to dividends on an as-converted-to-common stock basis. No dividends may be paid to common shareholders unless dividends are also paid to the Series E Preferred shareholders.
Upon liquidation, each share of Series E Preferred is entitled to a distribution of $0.25 prior to any payment to common shareholders or subsequent series of preferred stock.
Without approval from the holders of at least 75% of the outstanding Series E Preferred, we may not sell the Company’s assets or effect a reorganization, merger or consolidation transaction that results in the holders of the Company’s capital stock owning less than 50% of the voting power of the Company after the transaction.
Dividend Policy
. We have not declared or paid a cash dividend on our capital stock in our last two fiscal years and we do not expect to pay cash dividends on our common stock in the foreseeable future. We currently intend to retain our earnings, if any, for use in our business. Any dividends declared in the future will be at the discretion of our Board of Directors and subject to any restrictions that may be imposed by our lenders.
Options and Warrants
. In addition to the Warrants, there are outstanding warrants to acquire 272,500,000 shares of our common stock at $0.01 per share. Of these warrants, The Special Equities Group, LLC holds 80,000,000 George M. Castaldo holds 80,000,000, Iroquois Master Fund Ltd. holds 60,000,000, Iroquois Capital Investment Group, LLC holds 20,000,000, Paul Rachmuth, Esq. holds 25,000,000 and Clyde Snow & Sessions, PC holds 7,500,000.
Other than as set forth above, as of the date of this prospectus, we do not have any outstanding options, warrants, or other convertible securities.
INTEREST OF NAMED EXPERTS AND COUNSEL
Clyde Snow & Sessions, PC serves as our legal counsel in connection with this offering. Clyde Snow & Sessions, PC is the holder of warrants to acquire 7,500,000 shares of our common stock.
DESCRIPTION OF BUSINESS
Corporate History
Iconic Brands, Inc., formerly Paw Spa, Inc. (“
Iconic Brands
,” the “
Company
,” “
Iconic
,” “
we
,” “
us
,”
or
“
our
”), was incorporated in the State of Nevada on October 21, 2005. Effective December 31, 2016, we closed on a May 15, 2015 agreement to acquire a 51% interest in BiVi LLC, the brand owner of “BiVi 100 percent Sicilian Vodka,” and closed on a December 13, 2016 agreement to acquire a 51% interest in Bellissima Spirits LLC.
BiVi LLC was organized in Nevada on May 4, 2015. Bellissima Spirits LLC was organized in Nevada on November 23, 2015.
Acquisition of BiVi
On May 15, 2015, the Company entered into a Securities Exchange Agreement, by and among the members of BiVi LLC under which the Company acquired a 51% majority interest in BiVi LLC in exchange for the issuance (a) 1,000,000 shares of restricted common stock and (b) 1,000 shares of newly created Series C Convertible Preferred Stock.
Under the terms of the Securities Exchange Agreement, the Company shall provide working capital, from time to time, of up to $750,000.00 pursuant to a Working Capital Facility, which shall be repaid by BiVi LLC from working capital generated from BiVi LLC’s operations. Provided that, in the event that the Company fails to provide working capital of at least $40,000.00 per month, and such failure shall continue for a period of sixty (60) calendar days thereafter then BiVi LLC may, at its option, by written notice to the Company, declare a default. In the event of such default, the Company shall surrender the Majority Interest back to the other members of BiVi LLC for retirement and the Holders of the Series C Preferred Stock shall surrender all outstanding shares back to Iconic for retirement (“
BiVi Unwind
”). In the event of the BiVi Unwind, BiVi LLC shall issue a 5% promissory note to the Company with a principal amount equal to the then outstanding unpaid balance of the Working Capital Facility advanced to BiVi LLC prior to the Unwind, payable upon the acquisition of the majority of the outstanding stock or assets of BiVi LLC, including but not limited to the BiVi Brand of products, by a third party, but in no event later than 36 months from issuance.
Prior to the Closing, BiVi LLC was beneficially owned and controlled by Richard DeCicco, the Majority shareholder, President, CEO and Director of Iconic Brands, Inc.
A copy of the Securities Exchange Agreement was attached to our Form 8-K filed with the SEC on May 21, 2015 as Exhibit 4.1. The description of the Agreement herein is qualified by the terms of the full text of the agreement attached thereto and the terms thereof are incorporated herein by reference.
Acquisition of Bellissima Spirits LLC
On December 13, 2016, we entered into a Securities Purchase Agreement with Bellissima Spirits LLC and Bellissima Spirits LLC’s members under which we acquired a 51% Majority Interest in Bellissima Spirits LLC in exchange for the issuance of a total of 10 shares of newly designated Iconic Series D Convertible Preferred Stock.
Our Business
Iconic Brands is a beverage company that develops, from inception to completion, alcoholic beverages for itself and third parties. Iconic Brands also markets and places the products into national distribution through long standing industry relationships. Iconic is also a leader in “Celebrity Branding” of beverages, procuring superior and unique products from around the world and branding its products with internationally recognized celebrities.
BiVi LLC produces and markets BiVi 100 percent Sicilian Vodka. BiVi LLC’s mission is to promote and support the sales endeavors of the distribution network through targeted and national marketing endeavors and working with the celebrity partner Mr. Chazz Palminteri.
Bellissima Spirits LLC entered into a License Agreement with Christie Brinkley, Inc. an entity owned by Christie Brinkley, to use Brinkley’s endorsement, signature, and other intellectual property owned by Bellissima Spirits LLC. Bellissima by Christie Brinkley is a line of Organic Prosecco. The line includes a DOC Brut, Sparkling Rose and a Zero Sugar, Zero Carb option which are All Natural and Gluten Free with all Certified Organic and Vegan.
Bellissima Spirits LLC produces it products in Treviso, Italy. The products are produced at a winery that has invested an enormous amount of time and financial resources to produce and deliver Bellissima Prosecco and Sparkling Wines. We have a “one stop” shop with our winery partners and they manage all of the procurement of all raw materials required to produce a finished product of either the DOC Brut, Sparkling Rose Pinot Grigio and our Zero Sugar, Zero Carb Sparkling Wine Expression.
We intend to seek, investigate and, if such investigation warrants, acquire an interest in one or more business opportunities presented to it by persons or firms who or which desire to seek the perceived advantages of a publicly held corporation.
Competition
The beverage alcohol industry is highly competitive. We compete on the basis of quality, price, brand recognition and distribution strength. Our beverage alcohol products compete with other alcoholic and non-alcoholic beverages for consumer purchases, as well as shelf space in retail stores, restaurant presence and wholesaler attention. We compete with numerous multinational producers and distributors of beverage alcohol products, some of which have greater resources than we do. Our principal competitors include La Marca Prosecco owned by Gallo, Mionetto and a large number of independent small importers with a significant number of competitive products. We also compete with Diageo, the largest drinks company in the world, and others such as Constellation Brands, William Grant and Sons and Jim Beam Brands to name a few.
With the release of our new line of Aperitis, “Bella Sprizz” we are in direct competition with Gruppo Campari the producer of Aperol. The Elderflower version of Bella Sprizz is competing with the category Leader St. Germain. Management is confident that with our very aggressive price point on the Bella Sprizz Line coupled with the incredible packaging and liquid quality we will quickly carve our niche in the category.
Governmental Regulation of the Wine Industry
The production and sale of wine is subject to extensive regulation by the U.S. Department of the Treasury, Alcohol and Tobacco Tax and Trade Bureau and state liquor commissions and agencies.
In addition, most states in which our wines are sold impose varying excise taxes on the sale of alcoholic beverages. Prompted by growing government budget shortfalls and public reaction against alcohol abuse, government entities often consider legislation that could potentially affect the taxation of alcoholic beverages. Excise tax rates being considered are often substantial. The ultimate effects of such legislation, if passed, cannot be assessed accurately. Any increase in the taxes imposed on wines can be expected to have a potentially adverse impact on overall sales of such products. However, the impact may not be proportionate to that experienced by distributors of other alcoholic beverages and may not be the same in every state.
The agreements we have in place with United Spirits and Dan Kay International provide the required licensing conduits that allow us to capture the sales relative to alcoholic beverages in the United States. The United States alcohol beverage business is based upon what is known as a “three-tier system.” The three tiers consist of an import or supplier tier if the product is domestically produced. The second tier is the wholesale tier. The third tier is known as the retail tier, consisting of an on and off premise split. The import/supply tier sells to the wholesale tier that then sells to the retail tier.
United Spirits, Inc. possesses the import/supply tier licensing as well as the required licenses in the states where we sell alcoholic beverages to the wholesale tier. We have contracted with United to facilitate the sales of the products using the licensing United has in place. This is a common third party provider relationship in the United States alcohol beverage business.
Dan-Kay International is the company that we contract warehousing services for the alcohol beverage products that come to rest in the United States. Dan-Kay maintains a required New York State warehousing license. This license has a level allowing the third party warehousing classified as “product of others.”
Employees
As of the date hereof, we do not have any employees other than our officers and directors. Our officers and directors will continue to work for us for the foreseeable future. We anticipate hiring appropriate personnel on an as-needed basis, and utilizing the services of independent contractors as needed.
DESCRIPTION OF PROPERTY
We lease our office and warehouse space in North Amityville, New York from United. On March 27, 2018, we entered into a lease extension with United. The extension has a term of three years from February 1, 2018 to January 31, 2021 and provides for monthly rent of $4,478.
LEGAL PROCEEDINGS
We are not a party to or otherwise involved in any legal proceedings.
In the ordinary course of business, we are from time to time involved in various pending or threatened legal actions. The litigation process is inherently uncertain and it is possible that the resolution of such matters might have a material adverse effect upon our financial condition and/or results of operations. However, in the opinion of our management, other than as set forth herein, matters currently pending or threatened against us are not expected to have a material adverse effect on our financial position or results of operations.
SELECTED FINANCIAL DATA
|
|
|
As of and for the Quarter Ended
June 30,
|
|
|
As of and for the Quarter Ended
June 30,
|
|
|
As of and for the Year Ended December 31,
|
|
|
As of and for the Year Ended December 31,
|
|
|
Iconic Brands, Inc.
|
|
2018
|
|
|
2017
|
|
|
2017
|
|
|
2016
|
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(audited and restated)
|
|
|
(audited and restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
143,551
|
|
|
$
|
190,084
|
|
|
$
|
3,219,881
|
|
|
$
|
371,815
|
|
|
Net operating income (loss)
|
|
$
|
(297,350
|
)
|
|
$
|
(121,071
|
)
|
|
$
|
168,736
|
|
|
$
|
(704,393
|
)
|
|
Net income (loss)
|
|
$
|
(679,680
|
)
|
|
$
|
2,844,567
|
|
|
$
|
4,242,883
|
|
|
$
|
(6,029,362
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
294,467
|
|
|
$
|
26,124
|
|
|
$
|
1,237,432
|
|
|
$
|
2,216
|
|
|
Current assets
|
|
$
|
694,947
|
|
|
$
|
393,172
|
|
|
$
|
1,613,353
|
|
|
$
|
217,344
|
|
|
Total assets
|
|
$
|
694,947
|
|
|
$
|
393,172
|
|
|
$
|
1,613,353
|
|
|
$
|
217,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
1,949,082
|
|
|
$
|
2,205,218
|
|
|
$
|
2,148,579
|
|
|
$
|
9,275,780
|
|
|
Total liabilities
|
|
$
|
2,381,082
|
|
|
$
|
2,205,218
|
|
|
$
|
2,844,579
|
|
|
$
|
9,275,780
|
|
|
Accumulated deficit
|
|
$
|
(17,414,887
|
)
|
|
$
|
(14,481,549
|
)
|
|
$
|
(17,075,829
|
)
|
|
$
|
(21,042,207
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share – basic and diluted
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
(0.01
|
)
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Disclaimer Regarding Forward Looking Statements
You should read the following discussion in conjunction with our financial statements and the related notes and other financial information included in this prospectus. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in the Section titled Risk Factors.
Although the forward-looking statements in this registration statement reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.
The following discussion and analysis of financial condition and results of operations of the Company is based upon, and should be read in conjunction with, our audited and unaudited financial statements and related notes elsewhere in this prospectus, which have been prepared in accordance with accounting principles generally accepted in the United States.
Summary Overview
We are a beverage company with expertise in developing, from inception to completion, alcoholic beverages for ourselves and third parties. We also market and place products into national distribution through long standing industry relationships. We engage in “Celebrity Branding” of beverages, procuring products from around the world and branding products with internationally recognized celebrities.
We intend to seek, investigate and, if such investigation warrants, acquire an interest in one or more business opportunities presented to it by persons or firms who or which desire to seek the perceived advantages of a publicly held corporation.
Our Products
BiVi LLC, our subsidiary, is made up of BiVi 100 percent Sicilian Vodka. BiVi LLC’s mission is to promote and support the sales endeavors of the distribution network through targeted and national marketing endeavors and working with celebrity partner Chazz Palminteri.
Bellissima Spirits LLC, our subsidiary, entered into a License Agreement with Christie Brinkley, Inc. an entity owned by Christie Brinkley, to use Brinkley’s endorsement, signature, and other intellectual property owned by Bellissima Spirits LLC. Bellissima by Christie Brinkley is a line of Organic Prosecco. The line includes a DOC Brut, Sparkling Rose and a Zero Sugar, Zero Carb option which are All Natural and Gluten Free with all Certified Organic and Vegan.
Results of Operations for the Three and Six Months Ended June 30, 2018 and 2017
Introduction
We had revenues of $143,551 and $190,084 for the three months ended June 30, 2018 and 2017, respectively. Our operating expenses were $359,057 and $220,145, for the three months ended June 30, 2018 and 2017, respectively. Our operating expenses consisted mostly of professional fees, marketing and advertising costs, occupancy costs, and travel and entertainment. During the six months ended June 30, 2018, we also incurred expenses for a special promotion program with a customer of $597,138, described in further detail below.
Revenues and Net Operating Loss
Our revenue, operating expenses, net operating loss, and net loss for the three and six months ended June 30, 2018 and 2017 were as follows:
|
|
|
Three Months
|
|
|
Three Months
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
Sales
|
|
$
|
143,551
|
|
|
$
|
190,084
|
|
|
$
|
205,270
|
|
|
$
|
490,973
|
|
|
Cost of Sales
|
|
|
81,843
|
|
|
|
91,008
|
|
|
|
119,252
|
|
|
|
213,246
|
|
|
Gross profit
|
|
|
61,708
|
|
|
|
99,074
|
|
|
|
86,018
|
|
|
|
277,725
|
|
|
|
|
|
43.0
|
%
|
|
|
52.1
|
%
|
|
|
41.9
|
%
|
|
|
56.6
|
%
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officers compensation
|
|
|
3,207
|
|
|
|
-
|
|
|
|
3,207
|
|
|
|
-
|
|
|
Professional and consulting fees
|
|
|
59,121
|
|
|
|
24,019
|
|
|
|
71,407
|
|
|
|
40,335
|
|
|
Royalties
|
|
|
(75,002
|
)
|
|
|
19,586
|
|
|
|
(68,412
|
)
|
|
|
50,235
|
|
|
Special promotion program with customer
|
|
|
-
|
|
|
|
-
|
|
|
|
597,138
|
|
|
|
-
|
|
|
Marketing and advertising
|
|
|
192,740
|
|
|
|
4,226
|
|
|
|
252,055
|
|
|
|
21,688
|
|
|
Occupancy costs
|
|
|
36,696
|
|
|
|
35,956
|
|
|
|
80,494
|
|
|
|
55,971
|
|
|
Travel and entertainment
|
|
|
68,986
|
|
|
|
29,809
|
|
|
|
109,301
|
|
|
|
81,583
|
|
|
Other operating expenses
|
|
|
73,309
|
|
|
|
106,549
|
|
|
|
103,562
|
|
|
|
159,783
|
|
|
Total operating expenses
|
|
|
359,057
|
|
|
|
220,145
|
|
|
|
1,148,752
|
|
|
|
409,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss
|
|
|
(297,350
|
)
|
|
|
(121,071
|
)
|
|
|
(1,062,734
|
)
|
|
|
(131,870
|
)
|
|
Other income (expense)
|
|
|
(382,330
|
)
|
|
|
2,965,638
|
|
|
|
284,577
|
|
|
|
6,172,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss (income) attributable to noncontrolling interests in subsidiaries and variable interest entity
|
|
|
91,352
|
|
|
|
16,854
|
|
|
|
439,099
|
|
|
|
15,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(588,328
|
)
|
|
$
|
2,861,421
|
|
|
$
|
(339,058
|
)
|
|
$
|
6,056,779
|
|
Sales
Our sales are comprised of sales of BiVi Sicilian Vodka and Bellissima Prosecco and Sparkling Wine. We had sales of $143,551 and $190,084 for the three months ended June 30, 2018 and 2017, respectively. We had sales of $205,270 and $490,973 for the six months ended June 30, 2018 and 2017, respectively.
Cost of Sales
Cost of sales for the three months ended June 30, 2018 were $81,843 compared to $91,008 during the three months ended June 30, 2017, a decrease of $9,165. Cost of sales for the six months ended June 30, 2018 were $119,252 compared to $213,246 during the six months ended June 30, 2017, a decrease of $93,994. Cost of sales included the cost of the products purchased from our Italian suppliers, freight-in costs and import duties. The decreased cost of sales in the current period was primarily due to lower sales in the current period.
Officers Compensation
Officers compensation for the three and six months ended June 30, 2018 was $3,207. We had no officers compensation for the three or six months ended June 30, 2017. During the time period through June 30, 2018, the Company used the services of its chief executive officer Richard DeCicco and its assistant secretary Roseann Faltings under informal compensation arrangements (without any employment agreements). Both entered into employment agreements effective July 1, 2018.
For the years ended December 31, 2017 and 2016, the Company accrued compensation of $250,000 per year ($150,000 for Mr. DeCicco; $100,000 for Ms. Faltings) for their services rendered. In 2016, the compensation was allocated 50% to Iconic ($125,000), 30% to Bellissima ($75,000), and 20% to BiVi ($50,000). In 2017, the compensation was allocated 50% to Iconic ($125,000), 40% to Bellissima ($100,000), and 10% to BiVi ($25,000). The $500,000 liability at June 30, 2018 and December 31, 2017 is included in “Accounts Payable and Accrued Expenses” on the Consolidated Balance Sheet at June 30, 2018 and December 31, 2017.
Professional and Consulting Fees
Professional and consulting fees expense was $59,121, for the three months ended June 30, 2018, compared to $24,019, for the three months ended June 30, 2017, an increase of $35,102, or 146%. Professional and consulting fees expense was $71,407, for the six months ended June 30, 2018, compared to $40,335, for the six months ended June 30, 2017, an increase of $31,072, or 77%.
Professional and consulting fees consist primarily of legal and, accounting and auditing services. The increase of these fees was primarily due to increased use of professionals relating to financing and auditing activity. In May 2018, we recognized $23,250 of stock-based compensation charged to professional and consulting fees in connection with the issuance of 7,500,000 warrants to a law firm for services rendered.
Royalties
Royalties for the three months ended June 30, 2018 were $(75,002) compared to $19,586 during the three months ended June 30, 2017, a decrease of $94,588. Royalties for the six months ended June 30, 2018 were $(68,412) compared to $50,235 during the six months ended June 30, 2017, a decrease of $118,647. Royalties are paid to entities controlled by Christie Brinkley (on sales of Bellissima products) and Chazz Palminteri (on sales of BiVi products). The decrease in royalties in 2018 was due to a June 2018 reduction of an over accrual of estimated royalties payable at December 31, 2017.
Special Promotion Program with Customer
During the six months ended June 30, 2018, we incurred a marketing expense of $597,138 associated with the sale of approximately $2.1 million of the Bellissima product. This expense related to a “buy one get one free offer” which was offered by a major retailer for which redemptions were submitted in the first quarter of 2018. This was a one-time expense and we did not have this expense in any other period.
Marketing and Advertising
Marketing and advertising expenses for the three months ended June 30, 2018 were $192,740 compared to $4,226 during the three months ended June 30, 2017, an increase of $188,514. Marketing and advertising expenses for the six months ended June 30, 2018 were $252,055 compared to $21,688 during the six months ended June 30, 2017, an increase of $230,367. The increase of marketing and advertising expenses in the current period was primarily due to (1) costs relating to certain conventions which we participated in to promote a new line of Bellissima products; (2) promotional programs with our Bellissima customer servicing Publix; and (3) a $65,000 obligation to a consultant who we contracted to find new customers for Bellissima products.
Occupancy Costs
Occupancy costs for the three months ended June 30, 2018 were $36,696 compared to $35,956 during the three months ended June 30, 2017, an increase of $740. Occupancy costs for the six months ended June 30, 2018 were $80,494 compared to $55,971 during the six months ended June 30, 2017, an increase of $24,523. Occupancy costs consist primarily of lease payments for office and warehouse space in Amityville, New York and office space in New Hampshire. The increased occupancy costs in the current period was primarily due to an increase in monthly rent for the Amityville, New York space commencing February 2018.
Travel and Entertainment
Travel and entertainment expenses for the three months ended June 30, 2018 were $68,986 compared to $29,809 during the three months ended June 30, 2017, an increase of $39,177. Travel and entertainment expenses for the six months ended June 30, 2018 were $109,301 compared to $81,583 during the six months ended June 30, 2017, an increase of $27,718, or 34%. Travel and entertainment expenses consist primarily of airfare, hotel and related costs incurred in connection with trips made by our CEO and assistant secretary for marketing and potential new product purposes.
Other Operating Expenses
Other operating expenses were $73,309, for the three months ended June 30, 2018, compared to $106,549, for the three months ended June 30, 2017, a decrease of $33,240, or 31%. Other operating expenses were $103,562, for the six months ended June 30, 2018, compared to $159,783, for the six months ended June 30, 2017, a decrease of $56,221, or 35%. Other operating expenses include automobile, insurance, compliance, and office expenses and expenses relating to Christie Brinkley appearances at Bellissima promotions.
Net Operating Loss
Net operating loss was $297,350 for the three months ended June 30, 2018, compared to $121,071, for the three months ended June 30, 2017, an increase of $176,279. Net operating loss was $1,062,734 for the six months ended June 30, 2018, compared to $131,870, for the six months ended June 30, 2017, an increase of $930,864. Net operating loss increased for the six months ended June 30, 2018, primarily due to the special promotion program with customer described above, lower sales revenue and higher marketing expenses.
Other Income/Expense
Other expense was $382,330 for the three months ended June 30, 2018, compared to other income of $2,965,638 for the three months ended June 30, 2017, a decrease of $3,347,968. Other expense for the three months ended June 30, 2018 included expense from derivative liability of $321,017 compared to income from derivative liability of $2,989,230 for the three months ended June 30, 2017. Other income was $284,577 for the six months ended June 30, 2018, compared to other income of $6,172,752 for the six months ended June 30, 2017, a decrease of $5,888,175. Other income for the six months ended June 30, 2018 included income from derivative liability of $405,848 compared to income from derivative liability of $6,228,292 for the three months ended June 30, 2017.
The change in other income attributable to derivative liabilities is based on the various debt and warrant issuances outstanding as of the balance sheet dates. The $6,228,292 income from derivative liability for the six months ended June 30, 2017 resulted primarily from a $535,352 decrease in convertible notes payable with variable conversion features from $962,623 at December 31, 2016 to $427,271 at June 30, 2017.
Income of $405,848 from derivative liabilities during the six months ended June 30, 2018 consisted of $141,848 from convertible notes (largely due to the decrease in our stock price from $0.0065 per share at December 31, 2017 to $0.0048 per share at June 30, 2018) and $264,000 from warrants (also largely due to the decrease in our stock price from $0.0065 per share at December 31, 2017 to $0.0048 per share at June 30, 2018).
Net Loss (Income) Attributable to Noncontrolling Interests in Subsidiaries and Variable Interest Entity
Net loss attributable to noncontrolling interests in subsidiaries and variable interest entity represents 49% of the net loss of Bellissima and BiVi (which we own 51%) and 100% of United Spirits (which we own 0%) and is accounted for as a reduction in the net loss attributable to the Company. This net loss for the three months ended June 30, 2018 was $91,352 compared to net loss of $16,854 for the three months ended June 30, 2017. Net loss from other entities increased for the three months ended June 30, 2018 primarily due to the higher net loss of Bellissima in 2018.
Net loss attributable to noncontrolling interests in subsidiaries and variable interest entity for the six months ended June 30, 2018 was $439,099 compared to net loss of $15,897 for the six months ended June 30, 2017. Net loss from other entities increased during the six months ended June 30, 2018, primarily due to the higher net loss of Bellissima in 2018.
Net Income/Loss
Net loss attributable to the Company for the three months ended June 30, 2018 was $588,328 or $(0.00) per share compared to net income attributable to the Company of $2,861,421 or $0.00 per share for the three months ended June 30, 2017. Net income (loss) attributable to the Company decreased during the three months ended June 30, 2018, as set forth above, primarily due to a change in the income from derivative liability from $2,989,230 in 2017 to a loss of $321,017 in 2018.
Net loss attributable to the Company for the six months ended June 30, 2018 was $(339,058) or $(0.00) per share compared to net income attributable to the Company of $6,056,779 or $0.01 per share for the six months ended June 30, 2017. Net income (loss) attributable to the Company decreased during the six months ended June 30, 2018, as set forth above, primarily due to a change in the income from derivative liability from $6,228,292 in 2017 to $405,848 in 2018.
Results of Operations for the Years Ended December 31, 2017 and 2016
Introduction
We had revenues of $3,219,881 and $371,815 for the years ended December 31, 2017 and 2016, respectively. Our operating expenses were $1,264,519 for the year ended December 31, 2017 compared to $828,134 for the year ended December 31, 2016, an increase of $436,385, or 53%. Our operating expenses included royalties of $321,741 in 2017. Under a license agreement dated May 25, 2015, BiVi LLC pays a royalty fee equal to 5% of monthly gross sales of BiVi Brand products with minimum royalty fees of $100,000 in the first year, $150,000 in the second year, $165,000 in the third year, $181,500 in the fourth year, $199,650 in the fifth year and $219,615 in the sixth year and each subsequent year. Under a license agreement, Bellissima Spirits LLC pays a royalty fee equal to 10% of monthly gross sales of Bellissima Brand products.
Revenues and Net Operating Loss
Our revenues, operating expenses, and net operating loss for the years ended December 31, 2017 and 2016 were as follows:
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Increase /
|
|
|
|
|
2017
|
|
|
2016
|
|
|
(Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
3,219,881
|
|
|
$
|
371,815
|
|
|
$
|
2,848,066
|
|
|
Cost of Sales
|
|
|
1,786,626
|
|
|
|
248,074
|
|
|
|
1,538,552
|
|
|
Gross Profit
|
|
|
1,433,255
|
|
|
|
123,741
|
|
|
|
1,309,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalties
|
|
|
321,741
|
|
|
|
33,778
|
|
|
|
287,963
|
|
|
Professional fees
|
|
|
87,671
|
|
|
|
90,074
|
|
|
|
(2,403
|
)
|
|
Other operating expenses
|
|
|
771,094
|
|
|
|
704,282
|
|
|
|
66,812
|
|
|
Total operating expenses
|
|
|
1,264,519
|
|
|
|
828,134
|
|
|
|
436,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income (loss)
|
|
|
168,736
|
|
|
|
(704,393
|
)
|
|
|
873,129
|
|
|
Other income (expense)
|
|
|
4,074,147
|
|
|
|
(5,324,969
|
)
|
|
|
9,399,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss (income) attributable to noncontrolling interests in subsidiaries and variable interest entity
|
|
|
(276,505
|
)
|
|
|
58,120
|
|
|
|
(334,625
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
3,966,378
|
|
|
$
|
(5,971,242
|
)
|
|
$
|
9,937,620
|
|
Sales
Our sales are comprised of sales of BiVi Sicilian Vodka and Bellissima Prosecco and Sparkling Wine. Sales were $3,219,881 for the year ended December 31, 2017 compared to $371,815 for the year ended December 31, 2016, an increase of $2,848,066, or 766%. Sales increased primarily due to significant sales to our Bellissima customer servicing Publix from September 2017 to December 2017.
Cost of Sales
Cost of sales for the year ended December 31, 2017 were $1,786,626 compared to $248,074 during the year ended December 31, 2016, an increase of $1,538,552. Cost of sales includes the cost of the products purchased from our Italian suppliers, freight-in costs and import duties. The increased cost of sales in the current period was primarily due to higher sales in 2017 compared to 2016.
Officers Compensation
Officers compensation for the year ended December 31, 2017 was $250,000 compared to $271,521 for the year ended December 31, 2016, a decrease of $21,521 or 8%.
For the years ended December 31, 2017 and 2016, the Company accrued compensation of $250,000 per year ($150,000 for Mr. DeCicco; $100,000 for Ms. Faltings) for their services rendered. In 2016, the compensation was allocated 50% to Iconic ($125,000), 30% to Bellissima ($75,000), and 20% to BiVi ($50,000). In 2017, the compensation was allocated 50% to Iconic ($125,000), 40% to Bellissima ($100,000), and 10% to BiVi ($25,000). The $500,000 liability at June 30, 2018 and December 31, 2017 is included in “Accounts Payable and Accrued Expenses” on the Consolidated Balance Sheet at June 30, 2018 and December 31, 2017.
Professional and Consulting Fees
Professional and consulting fees expense was $87,671, for the year ended December 31, 2017, compared to $90,074, for the year ended December 31, 2016, a decrease of $2,403, or about 3%.
Professional and consulting fees consist primarily of legal and, accounting and auditing services.
Royalties
We expensed royalties of $321,741 for the year ended December 31, 2017 compared to $33,778 for the year ended December 31, 2016, an increase of $287,963, or 853%. Royalties increased due to the higher sales in 2017 compared to 2016.
Marketing and Advertising
Marketing and advertising expenses for the year ended December 31, 2017 were $84,013 compared to $108,155 during the year ended December 31, 2016, a decrease of $24,142.
Occupancy Costs
Occupancy costs for the year ended December 31, 2017 were $107,118 compared to $50,125 during the year ended December 31, 2016, an increase of $56,993. Occupancy costs consist primarily of lease payments for office and warehouse space in Amityville, New York and office space in New Hampshire.
Travel and Entertainment
Travel and entertainment expenses for the year ended December 31, 2017 were $141,821 compared to $164,656 for the year ended December 31, 2016, a decrease of $22,835, or about 14%. Travel and entertainment expenses consist primarily of airfare, hotel and related costs incurred in connection with trips made by our CEO and assistant secretary for marketing and potential new product purposes.
Other Operating Expenses
Other operating expenses were $272,155 for the year ended December 31, 2017 as compared to $109,825 for the year ended December 31, 2016, an increase of $162,330, or about 148%. For the year ended December 31, 2017, other operating expenses include automobile, insurance, office expenses and expenses relating to Christie Brinkley appearances at Bellissima promotions.
Net Operating Income/Loss
Net operating income for the year ended December 31, 2017 was $168,736, compared to a net operating loss of ($704,393) for the year ended December 31, 2016, an increase of $873,129. Net operating income (loss) increased, as set forth above, primarily because sales increased by $2,848,066, offset by increases in cost of sales and operating expenses.
Other Income/Expense
Other income for the year ended December 31, 2017 was $4,074,147, compared to other expenses of ($5,324,969) for the year ended December 31, 2016, an increase of $9,399,116. The increase was primarily due to fluctuations of our derivative liabilities from an expense of ($5,357,645) for the year ended December 31, 2016 to income of $7,429,979 for the year ended December 31, 2017. We also reported losses on conversion of debt of ($3,178,010) for the year ended December 31, 2017 and ($202,162) for the year ended December 31, 2016.
Our convertible notes contain variable conversion features based on the future trading price of our common stock. Therefore, the number of shares of common stock issuable upon conversion of the notes are indeterminate. Accordingly, we recorded the $7,260,885 fair value of the embedded conversion features at December 31, 2016 as a derivative liability. The $6,802,813 decrease in the fair value of the derivative liability from $7,260,885 at December 31, 2016 to $458,072 at December 31, 2017 was credited to income from derivative liability. For further details, see Note 8 of our consolidated financial statements for the years ended December 31, 2017 and 2016.
Net Loss (Income) attributable to Noncontrolling Interests in Subsidiaries and Variable Interest Entity
Net loss (income) attributable to noncontrolling interests in subsidiaries and variable interest entity represents 49% of the net loss of Bellissima and BiVi (which we own 51%) and 100% of United Spirits (which we own 0%) and is accounted for as a reduction in the net loss attributable to the Company. This net loss (income) for the year ended December 31, 2017 was $(276,505) compared to net loss of $58,120 for the year ended December 31, 2016, a decrease of $334,625. Net loss (income) from other entities decreased during the year ended December 31, 2017 primarily due to net income of Bellissima in 2017.
Net Income/Loss
Net income attributable to the Company for the year ended December 31, 2017 was $3,966,378, or $0.00 per share, compared to a net loss of ($5,971,242, or $(0.01) per share, for the year ended December 31, 2016, an increase of $9,937,620. Net income (loss) increased, as set forth above, primarily due to the $2,848,066 increase of our sales and income from derivative liabilities of $7,429,979, offset by a loss on conversion of debt of ($3,178,010).
Liquidity and Capital Resources
Introduction
During the year ended December 31, 2017, because we generated sufficient revenue, we had positive operating cash flows. Our cash on hand as of June 30, 2018 was $294,467. Our average monthly cash flow burn rate for 2017 was approximately $20,000 while our average monthly cash provided by operating activities was approximately $56,000.We have medium cash needs in the short term, and as our operating expenses increase, we will face strong to medium long term cash needs. We anticipate that our cash flows from operations will satisfy our cash flow needs for the next year, but if revenues do not keep up with our expenses, it will be necessary to seek other methods to finance our operations and any growth opportunities, including the sale of convertible debt and equity securities.
Our cash, current assets, total assets, current liabilities, and total liabilities as of June 30, 2018 and December 31, 2017, respectively, are as follows:
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
294,467
|
|
|
$
|
1,237,432
|
|
|
$
|
(942,965
|
)
|
|
Total Current Assets
|
|
|
694,947
|
|
|
|
1,613,353
|
|
|
|
(918,406
|
)
|
|
Total Assets
|
|
|
694,947
|
|
|
|
1,613,353
|
|
|
|
(918,406
|
)
|
|
Total Current Liabilities
|
|
|
1,949,082
|
|
|
|
2,148,579
|
|
|
|
(199,497
|
)
|
|
Total Liabilities
|
|
$
|
2,381,082
|
|
|
$
|
2,844,579
|
|
|
$
|
(463,497
|
)
|
Our cash and total current assets decreased primarily due to the $1,062,734 loss from operations in the six months ended June 30, 2018. Our total current liabilities decreased primarily due to the $241,021 decrease in accounts payable and accrued expense and the $141,848 decrease in derivative liability on convertible debt, offset by increases in other current liabilities. Our working capital deficit increased from ($535,226) to ($1,254,135), and our stockholders’ deficit increased by $454,909 to $1,686,135.
We hope that the revenues we generate from sales of our products will be able to satisfy our obligations in full without the need to raise significant capital from other sources. There is no assurance, however, that we will be successful in these efforts. Please see the “
Risk Factors
” beginning on page 5.
Cash Requirements
Our cash on hand as of June 30, 2018 was $294,467. We anticipate that the funding from our existing contractual relationships will be enough to sustain us for the next 12 months.
Sources and Uses of Cash for the Six Month Periods Ended June 30, 2018 and 2017
Operations
We had net cash used in operating activities of $1,305,072 for the six months ended June 30, 2018, compared to $256,647 for the six months ended June 30, 2017. The $1,048,425 increase was primarily due to the $1,062,734 loss from operations.
Investments
We had no net cash provided by or used in investing activities for the three and six months ended June 30, 2018 and 2017. Our future plans include raising additional working capital for the purpose of funding marketing, inventory purchases, sales efforts and staffing increases along with other operational opportunities.
Financing
Our net cash provided by financing activities for the six months ended June 30, 2018 was $362,107, which consisted of $300,000 of proceeds from the sale of Series E Preferred Stock and warrants, compared to net cash provided by financing activities of $327,076 for the six months ended June 30, 2017, which consisted of proceeds from the issuance of debt of $300,894 and net proceeds from loans payable to an officer and affiliated entity of $26,182.
Sources and Uses of Cash for the Year Ended December 31, 2017 and 2016
Operations
Our net cash provided by (used in) operating activities for the years ended December 31, 2017 and 2016 was $674,030 and ($235,752), respectively, an increase of $909,782. The increase was primarily due to the $873,129 increase in income (loss) from operations from $(704,393) in 2016 to $168,736 in 2017.
Investments
We had no net cash provided by or used in investing activities for the years ended December 31, 2017 and 2016. Our future plans include raising additional working capital for the purpose of funding marketing, inventory purchases, sales efforts and staffing increases along with other operational opportunities.
Financing
Our net cash provided by financing activities for the years ended December 31, 2017 and 2016 was $561,186 and $232,159, respectively, an increase of $329,027, or 142%. The increase was primarily a result of proceeds from the issuance of debt-net in 2017 of $341,837, compared to $223,303 in 2016, and proceeds of $300,000 from the sale of common stock and warrants in 2017 while we had no such proceeds in 2016.
Critical Accounting Policies and Estimates
Principles of Consolidation
The consolidated financial statements include the accounts of Iconic, its two 51% owned subsidiaries BiVi LLC and Bellissima Spirits LLC, and United Spirits, Inc., a variable interest entity of Iconic (see Note 5 of our consolidated financial statements for the years ended December 31, 2017 and 2016) (collectively, the “
Company
”). All inter-company balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Fair Value of Financial Instruments
Generally accepted accounting principles require disclosing the fair value of financial instruments to the extent practicable for financial instruments which are recognized or unrecognized in the balance sheet. The fair value of the financial instruments disclosed herein is not necessarily representative of the amount that could be realized or settled, nor does the fair value amount consider the tax consequences of realization or settlement.
In assessing the fair value of financial instruments, we use a variety of methods and assumptions, which are based on estimates of market conditions and risks existing at the time. For certain instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, it was estimated that the carrying amount approximated fair value because of the short maturities of these instruments. All debt is carried at face value less any unamortized debt discounts.
Cash and Cash Equivalents
We consider all liquid investments purchased with original maturities of ninety days or less to be cash equivalents. At December 31, 2017, cash included approximately $931,076 not covered by FDIC insurance.
Accounts Receivable, Net of Allowance for Doubtful Accounts
We extend unsecured credit to customers in the ordinary course of business but mitigates risk by performing credit checks and by actively pursuing past due accounts. The allowance for doubtful accounts is based on customer historical experience and the aging of the related accounts receivable. At December 31, 2017 and 2016, the allowance for doubtful accounts was $0.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or market, with due consideration given to obsolescence and to slow moving items. Inventory at December 31, 2017 and December 31, 2016 consists of cases of BiVi Vodka and cases of Bellissima sparkling wines purchased from our Italian suppliers.
Revenue Recognition
Revenue from product sales is recognized when all of the following criteria are met: (1) persuasive evidence of an arrangement exists, (2) the price is fixed or determinable, (3) collectability is reasonably assured, and (4) delivery has occurred. Persuasive evidence of an arrangement and fixed price criteria are satisfied through purchase orders. Collectability criteria are satisfied through credit approvals. Delivery criteria are satisfied when the products are shipped to a customer and title and risk of loss passes to the customer in accordance with the terms of sale. We have no obligation to accept the return of products sold other than for replacement of damaged products. Other than quantity price discounts negotiated with customers prior to billing and delivery (which are reflected as a reduction in sales), we do not offer any sales incentives or other rebate arrangements to customers.
Shipping and Handling Costs
Shipping and handling costs to deliver product to customers are reported as operating expenses in the accompanying statements of operations. Shipping and handling costs to purchase inventory are capitalized and expensed to cost of sales when revenue is recognized on the sale of product to customers.
Stock-Based Compensation
Stock-based compensation is accounted for at fair value in accordance with Accounting Standards Codification (“ASC”) Topic 718, “Compensation-Stock Compensation”. For the year ended December 31, 2017, stock-based compensation was $20,000. For the year ended September 30, 2016, stock-based compensation was $0.
Income Taxes
Income taxes are accounted for under the assets and liability method. Current income taxes are provided in accordance with the laws of the respective taxing authorities. Deferred income taxes are provided for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is not more likely than not that some portion or all of the deferred tax assets will be realized.
Net Income (Loss) per Share
Basic net income (loss) per common share is computed on the basis of the weighted average number of common shares outstanding and to be issued to Escrow Agent (see Note 8 of our consolidated financial statements for the years ended December 31, 2017 and 2016) during the period of the financial statements.
Diluted net income (loss) per common share is computed on the basis of the weighted average number of common shares and to be issued to Escrow Agent (see Note 8 of our consolidated financial statements for the years ended December 31, 2017 and 2016) 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.
The following is a reconciliation of the numerator and denominator we used in our computation of diluted earnings per common share for the year ended December 31, 2017:
|
Numerator:
|
|
|
|
|
|
|
|
Net income attributable to Iconic Brands, Inc.
|
|
$
|
3,966,378
|
|
|
|
Add interest expense on convertible debt assumed to be converted at later of issuance date or January 1, 2017
|
|
|
70,649
|
|
|
|
Net income available to common shareholders
|
|
$
|
4,037,027
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding and to be issued to Escrow Agent
|
|
|
1,311,739,126
|
|
|
|
Add:
|
Convertible Debt
|
|
|
255,250,127
|
|
|
|
|
Warrants
|
|
|
-
|
|
|
|
|
Series D Preferred Stock
|
|
|
1,630,947,998
|
|
|
|
Diluted weighted average common shares outstanding and to be issued to Escrow Agent
|
|
|
3,197,937,251
|
|
We did not include any outstanding warrants from the diluted shares calculation as the $0.01 exercise price of the outstanding warrants was higher than the average trading price of our common stock for the relevant periods.
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 our financial position and results of operations from adoption of these standards is not expected to be material.
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
We have no disclosure required by this item.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS
The following table sets forth the names, ages, and biographical information of each of our current directors and executive officers, and the positions with the Company held by each person, and the date such person became a director or executive officer of the Company. Our executive officers are elected annually by the Board of Directors. The directors serve one-year terms until their successors are elected. The executive officers serve terms of one year or until their death, resignation or removal by the Board of Directors. Family relationships among any of the directors and officers are described below.
|
Name
|
|
Age
|
|
Position(s)
|
|
|
|
|
|
|
|
Richard DeCicco
|
|
60
|
|
Chief Executive Officer, Director
|
|
|
|
|
|
|
|
Roseann Faltings
|
|
61
|
|
Secretary, Director
|
Richard DeCicco
, age 60, is our Chief Executive Officer and a member of our Board of Directors. Mr. DeCicco has served as our President, Secretary and Director since 2007 (with the only exception of the period between September 2014 and April 2015). With over 34 years’ experience in the global liquor industry, Mr. DeCicco has been a senior executive and a leader in the wine and spirits industry. Previously, Mr. DeCicco served as President of Harbrew Imports Ltd. since its inception in 1999. Prior to his appointment at Harbrew Imports Ltd, Mr. DeCicco was the CEO and President of Harbor Industries from 1990 to 1997. Harbor Industries is a production facility, which handles over 2 million cases of products per year and with over 600 employees. In addition to having been the national provider for The Paddington Corporation brands from 1990 to 1997, Mr. DeCicco pioneered what is now known within the field as Value Added Packaging (VAP). Mr. DeCicco brings a great deal of creativity, market savvy, and brand development knowledge to our company.
Roseann Faltings
, age 61, is our Secretary and a member of our Board of Directors. Ms. Faltings is an international liquor industry veteran of more than 12 years with experience in brand development, marketing, sales and distribution across the beer, wine and spirits categories. Throughout her executive career, Roseann has worked on United Spirits’ current brand portfolio, as well as Danny DeVito’s Premium Limoncello, Yanjing Beer, (The National Beer of China), Johnny Bench 5 Scotch Whisky and other private label products. Ms. Faltings was previously an employee of the Company, beginning in 2003. In 2005, she was appointed VP of Sales and Marketing for Iconic Brands, Inc. and she continued to serve in that role until she resigned pursuant to the terms of the merger with MMBA in September of 2014. Ms. Faltings maintains strong relationships within the U.S. distribution and wholesale supply chain. One of highlights of her career was the negotiations with Paramount Studios in the development of “The Godfather Vodka” that she spearheaded.
EXECUTIVE COMPENSATION
Narrative Disclosure of Executive Compensation
The Company uses the services of its chief executive officer Richard DeCicco and its assistant secretary Roseann Faltings under Employment Agreements that took effect on July 1, 2018. Prior to that date, they provided their services according to informal compensation arrangements (without any employment agreements).
For the years ended December 31, 2017 and 2016, the Company accrued compensation of $250,000 per year ($150,000 for Mr. DeCicco; $100,000 for Ms. Faltings) for their services rendered. We have not yet paid these amounts to the officers, and the $500,000 liability at June 30, 2018 and December 31, 2017 is included in “Accounts Payable and Accrued Expenses” on the Consolidated Balance Sheet at June 30, 2018 and December 31, 2017.
Employment Agreements
Richard DeCicco
Effective July 1, 2018, we entered into an Employment Agreement with Mr. DeCicco. Pursuant to his Employment Agreement, Mr. DeCicco will receive a base salary of $265,000 per year. In exchange for services previously performed, Mr. DeCicco was also granted a stock award under the Employment Agreement. However, these shares will not be issued until the Company undergoes a reverse stock split. The award is equal to the post-reverse split equivalent of 75,000,000 shares of our common stock. For example, if the Company undergoes a 250-for-1 reverse stock split, he will be issued 300,000 shares post-split. His stock award includes registration rights to be included in the next registration statement after issuance. We will provide Mr. DeCicco with a car and cover its expenses. Mr. DeCicco will also be entitled to participate in our employee benefit plans and receive equity incentive awards as determined by the Board of Directors.
If we sell any brand that we own, we will pay Mr. DeCicco 23% of the gross sales proceeds of the sale. This provision survives any termination of his Employment Agreement.
If we terminate Mr. DeCicco without Cause or he resigns for Good Reason, as defined in the Employment Agreement, we must pay Mr. DeCicco a severance equal to twice his annual base salary. We will also pay him any earned but unpaid bonuses.
Roseann Faltings
Effective July 1, 2018, we entered into an Employment Agreement with Ms. Faltings. Pursuant to his Employment Agreement, Ms. Faltings will receive a base salary of $150,000 per year. In exchange for services previously performed, Ms. Faltings was also granted a stock award under the Employment Agreement However, these shares will not be issued until the Company undergoes a reverse stock split. The award is equal to the post-reverse split equivalent of 25,000,000 shares of our common stock. For example, if the Company undergoes a 250-for-1 reverse stock split, she will be issued 100,000 shares post-split. Her stock award includes registration rights to be included in the next registration statement after issuance. We will provide Ms. Faltings with a car and cover its expenses. Ms. Faltings will also be entitled to participate in our employee benefit plans and receive equity incentive awards as determined by the Board of Directors.
If we sell any brand that we own, we will pay Ms. Faltings 23% of the gross sales proceeds of the sale. This provision survives any termination of her Employment Agreement.
If we terminate Ms. Faltings without Cause or she resigns for Good Reason, as defined in the Employment Agreement, we must pay Ms. Faltings a severance equal to twice her annual base salary. We will also pay her any earned but unpaid bonuses.
Summary Compensation Table
The following table sets forth information with respect to compensation earned by our Chief Executive Officer and Secretary for the years ended December 31, 2017 and 2016.
|
Name and
Principal Position
|
|
Year
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($)
|
|
|
Option Awards
($)
|
|
|
Non-Equity Incentive Plan Compensation ($)
|
|
|
Nonqualified Deferred Compensation ($)
|
|
|
All Other
Compensation
($)
|
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard DeCicco,
|
|
2017
|
|
|
150,000
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
150,000
|
|
|
Chief Executive Officer
(1)
|
|
2016
|
|
|
150,000
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Roseann Faltings,
|
|
2017
|
|
|
100,000
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
100,000
|
|
|
Secretary
(2)
|
|
2016
|
|
|
100,000
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
100,000
|
|
Director Compensation
We do not currently have an established policy to provide compensation to members of our Board of Directors for their services in that capacity. We may develop such a policy in the future, but for now all of our directors are also officers, and we do not currently intend to provide for additional compensation related to their duties as directors.
Outstanding Equity Awards at Fiscal Year-End
We do not currently have a stock option or grant plan.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of September 14, 2018, certain information with respect to our equity securities owned of record or beneficially by (i) each Officer and Director of the Company; (ii) each person who owns beneficially more than 5% of each class of our outstanding equity securities; and (iii) all Directors and Executive Officers as a group.
|
NAME AND ADDRESS:
(1)
|
|
Richard DeCicco
(6)
|
|
|
Roseann Faltings
(6)
|
|
|
Total Officers and Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMON STOCK:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock Shares
|
|
|
578,423,626
|
(7)
|
|
|
516,875,545
|
(8)
|
|
|
1,633,219,585
|
(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Outstanding Common Stock
(2)
|
|
|
28.5
|
%
(7)
|
|
|
25.5
|
%
(8)
|
|
|
53.0
|
%
(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PREFERRED STOCK:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A Preferred Stock Shares
|
|
|
1
|
|
|
|
-
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Outstanding Series A Preferred Stock
(3)
|
|
|
100
|
%
|
|
|
-
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series C Preferred Stock Shares
|
|
|
1,000
|
|
|
|
-
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Outstanding Series C Preferred Stock
(4)
|
|
|
100
|
%
|
|
|
-
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series D Preferred Stock Shares
|
|
|
5
|
|
|
|
5
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Outstanding Series D Preferred Stock
(5)
|
|
|
50
|
%
|
|
|
50
|
%
|
|
|
100
|
%
|
________________
|
(1)
|
Unless otherwise indicated, the address of the shareholder is c/o Iconic Brands, Inc., 44 Seabro Avenue, Amityville, NY 11701.
|
|
|
|
|
(2)
|
Based on 1,509,941,153 shares of common stock, 1 share of Series A Preferred Stock, 1,000 shares of Series C Preferred Stock and 10 shares of Series D Preferred Stock, issued and outstanding. Shares of common stock subject to options or warrants currently exercisable, or exercisable within 60 days, are deemed outstanding for purposes of computing the percentage of the person or group holding such options or warrants, but are not deemed outstanding for purposes of computing the percentage of any other person.
|
|
|
|
|
(3)
|
Based on one (1) share of Series A Preferred Stock issued and outstanding.
|
|
|
|
|
(4)
|
Based on one thousand (1,000) shares of Series C Preferred Stock issued and outstanding.
|
|
|
|
|
(5)
|
Based on ten (10) shares of Series D Preferred Stock issued and outstanding.
|
|
|
|
|
(6)
|
Indicates one of our officers or directors.
|
|
|
|
|
(7)
|
Includes 61,598,131 shares of common stock and 506,342,229 shares of common stock issuable upon conversion of all five (5) shares of Series D Preferred Stock.
|
|
|
|
|
(8)
|
Includes 50,050 shares of common stock and 506,342,229 shares of common stock issuable upon conversion of all five (5) shares of Series D Preferred Stock.
|
|
|
|
|
(9)
|
Includes 61,648,181 shares of common stock and 1,604,341,899 shares of common stock issuable upon conversion of all ten (10) shares of Series D Preferred Stock.
|
Other than as set forth above, the issuer is not aware of any person who owns of record, or is known to own beneficially, five percent (5%) or more of the outstanding securities of any class of the issuer.
There are no current arrangements which will result in a change in control.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Share Exchange Agreement and Subsequent Unwind of Merger
On September 10, 2014, we entered into a Share Exchange Agreement (the “Agreement”) and merger with Medical Marijuana Business Academy, LLC, a company organized pursuant to the laws of the State of Colorado (“MMBA”), and MJ Business Academy, Inc., a Nevada corporation and a wholly-owned subsidiary of the Company (“Merger Sub”), pursuant to which, on September 10, 2014, MMBA merged with and into Merger Sub, with Merger Sub continuing as the surviving entity that succeeded to all of the assets, liabilities and operations of MMBA and whereby MMBA effectively became our wholly-owned operating subsidiary (the “Merger”).
At the effective time of the Merger, the outstanding membership interest units of MMBA, held by Phillip Stark and Charles Houghton, were exchanged for a total of 60,000,000 newly issued shares of our common stock as consideration for the Merger, and as such, Mr. Stark and Mr. Houghton, as the sole members of MMBA, held a controlling voting interest in our outstanding common stock. At Closing, our CEO, Richard DeCicco, also transferred his One (1) Share of Series A Preferred Stock to Mr. Stark and Mr. Houghton, giving them control of the our preferred stock, as well.
The Agreement contained customary terms and conditions for agreements of this type, including completion of due diligence by the parties and approval of the Merger by MMBA members. At the effective time of the Merger, MMBA’s current officers and directors were appointed as officers and directors of the Company. The Merger became effective on September 10, 2014.
A copy of the Agreement was attached to our Form 8-K filed with the SEC on May 21, 2015 as Exhibit 2.1. The description of the Agreement herein is qualified by the terms of the full text of the agreement attached thereto and the terms thereof are incorporated herein by reference.
Effective on April 9, 2015, the Company, MMBA and Merger Sub entered into an Unwind Agreement (the “Unwind Agreement”) whereby Mr. Houghton and Mr. Stark agreed to transfer their 60,000,000 shares of our common stock, and to return the One (1) Share of Series A Preferred Stock to Mr. DeCicco, in exchange for the unwinding of the merger, and a return to Mr. Houghton and Mr. Stark of all of the membership interest units in MMBA.
At the Closing of the Unwind Agreement on April 23, 2015, Richard DeCicco was appointed President and Director of the Company and Merger Sub. Following Mr. DeCicco’s appointment, Mr. Stark and Mr. Houghton resigned all officer and director positions in both the Company and Merger Sub, and Mr. DeCicco remains as sole officer and director of Iconic Brands, Inc. and MJ Business Academy, Inc.
As of the Closing of the Unwind Agreement, neither the Company, nor Merger Sub holds any right, title or interest in or to any of the assets of Medical Marijuana Business Academy, LLC, and MMBA is a private entity once again owed solely by its Managing Members, Phillip Stark and Charles Houghton.
A copy of the Unwind Agreement was attached to our Form 8-K filed with the SEC on May 21, 2015 as Exhibit 10.2. The description of the Agreement herein is qualified by the terms of the full text of the agreement attached thereto and the terms thereof are incorporated herein by reference.
From the Closing of the Merger on September 10, 2014 to the Unwind on April 23, 2015, Charles Houghton and Phillip Stark, held the Control Block consisting of the 60,000,000 new shares of common stock which were issued by the Company and the One (1) Share of Series A Preferred Stock which was transferred from Richard DeCicco to Mr. Stark and Mr. Houghton. During that time period, Mr. Stark served as CEO and Mr. Houghton served as our President, and they were our only Directors, but the operations and assets of MMJBA were never integrated into the Company, and MMJBA was operated as a separate business.
On April 23, 2015, with the Closing of the Unwind Agreement, Mr. Stark and Mr. Houghton transferred their 60,000,000 shares of our common stock, and they transferred their One (1) Share of Series A Preferred Stock back to Richard DeCicco. These transfers were finalized by our transfer agent on May 8, 2015, once again giving Richard DeCicco voting control of the Company, Mr. DeCicco was appointed President, CEO and Director of Iconic Brands, Inc. and MJ Business Academy, Inc., and immediately thereafter, Mr. Stark and Mr. Houghton resigned from all officer and director positions held in the Company and Merger Sub.
Acquisition of BiVi LLC
On May 15, 2015, we entered into a Securities Exchange Agreement, with the members of BiVi LLC, a Nevada limited liability company under which we acquired a 51% majority interest in BiVi LLC in exchange for the issuance (a) 1,000,000 shares of restricted common stock and (b) 1,000 shares of newly created Series C Convertible Preferred Stock. The remaining 49% interest in BiVi LLC is owned by Richard DeCicco, Roseann Faltings and PNBM Holdings.
Upon satisfaction of the conditions set forth in the Securities Exchange Agreement, the Closing was held on May 31, 2015. At Closing, BiVi LLC became our majority owned subsidiary. Under the terms of the Securities Exchange Agreement, we must provide working capital, from time to time, of up to $750,000.00 pursuant to a Working Capital Facility, to be repaid by BiVi LLC from working capital generated from BiVi LLC’s operations. Provided that, in the event that we fail to provide working capital of at least $40,000.00 per month, and such failure shall continue for a period of sixty (60) calendar days thereafter then BiVi LLC may, at its option, by written notice to us, declare a default. In the event of such default, we shall surrender the Majority Interest back to BiVi LLC for retirement and the Holders of the Series C Preferred Stock shall surrender all outstanding shares back to Iconic for retirement (“
BiVi Unwind
”). In the event of the BiVi Unwind, BiVi LLC shall issue a 5% promissory note to us with a principal amount equal to the then outstanding unpaid balance of the Working Capital Facility advanced to BiVi LLC prior to the Unwind, payable upon the acquisition of the majority of the outstanding stock or assets of BiVi LLC, including but not limited to the BiVi Brand of products, by a third party, but in no event later than 36 months from issuance.
Prior to the Closing, BiVi LLC was beneficially owned and controlled by Richard DeCicco, the majority shareholder, President, CEO and Director of Iconic Brands, Inc.
A copy of the Securities Exchange Agreement was attached to our Form 8-K filed with the SEC on May 21, 2015 as Exhibit 10.3. The description of the Agreement herein is qualified by the terms of the full text of the agreement attached thereto and the terms thereof are incorporated herein by reference.
Distribution Agreement
On May 1, 2015, BiVi entered into a Distribution Agreement with United Spirits, Inc. (“United”) for United to distribute and wholesale BiVi’s product and to act as the licensed importer and wholesaler. The Distribution Agreement provides United the exclusive right for a term of ten years to sell BiVi’s product for an agreed distribution fee equal to $1.00 per case of product sold. United is owned and managed by Richard DeCicco, the controlling shareholder, President, CEO, and Director of Iconic.
In November 2015, Bellissima and United agreed to have United distribute and wholesale Bellissima’s Products under the same terms contained in the Distribution Agreement with BiVi described in the preceding paragraph.
Lease Agreement
We lease our office and warehouse space in North Amityville, New York from United. On March 27, 2018, we entered into a lease extension with United. The extension has a term of three years from February 1, 2018 to January 31, 2021 and provides for monthly rent of $4,478.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Section 4 of our Articles of Incorporation provides that, to the fullest extent permitted by Section 78 of the Nevada Revised Statutes, as the same may be amended and supplemented, the directors of the corporation are not personally liable to the Company or its stockholders for damages for breach of fiduciary duty as a director or officer, but may be personally liable for (i) acts or omissions which involve intentional misconduct, fraud or a knowing violation of law; or (ii) the payment of distributions in violation of NRS 78.300, as amended. Paragraph 1 of Section 78.037 states that the articles of incorporation of a Nevada corporation may contain any provision, not contrary to the laws of the State of Nevada, for the management of the business and for the conduct of the affairs of the corporation.
Section 5 of our Articles of Incorporation provides that, the corporation shall, to the fullest extent permitted by Section 78.751 of the Nevada Revised Statutes, as the same may be amended and supplemented, indemnify any person made or threatened to be made a party to any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative (whether or not by or in the right of the Company) by reason of the fact that he or she is or was a director of the Company or is or was serving as a director, officer, employee or agent of another entity at the request of the Company or any predecessor of the Company against judgments, fines, penalties, excise taxes, amounts paid in settlement and costs, charges and expenses (including attorneys’ fees and disbursements) that he or she incurs in connection with such action or proceeding. Section 78.751 states that the articles of incorporation of a Nevada corporation may provide that the expenses of officers and directors incurred in defending a civil or criminal action, suit or proceeding must be paid by the corporation as they are incurred and in advance of the final disposition. It further states that indemnification does not exclude any other rights that an officer or director may have pursuant to the articles, bylaws, shareholders agreement or otherwise, and that it continues for a person who has ceased to be a director, officer, or employee of the Company.
Article IX of our Bylaws further addresses indemnification, including procedures for indemnification claims. Indemnification applies to any person that is made a party to, or threatened to be made a party to, any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she was an officer or director of the Company.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the “
Act
”) may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration statement on Form S-1, together with all amendments and exhibits thereto, under the Securities Act of 1933 with respect to the common stock offered hereby. This Prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement and the exhibits and schedules thereto. You should refer to the registration statement and its exhibits and schedules for further information. Statements contained in this Prospectus as to the contents of any contract or other document referred to are not necessarily complete and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the registration statement, each such statement being qualified in all respects by such reference.
Copies of documents we file with the Commission, including this prospectus, the registration of which it is a part and the related exhibits, may be read and copies at the Commission’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our filings with the Commission are also available through the Commission’s website at the following address: http://www.sec.gov.
We are not currently subject to the information and periodic reporting requirements of the Securities Exchange Act of 1934. However, we have filed periodic reports and other information with the OTC Markets. Such periodic reports and other information are available on the OTC Markets website at http://www.otcmarkets.com/stock/ICNB/disclosure. Upon registration of this offering, we will file periodic reports and other information with the Commission. We maintain a website at www.jpgnicbrandsusa.com. You may access our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, filed or furnished pursuant to section 13(a) or 15(d) of the Exchange Act with the Commission free of charge at our website as soon as reasonably practicable after this material is electronically filed with, or furnished to, the Commission. The reference to our website or web address does not constitute incorporation by reference of the information contained at that site.
EXPERTS
The audited financial statements of Iconic Brands, Inc. as of December 31, 2017 and 2016 appearing in this prospectus which is part of a registration statement have been so included in reliance on the report of BMKR, LLP, given on the authority of such firm as experts in accounting and auditing.
INDEX TO FINANCIAL STATEMENTS
For the Three and Six Months ended June 30, 2018 and 2017
For the Years ended December 31, 2017 and 2016
Iconic Brands, Inc. and Subsidiaries
Consolidated Balance Sheets
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
(Unaudited)
|
|
|
(Restated)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$
|
294,467
|
|
|
$
|
1,237,432
|
|
|
Accounts receivable
|
|
|
|
193,693
|
|
|
|
311,074
|
|
|
Inventory
|
|
|
|
206,787
|
|
|
|
59,847
|
|
|
Prepaid inventory
|
|
|
|
-
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
694,947
|
|
|
|
1,613,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
$
|
694,947
|
|
|
$
|
1,613,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Deficiency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
Current portion of debt
|
|
|
$
|
597,109
|
|
|
$
|
495,404
|
|
|
Accounts payable and accrued expenses
|
|
|
|
854,974
|
|
|
|
1,095,995
|
|
|
Loans payable to officer and affiliated entity
|
|
|
|
|
|
|
|
|
|
|
- non interest bearing and due on demand
|
|
|
|
122,481
|
|
|
|
60,374
|
|
|
Accrued interest payable
|
|
|
|
58,294
|
|
|
|
38,734
|
|
|
Derivative liability on convertible debt
|
|
|
|
316,224
|
|
|
|
458,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
|
1,949,082
|
|
|
|
2,148,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability on warrants
|
|
|
|
432,000
|
|
|
|
696,000
|
|
|
Total liabilities
|
|
|
|
2,381,082
|
|
|
|
2,844,579
|
|
|
Commitments and contingencies (Note 12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' deficiency:
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $.001 par value; authorized 100,000,000 shares:
|
|
|
|
|
|
|
|
|
|
|
Series A, 1 and 1 share issued and outstanding, respectively
|
|
|
|
1
|
|
|
|
1
|
|
|
Series C, 1,000 and 1,000 shares issued and outstanding, respectively
|
|
|
|
1
|
|
|
|
1
|
|
|
Series D, 10 and 10 shares issued and outstanding, respectively
|
|
|
|
-
|
|
|
|
-
|
|
|
Series E, 2,400,000 and 0 shares issued and outstanding, respectively
|
|
|
|
2,400
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $.001 par value; authorized 2,000,000,000 shares,
|
|
|
|
|
|
|
|
|
|
|
1,329,313,572 and 1,104,391,831 shares issued and outstanding respectively
|
|
|
|
1,329,313
|
|
|
|
1,104,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock to be issued to Escrow Agent, $.001 par value; 133,550,779 and 478,472,520 shares, respectively
|
|
|
|
133,551
|
|
|
|
478,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
|
14,624,522
|
|
|
|
14,183,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
|
|
(17,414,887
|
)
|
|
|
(17,075,829
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Iconic Brands, Inc. stockholders’ equity
|
|
|
|
(1,325,099
|
)
|
|
|
(1,309,290
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests in subsidiaries and variable interest entity
|
|
|
|
(361,036
|
)
|
|
|
78,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders' equity (deficiency)
|
|
|
|
(1,686,135
|
)
|
|
|
(1,231,226
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' deficiency
|
|
|
$
|
694,947
|
|
|
$
|
1,613,353
|
|
See notes to consolidated financial statements.
Iconic Brands, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
|
|
|
Three months
Ended
June 30,
2018
|
|
|
Six months
Ended
June 30,
2018
|
|
|
Three months
Ended
June 30,
2017
|
|
|
Six months
Ended
June 30,
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
143,551
|
|
|
$
|
205,270
|
|
|
$
|
190,084
|
|
|
$
|
490,973
|
|
|
Cost of Sales
|
|
|
81,843
|
|
|
|
119,252
|
|
|
|
91,008
|
|
|
|
213,246
|
|
|
Gross profit
|
|
|
61,708
|
|
|
|
86,018
|
|
|
|
99,074
|
|
|
|
277,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officers compensation
|
|
|
3,207
|
|
|
|
3,207
|
|
|
|
-
|
|
|
|
-
|
|
|
Professional and consulting fees
|
|
|
59,121
|
|
|
|
71,407
|
|
|
|
24,019
|
|
|
|
40,335
|
|
|
Royalties
|
|
|
(75,002
|
)
|
|
|
(68,412
|
)
|
|
|
19,586
|
|
|
|
50,235
|
|
|
Special promotion program with customer
|
|
|
-
|
|
|
|
597,138
|
|
|
|
-
|
|
|
|
-
|
|
|
Marketing and advertising
|
|
|
192,740
|
|
|
|
252,055
|
|
|
|
4,226
|
|
|
|
21,688
|
|
|
Occupancy costs
|
|
|
36,696
|
|
|
|
80,494
|
|
|
|
35,956
|
|
|
|
55,971
|
|
|
Travel and entertainment
|
|
|
68,986
|
|
|
|
109,301
|
|
|
|
29,809
|
|
|
|
81,583
|
|
|
Other
|
|
|
73,309
|
|
|
|
103,562
|
|
|
|
106,549
|
|
|
|
159,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
359,057
|
|
|
|
1,148,752
|
|
|
|
220,145
|
|
|
|
409,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(297,350
|
)
|
|
|
(1,062,734
|
)
|
|
|
(121,071
|
)
|
|
|
(131,870
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (expense) from derivative liability
|
|
|
(321,017
|
)
|
|
|
405,848
|
|
|
|
2,989,230
|
|
|
|
6,228,292
|
|
|
Interest expense
|
|
|
(10,139
|
)
|
|
|
(19,560
|
)
|
|
|
(12,886
|
)
|
|
|
(44,834
|
)
|
|
Amortization of debt discounts
|
|
|
(50,055
|
)
|
|
|
(101,711
|
)
|
|
|
(10,656
|
)
|
|
|
(10,656
|
)
|
|
Other Income (expense)
|
|
|
(1,119
|
)
|
|
|
-
|
|
|
|
(50
|
)
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense) - net
|
|
|
(666,622
|
)
|
|
|
284.577
|
|
|
|
2,965,638
|
|
|
|
6,172,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(679,680
|
)
|
|
|
(778,157
|
)
|
|
|
2,844,567
|
|
|
|
6,040,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss (income) attributable to noncontrolling interests in subsidiaries and variable interest entity
|
|
|
91,352
|
|
|
|
439,099
|
|
|
|
16,854
|
|
|
|
15,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Iconic Brands, Inc.
|
|
$
|
(588,328
|
)
|
|
$
|
(339,058
|
)
|
|
$
|
2,861,421
|
|
|
$
|
6,056,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
0.00
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding and to be issued to Escrow Agent:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
1,529,531,018
|
|
|
|
1,556,197,684
|
|
|
|
1,388,284,259
|
|
|
|
1,113,913,267
|
|
See notes to consolidated financial statements.
Iconic Brands, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Deficiency
(Unaudited)
|
|
|
Series A
Preferred Stock
$.001 par
|
|
|
Series C
Preferred Stock
$.001 par
|
|
|
Series D
Preferred Stock
$.001 par
|
|
|
Series E
Preferred Stock
$.001 par
|
|
|
Common Stock
$.001 par
|
|
|
Common Stock to be
issued to Escrow Agent
$0.001 par
|
|
|
Additional
Paid-in
|
|
|
Noncontrolling
Interests in
Subsidiaries
and Variable Interest
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Entity
|
|
|
Deficit
|
|
|
Total
|
|
|
Balance at December 31, 2017
|
|
1
|
|
$
|
1
|
|
|
1,000
|
|
$
|
1
|
|
|
10
|
|
$
|
-
|
|
|
-
|
|
$
|
-
|
|
|
1,104,391,831
|
|
$
|
1,104,392
|
|
|
478,472,520
|
|
$
|
478,473
|
|
$
|
14,183,672
|
|
$
|
78,064
|
|
$
|
(17,075,829
|
)
|
$
|
(1,231,228
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued to Escrow Agent
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
344,921,741
|
|
|
344,921
|
|
|
(344,921,741
|
)
|
|
(344,921
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series E Preferred Stock and warrants sold to two investors
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,200,000
|
|
|
1,200
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
298,800
|
|
|
-
|
|
|
-
|
|
|
300,000
|
|
|
Series E Preferred Stock to be issued in exchange for common stock pursuant to Share Exchange Agreement dated May 21, 2018
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,200,000
|
|
|
1,200
|
|
|
(120,000,000
|
)
|
|
(120,000
|
)
|
|
-
|
|
|
-
|
|
|
118,800
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Warrants issued to law firm for services
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
23,250
|
|
|
-
|
|
|
-
|
|
|
23,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to noncontrolling interests in subsidiaries and variable interest entity
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(439,099
|
)
|
|
-
|
|
|
(439,099
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(339,058
|
)
|
|
(339,058
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2018
|
|
1
|
|
$
|
1
|
|
|
1,000
|
|
$
|
1
|
|
|
10
|
|
$
|
-
|
|
|
2,400,000
|
|
$
|
2,400
|
|
|
1,329,313,572
|
|
$
|
1,329,313
|
|
|
133,550,779
|
|
$
|
133,551
|
|
$
|
14,624,522
|
|
$
|
(361,036
|
)
|
$
|
(17,414,887
|
)
|
$
|
(1,686,135
|
)
|
See notes to consolidated financial statements
Iconic Brands, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
Six months Ended June 30,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Operating Activities:
|
|
|
|
|
|
|
|
Net income (loss) attributable to Iconic Brands, Inc.
|
|
$
|
(339,058
|
)
|
|
$
|
6,056,779
|
|
|
Adjustments to reconcile net income (loss) to net cash provided
|
|
|
|
|
|
|
|
|
|
by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to noncontrolling interests in subsidiaries and variable interest entity
|
|
|
(439,099
|
)
|
|
|
(15,897
|
)
|
|
Stock-based compensation
|
|
|
23,250
|
|
|
|
-
|
|
|
Expense (income) from derivative liability
|
|
|
(405,848
|
)
|
|
|
(6,148,292
|
)
|
|
Amortization of debt discounts
|
|
|
101,711
|
|
|
|
10,656
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
117,381
|
|
|
|
57,584
|
|
|
Inventory
|
|
|
(146,940
|
)
|
|
|
(25,737
|
)
|
|
Prepaid expenses
|
|
|
5,000
|
|
|
|
(106,822
|
)
|
|
Accounts payable and accrued expenses
|
|
|
(241,029
|
)
|
|
|
(49,752
|
)
|
|
Accrued interest payable
|
|
|
19,560
|
|
|
|
44,834
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(1,305,072
|
)
|
|
|
(256,647
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities :
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of debt-net
|
|
|
-
|
|
|
|
300,894
|
|
|
Proceeds from sale of Series E Preferred Stock and warrants
|
|
|
300,000
|
|
|
|
-
|
|
|
Loans payable to officer and affiliated entity
|
|
|
62,107
|
|
|
|
26,182
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
362,107
|
|
|
|
327,076
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
(942,965
|
)
|
|
|
70,429
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period
|
|
|
1,237,432
|
|
|
|
2,216
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
294,467
|
|
|
$
|
72,645
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Interest paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock in satisfaction of
|
|
|
|
|
|
|
|
|
|
debt and accrued interest
|
|
$
|
-
|
|
|
$
|
72,867
|
|
|
|
|
|
|
|
|
|
|
|
|
Agreements to issue common stock in satisfaction
|
|
|
|
|
|
|
|
|
|
of debt and accrued interest
|
|
$
|
-
|
|
|
$
|
1,099,064
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock to Escrow Agent in connection with
|
|
|
|
|
|
|
|
|
|
Settlement Agreement and Amended Settlement Agreement
|
|
$
|
344,922
|
|
|
$
|
71,194
|
|
|
|
|
|
|
|
|
|
|
|
|
Series E Preferred Stock to be issued in exchange for common stock pursuant to Share Exchange Agreement dated May 21, 2018
|
|
$
|
120,000
|
|
|
$
|
-
|
|
See notes to consolidated financial statements.
Iconic Brands, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Six months ended June 30, 2018 and 2017
(Unaudited)
1
. ORGANIZATION AND NATURE OF BUSINESS
Iconic Brands, Inc., formerly Paw Spa, Inc. (“Iconic Brands” or “Iconic”), was incorporated in the State of Nevada on October 21, 2005. Effective December 31, 2016, Iconic closed on a May 15, 2015 agreement to acquire a 51% interest in BiVi LLC (“BiVi”), the brand owner of “BiVi 100 percent Sicilian Vodka,” and closed on a December 13, 2016 agreement to acquire a 51% interest in Bellissima Spirits LLC (“Bellissima”), the brand owner of Bellissima sparkling wines. These transactions involved entities under common control of the Company’s chief executive officer and represented a change in reporting entity. The financial statements of the Company have been retrospectively adjusted to reflect the operations at BiVi and Bellissima from their inception.
BiVi was organized in Nevada on May 4, 2015, Bellissima was organized in Nevada on November 23, 2015.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The consolidated financial statements include the accounts of Iconic, its two 51% owned subsidiaries BiVi and Bellissima, and United Spirits, Inc., a variable interest entity of Iconic (see Note 5) (collectively, the “Company”). All inter-company balances and transactions have been eliminated in consolidation.
(b) Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
(c) Fair Value of Financial Instruments
Generally accepted accounting principles require disclosing the fair value of financial instruments to the extent practicable for financial instruments which are recognized or unrecognized in the balance sheet. The fair value of the financial instruments disclosed herein is not necessarily representative of the amount that could be realized or settled, nor does the fair value amount consider the tax consequences of realization or settlement.
In assessing the fair value of financial instruments, the Company uses a variety of methods and assumptions, which are based on estimates of market conditions and risks existing at the time. For certain instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, it was estimated that the carrying amount approximated fair value because of the short maturities of these instruments. All debt is carried at face value less any unamortized debt discounts.
Iconic Brands, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Six months ended June 30, 2018 and 2017
(Unaudited)
(d) Cash and Cash Equivalents
The Company considers all liquid investments purchased with original maturities of ninety days or less to be cash equivalents.
(e) Accounts Receivable, Net of Allowance for Doubtful Accounts
The Company extends unsecured credit to customers in the ordinary course of business but mitigates risk by performing credit checks and by actively pursuing past due accounts. The allowance for doubtful accounts is based on customer historical experience and the aging of the related accounts receivable. At June 30, 2018 and December 31, 2017, the allowance for doubtful accounts was $0.
(f) Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or market, with due consideration given to obsolescence and to slow moving items. Inventory at June 30, 2018 and December 31, 2017 consists of cases of BiVi Vodka and cases of Bellissima sparkling wines purchased from our Italian suppliers.
(
g
) Revenue Recognition
Revenue from product sales is recognized when all of the following criteria are met: (1) persuasive evidence of an arrangement exists, (2) the price is fixed or determinable, (3) collectability is reasonably assured, and (4) delivery has occurred. Persuasive evidence of an arrangement and fixed price criteria are satisfied through purchase orders. Collectability criteria are satisfied through credit approvals. Delivery criteria are satisfied when the products are shipped to a customer and title and risk of loss passes to the customer in accordance with the terms of sale. The Company has no obligation to accept the return of products sold other than for replacement of damaged products. Other than quantity price discounts negotiated with customers prior to billing and delivery (which are reflected as a reduction in sales), the Company does not offer any sales incentives or other rebate arrangements to customers.
(
h) Shipping and Handling Costs
Shipping and handling costs to deliver product to customers are reported as operating expenses in the accompanying statements of operations. Shipping and handling costs to purchase inventory are capitalized and expensed to cost of sales when revenue is recognized on the sale of product to customers.
(
i
) Stock-Based Compensation
Stock-based compensation is accounted for at fair value in accordance with Accounting Standards Codification (“ASC”) Topic 718, “Compensation-Stock Compensation”. For the three and six months ended June 30, 2018, stock-based compensation was $23,250. For the six months ended June 30, 2017, stock-based compensation was $0.
Iconic Brands, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Six months ended June 30, 2018 and 2017
(Unaudited)
(
j) Income Taxes
Income taxes are accounted for under the assets and liability method. Current income taxes are provided in accordance with the laws of the respective taxing authorities. Deferred income taxes are provided for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is not more likely than not that some portion or all of the deferred tax assets will be realized.
(k
) Net Income (Loss) per Share
Basic net income (loss) per common share is computed on the basis of the weighted average number of common shares outstanding and to be issued to Escrow Agent (see Note 10) during the period of the financial statements.
Diluted net income (loss) per common share is computed on the basis of the weighted average number of common shares and to be issued to Escrow Agent (see Note 10) 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.
(l) 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.
3. INVESTMENT IN BIVI LLC
On May 15, 2015, Iconic entered into a Securities Exchange Agreement by and among the members of BiVi LLC, a Nevada limited liability company (“BiVi”), under which Iconic acquired a 51% majority interest in BiVi in exchange for the issuance of (a) 1,000,000 shares of restricted common stock and (b) 1,000 shares of newly created Series C Convertible Preferred Stock.
Prior to May 15, 2015, BiVi was beneficially owned and controlled by Richard DeCicco, the controlling shareholder, President, CEO and Director of Iconic Brands, Inc.
4. INVESTMENT IN BELLISSIMA SPIRITS LLC
On December 13, 2016, Iconic entered into a Securities Purchase Agreement with Bellissima Spirits LLC (“Bellissima”) and Bellissima’s members under which Iconic acquired a 51% Majority Interest in Bellissima in exchange for the issuance of a total of 10 shares of newly designated Iconic Series D Convertible Preferred Stock. Each share of Iconic Series D Convertible Preferred Stock is convertible into the equivalent of 5.1% of Iconic common stock issued and outstanding at the time of conversion.
Prior to December 13, 2016, Bellissima was controlled by Richard DeCicco, the controlling shareholder, President, CEO and Director of Iconic.
Iconic Brands, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Six months ended June 30, 2018 and 2017
(Unaudited)
5. UNITED SPIRITS, INC.
United Spirits, Inc. (“United”) is owned and managed by Richard DeCicco, the controlling shareholder, President, CEO, and Director of Iconic. United provides distribution services for BiVi and Bellissima (see Note 12) and is considered a variable interest entity (“VIE”) of Iconic. Since Iconic has been determined to be the primary beneficiary of United, we have included United’s assets, liabilities, and operations in the accompanying consolidated financial statements of Iconic. Summarized financial information of United follows:
|
Balance Sheets:
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
94,139
|
|
|
$
|
1,181,076
|
|
|
Intercompany receivable from Iconic (A)
|
|
|
294,961
|
|
|
|
230,226
|
|
|
Total assets
|
|
$
|
389,100
|
|
|
$
|
1,411,302
|
|
|
Intercompany payable to Bellissima (A)
|
|
$
|
385,755
|
|
|
$
|
1,376,729
|
|
|
Intercompany payable to BiVi (A)
|
|
|
56,591
|
|
|
|
88,259
|
|
|
Current portion of debt
|
|
|
15,470
|
|
|
|
15,470
|
|
|
Loans payable to officer and affiliated entity
|
|
|
76,696
|
|
|
|
71,052
|
|
|
Accounts payable and accrued expense
|
|
|
222
|
|
|
|
-
|
|
|
Total Liabilities
|
|
|
534,734
|
|
|
|
1,551,510
|
|
|
Noncontrolling interest in VIE
|
|
|
(145,634
|
)
|
|
|
(140,208
|
)
|
|
Total liabilities and stockholders’ deficiency
|
|
$
|
389,100
|
|
|
$
|
1,411,302
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
|
Statements of operations:
|
|
2018
|
|
|
2017
|
|
|
Intercompany distribution income (A)
|
|
|
3,619
|
|
|
|
-
|
|
|
Operating expense
|
|
|
9,044
|
|
|
|
6,795
|
|
|
Net loss
|
|
$
|
(5,425
|
)
|
|
|
(6,795
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(A) Eliminated in consolidation
|
|
|
|
|
|
|
|
|
Iconic Brands, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Six months ended June 30, 2018 and 2017
(Unaudited)
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of:
|
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
|
Accounts payable
|
|
$
|
64,715
|
|
|
$
|
261,767
|
|
|
Accrued officers compensation
|
|
|
500,000
|
|
|
|
500,000
|
|
|
Accrued royalties
|
|
|
202,909
|
|
|
|
271,321
|
|
|
Other
|
|
|
87,350
|
|
|
|
62,909
|
|
|
Total
|
|
$
|
854,974
|
|
|
$
|
1,095,997
|
|
7. DEBT
Debt consists of:
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Equity Markets Advisory Inc. (“Equity Markets”):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$159,000 Promissory Notes dated April 15, 2010,
|
|
|
|
|
|
|
|
November 1, 2013, and January 15, 2014,
|
|
|
|
|
|
|
|
interest at 12%, due December 31, 2017 (B) (D)
|
|
|
11,227
|
|
|
|
11,227
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity Markets
|
|
|
11,227
|
|
|
|
11,227
|
|
|
|
|
|
|
|
|
|
|
|
|
Alpha Capital Anstalt (“Alpha”):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$50,000 Promissory Note dated June 9, 2017, interest at
|
|
|
|
|
|
|
|
|
|
5%, due June 30, 2018 -less unamortized debt discount of $23,446 at December 31,2017 (G)
|
|
|
50,000
|
|
|
|
26,554
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Alpha
|
|
|
50,000
|
|
|
|
26,554
|
|
|
|
|
|
|
|
|
|
|
|
|
Sky-Direct LLC (“Sky”):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$21,000 Promissory Notes dated January 27, 2016
|
|
|
|
|
|
|
|
|
|
and March 4, 2016, interest at 12%, due June 30, 2018
|
|
|
|
|
|
|
|
|
|
(C)(D)(H)
|
|
|
8,350
|
|
|
|
8,350
|
|
|
|
|
|
|
|
|
|
|
|
|
$15,000 Promissory Note assigned March 25,
|
|
|
|
|
|
|
|
|
|
2016, interest at 12%, due June 30, 2018
|
|
|
|
|
|
|
|
|
|
(A) (B) (D)(H)
|
|
|
15,000
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
$14,975 Promissory Notes dated October 19 2016,
|
|
|
|
|
|
|
|
|
|
November 29, 2016, and December 30, 2016, interest at
|
|
|
|
|
|
|
|
|
|
12%, due June 30, 2018 (C)(H)
|
|
|
14,975
|
|
|
|
14,975
|
|
|
|
|
|
|
|
|
|
|
|
|
$80,700 Promissory Note dated January 30, 2017,
|
|
|
|
|
|
|
|
|
|
interest at 12%, due June 30, 2018 (C)(H)
|
|
|
80,700
|
|
|
|
80,700
|
|
|
|
|
|
|
|
|
|
|
|
|
$80,000 Promissory Note dated February 28, 2017,
|
|
|
|
|
|
|
|
|
|
interest at 12%, due June 30, 2018 (C)(H)
|
|
|
80,000
|
|
|
|
80,000
|
|
Iconic Brands, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Six months ended June 30, 2018 and 2017
(Unaudited)
|
$7,000 Promissory Note dated June 30, 2017,
|
|
|
|
|
|
|
|
interest at 12%, due June 30, 2018 (C)(H)
|
|
|
7,000
|
|
|
|
7,000
|
|
|
|
|
|
|
|
|
|
|
|
|
$3,000 Promissory Note dated April 28, 2017,
|
|
|
|
|
|
|
|
|
|
interest at 12%, due June 30, 2018 (C)(H)
|
|
|
3,000
|
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
|
$5,000 Promissory Note dated May 19, 2017,
|
|
|
|
|
|
|
|
|
|
interest at 10%, due June 30, 2018 -less unamortized
|
|
|
|
|
|
|
|
|
|
debt discount of $1,905 at December 31, 2017 (H)
|
|
|
5,000
|
|
|
|
3,095
|
|
|
|
|
|
|
|
|
|
|
|
|
$80,000 Promissory Note dated July 31, 2017, interest
|
|
|
|
|
|
|
|
|
|
at 10%, due July 31, 2018- less unamortized debt discount of $6,135 and $46,465, respectively (H)
|
|
|
73,865
|
|
|
|
33,535
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Sky
|
|
|
287,890
|
|
|
|
245,655
|
|
|
|
|
|
|
|
|
|
|
|
|
Oscaleta Partners LLC (“Oscaleta”):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$30,019 Promissory Note dated April 20, 2017,
|
|
|
|
|
|
|
|
|
|
interest at 5%, due June 30, 2018 -less unamortized
|
|
|
|
|
|
|
|
|
|
debt discount of $12,463 at December 31, 2017 (G)
|
|
|
30,019
|
|
|
|
17,556
|
|
|
|
|
|
|
|
|
|
|
|
|
$25,000 Promissory Note dated June 9, 2017,
|
|
|
|
|
|
|
|
|
|
interest at 5%, due June 30, 2018 -less unamortized
|
|
|
|
|
|
|
|
|
|
debt discount of $11,722 at December 31, 2017 (G)
|
|
|
25,000
|
|
|
|
13,278
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Oscaleta
|
|
|
55,019
|
|
|
|
30,834
|
|
|
|
|
|
|
|
|
|
|
|
|
East Six Opportunity Fund LLC:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$25,000 Promissory Note dated June 13, 2017,
|
|
|
|
|
|
|
|
|
|
interest at 5%, due June 30, 2018 -less unamortized
|
|
|
|
|
|
|
|
|
|
debt discount of $11,845 at December 31, 2017 (G)
|
|
|
25,000
|
|
|
|
13,155
|
|
|
|
|
|
|
|
|
|
|
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$10,000 Promissory Note to Sable Ridge Special
|
|
|
|
|
|
|
|
|
|
Equity Fund LP dated October 10, 2014, interest
|
|
|
|
|
|
|
|
|
|
at 10%, past due
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
$10,000 Promissory Note to Durham Property
|
|
|
|
|
|
|
|
|
|
Management Inc. dated November 1, 2013,
|
|
|
|
|
|
|
|
|
|
interest at 12%, past due
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans from Peter Levine and affiliates,
|
|
|
|
|
|
|
|
|
|
non-interest bearing, no terms of repayment
|
|
|
147,973
|
|
|
|
147,973
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other
|
|
|
167,973
|
|
|
|
167,973
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
597,109
|
|
|
|
495,404
|
|
|
|
|
|
|
|
|
|
|
|
|
Less current portion
|
|
|
(597,109
|
)
|
|
|
(495,404
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Non-current portion
|
|
$
|
-
|
|
|
$
|
-
|
|
Iconic Brands, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Six months ended June 30, 2018 and 2017
(Unaudited)
|
Legend
|
|
|
|
|
(A)
|
Assigned by Equity Markets Advisory Inc.
|
|
|
|
|
(B)
|
Convertible into ICNB common stock at a Conversion Price equal to the lesser
of (1) $0.01 per share or (2) 50% discount from the lowest closing bid price during the 30 days prior to the Notice of Conversion. See Note 8 (Derivative Liability).
|
|
|
|
|
(C)
|
Convertible into ICNB common stock at a Conversion Price equal to a 50% discount to market. See Note 8 (Derivative Liability).
|
|
|
|
|
(D)
|
On December 7, 2016, the Conversion Price on these notes was amended to $0.0015 per share. See Note 8 (Derivative Liability).
|
|
|
|
|
(E)
|
On March 28, 2017, pursuant to a Settlement Agreement and Release, these notes and related accrued interest (totaling $892,721) were satisfied through the Company's agreement to issue of a total of 482,926,829 shares of its common stock. See Note 10.
|
|
|
|
|
(F)
|
On May 5, 2017, pursuant to an Amended Settlement Agreement and Release, these notes and related accrued interest (totaling $1,099,094) were satisfied through the Company’s agreement to issue a total of 613,000,000 shares of its common stock. See Note 10.
|
|
|
|
|
(G)
|
Convertible into ICNB common stock at a Conversion Price of $0.01 per share. Contains “down round” price protection. See Note 8 (Derivative Liability).
|
|
(H)
|
In November 2017, the Conversion Price was amended to $0.0025 per share and the due date was amended to June 30, 2018.
|
As of August 10, 2018, a total of $455,271 of debt is past due. The Company is presently negotiating with the lenders to extend the due dates of the notes.
Iconic Brands, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Six months ended June 30, 2018 and 2017
(Unaudited)
8. DERIVATIVE LIABILITY ON CONVERTIBLE DEBT
The derivative liability consists of:
|
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
|
|
|
Face Value
|
|
|
Derivative Liability
|
|
|
Face Value
|
|
|
Derivative Liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Markets Advisory Inc. (“Equity Markets”):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$159,000 Promissory Notes dated April 15, 2010,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 1, 2013, and January 15, 2014,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interest at 12%, due December 31, 2017 (B)(D)
|
|
|
11,227
|
|
|
|
24,699
|
|
|
|
11,227
|
|
|
|
37,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity Markets
|
|
|
11,227
|
|
|
|
24,699
|
|
|
|
11,227
|
|
|
|
37,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alpha Capital Anstalt (“Alpha”):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$50,000 Promissory Note dated June 9, 2017, interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at 5%, due June 30, 2018 (G)
|
|
|
50,000
|
|
|
|
1,500
|
|
|
|
50,000
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Alpha
|
|
|
50,000
|
|
|
|
1,500
|
|
|
|
50,000
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sky-Direct LLC (“Sky”):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$21,000 Promissory Notes dated January 27, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and March 4, 2016, interest at 12%, due June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(C) (D) (H)
|
|
|
8,350
|
|
|
|
8,350
|
|
|
|
8,350
|
|
|
|
15,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$15,000 Promissory Note assigned March 25,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016, interest at 12%, due June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) (B) (D) (H)
|
|
|
15,000
|
|
|
|
15,000
|
|
|
|
15,000
|
|
|
|
27,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$14,975 Promissory Notes dated October 19 2016,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 29, 2016, and December 30, 2016,
interest at 12%, due June 30, 2018 (C) (H)
|
|
|
14,975
|
|
|
|
14,975
|
|
|
|
14,975
|
|
|
|
26,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$80,700 Promissory Note dated January 30, 2017,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interest at 12%, due June 30, 2018 (C) (H)
|
|
|
80,700
|
|
|
|
80,700
|
|
|
|
80,700
|
|
|
|
145,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$80,000 Promissory Note dated February 28, 2017,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interest at 12%, due June 30, 2018 (C) (H)
|
|
|
80,000
|
|
|
|
80,000
|
|
|
|
80,000
|
|
|
|
144,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$7,000 Promissory Note dated June 30, 2017,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interest at 12%, due June 30, 2018 (C) (H)
|
|
|
7,000
|
|
|
|
7,000
|
|
|
|
7,000
|
|
|
|
12,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$3,000 Promissory Note dated April 28, 2017,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interest at 12%, due June 30, 2018 (C)(H)
|
|
|
3,000
|
|
|
|
3,000
|
|
|
|
3,000
|
|
|
|
5,400
|
|
Iconic Brands, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Six months ended June 30, 2018 and 2017
(Unaudited)
|
$5,000 Promissory Note dated May 19, 2017,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interest at 10%, due May 18, 2018 (H)
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$80,000 Promissory Note dated July 31, 2017,
interest at 10%, due July 31, 2018 (H)
|
|
|
80,000
|
|
|
|
73,600
|
|
|
|
80,000
|
|
|
|
17,600
|
|
|
Total Sky
|
|
|
294,025
|
|
|
|
287,625
|
|
|
|
294,025
|
|
|
|
394,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oscaleta Partners LLC (“Oscaleta”):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$30,019 Promissory Note dated April 20, 2017,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interest at 5%, due June 30, 2018 (G)
|
|
|
30,019
|
|
|
|
900
|
|
|
|
30,019
|
|
|
|
6,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$25,000 Promissory Note dated June 9, 2017,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interest at 5%, due June 30, 2018 (G)
|
|
|
25,000
|
|
|
|
750
|
|
|
|
25,000
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Oscaleta
|
|
|
55,019
|
|
|
|
1,650
|
|
|
|
55,019
|
|
|
|
11,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East Six Opportunity Fund LLC:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$25,000 Promissory Note dated June 13, 2017,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interest at 5%, due June 30, 2018 (G)
|
|
|
25,000
|
|
|
|
750
|
|
|
|
25,000
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
435,271
|
|
|
$
|
316,224
|
|
|
$
|
435,271
|
|
|
$
|
458,072
|
|
The above convertible notes contain variable conversion features based on the future trading price of the Company common stock. Therefore, the number of shares of common stock issuable upon conversion of the notes are indeterminate. Accordingly, we recorded the $316,224 fair value of the embedded conversion features at June 30, 2018 as a derivative liability. The $141,848 decrease in the fair value of the derivative liability from $458,072 at December 31, 2017 to $ 316,224 at June 30, 2018 was credited to income from derivative liability.
The fair values of the embedded conversion features are measured quarterly using the Black Scholes option pricing model. Assumptions used to calculate the derivative liability at December 31, 2017 include stock price of $0.0065 per share, (2) exercise prices ranging from $0.0015 to $0.01 per share, (3) terms ranging from 3 months to 9 months, (4) expected volatility of 159%, and (5) risk free interest rates ranging from 1.28% to 1.53%. Assumptions used to calculate the derivative liability at June 30, 2018 include (1) stock price of $0.0048 per share, (2) exercise prices ranging from $0.0015 to $0.01 per share, (3) terms ranging from 1 month to 3 months, (4) expected volatility of 134%, and (5) risk free interest rates ranging from 1.77% to 1.93%.
9. DERIVATIVE LIABILITY ON WARRANTS
From September 2017 to November 2017, in connection with the sale of a total of 120,000,000 shares of common stock (see Note 10), the Company issued a total of 120,000,000 Common Stock Purchase Warrants (the “Warrants”) to the respective investors. The Warrants are exercisable into ICNB common stock at a price of $0.01 per share, expire five years from date of issuance, and contain “down round” price protection.
Iconic Brands, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Six months ended June 30, 2018 and 2017
(Unaudited)
The down round provision of the above Warrants requires a reduction in the exercise price if there are future issuances of common stock equivalents at a lower price than the $0.01 exercise price of the Warrants. Accordingly, we have recorded the $432,000 fair value of the Warrants at June 30, 2018 as a derivative liability.
The fair value of the Warrants is measured quarterly using the Black Scholes option pricing model. Assumptions used to calculate the fair value of the Warrants at June 30, 2018 include (1) stock price of $0.0048 per share, (2) exercise price of $0.01 per share, (3) term of 4 years, (4) expected volatility of 134%, and (5) risk free interest rate of 2.68%.
10. CAPITAL STOCK
Preferred Stock
The one share of Series A Preferred Stock, which was issued to Richard DeCicco on June 10, 2009, entitles the holder to two votes for every share of Common Stock Deemed Outstanding and has no conversion or dividend rights.
The 1000 shares of Series C Preferred Stock, which were issued to Richard DeCicco on May 15, 2015 pursuant to the Securities Exchange Agreement (see Note 3) for the Company’s 51% investment in BiVi, entitles the holder in the event of a Sale (as defined) to receive out of the proceeds of such Sale (in whatever form, be it cash, securities, or other assets), a distribution from the Company equal to 76.93% of all such proceeds received by the Company prior to any distribution of such proceeds to all other classes of equity securities, including any series of preferred stock designated subsequent to this Series C Preferred Stock.
The 10 shares of Series D Preferred Stock, which were issued to Richard DeCicco and Roseann Faltings (5 shares each) on December 13, 2016 pursuant to the Securities Purchase Agreement (See Note 4) for the Company’s 51% investment in Bellissima, entitles the holders to convert each share of Series D Preferred Stock to the equivalent of 5.1% of the common stock issued and outstanding at the time of conversion.
Effective May 21, 2018, the Company entered into a Share Exchange Agreement with the four investors who purchased 120,000,000 shares of common stock pursuant to a Securities Purchase Agreement dated October 27, 2017. Effective May 21, 2018, the Company sold a total of 1,200,000 shares of Series E Preferred Stock and 120,000,000 warrants to four investors referred to in the preceding sentence for $300,000 cash pursuant to an Amendment No.1 to Securities Purchase Agreement. The Exchange Agreement provides for the exchange of the 120,000,000 shares of common stock for 1,200,000 shares of Series E Preferred stock. Each share of Series E Preferred Stock is convertible into 100 shares of common stock, is entitled to 100 votes on all matters to come before the common stockholders or shareholders generally, is entitled to dividends on an as-converted-to-common stock basis, is entitled to a distribution preference of $0.25 upon liquidation, and is not redeemable.
Iconic Brands, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Six months ended June 30, 2018 and 2017
(Unaudited)
Effective May 21, 2018, the Company sold a total of 1,200,000 shares of Series E Preferred Stock and 120,000,000 warrants to four investors referred to in the preceding paragraph for $300,000 cash pursuant to an Amendment No.1 to Securities Purchase Agreement.
Common Stock
In February 2017, the Company issued an aggregate of 5,965,129 shares of its common stock in settlement of convertible notes payable totaling $72,773.
On March 28, 2017, the Company executed a Settlement Agreement and Release (the “Settlement Agreement”) with 4 holders of convertible notes payable. Notes payable and accrued interest totaling $892,721 were satisfied through the Company’s agreement to irrevocably reserve a total of 482,926,829 shares of its common stock and to deliver such shares in separate tranches to the Escrow Agent upon receipt of a conversion notice delivered by the Escrow Agent to the Company.
On May 5, 2017, the Company executed an Amended Settlement Agreement and Release (the “Amended Settlement Agreement”) replacing the Settlement Agreement and Release dated March 28, 2017 (see preceding paragraph). The Amended Settlement Agreement is with 5 holders of convertible notes payable (the 4 holders who were parties to the Settlement Agreement and Release dated March 28, 2017 and one additional holder) and provided for the satisfaction of notes payable and accrued interest totaling $1,099,094 (a $206,373 increase from the $892,721 amount per the Settlement Agreement and Release dated March 28, 2017) through the Company’s agreement to irrevocably reserve a total of 613,000,000 shares of its common stock (a 130,073,171 share increase from the 482,926,829 shares per the Settlement Agreement and Release dated March 28, 2017) and deliver such shares in separate tranches to the Escrow Agent upon receipt of a conversion notice delivered by the Escrow Agent to the Company.
In the quarterly period ended June 30, 2017, the Company issued an aggregate of 71,194,147 shares of its common stock to the Escrow Agent pursuant to the Amended Settlement Agreement. In the quarterly period ended September 30, 2017, the Company issued an aggregate of 63,333,333 shares of its common stock to the Escrow Agent pursuant to the Amended Settlement Agreement.
On June 29, 2017, the Company issued 10,018,893 shares of its common stock in settlement of convertible notes payable and accrued interest payable totaling $50,094.
On July 17, 2017 and July 25, 2017, the Company issued a total of 15,089,720 shares of its common stock in settlement of convertible notes payable and accrued interest payable totaling $75,449.
On August 17, 2017, the Company issued 4,000,000 shares of its common stock to a marketing entity for services rendered. The shares were valued at $0.005 per share and $20,000 was expensed and included in marketing and advertising expenses in the three months ended September 30, 2017.
Iconic Brands, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Six months ended June 30, 2018 and 2017
(Unaudited)
From September 2017 to November 2017, pursuant to a Securities Purchase Agreement dated October 27, 2017 (the “SPA”), the Company issued a total of 120,000,000 shares of its common stock and 120,000,000 warrants to four investors for a total of $300,000 cash. The Warrants are exercisable into ICNB common stock at a price of $0.01 per share, expire five years from date of issuance, and contain “down round” price protection (see Note 9).
On January 2, 2018, the Company issued 25,861,627 shares of its common stock to the Escrow Agent pursuant to the Amended Settlement Agreement.
On January 19, 2018, the Company issued 54,031,807 shares of its common stock to the Escrow Agent pursuant to the Amended Settlement Agreement.
On March 14, 2018, the Company issued 31,666,667 shares of its common stock to the Escrow Agent pursuant to the Amended Settlement Agreement.
On April 5, 2018, the Company issued 43,000,000 shares of its common stock to the Escrow Agent pursuant to the Amended Settlement Agreement.
On April 9, 2018, the Company issued 70,073,973 shares of its common stock to the Escrow Agent pursuant to the Amended Settlement Agreement.
On April 12, 2018, the Company issued 120,287,667 shares of its common stock to the Escrow Agent pursuant to the Amended Settlement Agreement.
Effective May 21, 2018, the Company entered into a Share Exchange Agreement with the four investors who purchased 120,000,000 shares of common stock pursuant to a Securities Purchase Agreement dated October 27, 2017. Effective May 21, 2018, the Company sold a total of 1,200,000 shares of Series E Preferred Stock and 120,000,000 warrants to four investors referred to in the preceding sentence for $300,000 cash pursuant to an Amendment No.1 to Securities Purchase Agreement. The Exchange Agreement provides for the exchange of the 120,000,000 shares of common stock for 1,200,000 shares of Series E Preferred stock. Each share of Series E Preferred Stock is convertible into 100 shares of common stock, is entitled to 100 votes on all matters to come before the common stockholders or shareholders generally, is entitled to dividends on an as-converted-to-common stock basis, is entitled to a distribution preference of $0.25 upon liquidation, and is not redeemable.
Warrants
In connection with the Company’s issuance of a total of $135,019 convertible notes payable in the three months ended June 30, 2017, the Company issued a total of 13,500,000 Common Stock Purchase Warrants (the ‘Warrants”) to the respective lenders. The Warrants are exercisable into ICNB common stock at a price of $0.01 per share and expire at dates ranging from June 22, 2022 to June 30, 2022.
As discussed in Note 9, the Company issued a total of 120,000,000 warrants to three investors from September 2017 to November 2017. The Warrants are exercisable into ICNB common stock at a price of $0.01 per share and expire five years from date of issuance.
Iconic Brands, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Six months ended June 30, 2018 and 2017
(Unaudited)
Effective May 21, 2018, the Company issued 7,500,000 warrants to a law firm for services rendered. The warrants are exercisable into ICNB common stock at a price of $0.01 per share and expire five years from date of issuance. The $23,250 fair value of the warrants was expensed in the three months ended June 30, 2018.
As discussed in Preferred Stock above, the Company issued a total of 120,000,000 warrants to four investors in effective May 21, 2018 in connection with the sale of 120,000 shares of Series E Preferred stock for $300,000 cash. These warrants are exercisable into ICNB common stock at a price of $0.01 per share and expire five years from date of issuance.
11. INCOME TAXES
No income taxes were recorded in the six months ended June 30, 2018 and 2017 since the Company had taxable losses in these periods.
The provision for (benefit from) income taxes differs from the amount computed by applying the statutory United States federal income tax rate (21% in 2018; 35% in 2017) for the periods presented to income (loss) before income taxes. The sources of the difference are as follows:
|
|
|
Six months ended June 30,
2018
|
|
|
Six months ended June 30,
2017
|
|
|
|
|
|
|
|
|
|
|
Expected tax at 21% and 35%
|
|
$
|
(163,413
|
)
|
|
$
|
2,114,309
|
|
|
|
|
|
|
|
|
|
|
|
|
Nontaxable income from derivative liability
|
|
|
(85,228
|
)
|
|
|
(2,179,902
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Nondeductible amortization of debt discount
|
|
|
21,359
|
|
|
|
3,730
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in valuation allowance
|
|
|
227,282
|
|
|
|
61,863
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
$
|
-
|
|
|
$
|
-
|
|
Significant components of the Company's deferred income tax assets are as follows:
|
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
$
|
3,450,111
|
|
|
$
|
3,222,829
|
|
|
|
|
|
|
|
|
|
|
|
|
Less valuation allowance
|
|
|
(3,450,111
|
)
|
|
|
(3,222,829
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax assets - net
|
|
$
|
-
|
|
|
$
|
-
|
|
Iconic Brands, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Six months ended June 30, 2018 and 2017
(Unaudited)
Based on management’s present assessment, the Company has not yet determined that a deferred tax asset attributable to the future utilization of the net operating loss carryforward as of June 30, 2018 will be realized. Accordingly, the Company has maintained a 100% valuation allowance against the deferred tax asset in the financial statements at June 30, 2018. The Company will continue to review this valuation allowance and make adjustments as appropriate.
Current United States income tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs. Therefore, the amount available to offset future taxable income may be limited.
All tax years remain subject to examination by major taxing jurisdictions.
12. COMMITMENTS AND CONTINGENCIES
a
.
Iconic Guarantees
On May 26, 2015, BiVi LLC (“BiVi”) entered into a License Agreement with Neighborhood Licensing, LLC (the “BiVi Licensor”), an entity owned by Chazz Palminteri (“Palminteri”), to use Palminteri’s endorsement, signature and other intellectual property owned by the BiVi Licensor. Iconic has agreed to guarantee and act as surety for BiVi’s obligations under certain sections of the License Agreement and to indemnify the BiVi Licensor and Palminteri against third party claims.
On November 12, 2015, Bellissima Spirits LLC (“Bellissima”) entered into a License Agreement with Christie Brinkley, Inc. (the “Bellissima Licensor”), an entity owned by Christie Brinkley (“Brinkley”), to use Brinkley’s endorsement, signature, and other intellectual property owned by the Bellissima Licensor. Iconic has agreed to guarantee and act as surety for Bellissima’s obligations under certain sections of the License Agreement and to indemnify the Bellissima Licensor and Brinkley against third party claims. Also, Brinkley was granted a 24 month option to purchase 1% of the outstanding shares of Iconic common stock on a fully diluted basis (as of the date of Brinkley’s exercise of the option) at an exercise price of $0.001 per share.
b
.
Royalty Obligations of BiVi and Bellissima
Pursuant to the License Agreement with the Bivi Licensor (see Note 12a. above), BiVi is obligated to pay the BiVi Licensor a Royalty Fee equal to 5% of monthly gross sales of BiVi Brand products payable monthly subject to an annual Minimum Royalty Fee of $100,000 in year 1, $150,000 in year 2, $165,000 in year 3, $181,500 in year 4, $199,650 in year 5, and $219,615 in year 6 and each subsequent year.
Pursuant to the License Agreement and Amendment No. 1 to the License Agreement effective June 30, 2017 with the Bellissima Licensor (see Note 12a. above), Bellissima is obligated to pay the Bellissima Licensor a Royalty Fee equal to 10% of monthly gross sales (12.5% for sales in excess of defined Case Break Points) of Bellissima Brand products payable monthly. The Bellissima Licensor has the right to terminate the endorsement if Bellissima fails to sell 10,000 cases of Bellissima Brand products in year 1, 15,000 cases in year 2, or 20,000 cases in year 3 and each subsequent year.
Iconic Brands, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Six months ended June 30, 2018 and 2017
(Unaudited)
c. Distribution Agreement
On May 1, 2015, BiVi entered into a Distribution Agreement with United Spirits, Inc. (“United”) for United to distribute and wholesale BiVi’s product and to act as the licensed importer and wholesaler. The Distribution Agreement provides United the exclusive right for a term of ten years to sell BiVi’s product for an agreed distribution fee equal to $1.00 per case of product sold. United is owned and managed by Richard DeCicco, the controlling shareholder, President, CEO, and Director of Iconic.
In November 2015, Bellissima and United agreed to have United distribute and wholesale Bellissima’s Products under the same terms contained in the Distribution Agreement with BiVi described in the preceding paragraph.
d
.
Compensation Arrangements
The Company uses the services of its chief executive officer Richard DeCicco and its assistant secretary Roseann Faltings under informal compensation arrangements (without any employment agreements).
For the years ended December 31, 2017 and 2016, the Company accrued compensation of $250,000 per year ($150,000 for DeCicco; $100,000 for Faltings) for their services rendered. In 2016, the compensation was allocated 50% to Iconic ($125,000), 30% to Bellissima ($75,000), and 20% to BiVi ($50,000). In 2017, the compensation was allocated 50% to Iconic ($125,000), 40% to Bellissima ($100,000), and 10% to BiVi ($25,000). The $500,000 liability at June 30, 2018 and December 31, 2017 are included in “Accounts Payable and Accrued Expenses” on the Consolidated Balance Sheet at June 30, 2018 and December 31, 2017.
e. Registration Rights Agreement
As part of the SPA financing discussed in Note 10, the Company and the three investors also executed a Registration Rights Agreement (the “RRA”). Among other things, the RRA provides for the Company to file a Registration Statement with the Securities and Exchange Commission (the “SEC”) to register for resale the shares of common stock and the shares underlying the Warrants issued to the three investors pursuant to the SPA. The Company is to use its best efforts to cause the Registration Statement to be declared effective as promptly as possible after the filing thereof but no later than the applicable Effectiveness Date (defined as 150 calendar days following the earlier of (i) the Filing Date <20
th
calendar day following completion of the audit of the financial statements of the Company for the years ended December 31, 2015 and 2016> and (ii) date on which the Initial Registration Statement is filed with the SEC).
If the Registration Statement is not declared effective by the Effectiveness Date (or certain other events occur), the Company will be obligated to pay the investors liquidated damages equal to 1% of the Subscription Amounts at the Event Date and 1% on each monthly anniversary of the Event Date until the Event is cured subject to maximum liquidated damages equal to 6% of the Subscription Amounts.
f. Lease Agreement
On March 27, 2018, United Spirits, Inc. executed a lease extension for the Company’s office and warehouse space in North Amityville New York. The extension has a term of three years from February 1, 2018 to January 31, 2021 and provides for monthly rent of $4,478.
Iconic Brands, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Six months ended June 30, 2018 and 2017
(Unaudited)
13. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
The Company has restated the consolidated financial statements at December 31, 2017 and for the year then ended (which were previously included in the Company’s consolidated financial statements filed with OTC Markets on May 7, 2018) in order to correct an error relating to the nonaccrual of a $261,766 invoice from the Company’s supplier of Bellissima sparkling wines for inventory delivered directly to our customer in December 2017.
The effect of the restatement adjustments on the Consolidated Balance Sheet at December 31, 2017 follows:
|
|
|
|
As
Previously
Reported
|
|
|
Restatement Adjustments
|
|
|
As Restated
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$
|
1,237,432
|
|
|
$
|
-
|
|
|
$
|
1,237,432
|
|
|
Accounts receivable
|
|
|
|
311,074
|
|
|
|
-
|
|
|
|
311,074
|
|
|
Inventory
|
|
|
|
59,847
|
|
|
|
-
|
|
|
|
59,847
|
|
|
Prepaid expenses
|
|
|
|
5,000
|
|
|
|
-
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
1,613,353
|
|
|
|
-
|
|
|
|
1,613,353
|
|
|
Total assets
|
|
|
$
|
1,613,353
|
|
|
$
|
-
|
|
|
$
|
1,613,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Deficiency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of debt
|
|
|
$
|
495,404
|
|
|
$
|
-
|
|
|
|
495,404
|
|
|
Accounts payable and accrued expenses
|
|
|
|
834,230
|
|
|
|
261,766
|
|
|
|
1,095,996
|
|
|
Loans payable to officer and affiliated entity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-non interest bearing and due on demand
|
|
|
|
60,374
|
|
|
|
-
|
|
|
|
60,374
|
|
|
Accrued interest payable
|
|
|
|
38,734
|
|
|
|
-
|
|
|
|
38,734
|
|
|
Derivative liability on convertible debt
|
|
|
|
458,072
|
|
|
|
-
|
|
|
|
458,072
|
|
|
Total current liabilities
|
|
|
|
1,886,814
|
|
|
|
261,766
|
|
|
|
2,148,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability on warrants
|
|
|
|
696,000
|
|
|
|
-
|
|
|
|
696,000
|
|
|
Total liabilities
|
|
|
|
2,582,814
|
|
|
|
261,766
|
|
|
|
2,844,580
|
|
|
Commitments and contingencies (Note 12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' deficiency:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $.001 par value
|
|
|
|
2
|
|
|
|
-
|
|
|
|
2
|
|
|
Common stock, $.001 par value
|
|
|
|
1,104,392
|
|
|
|
-
|
|
|
|
1,104,392
|
|
|
Common stock to be issued to Escrow Agent, $.001 par value
|
|
|
|
478,473
|
|
|
|
-
|
|
|
|
478,473
|
|
|
Additional paid-in capital
|
|
|
|
14,183,672
|
|
|
|
-
|
|
|
|
14,183,672
|
|
|
Accumulated deficit
|
|
|
|
(16,942,328
|
)
|
|
|
(133,502
|
)
|
|
|
(17,075,830
|
)
|
|
Total Iconic Brands, Inc. stockholders’ equity
|
|
|
|
(1,175,789
|
)
|
|
|
-
|
|
|
|
(1,309,291
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests in subsidiaries and variable interest entity
|
|
|
|
206,328
|
|
|
|
(128,264
|
)
|
|
|
(78,064
|
)
|
|
Total stockholders’ equity (deficiency)
|
|
|
|
(969,461
|
)
|
|
|
(261,766
|
)
|
|
|
(1,231,227
|
)
|
|
Total liabilities and stockholders’ deficiency
|
|
|
$
|
1,613,353
|
|
|
$
|
-
|
|
|
$
|
1,613,353
|
|
14. SUBSEQUENT EVENTS
The Company has evaluated the subsequent events through the filing date of this filing and has determined that there were no subsequent events to recognize or disclose in these financial statements.
|
BMKR, LLP
Certified Public Accountants
|
T 631 293-5000
F 631 234-4272
|
|
|
|
www.bmkr.com
|
|
1200 Veterans Memorial Hwy., Suite 350
Hauppauge, New York 11788
|
|
|
|
|
|
|
Thomas G . Kober, CPA
Alfred M . Rizzo, CPA
Joseph Mortimer, CPA
|
Charles W. Blanchfield, CPA (Retired)
Bruce A. Meyer, CPA (Retired)
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Iconic Brands Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Iconic Brands Inc. (the Company) as of December 31, 2017 and 2016, and the related consolidated statements of operations, consolidated stockholders' equity, and cash flows for each of the years in the two year period ended December 31, 2017, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the two year period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
BMKR LLP
We have served as the Company's auditor since 2016.
Hauppauge, NY
July 18, 2018
Iconic Brands, Inc. and Subsidiaries
Consolidated Balance Sheets
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
(Asrestated)
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,237,432
|
|
|
$
|
2,216
|
|
|
Accounts receivable
|
|
|
311,074
|
|
|
|
176,365
|
|
|
Inventory
|
|
|
59,847
|
|
|
|
38,763
|
|
|
Prepaid expenses
|
|
|
5,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,613,353
|
|
|
|
217,344
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,613,353
|
|
|
$
|
217,344
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Deficiency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Current portion of debt
|
|
$
|
495,404
|
|
|
$
|
1,130,596
|
|
|
Accounts payable and accrued expenses
|
|
|
1,095,995
|
|
|
|
399,125
|
|
|
Loans payable to officer and affiliated entity -noninterest bearing and due on demand
|
|
|
60,374
|
|
|
|
141,025
|
|
|
Accrued interest payable
|
|
|
38,734
|
|
|
|
344,149
|
|
|
Derivative liability on convertible debt
|
|
|
458,072
|
|
|
|
7,260,885
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
2,148,579
|
|
|
|
9,275,780
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability on warrants
|
|
|
696,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,844,579
|
|
|
|
9,275,780
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' deficiency:
|
|
|
|
|
|
|
|
|
|
Preferred stock, $.001 par value; authorized 100,000,000 shares:
|
|
|
|
|
|
|
|
|
|
Series A, 1 and 1 share issued and outstanding, respectively
|
|
|
1
|
|
|
|
1
|
|
|
Series C, 1,000 and 1,000 shares issued and outstanding, respectively
|
|
|
1
|
|
|
|
1
|
|
|
Series D, 10 and 10 shares issued and outstanding, respectively
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $.001 par value; authorized 2,000,000,000 shares, 1,104,391,831 and 814,790,609 shares issued and outstanding respectively
|
|
|
1,104,392
|
|
|
|
814,791
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock to be issued to Escrow Agent, $.001 par value; 478,472,520 and 0
|
|
|
|
|
|
|
|
|
|
shares, respectively
|
|
|
478,473
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
14,183,672
|
|
|
|
11,367,419
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
|
(17,075,829
|
)
|
|
|
(21,042,207
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total Iconic Brands, Inc. stockholders’ equity
|
|
|
(1,309,290
|
)
|
|
|
(8,859,995
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests in subsidiaries and variable interest entity
|
|
|
78,064
|
|
|
|
(198,441
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders' equity (deficiency)
|
|
|
(1,231,226
|
)
|
|
|
(9,058,436
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' deficiency
|
|
$
|
1,613,353
|
|
|
$
|
217,344
|
|
See notes to consolidated financial statements.
Iconic Brands, Inc. and Subsidiaries
Consolidated Statements of Operations
|
|
|
Year Ended December 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
(As restated)
|
|
|
|
|
|
Sales
|
|
$
|
3,219,881
|
|
|
$
|
371,815
|
|
|
Cost of Sales
|
|
|
1,786,626
|
|
|
|
248,074
|
|
|
Gross profit
|
|
|
1,433,255
|
|
|
|
123,741
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Officers compensation
|
|
|
250,000
|
|
|
|
271,521
|
|
|
Professional and consulting fees
|
|
|
87,671
|
|
|
|
90,074
|
|
|
Royalties
|
|
|
321,741
|
|
|
|
33,778
|
|
|
Marketing and advertising
|
|
|
84,013
|
|
|
|
108,155
|
|
|
Occupancy costs
|
|
|
107,118
|
|
|
|
50,125
|
|
|
Travel and entertainment
|
|
|
141,821
|
|
|
|
164,656
|
|
|
Other
|
|
|
272,155
|
|
|
|
109,825
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,264,519
|
|
|
|
828,134
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
168,736
|
|
|
|
(704,393
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
Gain from settlement of debt
|
|
|
-
|
|
|
|
100,000
|
|
|
Income (expense) from derivative liability
|
|
|
7,429,979
|
|
|
|
(5,357,645
|
)
|
|
Loss on conversion of debt
|
|
|
(3,178,010
|
)
|
|
|
(202,162
|
)
|
|
Interest expense
|
|
|
(70,649
|
)
|
|
|
(125,835
|
)
|
|
Amortization of debt discounts
|
|
|
(107,173
|
)
|
|
|
-
|
|
|
Other Income
|
|
|
-
|
|
|
|
260,673
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense) - net
|
|
|
4,074,147
|
|
|
|
(5,324,969
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
4,242,883
|
|
|
|
(6,029,362
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net loss (income) attributable to noncontrolling interests in subsidiaries and variable interest entity
|
|
|
(276,505
|
)
|
|
|
58,120
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Iconic Brands, Inc.
|
|
$
|
3,966,378
|
|
|
$
|
(5,971,242
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.00
|
|
|
$
|
(0.01
|
)
|
|
Diluted
|
|
$
|
0.00
|
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding and to be issued to Escrow Agent:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
1,311,739,126
|
|
|
|
563,710,428
|
|
|
Diluted
|
|
|
3,197,937,251
|
|
|
|
563,710,428
|
|
See notes to consolidated financial statements.
Iconic Brands, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Deficiency
|
|
|
Series A
Preferred Stock
$.001 par
|
|
|
Series C
Preferred Stock
$.001 par
|
|
|
Series D
Preferred Stock
$.001 par
|
|
|
Common Stock
$.001 par
|
|
|
Common Stock to be
issued to Escrow Agent
$0.001 par
|
|
|
Additional
Paid-in
|
|
|
Noncontrolling
Interests in
Subsidiaries
and Variable
Interest
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Entity
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
1
|
|
|
$
|
1
|
|
|
|
1,000
|
|
|
$
|
1
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
125,500,013
|
|
|
$
|
125,500
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
11,807,341
|
|
|
$
|
(140,321
|
)
|
|
$
|
(15,070,965
|
)
|
|
$
|
(3,278,443
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares in satisfaction of convertible notes payable and accrued interest
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
689,290,596
|
|
|
|
689,291
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(439,922
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
249,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Series D Preferred Shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to noncontrolling interests In subsidiaries and variable interest entity
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(58,120
|
)
|
|
|
-
|
|
|
|
(58,120
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,971,242
|
)
|
|
|
(5,971,242
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
|
1
|
|
|
$
|
1
|
|
|
|
1,000
|
|
|
$
|
1
|
|
|
|
10
|
|
|
$
|
-
|
|
|
|
814,790,609
|
|
|
$
|
814,791
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
11,367,419
|
|
|
$
|
(198,441
|
)
|
|
$
|
(21,042,207
|
)
|
|
$
|
(9,058,436
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares in satisfaction of convertible notes payable and accrued interest
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
31,073,742
|
|
|
|
31,074
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,775,359
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,806,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock to be issued to Escrow
Agent pursuant to Settlement Agreements dated March 28,2017 and May 5, 2017 in satisfaction of convertible notes payable and accrued interest
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6613,000,000
|
|
|
|
613,000
|
|
|
|
486,094
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,099,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued to Escrow Agent
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
134,527,480
|
|
|
|
134,527
|
|
|
|
(134,527,480
|
)
|
|
|
(134,527
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares for marketing services
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,000,000
|
|
|
|
4,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
38,800
|
|
|
|
-
|
|
|
|
-
|
|
|
|
42,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of common shares and warrants ($300,000 gross proceeds less $200,000 attributable to fair value of warrants credited to derivative liability)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
120,000,000
|
|
|
|
120,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
516,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
636,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to noncontrolling interests in subsidiaries and variable interest entity (As restated)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
276,505
|
|
|
|
-
|
|
|
|
276,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (As restated)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,966,378
|
|
|
|
3,966,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2017 (As restated)
|
|
|
1
|
|
|
$
|
1
|
|
|
|
1,000
|
|
|
$
|
1
|
|
|
|
10
|
|
|
$
|
-
|
|
|
|
1,104,391,831
|
|
|
$
|
1,104,392
|
|
|
|
478,472,520
|
|
|
$
|
478,473
|
|
|
$
|
14,183,672
|
|
|
$
|
78,064
|
|
|
$
|
(17,075,829
|
)
|
|
$
|
(1,231,226
|
)
|
See notes to consolidated financial statements.
Iconic Brands, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
|
|
|
Year Ended December 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
(As restated)
|
|
|
|
|
|
Operating Activities:
|
|
|
|
|
|
|
|
Net income (loss) attributable to Iconic Brands, Inc.
|
|
$
|
3,966,378
|
|
|
$
|
(5,971,242
|
)
|
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to noncontrolling interests in subsidiaries and variable interest entity
|
|
|
276,505
|
|
|
|
(58,120
|
)
|
|
Expense (income) from derivative liability
|
|
|
(7,429,981
|
)
|
|
|
5,357,645
|
|
|
Stock-based marketing expense
|
|
|
20,000
|
|
|
|
-
|
|
|
Gain from settlement of debt
|
|
|
-
|
|
|
|
(100,000
|
)
|
|
Amortization of debt discounts
|
|
|
107,173
|
|
|
|
-
|
|
|
Loss on conversion
|
|
|
3,178,010
|
|
|
|
202,162
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(134,709
|
)
|
|
|
(163,438
|
)
|
|
Inventory
|
|
|
(21,084
|
)
|
|
|
3,237
|
|
|
Prepaid expenses
|
|
|
(5,000
|
)
|
|
|
-
|
|
|
Accounts payable and accrued expenses
|
|
|
696,871
|
|
|
|
311,093
|
|
|
Accrued interest payable
|
|
|
19,867
|
|
|
|
182,911
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
674,030
|
|
|
|
(235,752
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of debt-net
|
|
|
341,837
|
|
|
|
223,303
|
|
|
Proceeds from sale of common stock and warrants
|
|
|
300,000
|
|
|
|
-
|
|
|
Loans payable to officer and affiliated entity
|
|
|
(80,651
|
)
|
|
|
8,856
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
561,186
|
|
|
|
232,159
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
1,235,216
|
|
|
|
(3,593
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period
|
|
|
2,216
|
|
|
|
5,809
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
1,237,432
|
|
|
$
|
2,216
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Interest paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock in satisfaction of debt and accrued interest
|
|
$
|
198,316
|
|
|
$
|
67,999
|
|
|
|
|
|
|
|
|
|
|
|
|
Agreements to issue common stock in satisfaction of debt and accrued interest
|
|
$
|
1,099,094
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock to Escrow Agent in connection with Settlement Agreement and Amended Settlement Agreement
|
|
$
|
201,791
|
|
|
$
|
-
|
|
See notes to consolidated financial statements.
Iconic Brands, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
1
. ORGANIZATION AND NATURE OF BUSINESS
Iconic Brands, Inc., formerly Paw Spa, Inc. (“Iconic Brands” or “Iconic”), was incorporated in the State of Nevada on October 21, 2005. Effective December 31, 2016, Iconic closed on a May 15, 2015 agreement to acquire a 51% interest in BiVi LLC (“BiVi”), the brand owner of “BiVi 100 percent Sicilian Vodka,” and closed on a December 13, 2016 agreement to acquire a 51% interest in Bellissima Spirits LLC (“Bellissima”), the brand owner of Bellissima sparkling wines. These transactions involved entities under common control of the Company’s chief executive officer and represented a change in reporting entity. The financial statements of the Company have been retrospectively adjusted to reflect the operations at BiVi and Bellissima from their inception.
BiVi was organized in Nevada on May 4, 2015, Bellissima was organized in Nevada on November 23, 2015.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The consolidated financial statements include the accounts of Iconic, its two 51% owned subsidiaries BiVi and Bellissima, and United Spirits, Inc., a variable interest entity of Iconic (see Note 5) (collectively, the “Company”). All inter-company balances and transactions have been eliminated in consolidation.
(b) Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
(c) Fair Value of Financial Instruments
Generally accepted accounting principles require disclosing the fair value of financial instruments to the extent practicable for financial instruments which are recognized or unrecognized in the balance sheet. The fair value of the financial instruments disclosed herein is not necessarily representative of the amount that could be realized or settled, nor does the fair value amount consider the tax consequences of realization or settlement.
In assessing the fair value of financial instruments, the Company uses a variety of methods and assumptions, which are based on estimates of market conditions and risks existing at the time. For certain instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, it was estimated that the carrying amount approximated fair value because of the short maturities of these instruments. All debt is carried at face value less any unamortized debt discounts.
Iconic Brands, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(d) Cash and Cash Equivalents
The Company considers all liquid investments purchased with original maturities of ninety days or less to be cash equivalents. At December 31, 2017, cash included approximately $931,076 not covered by FDIC insurance.
(e) Accounts Receivable, Net of Allowance for Doubtful Accounts
The Company extends unsecured credit to customers in the ordinary course of business but mitigates risk by performing credit checks and by actively pursuing past due accounts. The allowance for doubtful accounts is based on customer historical experience and the aging of the related accounts receivable. At December 31, 2017 and 2016, the allowance for doubtful accounts was $0.
(f) Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or market, with due consideration given to obsolescence and to slow moving items. Inventory at December 31, 2017 and December 31, 2016 consists of cases of BiVi Vodka and cases of Bellissima sparkling wines purchased from our Italian suppliers.
(
g
) Revenue Recognition
Revenue from product sales is recognized when all of the following criteria are met: (1) persuasive evidence of an arrangement exists, (2) the price is fixed or determinable, (3) collectability is reasonably assured, and (4) delivery has occurred. Persuasive evidence of an arrangement and fixed price criteria are satisfied through purchase orders. Collectability criteria are satisfied through credit approvals. Delivery criteria are satisfied when the products are shipped to a customer and title and risk of loss passes to the customer in accordance with the terms of sale. The Company has no obligation to accept the return of products sold other than for replacement of damaged products. Other than quantity price discounts negotiated with customers prior to billing and delivery (which are reflected as a reduction in sales), the Company does not offer any sales incentives or other rebate arrangements to customers.
(
h) Shipping and Handling Costs
Shipping and handling costs to deliver product to customers are reported as operating expenses in the accompanying statements of operations. Shipping and handling costs to purchase inventory are capitalized and expensed to cost of sales when revenue is recognized on the sale of product to customers.
(
i
) Stock-Based Compensation
Stock-based compensation is accounted for at fair value in accordance with Accounting Standards Codification (“ASC”) Topic 718, “Compensation-Stock Compensation”. For the year ended December 31, 2017, stock-based compensation was $20,000. For the year ended September 30, 2016, stock-based compensation was $0.
Iconic Brands, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(
j) Income Taxes
Income taxes are accounted for under the assets and liability method. Current income taxes are provided in accordance with the laws of the respective taxing authorities. Deferred income taxes are provided for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is not more likely than not that some portion or all of the deferred tax assets will be realized.
(k
) Net Income (Loss) per Share
Basic net income (loss) per common share is computed on the basis of the weighted average number of common shares outstanding and to be issued to Escrow Agent (see Note 8) during the period of the financial statements.
Diluted net income (loss) per common share is computed on the basis of the weighted average number of common shares outstandings and to be issued to Escrow Agent (see Note 8) 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.
The following is a reconciliation of the numerator and denominator we used in our computation of diluted earnings per common share for the year ended December 31, 2017:
Numerator:
|
Net income attributable to Iconic Brands, Inc.
|
|
$
|
3,966,378
|
|
|
|
|
|
|
|
|
Add interest expense on convertible debt assumed to be converted at later of issuance date or January 1, 2017
|
|
|
70,649
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
4,037,027
|
|
Denominator:
|
Basic weighted average common shares outstanding and to be issued to Escrow Agent
|
|
|
1,311,739,126
|
|
|
|
|
|
|
|
|
Add:
|
|
|
|
|
|
Convertible debt
|
|
|
255,250,127
|
|
|
Warrants
|
|
|
-
|
|
|
Series D Preferred Stock
|
|
|
1,630,947,998
|
|
|
|
|
|
|
|
|
Diluted weighted average common shares outstanding and to be issued to Escrow Agent
|
|
|
3,197,937,251
|
|
We did not include any outstanding warrants from the diluted shares calculation as the $0.01 exercise price of the outstanding warrants was higher than the average trading price of our common stock for the relevant periods.
Iconic Brands, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(l) Recently Issued Accounting Pronouncements
On July 13, 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (“ASU”) 2017-11. Among other things, ASU 2017-11 provides guidance that eliminates the requirement to consider “down round” features when determining whether certain financial instruments or embedded features are indexed to an entity’s stock and need to be classified as liabilities. ASU 2017-11 provides for entities to recognize the effect of a down round feature only when it is triggered and then as a dividend and a reduction to income available to common stockholders in basic earnings per share. The guidance is effective for annual periods beginning after December 15, 2018. Although early adoption is permitted, the Company has decided not to early adopt ASU 2017-11.
Certain other accounting pronouncements have been issued by the FASB and other standard setting organizations which are not yet effective and have not yet been adopted by the Company. The impact on the Company’s financial position and results of operations from adoption of these standards is not expected to be material.
3. INVESTMENT IN BIVI LLC
On May 15, 2015, Iconic entered into a Securities Exchange Agreement by and among the members of BiVi LLC, a Nevada limited liability company (“BiVi”), under which Iconic acquired a 51% majority interest in BiVi in exchange for the issuance of (a) 1,000,000 shares of restricted common stock and (b) 1,000 shares of newly created Series C Convertible Preferred Stock.
Prior to May 15, 2015, BiVi was beneficially owned and controlled by Richard DeCicco, the controlling shareholder, President, CEO and Director of Iconic Brands, Inc.
4. INVESTMENT IN BELLISSIMA SPIRITS LLC
On December 13, 2016, Iconic entered into a Securities Purchase Agreement with Bellissima Spirits LLC (“Bellissima”) and Bellissima’s members under which Iconic acquired a 51% majority interest in Bellissima in exchange for the issuance of a total of 10 shares of newly designated Iconic Series D Convertible Preferred Stock. Each share of Iconic Series D Convertible Preferred Stock is convertible into the equivalent of 5.1% of Iconic common stock issued and outstanding at the time of conversion.
Prior to December 13, 2016, Bellissima was controlled by Richard DeCicco, the controlling shareholder, President, CEO and Director of Iconic.
Iconic Brands, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
5. UNITED SPIRITS, INC.
United Spirits, Inc. (“United”) is owned and managed by Richard Decicco, the controlling shareholder, President, CEO, and Director of Iconic. United provides distribution services for Bivi and Bellessima (see Note 12) and is considered a variable interest entity (“VIE”) of Iconic. Since Iconic has been determined to be the primary beneficiary of United, we have included United’s assets, liabilities, and operations in the accompanying consolidated financial statements of Iconic. Summarized financial information of United for the years ended December 31, 2017 and 2016 follows:
|
|
|
December 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,181,076
|
|
|
$
|
1,500
|
|
|
Intercompany receivable from Iconic(A)
|
|
|
230,226
|
|
|
|
-
|
|
|
Intercompany receivable from Bellissima(A)
|
|
|
-
|
|
|
|
113,116
|
|
|
Total assets
|
|
$
|
1,411,302
|
|
|
$
|
114,616
|
|
|
Intercompany payable to Iconic(A)
|
|
$
|
-
|
|
|
$
|
76,433
|
|
|
Intercompany payable to Bellissima (A)
|
|
|
1,376,729
|
|
|
|
-
|
|
|
Intercompany payable to Bivi (A)
|
|
|
88,259
|
|
|
|
86,967
|
|
|
Current portion of debt
|
|
|
15,470
|
|
|
|
15,470
|
|
|
Loans payable to officer and affiliated entity
|
|
|
71,052
|
|
|
|
120,728
|
|
|
Total Liabilities
|
|
|
1,551,510
|
|
|
|
299,598
|
|
|
Noncontrolling interest in VIE
|
|
|
(140,208
|
)
|
|
|
(184,982
|
)
|
|
Total liabilities and stockholders’ deficiency
|
|
$
|
1,411,302
|
|
|
$
|
114,616
|
|
|
|
|
Year ended December 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany distribution fees(A)
|
|
$
|
60,696
|
|
|
$
|
6,046
|
|
|
Professional and consulting fees
|
|
|
-
|
|
|
|
1,049
|
|
|
Occupancy costs
|
|
|
-
|
|
|
|
36,264
|
|
|
Other operating expenses
|
|
|
15,922
|
|
|
|
45,641
|
|
|
Total operating expenses
|
|
|
15,922
|
|
|
|
82,954
|
|
|
Net loss
|
|
$
|
44,774
|
|
|
|
(76,908
|
)
|
(A) Eliminated in consolidation.
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of:
|
|
|
December 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Accrued officers compensation
|
|
$
|
500,000
|
|
|
$
|
250,000
|
|
|
Accounts payable
|
|
|
261,765
|
|
|
|
-
|
|
|
Accrued royalties
|
|
|
271,321
|
|
|
|
21,639
|
|
|
Other
|
|
|
62,909
|
|
|
|
127,486
|
|
|
Total
|
|
$
|
1,095,995
|
|
|
$
|
399,125
|
|
Iconic Brands, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
7. DEBT
Debt consists of:
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Southridge Partners II, L.P. and Tarpon Bay Partners LLC (“Southridge”):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$50,000 Promissory Note assigned September 8, 2015, interest at 12%, due December 31, 2017 (A) (B) (D) (E) (F)
|
|
$
|
-
|
|
|
$
|
46,320
|
|
|
|
|
|
|
|
|
|
|
|
|
$185,000 Promissory Notes dated in 2015, interest at 12%, due December 31, 2017 (B) (D) (E) (F)
|
|
|
-
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
$248,600 Promissory Notes dated in 2015, interest at 12%, due December 31, 2017 (B) (D) (E) (F)
|
|
|
-
|
|
|
|
248,600
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Southridge
|
|
|
-
|
|
|
|
299,920
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Markets Advisory Inc. (“Equity Markets”):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$159,000 Promissory Notes dated April 15, 2010, November 1, 2013, and January 15, 2014, interest at 12%, due December 31, 2017 (B) (D) (E) (F)
|
|
|
11,227
|
|
|
|
159,000
|
|
|
|
|
|
|
|
|
|
|
|
|
$41,235 Promissory Notes assigned in 2013, interest at 12%, due December 31, 2017 (D) (E) (F)
|
|
|
-
|
|
|
|
41,235
|
|
|
|
|
|
|
|
|
|
|
|
|
$80,000 Promissory Notes assigned by Southridge in October 2016, interest at 12%, due December 31, 2017 (B) (D) (E) (F)
|
|
|
-
|
|
|
|
80,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity Markets
|
|
|
11,227
|
|
|
|
280,235
|
|
|
|
|
|
|
|
|
|
|
|
|
Beaufort Capital Partners, LLC (“Beaufort”):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$50,000 Promissory Note assigned January 7, 2016, interest at 12%, due December 31, 2017 (A) (B) (D) (E) (F)
|
|
|
-
|
|
|
|
5,445
|
|
|
|
|
|
|
|
|
|
|
|
|
$40,000 Promissory Note assigned February 8, 2016, interest at 12%, due December 31, 2017 (A) (B) (D) (E) (F)
|
|
|
-
|
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
|
$100,000 Promissory Note dated January 7, 2016, interest at 12%, due December 31, 2017 (B) (D) (E) (F)
|
|
|
-
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Beaufort
|
|
|
-
|
|
|
|
145,445
|
|
|
|
|
|
|
|
|
|
|
|
|
Alpha Capital Anstalt (“Alpha”):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$100,000 Promissory Note dated August 28, 2015, interest at 12%, due December 31, 2017 (B) (D) (F)
|
|
|
-
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
$100,000 Promissory Notes dated May 22, 2015 and June 4, 2015, interest at 12%, due December 31, 2017 (B) (D) (F)
|
|
|
-
|
|
|
|
93,873
|
|
|
|
|
|
|
|
|
|
|
|
|
$50,000 Promissory Note dated June 9, 2017, interest at 5%, due June 30, 2018 -less unamortized debt discount of $23,446 at December 31,2017 (G)
|
|
|
26,554
|
|
|
|
-
|
|
Iconic Brands, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
|
Total Alpha
|
|
|
26,554
|
|
|
|
193,873
|
|
|
|
|
|
|
|
|
|
|
|
|
Sky-Direct LLC (“Sky”):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$21,000 Promissory Notes dated January 27, 2016 and March 4, 2016, interest at 12%, due June 30, 2018 (C)(D)(H)
|
|
|
8,350
|
|
|
|
18,350
|
|
|
|
|
|
|
|
|
|
|
|
|
$15,000 Promissory Note assigned March 25, 2016, interest at 12%, due June 30, 2018 (A) (B) (D) (H)
|
|
|
15,000
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
$14,975 Promissory Notes dated October 19 2016, November 29, 2016, and December 30, 2016, interest at 12%, due June 30, 2018 (C)(H)
|
|
|
14,975
|
|
|
|
9,800
|
|
|
|
|
|
|
|
|
|
|
|
|
$80,700 Promissory Note dated January 30, 2017, interest at 12%, due June 30, 2018 (C)(H)
|
|
|
80,700
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
$80,000 Promissory Note dated February 28, 2017, interest at 12%, due June 30, 2018 (C)(H)
|
|
|
80,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
$7,000 Promissory Note dated March 31, 2017, interest at 12%, due June 30, 2018 (C)(H)
|
|
|
7,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
$3,000 Promissory Note dated April 28, 2017, interest at 12%, due June 30, 2018 (C)(H)
|
|
|
3,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
$5,000 Promissory Note dated May 19, 2017, interest at 10%, due May 18, 2018 -less unamortized debt discount of $1,905 at December 31, 2017 (G)
|
|
|
3,095
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
$80,000 Promissory Note dated July 31, 2017, interest at 10%, due July 31, 2018- less unamortized debt discount of $46,465 at December 31, 2017 (G)
|
|
|
33,535
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Sky
|
|
|
245,655
|
|
|
|
43,150
|
|
|
|
|
|
|
|
|
|
|
|
|
Oscaleta Partners LLC (“Oscaleta”):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$30,019 Promissory Note dated April 20, 2017, interest at 5%, due June 30, 2018 -less unamortized debt discount of $12,463 at December 31, 2017 (G)
|
|
|
17,556
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
$25,000 Promissory Note dated June 9, 2017, interest at 5%, due June 30, 2018 -less unamortized debt discount of $11,722 at December 31, 2017 (G)
|
|
|
13,278
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Oscaleta
|
|
|
30,834
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
East Six Opportunity Fund LLC:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$25,000 Promissory Note dated June 13, 2017, interest at 5%, due June 30, 2018 -less unamortized debt discount of $11,845 at December 31, 2017 (G)
|
|
|
13,155
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$10,000 Promissory Note to Sable Ridge Special Equity Fund LP dated October 10, 2014, interest at 10%, past due
|
|
|
10,000
|
|
|
|
10,000
|
|
Iconic Brands, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
|
$10,000 Promissory Note to Durham Property Management Inc. dated November 1, 2013, interest at 12%, past due
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans from Peter Levine and affiliates, non-interest bearing, no terms of repayment
|
|
|
147,973
|
|
|
|
147,973
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other
|
|
|
167,973
|
|
|
|
167,973
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
495,404
|
|
|
|
1,130,596
|
|
|
|
|
|
|
|
|
|
|
|
|
Less current portion
|
|
|
(495,404
|
)
|
|
|
(1,130,596
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Non-current portion
|
|
$
|
-
|
|
|
$
|
-
|
|
Legend
|
(A)
|
Assigned by Equity Markets Advisory Inc.
|
|
|
|
|
(B)
|
Convertible into ICNB common stock at a Conversion Price equal to the lesser
of (1) $0.01 per share or (2) 50% discount from the lowest closing bid price during the 30 days prior to the Notice of Conversion. See Note 8 (Derivative Liability).
|
|
|
|
|
(C)
|
Convertible into ICNB common stock at a Conversion Price equal to a 50% discount to market. See Note 8 (Derivative Liability).
|
|
|
|
|
(D)
|
On December 7, 2016, the Conversion Price on these notes was amended to $0.0015 per share (subject to a lower December 31, 2017 reset price if the average of the closing bid price of the Company's common stock for the 60 trading days ending December 31, 2017 is less than $0.0015 per share). If the Market Price is greater than or equal to $0.0015, then no reset shall occur. See Note 8 (Derivative Liability).
|
|
|
|
|
(E)
|
On March 28, 2017, pursuant to a Settlement Agreement and Release, these notes and related accrued interest (totaling $892,721) were satisfied through the Company's agreement to issue of a total of 482,926,829 shares of its common stock. See Note 10.
|
|
|
|
|
(F)
|
On May 5, 2017, pursuant to an Amended Settlement Agreement and Release, these notes and related accrued interest (totaling $1,099,094) were satisfied through the Company’s agreement to issue a total of 613,000,000 shares of its common stock. See Note 10.
|
|
|
|
|
(G)
|
Convertible into ICNB common stock at a Conversion Price of $0.01 per share. Contains “down round” price protection. See Note 8 (Derivative Liability).
|
|
|
|
|
(H)
|
In October 2017, the Conversion Price was amended to $0.0025 per share and the due date was amended to June 30, 2018. Contains “down round” price protection. See Note 8 (Derivative Liability).
|
On December 7, 2016, Southridge agreed to retire $100,000 of notes payable with no further recourse. Accordingly, the Company recognized a $100,000 gain on retirement of debt in the three months ended December 31, 2016.
Iconic Brands, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
8. DERIVATIVE LIABILITY ON CONVERTIBLE DEBT
The derivative liability consists of:
|
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
|
|
Face Value
|
|
|
Derivative Liability
|
|
|
Face Value
|
|
|
Derivative Liability
|
|
|
Southridge Partners II, L.P. and Tarpon Bay Partners LLC (“Southridge”):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$50,000 Promissory Note assigned September 8, 2015, interest at 12%, due December 31, 2017 (A) (B) (D) (E) (F)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
46,320
|
|
|
$
|
352,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$185,000 Promissory Notes dated in 2015, interest at 12%, due December 31, 2017 (B) (D) (E) (F)
|
|
|
-
|
|
|
|
-
|
|
|
|
5,000
|
|
|
|
38,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$248,600 Promissory Notes dated in 2015, interest at 12%, due December 31, 2017 (B) (D) (E) (F)
|
|
|
-
|
|
|
|
-
|
|
|
|
248,600
|
|
|
|
1,889,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Southridge
|
|
|
-
|
|
|
|
-
|
|
|
|
299,920
|
|
|
|
2,279,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Markets Advisory Inc. (“Equity Markets”):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$159,000 Promissory Notes dated April 15, 2010, November 1, 2013, and January 15, 2014, interest at 12%, due December 31, 2017 (B)(D)(E)(F)
|
|
|
11,227
|
|
|
|
37,423
|
|
|
|
159,000
|
|
|
|
1,208,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$41,235 Promissory Notes assigned in 2013, interest at 12%, due December 31, 2017 (D) (E) (F)
|
|
|
-
|
|
|
|
-
|
|
|
|
41,235
|
|
|
|
313,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$80,000 Promissory Notes assigned by Southridge, in October 2016, interest at 12%, due December 31, 2017 (B) (D) (E) (F)
|
|
|
-
|
|
|
|
-
|
|
|
|
80,000
|
|
|
|
608,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity Markets
|
|
|
11,227
|
|
|
|
37,423
|
|
|
|
280,235
|
|
|
|
2,129,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beaufort Capital Partners, LLC (“Beaufort”):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$50,000 Promissory Note assigned January 7, 2016, interest at 12%, due December 31, 2017 (B) (B) (D) (E) (F)
|
|
|
-
|
|
|
|
-
|
|
|
|
5,445
|
|
|
|
41,382
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
40,000
|
|
|
|
304,000
|
|
|
$40,000 Promissory Note assigned February 8, 2016, interest at 12%, due December 31, 2017 (B) (B) (D) (E) (F)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$100,000 Promissory Note dated January 7, 2016, interest at 12%, due December 31, 2017 (B) (D) (E) (F)
|
|
|
-
|
|
|
|
-
|
|
|
|
100,000
|
|
|
|
760,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Beaufort
|
|
|
-
|
|
|
|
-
|
|
|
|
145,445
|
|
|
|
1,105,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alpha Capital Anstalt (“Alpha”):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$100,000 Promissory Notes dated May 22, 2015 and June 4, 2015, interest at 12%, due December 31, 2017 (B) (D) (F)
|
|
|
-
|
|
|
|
-
|
|
|
|
93,873
|
|
|
|
713,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$100,000 Promissory Note dated August 28, 2015, interest at 12%, due December 31, 2017(B)(D)(F)
|
|
|
-
|
|
|
|
-
|
|
|
|
100,000
|
|
|
|
760,000
|
|
Iconic Brands, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
|
$50,000 Promissory Note dated June 9, 2017, interest at 5%, due June 30, 2018 (G)
|
|
|
50,000
|
|
|
|
10,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Alpha
|
|
|
50,000
|
|
|
|
10,000
|
|
|
|
193,873
|
|
|
|
1,473,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sky-Direct LLC (“Sky”):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$21,000 Promissory Notes dated January 27, 2016 and March 4, 2016, interest at 12%, due June 30, 2018 (C) (D) (H)
|
|
|
8,350
|
|
|
|
15,030
|
|
|
|
18,350
|
|
|
|
139,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$15,000 Promissory Note assigned March 25, 2016, interest at 12%, due June 30, 2018 (A) (B) (D) (H)
|
|
|
15,000
|
|
|
|
27,000
|
|
|
|
15,000
|
|
|
|
114,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$14,975 Promissory Notes dated October 19 2016, November 29, 2016, and December 30, 2016, interest at 12%, due June 30, 2018 (C) (H)
|
|
|
14,975
|
|
|
|
26,955
|
|
|
|
9,800
|
|
|
|
19,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$80,700 Promissory Note dated January 30, 2017, interest at 12%, due June 30, 2018 (C) (H)
|
|
|
80,700
|
|
|
|
145,260
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$80,000 Promissory Note dated February 28, 2017, interest at 12%, due June 30, 2018 (C) (H)
|
|
|
80,000
|
|
|
|
144,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$7,000 Promissory Note dated March 31, 2017, interest at 12%, due June 30, 2018 (C) (H)
|
|
|
7,000
|
|
|
|
12,600
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$3,000 Promissory Note dated April 28, 2017, interest at 12%, due June 30, 2018 (C)(H)
|
|
|
3,000
|
|
|
|
5,400
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$5,000 Promissory Note dated May 19, 2017, interest at 10%, due May 18, 2018 (G)
|
|
|
5,000
|
|
|
|
800
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$80,000 Promissory Note dated July 31, 2017, interest at 10%, due July 31, 2018 (G)
|
|
|
80,000
|
|
|
|
17,600
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Sky
|
|
|
294,025
|
|
|
|
394,645
|
|
|
|
43,150
|
|
|
|
272,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oscaleta Partners LLC (“Oscaleta”):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$30,019 Promissory Note dated April 20, 2017, interest at 5%, due June 30, 2018 (G)
|
|
|
30,019
|
|
|
|
6,004
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$25,000 Promissory Note dated June 9, 2017, interest at 5%, due June 30, 2018 (G)
|
|
|
25,000
|
|
|
|
5,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Oscaleta
|
|
|
55,019
|
|
|
|
11,004
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East Six Opportunity Fund LLC:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$25,000 Promissory Note dated June 13, 2017, interest at 5%, due June 30, 2018 (G)
|
|
|
25,000
|
|
|
|
5,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
435,271
|
|
|
$
|
458,072
|
|
|
$
|
962,623
|
|
|
$
|
7,260,885
|
|
Iconic Brands, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
The above convertible notes contain variable conversion features based on the future trading price of the Company common stock. Therefore, the number of shares of common stock issuable upon conversion of the notes are indeterminate. Accordingly, we recorded the $7,260,885 fair value of the embedded conversion features at December 31, 2016 as a derivative liability. The $6,802,813 decrease in the fair value of the derivative liability from $7,260,885 at December 31, 2016 to $458,072 at December 31, 2017 was credited to income from derivative liability.
The fair values of the embedded conversion features are measured quarterly using the Black Scholes option pricing model. Assumptions used to calculate the derivative liability at December 31, 2016 include (1) stock price of $0.0115 per share, (2) exercise price ranging from $0.0015 to $0.00575 per shares, (3) terms of 1 year, (4) expected volatility of 491%, and (5) risk free interest rates of 0.85%. Assumptions used to calculate the derivative liability at December 31, 2017 include (1) stock price of $0.0065 per share, (2) exercise prices ranging from $0.0015 to $0.01 per share, (3) terms ranging from 3 months to 9 months, (4) expected volatility of 159%, and (5) risk free interest rates of 1.28%.
9. DERIVATIVE LIABILITY ON WARRANTS
From September 2017 to November 2017, in connection with the sale of a total of 120,000,000 shares of common stock (see Note 10), the Company issued a total of 120,000,000 Common Stock Purchase Warrants (the “Warrants”) to the respective investors. The Warrants are exercisable into ICNB common stock at a price of $0.01 per share, expire five years from date of issuance, and contain “down round” price protection.
The down round provision of the above Warrants requires a reduction in the exercise price if there are future issuances of common stock equivalents at a lower price than the $0.01 exercise price of the Warrants. Accordingly, we have recorded the $696,000 fair value of the Warrants at December 31, 2017 as a derivative liability.
The fair value of the Warrants is measured quarterly using the Black Scholes option pricing model. Assumptions used to calculate the fair value of the Warrants at December 31, 2017 include (1) stock price of $0.0065 per share, (2) exercise price of $0.01 per share, (3) term of 5 years, (4) expected volatility of 159%, and (5) risk free interest rate of 2.20 %.
10. CAPITAL STOCK
Preferred Stock
The one share of Series A Preferred Stock, which was issued to Richard DeCicco on June 10, 2009, entitles the holder to two votes for every share of Common Stock Deemed Outstanding and has no conversion or dividend rights.
Iconic Brands, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
The 1000 shares of Series C Preferred Stock, which were issued to Richard DeCicco on May 15, 2015 pursuant to the Securities Exchange Agreement (see Note 3) for the Company’s 51% investment in BiVi, entitles the holder in the event of a Sale (as defined) to receive out of the proceeds of such Sale (in whatever form, be it cash, securities, or other assets), a distribution from the Company equal to 76.93% of all such proceeds received by the Company prior to any distribution of such proceeds to all other classes of equity securities, including any series of preferred stock designated subsequent to this Series C Preferred Stock.
The 10 shares of Series D Preferred Stock, which were issued to Richard DeCicco and Roseann Faltings (5 shares each) on December 13, 2016 pursuant to the Securities Purchase Agreement (See Note 5) for the Company’s 51% investment in Bellissima, entitles the holders to convert each share of Series D Preferred Stock to the equivalent of 5.1% of the common stock issued and outstanding at the time of conversion.
As discussed in Note 13(Subsequent Events), 1,200,000 shares of Series E Convertible Preferred Stock were issued to three investors on May 31, 2018. Each share of Series E Convertible Stock is convertible into 100 shares of ICNB common stock, is entitled to 100 votes on all matters to come before the common shareholders or shareholders generally, is entitled to dividends on an as-converted-to-common stock basis, and is entitled upon liquidation to a distribution of $0.25 prior to any payment to common shareholders or subsequent series of preferred stock. The additional 120,000,000 Warrants are exercisable into ICNB common stock at a price of $0.01 per share and have a term of 5 years. On October 27, 2018, the exercise price of the additional 120,000,000 Warrants will be reduced to the lower of (i) the exercise price, as adjusted per the terms of the Warrants, and (ii) 50% of the average of the four lowest closing bid prices for our common stock on the primary trading market during the 4 trading days immediately prior to such date.
Common Stock
For the year ended December 31, 2016, the Company issued an aggregate of 689,290,596 shares of its Common Stock in settlement of convertible notes payable and accrued interest payable totaling $67,999.
In February 2017, the Company issued an aggregate of 5,965,129 shares of its common stock in settlement of convertible notes payable totaling $72,773.
On March 28, 2017, the Company executed a Settlement Agreement and Release (the “Settlement Agreement”) with 4 holders of convertible notes payable. Notes payable and accrued interest totaling $892,721 were satisfied through the Company’s agreement to irrevocably reserve a total of 482,926,829 shares of its common stock and to deliver such shares in separate tranches to the Escrow Agent upon receipt of a conversion notice delivered by the Escrow Agent to the Company.
On May 5, 2017, the Company executed an Amended Settlement Agreement and Release (the “Amended Settlement Agreement”) replacing the Settlement Agreement and Release dated March 28, 2017 (see preceding paragraph). The Amended Settlement Agreement is with 5 holders of convertible notes payable (the 4 holders who were parties to the Settlement Agreement and Release dated March 28, 2017 and one additional holder) and provided for the satisfaction of notes payable and accrued interest totaling $1,099,094 (a $206,373 increase from the $892,721 amount per the Settlement Agreement and Release dated March 28, 2017) through the Company’s agreement to irrevocably reserve a total of 613,000,000 shares of its common stock (a 130,073,171 share increase from the 482,926,829 shares per the Settlement Agreement and Release dated March 28, 2017) and deliver such shares in separate tranches to the Escrow Agent upon receipt of a conversion notice delivered by the Escrow Agent to the Company.
Iconic Brands, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
In the quarterly period ended June 30, 2017, the Company issued an aggregate of 71,194,147 shares of its common stock to the Escrow Agent pursuant to the Amended Settlement Agreement. In the quarterly period ended September 30, 2017, the Company issued an aggregate of 63,333,333 shares of its common stock to the Escrow Agent pursuant to the Amended Settlement Agreement. At December 31, 2017, the remaining number of shares of common stock to be issued to the Escrow Agent is 478,472,520 shares.
On June 29, 2017, the Company issued 10,018,893 shares of its common stock in settlement of convertible notes payable and accrued interest payable totaling $50,094.
On July 17, 2017 and July 25, 2017, the Company issued a total of 15,089,720 shares of its common stock in settlement of convertible notes payable and accrued interest payable totaling $75,449.
On August 17, 2017, the Company issued 4,000,000 shares of its common stock to a marketing entity for services rendered. The shares were valued at $0.005 per share and $20,000 was expensed and included in marketing and advertising expenses in the three months ended September 30, 2017.
From September 2017 to November 2017, pursuant to a Securities Purchase Agreement dated October 27, 2017 (the “SPA”), the Company issued a total of 120,000,000 shares of its common stock and 120,000,000 warrants to three investors for a total of $300,000 cash. The Warrants are exercisable into ICNB common stock at a price of $0.01 per share, expire five years from date of issuance, and contain “down round” price protection (see Note 9).
Warrants
In connection with the Company’s issuance of a total of $135,019 convertible notes payable in the three months ended June 30, 2017, the Company issued a total of 13,500,000 Common Stock Purchase Warrants (the ‘Warrants”) to the respective lenders. The Warrants are exercisable into ICNB common stock at a price of $0.01 per share and expire at dates ranging from June 22, 2022 to June 30, 2022.
As discussed in Note 9 and in the second preceding paragraph of this Note 10, the Company issued a total of 120,000,000 warrants to three investors from September 2017 to November 2017. These 120,000,000 Warrants are exercisable into ICNB common stock at a price of $0.01 per share and expire five years from date of issuance.
11. INCOME TAXES
No income taxes were recorded in the year ended December 31, 2017 and 2016 since the Company had taxable losses in these periods.
Iconic Brands, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
The provision for (benefit from) income taxes differs from the amount computed by applying the statutory United States federal income tax rate of 35% for the periods presented to income (loss) before income taxes. The sources of the difference are as follows:
|
|
|
Year ended
December 31,
2017
|
|
|
Year ended
December 31,
2016
|
|
|
|
|
|
|
|
|
|
|
Expected tax at 35%
|
|
$
|
1,485,009
|
|
|
$
|
(2,110,277
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Nondeductible expense (nontaxable income) from derivative liability
|
|
|
(2,600,493
|
)
|
|
|
1,875,176
|
|
|
|
|
|
|
|
|
|
|
|
|
Nontaxable loss on conversion of debt
|
|
|
1,112,304
|
|
|
|
70,757
|
|
|
|
|
|
|
|
|
|
|
|
|
Remeasurement of deferred income tax assets from 35% to 21% (a)
|
|
|
2,184,740
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in valuation allowance
|
|
|
(2,181,560
|
)
|
|
|
(164,344
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
$
|
-
|
|
|
$
|
-
|
|
Significant components of the Company's deferred income tax assets are as follows:
|
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
$
|
3,277,110
|
|
|
$
|
5,458,670
|
|
|
|
|
|
|
|
|
|
|
|
|
Less valuation allowance
|
|
|
(3,277,110
|
)
|
|
|
(5,458,670
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax assets - net
|
|
$
|
-
|
|
|
$
|
-
|
|
(a) As a result of the Tax Cuts and Jobs Act (Tax Legislation) enacted on December 22, 2017, the United Sates corporate income tax rate is 21% effective January 1, 2018. Accordingly, we have reduced our deferred income tax asset relating to our net operating loss carryforward (and the valuation allowance thereon) by $2,184,740 from $5,461,850 to $3,277,110 as of December 31, 2017.
Based on management’s present assessment, the Company has not yet determined that a deferred tax asset attributable to the future utilization of the net operating loss carryforward as of December 31, 2017 will be realized. Accordingly, the Company has maintained a 100% valuation allowance against the deferred tax asset in the financial statements at December 31, 2017. The Company will continue to review this valuation allowance and make adjustments as appropriate.
Current United States income tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs. Therefore, the amount available to offset future taxable income may be limited.
All tax years remain subject to examination by major taxing jurisdictions.
12. COMMITMENTS AND CONTINGENCIES
a
.
Iconic Guarantees
On May 26, 2015, BiVi LLC (“BiVi”) entered into a License Agreement with Neighborhood Licensing, LLC (the “BiVi Licensor”), an entity owned by Chazz Palminteri (“Palminteri”), to use Palminteri’s endorsement, signature and other intellectual property owned by the BiVi Licensor. Iconic has agreed to guarantee and act as surety for BiVi’s obligations under certain sections of the License Agreement and to indemnify the BiVi Licensor and Palminteri against third party claims.
Iconic Brands, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
On November 12, 2015, Bellissima Spirits LLC (“Bellissima”) entered into a License Agreement with Christie Brinkley, Inc. (the “Bellissima Licensor”), an entity owned by Christie Brinkley (“Brinkley”), to use Brinkley’s endorsement, signature, and other intellectual property owned by the Bellissima Licensor. Iconic has agreed to guarantee and act as surety for Bellissima’s obligations under certain sections of the License Agreement and to indemnify the Bellissima Licensor and Brinkley against third party claims. Also, Brinkley was granted a 24 month option to purchase 1% of the outstanding shares of Iconic common stock on a fully diluted basis (as of the date of Brinkley’s exercise of the option) at an exercise price of $0.001 per share.
b
.
Royalty Obligations of BiVi and Bellissima
Pursuant to the License Agreement with the Bivi Licensor (see Note 12a. above), BiVi is obligated to pay the BiVi Licensor a Royalty Fee equal to 5% of monthly gross sales of BiVi Brand products payable monthly subject to an annual Minimum Royalty Fee of $100,000 in year 1, $150,000 in year 2, $165,000 in year 3, $181,500 in year 4, $199,650 in year 5, and $219,615 in year 6 and each subsequent year.
Pursuant to the License Agreement and Amendment No. 1 to the License Agreement effective June 30, 2017 with the Bellissima Licensor (see Note 12a. above), Bellissima is obligated to pay the Bellissima Licensor a Royalty Fee equal to 10% of monthly gross sales (12.5% for sales in excess of defined Case Break Points) of Bellissima Brand products payable monthly. The Bellissima Licensor has the right to terminate the endorsement if Bellissima fails to sell 10,000 cases of Bellissima Brand products in year 1, 15,000 cases in year 2, or 20,000 cases in year 3 and each subsequent year.
c. Distribution Agreement
On May 1, 2015, BiVi entered into a Distribution Agreement with United Spirits, Inc. (“United”) for United to distribute and wholesale BiVi’s product and to act as the licensed importer and wholesaler. The Distribution Agreement provides United the exclusive right for a term of ten years to sell BiVi’s product for an agreed distribution fee equal to $1.00 per case of product sold. United is owned and managed by Richard DeCicco, the controlling shareholder, President, CEO, and Director of Iconic.
In November 2015, Bellissima and United agreed to have United distribute and wholesale Bellissima’s Products under the same terms contained in the Distribution Agreement with BiVi described in the preceding paragraph.
d
.
Compensation Arrangements
The Company uses the services of its chief executive officer Richard DeCicco and its assistant secretary Roseann Faltings under informal compensation arrangements (without any employment agreements).
For the years ended December 31, 2017 and 2016, the Company accrued compensation of $250,000 per year ($150,000 for DeCicco; $100,000 for Faltings) for their services rendered. In 2016, the compensation was allocated 50% to Iconic ($125,000), 30% to Bellissima ($75,000), and 20% to BiVi ($50,000). In 2017, the compensation was allocated 50% to Iconic ($125,000), 40% to Bellissima ($100,000), and 10% to BiVi ($25,000). The $500,000 liability at December 31, 2017 and the $250,000 liability at December 31, 2016 are included in “Accounts Payable and Accrued Expenses” on the Consolidated Balance Sheet at December 31, 2017 and December 31, 2016.
Iconic Brands, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
e. Registration Rights Agreement
As part of the SPA financing discussed in Note 10, the Company and the three investors also executed a Registration Rights Agreement (the “RRA”). Among other things, the RRA provides for the Company to file a Registration Statement with the Securities and Exchange Commission (the “SEC”) to register for resale the shares of common stock and the shares underlying the Warrants issued to the three investors pursuant to the SPA. The Company is to use its best efforts to cause the Registration Statement to be declared effective as promptly as possible after the filing thereof but no later than the applicable Effectiveness Date (defined as 150 calendar days following the earlier of (i) the Filing Date <20
th
calendar day following completion of the audit of the financial statements of the Company for the years ended December 31, 2015 and 2016> and (ii) date on which the Initial Registration Statement is filed with the SEC).
If the Registration Statement is not declared effective by the Effectiveness Date (or certain other events occur), the Company will be obligated to pay the investors liquidated damages equal to 1% of the Subscription Amounts at the Event Date and 1% on each monthly anniversary of the Event Date until the Event is cured subject to maximum liquidated damages equal to 6% of the Subscription Amounts.
f. Lease Agreement
On March 27, 2018, United Spirits, Inc. executed a lease extension for the Company’s office and warehouse space in North Amityville New York. The extension has a term of three years from February 1, 2018 to January 31, 2021 and provides for monthly rent of $4,478.
13. SUBSEQUENT EVENTS
On January 2, 2018, the Company issued 25,861,627 shares of its common stock to the Escrow Agent pursuant to the Amended Settlement Agreement (see Note 10).
On January 19, 2018, the Company issued 54,031,807 shares of its common stock to the Escrow Agent pursuant to the Amended Settlement Agreement.
On March 14, 2018, the Company issued 31,666,667 shares of its common stock to the Escrow Agent pursuant to the Amended Settlement Agreement.
At March 31, 2018, the remaining number of shares of common stock to be issued to the Escrow Agent is 446,805,853 shares.
Iconic Brands, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
On May 21, 2018, the Company entered into a Share Exchange Agreement (the “Exchange Agreement”) with the three investors that purchased 120,000,000 shares of ICNB common stock and 120,000,000 Warrants from September 2017 to November 2017 for a total of $300,000.(see Note 10 paragraph 13 above). Pursuant to the Exchange Agreement, the investors exchanged the 120,000,000 shares of INCB common stock for 1,200,000 shares of Series E Convertible Preferred Stock. Pursuant to an amended SPA also entered into on May 21, 2018, the investors purchased an additional 1,200,000 shares of Series E Convertible Preferred Stock and an additional 120,000,000 Warrants for a total of $300,000 cash. Each share of Series E Convertible Stock is convertible into 100 shares of ICNB common stock, is entitled to 100 votes on all matters to come before the common shareholders or shareholders generally, is entitled to dividends on an as-converted-to-common stock basis, and is entitled upon liquidation to a distribution of $0.25 prior to any payment to common shareholders or subsequent series of preferred stock. The additional 120,000,000 Warrants are exercisable into ICNB common stock at a price of $0.01 per share and have a term of 5 years. On October 27, 2018, the exercise price of the additional 120,000,000 Warrants will be reduced to the lower of (i) the exercise price, as adjusted per the terms of the Warrants, and (ii) 50% of the average of the four lowest closing bid prices for our common stock on the primary trading market during the 4 trading days immediately prior to such date.
Effective May 21, 2018, the Company issued 7,500,000 warrants to a law firm for services rendered. The warrants are exercisable into ICNB common stock at a price of $0.01 per share and expire five years from date of issuance. The fair value of the warrants will be expensed in the three months ended June 30, 2018.
14- RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
The Company has restated the consolidated financial statements at December 31, 2017 and for the year then ended (which were previously included in the Company’s consolidated financial statements filed with OTC Markets on May 7, 2018) in order to correct an error relating to the nonaccrual of a $261,766 invoice from the Company’s supplier of Bellissima sparkling wines for inventory delivered directly to our customer in December 2017.
Iconic Brands, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
The effect of the restatement adjustments on the Consolidated Balance Sheet at December 31, 2017 follows:
|
|
|
As
Previously
Reported
|
|
|
Restatement Adjustments
|
|
|
As Restated
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,237,432
|
|
|
$
|
-
|
|
|
$
|
1,237,432
|
|
|
Accounts receivable
|
|
|
311,074
|
|
|
|
-
|
|
|
|
311,074
|
|
|
Inventory
|
|
|
59,847
|
|
|
|
-
|
|
|
|
59,847
|
|
|
Prepaid expenses
|
|
|
5,000
|
|
|
|
-
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,613,353
|
|
|
|
-
|
|
|
|
1,613,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,613,353
|
|
|
$
|
-
|
|
|
$
|
1,613,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Deficiency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of debt
|
|
$
|
495,404
|
|
|
$
|
-
|
|
|
|
495,404
|
|
|
Accounts payable and accrued expenses
|
|
|
834,230
|
|
|
|
261,766
|
|
|
|
1,095,996
|
|
|
Loans payable to officer and affiliated entity -noninterest bearing and due on demand
|
|
|
60,374
|
|
|
|
-
|
|
|
|
60,374
|
|
|
Accrued interest payable
|
|
|
38,734
|
|
|
|
-
|
|
|
|
38,734
|
|
|
Derivative liability on convertible debt
|
|
|
458,072
|
|
|
|
-
|
|
|
|
458,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,886,814
|
|
|
|
261,766
|
|
|
|
2,148,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability on warrants
|
|
|
696,000
|
|
|
|
-
|
|
|
|
696,000
|
|
|
Total liabilities
|
|
|
2,582,814
|
|
|
|
261,766
|
|
|
|
2,844,580
|
|
|
Commitments and contingencies (Note 12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' deficiency:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $.001 par value
|
|
|
2
|
|
|
|
-
|
|
|
|
2
|
|
|
Common stock, $.001 par value
|
|
|
1,104,392
|
|
|
|
-
|
|
|
|
1,104,392
|
|
|
Common stock to be issued to Escrow Agent, $.001 par value
|
|
|
478,473
|
|
|
|
-
|
|
|
|
478,473
|
|
|
Additional paid-in capital
|
|
|
14,183,672
|
|
|
|
-
|
|
|
|
14,183,672
|
|
|
Accumulated deficit
|
|
|
(16,942,328
|
)
|
|
|
(133,502
|
)
|
|
|
(17,075,830
|
)
|
|
Total Iconic Brands, Inc. stockholders’ equity
|
|
|
(1,175,789
|
)
|
|
|
-
|
|
|
|
(1,309,291
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests in subsidiaries and variable interest entity
|
|
|
206,328
|
|
|
|
(128,264
|
)
|
|
|
(78,064
|
)
|
|
Total stockholders’ equity (deficiency)
|
|
|
(969,461
|
)
|
|
|
(261,766
|
)
|
|
|
(1,231,227
|
)
|
|
Total liabilities and stockholders’ deficiency
|
|
$
|
1,613,353
|
|
|
$
|
-
|
|
|
$
|
1,613,353
|
|
Iconic Brands, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
The effect of the restatement adjustments on the Consolidated Statement of Operations for the year ended December 31, 2017 follows:
|
|
|
As Previously Reported
|
|
|
Restatement Adjustments
|
|
|
As Restated
|
|
|
Sales
|
|
$
|
3,219,881
|
|
|
$
|
-
|
|
|
$ 3,219,881
|
|
|
Cost of Sales
|
|
|
1,524,860
|
|
|
|
261,766
|
|
|
|
1,786,626
|
|
|
Gross profit
|
|
|
1,695,021
|
|
|
|
(261,766
|
)
|
|
|
1,433,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officers compensation
|
|
|
250,000
|
|
|
|
-
|
|
|
|
250,000
|
|
|
Professional and consulting fees
|
|
|
87,671
|
|
|
|
-
|
|
|
|
87,671
|
|
|
Royalties
|
|
|
321,741
|
|
|
|
-
|
|
|
|
321,741
|
|
|
Marketing and advertising
|
|
|
84,013
|
|
|
|
-
|
|
|
|
84,013
|
|
|
Occupancy costs
|
|
|
107,118
|
|
|
|
-
|
|
|
|
107,118
|
|
|
Travel and entertainment
|
|
|
141,821
|
|
|
|
-
|
|
|
|
141,821
|
|
|
Other
|
|
|
272,155
|
|
|
|
-
|
|
|
|
272,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,264,519
|
|
|
|
-
|
|
|
|
1,264,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
430,502
|
|
|
|
(261,766
|
)
|
|
|
168,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain from settlement of debt
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Income (expense) from derivative liability
|
|
|
7,429,979
|
|
|
|
-
|
|
|
|
7,429,979
|
|
|
Loss on conversion of debt
|
|
|
(3,178,010
|
)
|
|
|
-
|
|
|
|
(3,178,010
|
)
|
|
Interest expense
|
|
|
(70,649
|
)
|
|
|
-
|
|
|
|
(70,649
|
)
|
|
Amortization of debt discounts
|
|
|
(107,173
|
)
|
|
|
-
|
|
|
|
(107,173
|
)
|
|
Total other income (expense) - net
|
|
|
4,074,147
|
|
|
|
-
|
|
|
|
4,074,147
|
|
|
Net income (loss)
|
|
|
4,504,649
|
|
|
|
(261,766
|
)
|
|
|
4,242,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss (income) attributable to noncontrolling interests in subsidiaries and variable interest entity
|
|
|
(404,770
|
)
|
|
|
128,265
|
|
|
|
(276,505
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Iconic Brands, Inc.
|
|
$
|
4,099,879
|
|
|
$
|
(133,501
|
)
|
|
$
|
3,966,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.00
|
|
|
|
-
|
|
|
|
0.00
|
|
|
Diluted
|
|
|
0.00
|
|
|
|
-
|
|
|
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding and to be issued to Escrow Agent:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
1,311,739,126
|
|
|
|
-
|
|
|
|
1,311,739,126
|
|
|
Diluted
|
|
|
3,197,937,251
|
|
|
|
-
|
|
|
|
3,197,937,251
|
|
Iconic Brands, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
The effect of the restatement adjustments on the Consolidated Statement of Cash Flows for the year ended December 31, 2017 follows:
|
|
|
As Previously
|
|
|
Restatement
|
|
|
|
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Iconic Brands, Inc.
|
|
$
|
4,099,879
|
|
|
$
|
(133,501
|
)
|
|
$
|
3,966,378
|
|
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to noncontrolling interests in subsidiaries and variable interest entity
|
|
|
404,770
|
|
|
|
(128,265
|
)
|
|
|
276,505
|
|
|
Expense (income) from derivative liability
|
|
|
(7,429,981
|
)
|
|
|
-
|
|
|
|
(7,429,981
|
)
|
|
Stock-based marketing expense
|
|
|
20,000
|
|
|
|
-
|
|
|
|
20,000
|
|
|
Amortization of debt discounts
|
|
|
107,173
|
|
|
|
-
|
|
|
|
107,173
|
|
|
Loss on conversion
|
|
|
3,178,010
|
|
|
|
-
|
|
|
|
3,178,010
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(134,709
|
)
|
|
|
-
|
|
|
|
(134,709
|
)
|
|
Inventory
|
|
|
(21,084
|
)
|
|
|
-
|
|
|
|
(21,084
|
)
|
|
Prepaid expenses
|
|
|
(5,000
|
)
|
|
|
-
|
|
|
|
(5,000
|
)
|
|
Accounts payable and accrued expenses
|
|
|
435,105
|
|
|
|
261,766
|
|
|
|
696,871
|
|
|
Accrued interest payable
|
|
|
19,867
|
|
|
|
-
|
|
|
|
19,867
|
|
|
Net cash used in operating activities
|
|
|
674,030
|
|
|
|
-
|
|
|
|
674,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of debt-net
|
|
|
341,837
|
|
|
|
-
|
|
|
|
341,837
|
|
|
Proceeds from sale of common stock and warrants
|
|
|
300,000
|
|
|
|
-
|
|
|
|
300,000
|
|
|
Loans payable to officer and affiliated entity
|
|
|
(80,651
|
)
|
|
|
-
|
|
|
|
(80,651
|
)
|
|
Net cash provided by financing activities
|
|
|
561,186
|
|
|
|
-
|
|
|
|
561,186
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
1,235,216
|
|
|
|
|
|
|
|
1,235,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period
|
|
|
2,216
|
|
|
|
-
|
|
|
|
2,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
1,237,432
|
|
|
$
|
-
|
|
|
$
|
1,237,432
|
|
PART II – INFORMATION NOT REQUIRED IN PROSPECTUS
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
We will pay all expenses in connection with the registration and sale of the common stock by the selling shareholder, who is an underwriter in connection with their offering of shares. The estimated expenses of issuance and distribution are set forth below:
|
Registration Fees
|
|
Approximately
|
$
|
100
|
|
|
Transfer Agent Fees
|
|
Approximately
|
|
2,000
|
|
|
Costs of Printing and Engraving
|
|
Approximately
|
|
1,000
|
|
|
Legal Fees
|
|
Approximately
|
|
30,000
|
|
|
Accounting and Audit Fees
|
|
Approximately
|
|
5,000
|
|
|
Total
|
|
|
$
|
38,100
|
|
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 4 of our Articles of Incorporation provides that, to the fullest extent permitted by Section 78 of the Nevada Revised Statutes, as the same may be amended and supplemented, the directors of the corporation are not personally liable to us or our stockholders for damages for breach of fiduciary duty as a director or officer, but may be personally liable for (i) acts or omissions which involve intentional misconduct, fraud or a knowing violation of law; or (ii) the payment of distributions in violation of NRS 78.300, as amended. Paragraph 1 of Section 78.037 states that the articles of incorporation of a Nevada corporation may contain any provision, not contrary to the laws of the State of Nevada, for the management of the business and for the conduct of the affairs of the corporation.
Section 5 of our Articles of Incorporation provides that, the corporation shall, to the fullest extent permitted by Section 78.751 of the Nevada Revised Statutes, as the same may be amended and supplemented, indemnify any person made or threatened to be made a party to any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative (whether or not by or in the right of the Company) by reason of the fact that he or she is or was a director of the Company or is or was serving as a director, officer, employee or agent of another entity at the request of the Company or any predecessor of the Company against judgments, fines, penalties, excise taxes, amounts paid in settlement and costs, charges and expenses (including attorneys’ fees and disbursements) that he or she incurs in connection with such action or proceeding. Section 78.751 states that the articles of incorporation of a Nevada corporation may provide that the expenses of officers and directors incurred in defending a civil or criminal action, suit or proceeding must be paid by the corporation as they are incurred and in advance of the final disposition. It further states that indemnification does not exclude any other rights that an officer or director may have pursuant to the articles, bylaws, shareholders agreement or otherwise, and that it continues for a person who has ceased to be a director, officer, or employee of the Company.
Article IX of our Bylaws further addresses indemnification, including procedures for indemnification claims. Indemnification applies to any person that is made a party to, or threatened to be made a party to, any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she was an officer or director of the Company.
The indemnification provisions in our Articles of Incorporation and Bylaws may be sufficiently broad to permit indemnification of our directors and officers for liabilities arising under the Securities Act.
RECENT SALES OF UNREGISTERED SECURITIES
The following is a list of unregistered sales of our equity securities from January 1, 2015 through the date hereof.
Share Exchange Agreement and Subsequent Unwind of Merger
On September 10, 2014, we entered into a Share Exchange Agreement (the “
Agreement
”) and merger with Medical Marijuana Business Academy, LLC, a company organized pursuant to the laws of the State of Colorado (“
MMBA
”), and MJ Business Academy, Inc., a Nevada corporation and a wholly-owned subsidiary of the Company (“
Merger Sub
”), pursuant to which, on September 10, 2014, MMBA merged with and into Merger Sub, with Merger Sub continuing as the surviving entity that succeeded to all of the assets, liabilities and operations of MMBA and whereby MMBA effectively became our wholly-owned operating subsidiary (the “
Merger
”).
At the effective time of the Merger, the outstanding membership interest units of MMBA, held by Phillip Stark and Charles Houghton, were exchanged for a total of 60,000,000 newly issued shares of our common stock as consideration for the Merger, and as such, Mr. Stark and Mr. Houghton, as the sole members of MMBA, held a controlling voting interest in our outstanding common stock. At Closing, our former CEO, Richard DeCicco, also transferred his one (1) Share of Series A Preferred Stock to Mr. Stark and Mr. Houghton, giving them control of our preferred stock, as well.
The Agreement contained customary terms and conditions for agreements of this type, including completion of due diligence by the parties and approval of the Merger by MMBA members. At the effective time of the Merger, MMBA’s current officers and directors were appointed as our officers and directors. The Merger became effective on September 10, 2014.
A copy of the Agreement was attached to our Form 8-K filed with the SEC on May 21, 2015 as Exhibit 2.1. The description of the Agreement herein is qualified by the terms of the full text of the agreement attached thereto and the terms thereof are incorporated herein by reference.
Effective on April 9, 2015, the Company, MMBA and Merger Sub entered into an Unwind Agreement (the “
Unwind Agreement
”) whereby Mr. Houghton and Mr. Stark agreed to transfer their 60,000,000 shares of our common stock, and to return the One (1) Share of Series A Preferred Stock to Mr. DeCicco, in exchange for the unwinding of the merger, and a return to Mr. Houghton and Mr. Stark of all of the membership interest units in MMBA.
At the Closing of the Unwind Agreement on April 23, 2015, Richard DeCicco was appointed President and Director of the Company and Merger Sub. Following Mr. DeCicco’s appointment, Mr. Stark and Mr. Houghton resigned all officer and director positions in both the Company and Merger Sub, and Mr. DeCicco remains as sole officer and director of Iconic Brands, Inc. and MJ Business Academy, Inc.
As of the Closing of the Unwind Agreement, neither the Company, nor Merger Sub holds any right, title or interest in or to any of the assets of Medical Marijuana Business Academy, LLC, and MMBA is a private entity once again owed solely by its Managing Members, Phillip Stark and Charles Houghton.
A copy of the Unwind Agreement was attached to our Form 8-K filed with the SEC on May 21, 2015 as Exhibit 10.2. The description of the Agreement herein is qualified by the terms of the full text of the agreement attached thereto and the terms thereof are incorporated herein by reference.
Acquisition of BiVi
On May 15, 2015, we entered into a Securities Exchange Agreement, by and among the members of BiVi under which we were to acquire a 51% majority interest in BiVi in exchange for the issuance (a) 1,000,000 shares of restricted common stock and (b) 1,000 shares of newly created Series C Convertible Preferred Stock.
Upon satisfaction of the conditions set forth in the Securities Exchange Agreement, the Closing was held on May 31, 2015. At Closing, BiVi became a majority owned subsidiary of the Company. Under the terms of the Securities Exchange Agreement, we shall provide working capital, from time to time, of up to $750,000.00 pursuant to a Working Capital Facility, which shall be repaid by BiVi from working capital generated from BiVi’s operations. Provided that, in the event that we fail to provide working capital of at least $40,000.00 per month, and such failure shall continue for a period of sixty (60) calendar days thereafter then BiVi may, at its option, by written notice to us, declare a default. In the event of such default, we shall surrender the Majority Interest back to BiVi for retirement and the Holders of the Series C Preferred Stock shall surrender all outstanding shares back to Iconic for retirement (“
BiVi Unwind
”). In the event of the BiVi Unwind, BiVi shall issue a 5% promissory note to us with a principal amount equal to the then outstanding unpaid balance of the Working Capital Facility advanced to BiVi prior to the Unwind, payable upon the acquisition of the majority of the outstanding stock or assets of BiVi, including but not limited to the BiVi Brand of products, by a third party, but in no event later than 36 months from issuance.
Prior to the Closing, BiVi was beneficially owned and controlled by Richard DeCicco, our majority shareholder, President, CEO and Director.
A copy of the Securities Exchange Agreement was attached to our Form 8-K filed with the SEC on May 21, 2015 as Exhibit 4.1. The description of the Agreement herein is qualified by the terms of the full text of the agreement attached thereto and the terms thereof are incorporated herein by reference.
Acquisition of Bellissima Spirits LLC
On December 13, 2016, we entered into a Securities Purchase Agreement with Bellissima and Bellissima’s members under which we acquired a 51% Majority Interest in Bellissima in exchange for the issuance of a total of 10 shares of newly designated Iconic Series D Convertible Preferred Stock.
Convertible Notes
For the year ended December 31, 2015, we issued an aggregate of 41,735,263 shares of our common stock in settlement of convertible notes payable and accrued interest payable totaling $138,280.
For the year ended December 31, 2016, we issued an aggregate of 689,290,596 shares of our common stock in settlement of convertible notes payable and accrued interest payable totaling $61,767.
In February 2017, we issued an aggregate of 5,965,129 shares of our common stock in settlement of convertible notes payable totaling $22,773.
On March 28, 2017, we executed a Settlement Agreement and Release (the “
Settlement Agreement
”) with 4 holders of convertible notes payable. Notes payable and accrued interest totaling $892,721 were satisfied through our agreement to irrevocably reserve a total of 482,926,829 shares of our common stock and to deliver such shares in separate tranches to the Escrow Agent upon receipt of a conversion notice delivered by the Escrow Agent to us.
On May 5, 2017, we executed an Amended Settlement Agreement and Release (the “
Amended Settlement Agreement
”) replacing the Settlement Agreement. The Amended Settlement Agreement is with five (5) holders of convertible notes payable (the 4 holders who were parties to the Settlement Agreement and Release dated March 28, 2017 and one additional holder) and provided for the satisfaction of notes payable and accrued interest totaling $1,099,094 (a $206,373 increase from the $892,721 amount per the Settlement Agreement and Release dated March 28, 2017) through our agreement to irrevocably reserve a total of 613,000,000 shares of our common stock (a 130,073,171 share increase from the 482,926,829 shares per the Settlement Agreement and Release dated March 28, 2017) and deliver such shares in separate tranches to the Escrow Agent upon receipt of a conversion notice delivered by the Escrow Agent to us.
In the quarterly period ended June 30, 2017, we issued an aggregate of 71,194,147 shares of our common stock to the Escrow Agent pursuant to the Amended Settlement Agreement. In the quarterly period ended September 30, 2017, we issued an aggregate of 63,333,333 shares of our common stock to the Escrow Agent pursuant to the Amended Settlement Agreement. At December 31, 2017, the remaining number of shares of common stock to be issued to the Escrow Agent is 478,472,520 shares.
On June 29, 2017, we issued 10,018,893 shares of our common stock in settlement of convertible notes payable and accrued interest payable totaling $50,094.
On July 17, 2017 and July 25, 2017, we issued a total of 15,089,720 shares of our common stock in settlement of convertible notes payable and accrued interest payable totaling $75,449.
Other Issuances
On August 17, 2017, we issued 4,000,000 shares of our common stock to a marketing entity for services rendered. The shares were valued at $0.005 per share and $20,000 was expensed and included in marketing and advertising expenses in the three months ended September 30, 2017.
From September 2017 to November 2017, pursuant to the Purchase Agreement, we issued a total of 120,000,000 Common Shares and 120,000,000 Warrants to the Selling Shareholders for a total of $300,000 cash. The Warrants are exercisable into our common stock at a price of $0.01 per share, expire five years from date of issuance, and contain “down round” price protection.
We have also issued the Series E Shares to the Selling Shareholders. Further details are found above under the heading “
Private Placement of Securities
” on page 11 and in Note 9 of the financial statements for the years ended December 31, 2017 and 2016, which section and note are incorporated herein by reference.
On July 12, 2018, we issued a total of 30,000,000 shares of our common stock to Halo Group, Inc., for marketing services rendered. These shares were granted pursuant to a Settlement and Release Agreement that also granted Halo Group, Inc. registration rights with respect to these shares.
Warrants
In connection with our issuance of a total of $135,019 convertible notes payable in the three months ended June 30, 2017, we issued a total of 13,500,000 Common Stock Purchase Warrants to the respective lenders. These warrants are exercisable into our common stock at a price of $0.01 per share and expire at dates ranging from June 22, 2022 to June 30, 2022.
As discussed in the second preceding paragraph, we issued a total of 120,000,000 warrants to three investors from September 2017 to November 2017. These warrants are exercisable into our common stock at a price of $0.01 per share and expire five years from date of issuance.
We issued a total of 7,500,000 warrants to Clyde Snow & Sessions, PC on December 2, 2017 for legal services rendered. These warrants are exercisable into our common stock at a price of $0.01 per share and expire five years from date of issuance.
We issued a total of 25,000,000 warrants to Paul Rachmuth, Esq. on August 26, 2018 for legal services rendered. These warrants are exercisable into our common stock at a price of $0.01 per share and expire five years from date of issuance.
The issuance of the securities described above were exempt from the registration requirements of the Securities Act of 1933 pursuant to Section 4(a)(2) of the Securities Act of 1933. All investors were accredited and sophisticated investors, familiar with our operations, and there was no solicitation.
EXHIBITS
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(a)
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The following exhibits are filed as part of this registration statement.
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Exhibit No.
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Description of Exhibits
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3.1(1)
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Articles of Incorporation of Iconic Brands, Inc.
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3.2(1)
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Bylaws of Iconic Brands, Inc., as amended
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3.3
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Certificate of Designation of Series A Convertible Preferred Stock
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3.4
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Certificate of Designation of Series B Convertible Preferred Stock
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3.5
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Certificate of Designation of Series C Convertible Preferred Stock
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3.6
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Certificate of Designation of Series D Convertible Preferred Stock
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3.7
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Certificate of Designation of Series E Convertible Preferred Stock
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5.1
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Legal Opinion of Clyde Snow & Sessions, PC
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10.1
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Distribution Agreement by and between BiVi LLC and United Spirits, Inc., dated May 1, 2015
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10.2
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Distribution Agreement by and between Bellissima Spirits LLC and United Spirits, Inc., dated May 1, 2016
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10.3
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Extension of Lease Agreement by and between the Company and United Spirits, Inc., dated March 27, 2018
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10.4
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Securities Purchase Agreement by and among the Company, The Special Equities Group, LLC, Iroquois Master Fund Ltd. and Gregory M. Castaldo, dated November 1, 2017
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10.5
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Registration Rights Agreement by and among the Company, The Special Equities Group, LLC, Iroquois Master Fund Ltd. and Gregory M. Castaldo, dated November 1, 2017
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10.6
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Share Exchange Agreement by and among the Company, The Special Equities Group, LLC, Iroquois Master Fund Ltd., Iroquois Capital Investment Group LLC and Gregory M. Castaldo, dated May 21, 2018
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10.7
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Amendment No. 1 to Securities Purchase Agreement by and among the Company, The Special Equities Group, LLC, Iroquois Master Fund Ltd., Iroquois Capital Investment Group LLC and Gregory M. Castaldo, dated May 21, 2018
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10.8
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Amendment No. 1 to Registration Rights Agreement by and among the Company, The Special Equities Group, LLC, Iroquois Master Fund Ltd., Iroquois Capital Investment Group LLC and Gregory M. Castaldo, dated May 21, 2018
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23.1
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Consent of BMKR, LLP
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23.2
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Consent of Clyde Snow & Sessions, PC (included in Exhibit 5.1)
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(1)
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Incorporated by reference to Form SB-2 filed on November 30, 2007.
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(b)
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Financial Statement Schedules.
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No financial statement schedules have been provided because the information is not required or is shown either in the financial statements or the notes thereto.
Undertakings
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A.
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Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by our director, officer or controlling person in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.
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B.
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The undersigned registrant hereby undertakes:
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(1)
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To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
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(a)
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To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
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(b)
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To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) (Section 230.424(b) of Regulation S-K) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and
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(c)
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To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.
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(2)
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That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering thereof.
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(3)
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To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
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(4)
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That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:
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(i)
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If the registrant is relying on Rule 430B (§230.430B of this chapter):
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(a)
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Each prospectus filed by the registrant pursuant to Rule 424(b)(3) (§230.424(b)(3) of this chapter) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and
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(b)
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Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) (§230.424(b)(2), (b)(5), or (b)(7) of this chapter) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) (§230.415(a)(1)(i), (vii), or (x) of this chapter) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial
bona fide
offering thereof.
Provided, however,
that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date; or
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(ii)
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If the registrant is subject to Rule 430C (§230.430C of this chapter), each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A (§230.430A of this chapter), shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness.
Provided, however,
that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
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(5)
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That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities:
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(i)
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The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
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(a)
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Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424 (§230.424 of this chapter);
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(b)
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Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
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(c)
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The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
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(d)
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Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
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(6)
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The undersigned registrant hereby undertakes that:
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(i)
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For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
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(ii)
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For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, in the City of Amityville, State of New York.
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Iconic Brands, Inc.
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/s/ Richard J. DeCicco
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Dated: September 18, 2018
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By:
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Richard J. DeCicco
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Its:
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Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer
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Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates stated.
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/s/ Richard J. DeCicco
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Dated: September 18, 2018
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Name:
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Richard J. DeCicco
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Title:
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Director
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/s/ Roseann Faltings
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Dated: September 18, 2018
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Name:
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Roseann Faltings
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Title:
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Director
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EXHIBIT 3.3
CERTIFICATE OF DESIGNATION
PREFERENCES AND RIGHTS
of
SERIES A PREFERRED STOCK
ICONIC BRANDS, INC.
(Pursuant to Section 78.1955 of the Nevada Revised Statues Law)
ICONIC BRANDS, INC. (formerly, Paw Spa, Inc.), a corporation organized and existing under the laws of the State of Nevada (the “ Corporation ”), the certificate of incorporation of which was filed in the office of the Secretary of State of Nevada on October 21, 2005 and amended on June 5, 2009, hereby certifies that the Board of Directors of the Corporation (“ Board of Directors ” or the “ Board ”), pursuant to authority of the Board of Directors as required by Section 78.1955 of the Nevada Revised Statutes, and in accordance with the provisions of its Certificate of Incorporation and Bylaws, each as amended and restated through the date hereof, has and hereby authorizes a series of the Corporation’s previously authorized 100,000,000 shares of preferred stock, par value $0.00001 per share (the “ Preferred Stock ”), and hereby states the designation and number of shares, and fixes the relative rights, preferences, privileges, powers and restrictions thereof, as follows:
I.
DESIGNATION AND AMOUNT
The designation of this series consists of one share (1) of Preferred Stock and is the Series A Preferred Stock (the “ Series A Preferred Stock ”) and the stated value amount shall be One Dollar ($1) per share (the “ Stated Value ”).
II.
CERTAIN DEFINITIONS
For purposes of this Certificate of Designation, in addition to the other terms defined herein, the following terms shall have the following meanings:
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A.
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“ Affiliates ” of any particular Person means any other Person that directly, or indirectly through
one or more intermediaries, controls, or is controlled by or under common control with such Person.
For purposes of this definition, “ control ” ( including the terms
“ controlling ,”
“ controlled by ”
and “ under common control with ”) means the possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of a Person, whether through the ownership
of voting securities, by contract or otherwise.
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B.
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“ Bloomberg ” shall mean Bloomberg, L.P. (or any successor to its function of reporting stock
prices).
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C.
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“ Common Stock ” means t he common stock of t he Corporation, par value $0.00001 per shar e,
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ogether with any securities into which the common stock may be reclassified.
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D.
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“ Common Stock Deemed Outstanding ” shall mean the number of shares of Common Stoc k actually outstanding (not including shares of Common Stock held in the treasury of the
Corporation), plus (x) the maximum total number of shares of Common Stock issuable upon the
exercise of the Options, as of the date of such issuance or grant of such Options, if any, and (y) the
maximum total number of shares of Common Stock issuable upon conversion or exchange of
Convertible Securities, as of the date of issuance of such Convertible Securities, if any.
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E.
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“ Corporation ” means the collective reference to (i) Iconic Brands, Inc. (formerly, Paw Spa,. Inc.),
a Nevada corporation, and (ii) its successor in interest.
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F.
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“ Holder ” shall mean Richard DeCicco or his designee or assigns.
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G.
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“ National Securities Exchange ” means any one of the New York Stock Exchange, the NYSE
A
lt
e
r
next Exchange, the NASDAQ Capital Market, the OTC Bulletin Board or any other national
securities exchange in the United States where the Corporation’s Common Stock may trade.
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H.
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“ Series A Preferred Stock ” shall mean the 1 share of Series A Preferred Stock authorized for
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ssuance pursuant to this Certificate of Designation and issued to Richard DeCicco.
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I.
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“ Stated Value ” means One Dollar ($1) per shar e of Series A Preferred Stock.
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J.
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“ Trading Day ” shall mean any day on which the Common Stock is traded for any period on t he principal securities exchange or other securities market on which the Common Stock is then being
traded.
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III.
DIVIDENDS
The Holder of Series A Preferred Stock will not be entitled to receive dividends of any kind, including but not limited to any dividends paid on Common Stock.
IV.
CONVERSION
The Series A Preferred Stock shall not be convertible into Common Stock at any time.
V.
LIQUIDATION PREFERENCE
The Series A Preferred Stock shall not be have any rights with respect to liquidation preference upon the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary.
VI.
VOTING RIGHTS
The Holders of shares of Series A Preferred Stock shall vote together with the holders of the Common Stock and shall have two (2) votes for every share of Common Stock Deemed Outstanding (other than this Series A Preferred Stock) and entitled to a vote on all matters submitted to the shareholders. For example, if a matter is presented to the shareholders for a vote and there are 100,000 shares outstanding and entitled to vote on the matter, then the Holder of the Series A Preferred Stock would be granted 200,000 votes.
VII.
MISCELLANEOUS
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A.
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Lost or Stolen Certificates Upon receipt by the Corporation of (i) evidence of the lost, theft,
destruction or mutilation of any Series A Preferred Stock Certificate(s) and (ii) (y) in the case of
loss, theft or destruction, indemnity (without any bond or other security) reasonably satisfactory to
the Corporation, or (z) in the case of mutilation, the Series A Preferred Stock Certificate(s)
(surrendered for cancellation), the Corporation shall execute and deliver new Series A Preferred
Stock Certificate(s) of like tenor and date. However, the Corporation shall not be obligated to
reissue such lost, stolen, destroyed or mutilated Series A Preferred Stock Certificate(s) if the Holder
contemporaneously requests the Corporation to convert such Series A Preferred Stock.
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B.
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Waiver Notwithstanding any provision in this Certificate of Designation to the contrary, any
provision contained herein and any right of the Holder of Series A Preferred Stock granted
hereunder may be waived as to all shares of Series A Preferred Stock (and the Holders thereof)
upon the written consent of the Holder.
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C.
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Notices. Any notices required or permitted to be given under the terms hereof shall be sent by
certified or registered mail (return receipt requested) or delivered personally, by nationally
recognized overnight carries or by confirmed facsimile transmission, and shall be effective five
days after being placed in the mail, if mailed, or upon receipt or refusal of receipt, if delivered
personally or by nationally recognized overnight carrier or confirmed facsimile transmission, in
each case addressed to a party. The addresses for such communications are:
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if to the Corporation:
Iconic Brands, Inc.
Attn: Richard DeCicco
102 Buffalo Avenue
Freeport, New York 11520
with a copy to (which shall not constitute notice):
Anslow & Jaclin, LLP
Attn: Eric M. Stein
195 Route 9 South,
Suite 204
Manalapan, New Jersey 07726
if to the Holder:
Richard DeCicco
102 Buffalo Avenue
Freeport, New York 11520
IN WITNESS WHEREOF, the undersigned declares under penalty of perjury under the laws of the State of Nevada that he has read the foregoing Certificate of Designation and knows the contents thereof, and that he is duly authorized to execute the same on behalf of the Corporation, this 5th day of June 2009.
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ICONIC BRANDS, INC. (formerly, Paw Spa, Inc.)
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By:
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/s/ Richard DeCicco
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Name:
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Rich DeCicco
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Title:
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President
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EXHIBIT 3.4
CERTIFICATE OF DESIGNATION,
PREFERENCES AND RIGHTS
of
SERIES B CONVERTIBLE PREFERRED STOCK
of
ICONIC BRANDS, INC.
(Pursuant to Section 78.1955 of the Nevada Revised Statues Law)
ICONIC BRANDS, INC. (formerly, Paw Spa, Inc.), a corporation organized and existing under the laws of the State of Nevada (the “ Corporation ”), the certificate of incorporation of which was filed in the office of the Secretary of State of Nevada on October 21, 2005 and amended on June 5, 2009, hereby certifies that the Board of Directors of the Corporation (the “ Board of Directors ” or the “ Board ”), pursuant to authority of the Board of Directors as required by Section 78.1955 of the Nevada Revised Statutes, and in accordance with the provisions of its Certificate of Incorporation and Bylaws, each as amended and restated through the date hereof, has and hereby authorizes a series of the Corporation’s previously authorized 100,000,000 shares of preferred stock, par value $0.00001 per share (the “ Preferred Stock ”), and hereby states the designation and number of shares, and fixes the relative rights, preferences, privileges, powers and restrictions thereof, as follows:
I. DESIGNATION AND AMOUNT
The designation of this series, which consists of One Million (1,000,000) shares of Preferred Stock, is the Series B Preferred Stock (the “ Series B Preferred Stock ”) and the stated value amount shall be Two Dollars ($2) per share (the “ Stated Value ”).
II. CERTAIN DEFINITIONS
For purposes of this Certificate of Designation, in addition to the other terms defined herein, the following terms shall have the following meanings:
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A.
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“Affiliates” of any particular Person means any other Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by or under common control with such Person. For purposes of this definition, “control” (including the terms “controlling,” “controlled by” and “under common control with”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.
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B.
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“Bloomberg” shall mean Bloomberg, L.P. (or any successor to its function of reporting stock prices).
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C.
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“ Business Combination ” means any merger, consolidation or combination of the Corporation or any Subsidiary with or into any other corporation or entity, or any acquisition by the Corporation or any Subsidiary of all or substantially all the assets or securities of, or majority voting or economic interest in, any other corporation or other entity, or whether by merger, tender offer, asset purchase, stock purchase, or like combination or consolidation; provided, that such transaction shall not constitute a Sale of Control.
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D.
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“Capstone” shall mean Capstone Capital Group I, LLC, a Delaware corporation.
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E.
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“Common Stock” means the common stock of the Corporation, par value $0.00001 per share, together with any securities into which the common stock may be reclassified.
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F.
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“ Common Stock Deemed Outstanding ” shall mean the number of shares of Common Stock actually outstanding (not including shares of Common Stock held in the treasury of the Corporation), plus (x) the maximum total number of shares of Common Stock issuable upon the exercise of the Options, as of the date of such issuance or grant of such Options, if any, and (y) the maximum total number of shares of Common Stock issuable upon conversion or exchange of Convertible Securities, as of the date of issuance of such Convertible Securities, if any.
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G.
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“ Conversion Date ” means, for any Conversion, the date specified in the notice of conversion in the form attached hereto (the “ Notice of Conversion ”), so long as a copy of the Notice of Conversion is faxed, emailed or delivered by other means resulting in notice to the Corporation before 11:59 p.m., New York City time, on the Conversion Date indicated in the Notice of Conversion; provided, however, that if the Notice of Conversion is not so faxed, emailed or otherwise delivered before such time, then the Conversion Date shall be the date the Holder faxes or otherwise delivers the Notice of Conversion to the Corporation.
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H.
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“Convertible Securities” shall have the meaning as defined in Article VIII, Section E(ii) of this Certificate of Designations.
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I.
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“Corporation” means the collective reference to (i) Iconic Brands, Inc. (formerly, Paw Spa, Inc.), a Nevada corporation, and (ii) its successor in interest.
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J.
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“Holder” shall mean the collective reference to Capstone Capital Group I, LLC, its Affiliates or any one or more holder(s) of the Series B Preferred Stock.
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K.
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“Issuance Date ” means one (1) Trading Day following the filing of this Series B Certificate of Designation with the Secretary of State of the State of Nevada.
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L.
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“ Market Price ” means, as of any Trading Day, (i) the average of the last reported sale prices for the shares of Common Stock on a national securities exchange which is the principal trading market for the Common Stock for the five (5) Trading Days immediately preceding such date as reported by Bloomberg or (ii) if no national securities exchange is the principal trading market for the shares of Common Stock, the average of the last reported sale prices on the principal trading market for the Common Stock during the same period as reported by Bloomberg, or (iii) if market value cannot be calculated as of such date on any of the foregoing bases, the Market Price shall be the fair market value as reasonably determined in good faith by (A) the Board of Directors of the Corporation, or (B) at the option of a majority-in-interest of the holders of the outstanding Series B Preferred Stocks by an independent investment bank of nationally recognized standing in the valuation of businesses similar to the business of the Corporation. The manner of determining the Market Price of the Common Stock set forth in the foregoing definition shall apply with respect to any other security in respect of which a determination as to market value must be made hereunder.
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M.
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“National Securities Exchange” means any one of the New York Stock Exchange, the NYSE Alternext Exchange, the NASDAQ Capital Market, the OTC Bulletin Board or any other national securities exchange in the United States where the Corporation’s Common Stock may trade.
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N.
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“Original Issue Price” means the sum of Two Dollars ($2), representing the aggregate purchase price for each share of Series B Preferred Stock at the Stated Value.
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O.
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“Options” shall have the meaning as defined in Article VIII, Section E(i) of this Certificate of Designations.
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P.
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“Series B Preferred Stock” shall mean the 1,000,000 shares of Series B Preferred Stock authorized for issuance pursuant to this Certificate of Designation and issued to Capstone.
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Q.
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“ Sale of Control ” shall mean the sale or transfer of all or substantially all of the assets or securities of the Corporation or any Subsidiary, whether by stock sale, asset sale, merger, consolidation or like combination, in any one or more series of transactions whereby control of the Board of Directors of the Corporation or any Subsidiary shall no longer be vested in the Persons who served as members of such Boards of Directors immediately prior to such transaction.
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R.
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“ Series B Conversion Price ” means Two Dollars ($2) per share, provided, however, if the Market Price shall be less than Two Dollars ($2) per shares at any one or more Conversion Date then the Series B Conversion Price shall be equal to 100% of the VWAP per share of Common Stock, as traded on any National Securities Exchange, for the twenty (20) Trading Days immediately prior to the Conversion Date, or such other dollar amount (or fraction thereof) into which such Series B Conversion Price may be adjusted pursuant to Article VIII of this Certificate.
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S.
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“Stated Value” means Two Dollars ($2) per share of Series B Preferred Stock.
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T.
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“Trading Day” shall mean any day on which the Common Stock is traded for any period on the principal securities exchange or other securities market on which the Common Stock is then being traded.
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U.
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“VWAP” means the volume weighted average price per share of the Common Stock as reported by Bloomberg Reporting Service or other recognized stock market price reporting service.
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III. DIVIDENDS
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A.
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Holders of Series B Preferred Stock shall be entitled to receive dividends when, as and if declared by the Board of Directors of the Corporation. No cash dividends or distributions shall be declared or paid or set apart for payment on the Common Stock unless such cash dividend or distribution is likewise declared, paid or set apart for payment on the Series B Preferred Stock in an amount equal to the dividend or distribution that would be payable if all of the issued and outstanding shares of the Series B Preferred Stock had been fully converted into Common Stock on the day immediately prior to the date which shall be the earliest to occur of the declaration, payment, or distribution or such dividend.
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B.
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Dividends on the Series B Preferred Stock are prior and in preference to any declaration or payment of any dividend or other distribution (as defined below) on any outstanding shares of Junior Securities (as hereinafter defined).
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IV. CONVERSION
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A.
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Optional Conversion
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i.
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Subject at all times to the provisions of Section A(v) of this Article IV, Holders of Series B Preferred Stock may at their option convert all or any portion of their shares of Series B Preferred Stock into Common Stock of the Corporation at any time or from time to time (an “Optional Conversion”).
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ii.
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In the event of any one or more Optional Conversions pursuant to this Article IV A. (each a “ Conversion ”) each share of Series B Preferred Stock shall be convertible into a number of fully paid and non-assessable shares of Common Stock determined in accordance with the following formula:
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Series B Preferred Stock Being Converted
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X
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Original Issue Price
Series B Conversion Price then in effect
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iii.
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Notwithstanding anything to the contrary, express or implied, contained in this Certificate of Designation, without the prior written consent of the Holder and the board of directors of the Corporation, the maximum number of shares of the Corporation’s Common Stock that may be owned of record or beneficially at any point in time by any Holder of Series B Preferred Stock or any Affiliate of such Holder (whether upon conversion(s) of Series B Preferred Stock, open market purchases, other purchases of Corporation Common Stock, exercise of Options or conversion or any Convertible Securities, or any combination of the foregoing) shall not exceed an aggregate of 4.99% of the outstanding shares of the Corporation’s Common Stock
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B.
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Mechanics of Conversion. In order to effect an Conversion, a Holder of shares of Series B Preferred Stock shall: (i) fax (or otherwise deliver) a copy of the fully executed Notice of Conversion to the Corporation (Attention: Secretary) and (ii) surrender or cause to be surrendered the original certificates representing the Series B Preferred Stock being converted (the “ Series B Preferred Stock Certificates “), duly endorsed, along with a copy of the Notice of Conversion as soon as practicable thereafter to the Corporation. Upon receipt by the Corporation of a facsimile copy of a Notice of Conversion from a Holder, the Corporation shall promptly send, via facsimile, a confirmation to such Holder stating that the Notice of Conversion has been received, the date upon which the Corporation expects to deliver the Common Stock issuable upon such conversion and the name and telephone number of a contact person at the Corporation regarding the conversion. The Corporation shall not be obligated to issue shares of Common Stock upon a conversion unless either the Series B Preferred Stock Certificates are delivered to the Corporation as provided above, or the Holder notifies the Corporation that such Series B Preferred Stock Certificates have been lost, stolen or destroyed and delivers the documentation to the Corporation required by Article XII. B hereof.
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i.
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Delivery of Common Stock Upon Conversion. Upon the surrender of Series B Preferred Stock Certificates accompanied by a Notice of Conversion, the Corporation (itself, or through its transfer agent, as appropriate) shall, no later than the later of (a) the fifth (5th) Trading Day following the Conversion Date and (b) the Trading Day immediately following the date of such surrender (or, in the case of lost, stolen or destroyed certificates, after provision of indemnity pursuant to Article XI B) (the “ Delivery Period ”), issue and deliver (i.e., deposit with a nationally recognized overnight courier service postage prepaid) to the Holder or its nominee (x) that number of shares of Common Stock issuable upon conversion of such shares of Series B Preferred Stock being converted and (y) a certificate representing the number of shares of Series B Preferred Stock not being converted, if any. Notwithstanding the foregoing, the Holder of Series B Preferred Stock shall, for all purposes, be deemed to be a record owner of that number of shares of Common Stock issuable upon conversion of those shares of Series B Preferred Stock set forth in the Conversion Notice as at the date of such Conversion Notice. In addition, if the Corporation’s transfer agent is participating in the Depository Trust Corporation (“ DTC ”) Fast Automated Securities Transfer program, and so long as the certificates therefor do not bear a legend and the Holder thereof is not then required to return such certificate for the placement of a legend thereon, the Corporation shall cause its transfer agent to promptly electronically transmit the Common Stock issuable upon conversion to the Holder by crediting the account of the Holder or its nominee with DTC through its Deposit Withdrawal Agent Commission system (“ DTC Transfer ”). If the aforementioned conditions to a DTC Transfer are not satisfied, the Corporation shall deliver as provided above to the Holder physical certificates representing the Common Stock issuable upon conversion. Further, a Holder may instruct the Corporation to deliver to the Holder physical certificates representing the Common Stock issuable upon conversion in lieu of delivering such shares by way of DTC Transfer.
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ii.
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Taxes. The Corporation shall pay any and all taxes that may be imposed upon it with respect to the issuance and delivery of the shares of Common Stock upon the conversion of the Series B Preferred Stock.
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iii.
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No Fractional Shares. If any conversion of Series B Preferred Stock would result in the issuance of a fractional share of Common Stock (aggregating all shares of Series B Preferred Stock being converted pursuant to a given Notice of Conversion), such fractional share shall be payable in cash based upon the Series B Conversion Price per share, and the number of shares of Common Stock issuable upon conversion of the Series B Preferred Stock shall be the next lower whole number of shares. If the Corporation elects not to, or is unable to, make such a cash payment, the Holder shall be entitled to receive, in lieu of the final fraction of a share, one whole share of Common Stock.
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iv.
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Conversion Disputes. In the case of any dispute with respect to a conversion, the Corporation shall promptly issue such number of shares of Common Stock in accordance with subparagraph (i) above as are not disputed. If such dispute involves the calculation of the Series B Conversion Price, and such dispute is not promptly resolved by discussion between the relevant Holder and the Corporation, the Corporation and the Holder shall submit their disputed calculations to a mutually agreed upon independent outside accountant via facsimile within three Trading Days of receipt of the Notice of Conversion. If the parties cannot agree on an acceptable independent outside accountant, each party shall designate an accountant and those two appointed accountants shall choose a third accountant who shall act as the independent outside accountant. The accountant, at the Corporation’s sole expense, shall promptly audit the calculations and notify the Corporation and the Holder of the results no later than three Trading Days from the date it receives the disputed calculations. The accountant’s calculation shall be deemed conclusive, absent manifest error. The Corporation shall then issue the appropriate number of shares of Common Stock in accordance with subparagraph (i) above.
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v.
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Payment of Accrued Amounts. Upon conversion of any shares of Series B Preferred Stock, all amounts then accrued or payable on such shares under this Certificate of Designation (including, without limitation, all Dividends, if any) through and including the Conversion Date shall be paid by the Corporation in cash. In the event that the Corporation elects to effect a payment-in-kind, the number of fully paid and non-assessable shares of Common Stock due shall be determined in accordance with the following formula:
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A
l
l Amounts Accrued or Payable
Series B Conversion Price
V. RESERVATION OF SHARES OF COMMON STOCK
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A.
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Reserved Amount. Immediately following the Corporation’s filing of an Amendment to its Certificate of Incorporation authorizing an increase to its authorized Common Stock, the Corporation shall reserve not less than 1,000,000 shares of its authorized but unissued shares of Common Stock for issuance upon conversion of the Series B Preferred Stock (including any shares that may be issuable in connection with the adjustment provisions of this Certificate of Designations), and, thereafter, the number of authorized but unissued shares of Common Stock so reserved (the “ Reserved Amount ”) shall at all times be sufficient to provide for the full conversion of all of the Series B Preferred Stock (including any shares that may be issuable in connection with the adjustment provisions of this Certificate of Designations) outstanding or issuable upon conversion of Series B Preferred Stock, at the current Series B Conversion Price thereof, and any anticipated adjustments to such Series B Conversion Price.
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B.
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Increases to Reserved Amount. During the period that the Corporation’s Common Stock is not listed on any National Securities Exchange in the United States or abroad or the OTC Bulletin Board, the Corporation shall, twice annually, review the Reserved Amount for any stock splits, or adjustments on the Series B Preferred Stock, or similar situations to determine whether the Reserved Amount needs to be increased.
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VI. RANK
All shares of the Series B Preferred Stock shall rank senior to (a) any other class or series of Preferred Stock of the Corporation now existing or hereafter created, (b) to all shares of the Corporation’s Common Stock now existing or hereafter issued, and (c) any other class of securities which is specifically designated as junior to the Series B Preferred Stock (collectively, with the Common Stock, the “ Junior Securities” ), in each case as to distribution of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary.
VII. LIQUIDATION PREFERENCE
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A.
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In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, distributions to the stockholders of the Corporation shall be made in the following manner:
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i.
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Prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of any Junior Securities, the Holders of Series B Preferred Stock by reason of their ownership of such stock, shall receive an amount equal to the sum of (x) $1,000.00 for each share of Series B Preferred Stock then held by them (the “ Initial Series B Liquidation Preference Price ”), and (y) an amount equal to all unpaid dividends on the Series B Preferred Stock, if any. If upon the occurrence of a liquidation, dissolution or winding up of the Corporation the assets and funds thus distributed among the holders of the Series B Preferred Stock shall be insufficient to permit the payment to such holders of the full liquidation preference amount based on the Initial Series B Liquidation Preference Price, then the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably among the holders of the Series B Preferred Stock in proportion to the preferential amount each such holder is otherwise entitled to receive.
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ii.
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In the event of any Sale of Control, in addition to the right of the Holder(s) of the Series B Preferred Stock to receive the Initial Series B Liquidation Preference Price, such Holder(s) shall also be entitled to participate with the holders of the Corporation’s Common Stock in receipt of the consideration payable upon such Sale of Control to the extent that each one (1) share of Series B Preferred Stock then owned by the Holder(s) would be converted pursuant to the terms hereof into Common Stock.
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B.
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After setting apart or paying in full the preferential amounts due pursuant to Section VII (A) above, the remaining assets of the Corporation available for distribution to stockholders, if any, shall be distributed to the holders of the Common Stock on a pro rata basis, based on the number of shares of Common Stock then held by each holder.
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VIII. VOTING RIGHTS
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A.
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Class Voting Rights. Holders of the Series B Preferred Stock shall vote together as a separate class on all matters which impact the rights, value or conversion terms, or ranking of the Series B Preferred Stock, as provided herein.
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B.
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No Other Voting Rights. Except as set forth in Section A of this Article IX, the Series B Preferred Stock shall not vote on any matter submitted to the stockholders of the Corporation and Holder(s) of the Series B Preferred Stock shall have no other voting rights.
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IX. MISCELLANEOUS
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A.
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Cancellation of Series B Preferred Stock If any shares of Series B Preferred Stock are converted pursuant to this Series B Certificate of Designations, the shares so converted or redeemed shall be canceled, shall return to the status of authorized, but unissued Series B Preferred Stock of no designated series, and shall not be issuable by the Corporation as Series B Preferred Stock.
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B.
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Piggy-Back Registration Rights. If the Corporation proposes to file a registration statement under the Securities Act with respect to an offering for its own account of any class of its equity securities (other than a registration statement on Form S-8 (or any successor form) or any other registration statement relating solely to employee benefit plans or filed in connection with an exchange offer, a transaction to which Rule 145 (or any successor provision) under the Securities Act applies or an offering of securities solely to the Corporation’s existing shareholders), then the Corporation shall in each case give written notice of such proposed filing to the Holder as soon as practicable before the anticipated filing date, and such notice shall offer each Holder the opportunity to register such number of shares of Common Stock (not otherwise registered or saleable under Rule 144) as such Holder may request. Each Holder desiring to have Common Stock included in such registration statement shall so advise the Corporation in writing within 5 Trading Days after the date on which the Corporation’s notice is so given, setting forth the number of shares of Common Stock for which registration is requested. If the Corporation’s offering is to be an underwritten offering, the Corporation shall, subject to the further provisions of this Agreement, use its reasonable best efforts to cause the managing underwriter or underwriters to permit the Holders of the Common Stock requested to be included in the registration for such offering to include such Common Stock in such offering on the same terms and conditions as any similar securities of the Corporation included therein. The right of each Holder to registration pursuant to this Section in connection with an underwritten offering by the Corporation shall, unless the Corporation otherwise assents, be conditioned upon such Holder’s participation as a seller in such underwritten offering and its execution of an underwriting agreement with the managing underwriter or underwriters selected by the Corporation. Notwithstanding the foregoing, if the managing underwriter or underwriters of such offering deliver a written opinion to the Corporation that either because of (a) the kind of securities that the Corporation, the Holders and any other persons or entities intend to include in such offering or (b) the size of the offering that the Corporation, the Holders and any other persons or entities intend to make, the success of the offering would be materially and adversely affected by inclusion of the Common Stock requested to be included, then (i) in the event that the size of the offering is the basis of such managing underwriter’s opinion, the number of shares of Common Stock to be registered and offered for the accounts of Holders shall be reduced pro rata on the basis of the number of securities requested by such Holders to be registered and offered to the extent necessary to reduce the total amount of securities to be included in such offering to the amount recommended by such managing underwriter or underwriters (provided that if securities are being registered and offered for the account of other persons or entities in addition to the Corporation, such reduction shall not be proportionally greater than any similar reductions imposed on such other persons or entities) and (ii) in the event that the combination of securities to be offered is the basis of such managing underwriters opinion, (x) the Common Stock to be included in such registration and offering shall be reduced as described in clause (i) above or (y) if such actions would, in the reasonable judgment of the managing underwriter, be insufficient to substantially eliminate the adverse effect that inclusion of the Common Stock requested to be included would have on such offering, such Common Stock will be excluded entirely from such registration and offering. Any Common Stock excluded from an underwriting shall, if applicable, be withdrawn from registration and shall not, without the consent of the Corporation, be transferred in a public distribution prior to the earlier of ninety (90) days (or such other shorter period of time as the managing underwriter may require) after the effective date of the registration statement or ninety (90) days after the date the Holders of such Common Stock are notified of such exclusion. Notwithstanding anything herein, if the Holder has shares of Common Stock included in a registration statement and the Securities and Exchange Commission requests that the number of shares included in any registration statement be cutback pursuant to Rule 415 or similar guidance, then the Holder’s shares shall be cutback first, pari passu with any other shares that are included as piggy-back shares in such registration statement.
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C.
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Lost or Stolen Certificates. Upon receipt by the Corporation of (i) evidence of the lost, theft, destruction or mutilation of any Series B Preferred Stock Certificate(s) and (ii) (y) in the case of loss, theft or destruction, indemnity (without any bond or other security) reasonably satisfactory to the Corporation, or (z) in the case of mutilation, the Series B Preferred Stock Certificate(s) (surrendered for cancellation), the Corporation shall execute and deliver new Series B Preferred Stock Certificate(s) of like tenor and date. However, the Corporation shall not be obligated to reissue such lost, stolen, destroyed or mutilated Series B Preferred Stock Certificate(s) if the Holder contemporaneously requests the Corporation to convert such Series B Preferred Stock.
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D.
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Waiver Notwithstanding any provision in this Certificate of Designation to the contrary, any provision contained herein, and any right of the Holders of Series B Preferred Stock granted hereunder may be waived as to all shares of Series B Preferred Stock (and the Holders thereof) upon the written consent of the Holder.
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E.
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Information Rights So long as shares of Series B Preferred Stock are outstanding, the Corporation will deliver to each Holder of Series B Preferred Stock (i) audited annual financial statements to the Holders of Series B Preferred Stock within 90 days after the end of each fiscal year; (ii) and unaudited quarterly financial statements within 45 days of the end of each fiscal quarter. To the extent that such information is electronically available on the Corporation’s Form 10-K Annual Reports, Form 10-Q Quarterly Reports, Form 8-K Periodic Reports and Annual Reports to Shareholders, the Corporation need not separately furnish such documents to Holders of the Series B Preferred Stock.
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F.
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Notices. Any notices required or permitted to be given under the terms hereof shall be sent by certified or registered mail (return receipt requested) or delivered personally, by nationally recognized overnight carries or by confirmed facsimile transmission, and shall be effective five days after being placed in the mail, if mailed, or upon receipt or refusal of receipt, if delivered personally or by nationally recognized overnight carrier or confirmed facsimile transmission, in each case addressed to a party. The addresses for such communications are:
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if to the Corporation:
Iconic Brands, Inc.
Attn: Richard DeCicco
1174 Route 109
Lindenhurst, New York 11757
with a copy to (which shall not constitute notice):
Anslow & Jaclin, LLP
Attn: Eric M. Stein
195 Route 9 South,
Suite 204
Manalapan, New Jersey 07726
if to the Holder:
Capstone Capital Group I, LLC
1350 Avenue of the Americas
New York, New York 10019
with a copy to (which shall not constitute notice):
Steven L. Siskind, Esq.
1103 Stewart Avenue,
Suite 200
Garden City, New York 11530
IN WITNESS WHEREOF, the undersigned declares under penalty of perjury under the laws of the State of Nevada that he has read the foregoing Certificate of Designation and knows the contents thereof, and that he is duly authorized to execute the same on behalf of the Corporation, this 5 day of June 2009.
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ICONIC BRANDS, INC. (formerly, Paw Spa, Inc.)
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By:
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/s/ Richard DeCicco
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Name:
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Richard DeCicco
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Title:
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President
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EXHIBIT 3.5
R
E
S
O
L
U
T
I
O
N TO FILE
C
E
R
T
I
F
I
CA
T
E OF DESIGNATION OF RIGHTS AND PREFERENCES
F
O
R SERIES C PREFERRED STOCK OF
I
C
O
N
I
C BRANDS, INC.
Iconic Brands, Inc., a Nevada corporation (the “
Company
”), does hereby certify:
FIRST: That pursuant to authority expressly vested in it by the Articles of Incorporation of the Company, the Board of Directors of the Company has adopted the following resolutio n establishing a new series of Preferred Stock of the Company, consisting of One Thousand (1,000) shares designated “Series C Preferred Stock,” with such powers, designations, preferences, and relative participating, optional, or other rights, if any, and the qualifications, limitations, or restrictions thereof, as are set forth in the resolutions:
RESOLVED, that the Company’s Board of Directors hereby approves the designation and issuance of the Series C Preferred Stock according to the terms and conditions as set forth in Exhibit A and authorizes and instructs the Company’s Executive Officers to proceed in filing the Certificate of Designation with the State of Nevada and to take such other action as shall be appropriate in connection with the issuance of the Series C Preferred Stock.
SECOND: That said resolutions of the directors of the Company were duly adopted in accordance with the provisions of the Nevada Revised Statutes.
IN WITNESS WHEREOF, the undersigned hereby affirms, under penalties of perjury, that the foregoing instrument is the act and deed of the Company and that the facts stated therein are true.
Dated as of the 15th day of May, 2015.
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I
C
O
N
I
C BRANDS, INC.,
a Nevada corporation
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By:
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/s/ Richard DeCicco
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Name:
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Richard DeCicco
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Title:
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President
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CERTIFICATE OF DESIGNATION
PREFERENCES AND RIGHTS
Of
SERIES C PREFERRED STOCK
(Pursuant to Section 78.1955 of the
Nevada Revised Statutes)
ICONIC BRANDS, INC. (formerly Paw Spa, Inc.), a corporation organized and existing under the laws of the State of Nevada (the “Corporation”), the certificate of incorporation of which was filed in the office of the Secretary of State of Nevada on October 21, 2005, as amended, hereby certifies that the Board of Directors of the Corporation (the “Board of Directors” or the “Board”), pursuant to the authority of the Board of Directors as required by Section 78.1955 of the Nevada Revised Statutes, and in accordance with the provisions of its Articles of Incorporation and Bylaws, each as amended and restated through the date hereof, has and hereby authorizes a series of the Corporation’s previously authorized 100,000,000 shares of preferred stock, par value $0.001 per share (the “Preferred Stock”), and hereby states the designation and number of shares, and fixes the relative rights, preferences, privileges, powers and restrictions thereof, as follows:
Section 1.
Designation, Amount and Par Value
. The series of preferred stock shall be designated as the Series C Preferred Stock (the “
S
eries C Preferred Stock
”), and the number of shares so designated and authorized shall be One Thousand (1,000). Each share of Series C Preferred Stock shall have a par value of $0.001 per share and a stated value of $1.00 per share (the “
Stated Value
”).
Section 2.
Liquidation
. Upon any Sale (as defined below), the holders of the Series C Preferred Stock, in aggregate, shall be entitled to receive out of the proceeds of such Sale (in whatever form, be it cash, securities, or other assets), a distribution from the Corporation equal to Seventy Six and Ninety Three One Hundredths percent (76.93%) of all such proceeds received by the Corporation prior to any distribution of such proceeds to all other classes of equity securities, including any series of preferred stock designated subsequent to this Series C Preferred Stock. Such proceeds shall be distributed among the holders of Series C Preferred Stock ratably in accordance with the respective outstanding share amounts held by such holder. The Corporation shall mail written notice of any such Sale, not less than 45 days prior to the distribution date stated therein, to each record Holder of Series C Preferred Stock. A “
Sale
” shall mean a sale of the majority of the assets held by, or majority of the membership interests (equity) of BiVi LLC. Other than with respect to a Sale, the Series C Preferred Stock will, with respect to rights on liquidation, dissolution and winding-up of the Corporation, rank on parity with the Common Stock.
Section 3.
Definitions
. For the purposes hereof, the following terms shall have the following meanings:
“Common Stock” means the common stock, $.001 par value per share, of the Corporation, and stock of any other class into which such shares may hereafter have been reclassified or changed.
“Holder” means a registered holder of a share or shares of Series C Preferred Stock.
EXHIBIT 3.6
EXHIBIT 3.7
CERTIFICATE OF DESIGNATION
OF THE RIGHTS, PREFERENCES, PRIVILEGES
AND RESTRICTIONS, WHICH HAVE NOT BEEN SET
FORTH IN THE CERTIFICATE OF INCORPORATION
OR IN ANY AMENDMENT THERETO,
OF THE
SERIES E CONVERTIBLE PREFERRED STOCK
OF
ICONIC BRANDS, INC.
The undersigned, Richard J. DeCicco, does hereby certify that:
A. He is the President of Iconic Brands, Inc., a Nevada corporation (the “
Corporation
”).
B. The Articles of Incorporation of the Corporation authorizes a class of stock designated as Preferred Stock, with a par value of $0.001 per share (the “
Preferred Class
”), comprising One Hundred Million (100,000,000) shares, and provides that the Board of Directors of the Corporation may fix the terms, including any dividend rights, dividend rates, conversion rights, voting rights, rights and terms of any redemption, redemption, redemption price or prices, and liquidation preferences, if any, of the Preferred Class;
C. The Board of Directors believes it in the best interests of the Corporation to create a new series of preferred stock consisting of Ten Million (1 0,000,000) shares and designated as the “
Series E Convertible Preferred Stock
” having certain rights, preferences, privileges, restrictions and other matters relating to the Series E Convertible Preferred Stock; and
D. None of the Series E Convertible Preferred Stock are issued or outstanding.
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby fix and determine the rights, preferences, privileges, restrictions and other matters relating do the Series E Convertible Preferred Stock as follows:
l.
Definitions
. For purposes of this Certificate of Designation, the following definitions shall apply:
1.1 “
Available Funds a nd Assets
” shall mean the funds and assets of the Corporation that may be legally distributed to the Corporation’s shareholders.
1.2 “
Board
” shall mean the Board of Di rectors of the Corporation.
1.3 “
Common Stock
” shall mean the common stock, $0.001 par value per share, of the Corporation.
1.4 “
Common Stock Dividend
” shall mean a stock dividend declared and paid on the Common Stock that is payable in shares of Common Stock.
1.5 “
Conversion Date
” shall have the meaning set forth in Section 4.2 below.
1.6 “
Conversion Shares
” means the shares of Common Stock issuable upon conversion of the Series E Convertible Preferred Stock.
1.7 “
Corporation
” shall mean Iconic Brands, Inc., a Nevada corporation.
1.8 “
Distribution
” shall mean the transfer of cash or property by the Corporation to one or more of its stockholders without consideration, whether by dividend or otherwise (except a dividend in shares of Corporation’s stock).
1.9 “
Holder
” shall mean a holder of the Series E Convertible Preferred Stock.
1.10 “
Original Issue Price
” shall mean $0.25 per share for the Series E Convertible Preferred Stock.
1.11 “
Person
” shall mean an individual, a corporation, a partnership, an association, a limited liability company, an unincorporated business organization, a trust or other entity or organization, and any government or political subdivision or any agency or instrumentality thereof.
1.12 “
Securities Purchase Agreement
” shall mean the Securities Purchase Agreement, dated as of November 1, 2017, as amended, between the Corporation and certain Holders.
1.13 “
Series E Convertible Preferred Stock
” shall mean the Series E Convertible Preferred Stock, $0.001 par value per share, of the Corporation.
1.14 “
Share Exchange Agreement
” shall mean the Share Exchange Agreement, dated as of May 18, 2018, between the Corporation and certain Holders.
1.15 “
Subsidiary
” shall mean any corporation or limited liability company or corporation of which at least fifty percent (50%) of the outstanding voting stock or membership interests, as the case may be, is at the time owned directly or indirectly by the Corporation or by one or more of such subsidiary corporations.
2.
Dividend Rights.
2.1
Dividends.
In each calendar year, the holders of the then outstanding shares of Series E Convertible Preferred Stock shall be entitled to receive, when, as and if declared by the Board, out of any funds and assets of the Corporation legally. available therefore, noncumulative dividends in an amount equal to any dividends or other Distribution on the Common Stock in such calendar year on an as-converted-to-Common- Stock basis. No dividends shaft be paid, and no Distribution shall be made, with respect to the Common Stock unless dividends in such amount shall have been paid or declared and set apart for payment to the holders of the Series E Convertible Preferred Stock simultaneously. Dividends on the Series E Convertible Preferred Stock shall not be mandatory or cumulative, and no rights or interest shall accrue to the holders of the Series E Convertible Preferred Stock by reason of the fact that the Corporation shall fail to declare or pay dividends on the Series E Convertible Preferred Stock, except for such rights or interest that may arise as a result of the Corporation paying a dividend or making a Distribution on the Common Stock in violation of the terms of this
Section 2
.
2.2
Participation
Rights.
Dividends shall be declared pro rata on the Common Stock and the Series E Convertible Preferred Stock on a pari passu basis according to the number of shares of Common Stock held by such holders, where each holder of shares of Series E Preferred Stock is to be treated for this purpose as holding the number of shares of Common Stock to which the holders thereof would be entitled if they converted their shares of Series E Convertible Preferred Stock at the time of such dividend in accordance with
Section
4
hereof.
2.3
Non-Cash Dividends.
Whenever a dividend or Distribution provided for in this
Section 2
shall be payable in property other than cash, the value of such dividend or Distribution shall be deemed to be the fair market value of such property as determined in good faith by the Board.
3.
Liquidation Rights
. In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the Available Funds and Assets shall be distributed to shareholders in the following manner:
3.1
Series E Convertible
Preferred
Stock.
The holders of each share of Series E Preferred Stock then outstanding shall be entitled to be paid, out of the Available Funds and Assets, and prior and in preference to any payment or distribution (or any setting apart of any payment or distribution) of any Available Funds and Assets on any shares of Common Stock or subsequent series of preferred stock, an amount per share equal to the Original Issue Price of the Series E Convertible Preferred Stock plus all declared but unpaid dividends on the Series E Convertible Preferred Stock. If upon any liquidation, dissolution or winding up of the Corporation, the Available Funds and Assets shall be insufficient to permit the payment to holders of the Series E Convertible Preferred Stock of their full preferential amount as described in this subsection, then all of the remaining Available Funds and Assets shall be distributed among the holders of the then outstanding Series E Convertible Preferred Stock pro rata, according to the number of outstanding shares of Series E Convertible Preferred Stock held by each holder thereof.
3.2
Participation
Rights.
If there are any Available Funds and Assets remaining after the payment or distribution (or the setting aside for payment or distribution) to the holders of the Series E Convertible Preferred Stock of their full preferential amounts described above in this
Section 3
, then all such remaining Available Funds and Assets shall be distributed among the holders of the then outstanding Common Stock and Series E Convertible Preferred Stock pro rata according to the number and preferences of the shares of Common Stock and Series E Convertible Preferred Stock (as converted to Common Stock) held by such holders.
3.3
Merger or Sale of Assets.
A reorganization or any other consolidation or merger of the Corporation with or into any other corporation, or any other sale of all or substantially all of the assets of the Corporation, shall not be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of this
Section 3
, and the Series E Convertible Preferred Stock shall be entitled only to (i) the right provided in any agreement or plan governing the reorganization or other consolidation, merger or sale of assets transaction, (ii) the rights contained in the General Corporation Law of the State of Nevada and (iii) the rights contained in other Sections hereof.
3.4
Non-Cash Consideration.
If any assets of the Corporation distributed to shareholders in connection with any liquidation, dissolution or winding up of the Corporation are other than cash, then the value of such assets shall be their fair market value as determined by the Board.
4.
Conversion Rights
.
4.1
Conversion
of Preferred
Stock.
Each share of Series E Convertible Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the issuance of such shares, into one hundred (100) fully paid and nonassessable shares of Common Stock of the Corporation.
Notwithstanding the foregoing, in no event shall any holder of shares of Series E Convertible Preferred Stock be entitled to convert any shares of Series E Convertible Preferred Stock, and the Corporation shall not effect any conversion of the Series E Convertible Preferred Stock, to the extent that the number of shares of Common Stock issuable upon the conversion would result in beneficial ownership by the holder, its affiliates and any persons acting as a group together with such holder or its affiliates of more than 4.99% (the
“
Beneficial Ownership Limitation
”)
of the outstanding shares of Common Stock immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of the Series E Convertible Preferred Stock held by the applicable holder. For purposes of this paragraph, in determining the number of outstanding shares of Common Stock, a holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) the Corporation’s most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by the Corporation or (iii) a more recent written notice by the Corporation or its transfer agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Corporation shall within one business day confirm orally and in writing to such holder the number of shares of Common Stock then outstanding. To ensure compliance with this restriction, each holder will be deemed to represent to the Corporation each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and the Corporation shall have no obligation to verify or confirm the accuracy of such· determination. For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by such the holder, its affiliates and any persons acting as a group together with such holder or its affiliates shall include the number of shares of Common Stock issuable upon conversion of the Series E Convertible Preferred Stock with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining, unconverted shares of Series E Convertible Preferred Stock beneficially owned by such holder, its affiliates and any persons acting as a group together with such holder or its affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Corporation subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, this Series E Convertible Preferred Stock) beneficially owned by such holder, its affiliates and any persons acting as a group together with such holder or its affiliates. Except as set forth in the preceding sentence, for purposes of this paragraph, beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the
“
Exchange Act”)
and the rules and regulations promulgated thereunder. A Holder, upon notice to the Corporation, may increase or decrease the Beneficial Ownership Limitation provisions applicable to its Series E Convertible Preferred Stock provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Series E Convertible Preferred Stock held by the Holder and the provisions of this paragraph shall continue to apply. Any such increase in the Beneficial Ownership Limitation will not be effective until the 6151 day after such notice is delivered to the Corporation and shall only apply to such Holder and no other Holder. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this paragraph to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of the Series E Convertible Preferred Stock.
4.2
Procedures
for Exercise of Conversion
Right
s.
The holders of shares of Series E Convertible Preferred Stock may exercise their conversion rights as to such shares by delivering to the Corporation during regular business hours, at the office of any transfer agent of the Corporation for the Series E Convertible Preferred Stock, or at the principal office of the Corporation or at such other place as may be designated by the Corporation, by email attachment or facsimile, a written notice stating that the holder elects to convert such shares of Series E Convertible Preferred Stock
(“No
tice
of Conversion”),
followed by, if required hereunder, the certificate or certificates for the shares to be converted hereunder within five (5) business days thereafter. Conversion shall be deemed to have been effected on the date when such delivery of the Notice of Conversion is made, and such date is referred to herein as the
“
Conversion
Dat
e.”
No ink-original Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion be required. As promptly as practicable after the Conversion Date, but not later than two (2) business days after the Conversion Date
(“
Share
Delivery Date
”),
the Corporation shall issue and deliver to or upon the written order of such holder, at such office or other place designated by the Corporation, a certificate or certificates for the number of full shares of Common Stock to which such holder is entitled and a check for cash with respect to any fractional interest in a share of Common Stock as provided in
Section
4
.3
below, which, on or after the earlier of (i) the six month anniversary of the original issue date or (ii) the date on which an effective registration statement registers the resale of the Conversion Shares, shall be free of restrictive legends and trading restrictions and the Corporation shall use its best efforts to deliver the Conversion Shares required to be delivered by the Corporation hereunder electronically through the Depository Trust Company or another established clearing corporation performing similar functions. The holder shall be deemed to have become a shareholder of record on the Conversion Date. To effect conversions of shares of Series E Convertible Preferred Stock, a holder shall not be required to surrender the certificate(s) representing the shares of Series E Convertible Preferred Stock to the Corporation unless all of the shares of Series E Convertible Preferred Stock represented thereby are so converted, in which case such holder shall deliver the certificate representing such shares of Series E Convertible Preferred Stock promptly following the Conversion Date at issue.
4.3 If, in the case of any Notice of Conversion, such Conversion Shares are not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to the Corporation at any time on or before its receipt of such Conversion Shares, to rescind such Conversion, in which event the Corporation shall promptly return to the Holder any original Series E Convertible Preferred Stock certificate delivered to the Corporation and the Holder shall promptly return to the Corporation the Conversion Shares issued to such Holder pursuant to the rescinded Notice of Conversion.
4.4 In addition to any other rights available to the Holder, if the Corporation fails for any reason to deliver to a Holder the applicable Conversion Shares by the Share Delivery Date, and if after such Share Delivery Date such Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by such Holder of the Conversion Shares which such Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “
Buy-I
n
”), then the Corporation shall (A) pay in cash to such Holder (in addition to any other remedies available to or elected by such Holder) the amount, if any, by which (x) such Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that such Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of such Holder, either reissue (if surrendered) the shares of Preferred Stock equal to the number of shares of Preferred Stock submitted for conversion (in which case, such conversion shall be deemed rescinded) or deliver to such Holder the number of shares of Common Stock that would have been issued if the Corporation had timely complied with its delivery requirements under Section 4.2. For example, if a Holder purchases shares of Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of shares of Preferred Stock with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Corporation shall be required to pay such Holder $1,000. The Holder shall provide the Corporation written notice indicating the amounts payable to such Holder in respect of the Buy-In and, upon request of the Corporation, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Corporation’s failure to timely deliver the Conversion Shares upon conversion of the shares of Preferred Stock as required pursuant to the terms hereof.
4.5
No Fractional Shares.
No fractional shares of Common Stock shall be issued upon conversion of shares of Series E Convertible Preferred Stock. If more than one share of Series E Convertible Preferred Stock shall be surrendered for conversion at any one time by the same holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of Series E Convertible Preferred Stock so surrendered. Instead of any fractional shares of Common Stock which would otherwise be issuable upon conversion of any shares of Series E Convertible Preferred Stock, the Corporation shall pay a cash adjustment in respect of such fractional interest equal to the fair market value of such fractional interest as determined by the Corporation’s Board of Directors.
4.6
Payment
of Taxes for Conversions.
The Corporation shall pay any and all issue and other taxes that may be payable in respect of any issue or delivery of shares of Common Stock on conversion pursuant hereto of Series E Convertible Preferred Stock. The Corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock in a name other than that in which the shares of Series E Convertible Preferred Stock so converted were registered, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Corporation the amount of any such tax, or has established, to the satisfaction of the Corporation, that such tax has been paid.
4.7
Reservation
of Common Stock.
The Corporation shall at all times reserve and keep available, out of its authorized but unissued Common Stock, solely for the purpose of effecting the conversion of the Series E Convertible Preferred Stock, the full number of shares of Common Stock deliverable upon the conversion of all shares of all series of preferred stock from time to time outstanding.
4.8
Registration
or
Listing
of Shares of
Common
Stock.
If any shares of Common Stock to be reserved for the purpose of conversion of shares of Series E Convertible Preferred Stock require registration or listing with, or approval of, any governmental authority, stock exchange or other regulatory body under any federal or state law or regulation or otherwise, before such shares may be validly issued or delivered upon conversion, the Corporation will in good faith and as expeditiously as possible endeavor to secure such registration, listing or approval, as the case may be.
4.9
Status
of
Common Stock
Issued
Upon
Co
nversion
.
All shares of Common Stock which may be issued upon conversion of the shares of Series E Convertible Preferred Stock will upon issuance by the Corporation be validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issuance thereof.
4.1 0
Status
of
Converted
Preferred
Stock.
In case any shares of Series E Convertible Preferred Stock shall be converted pursuant to this
Section
4
, the shares so converted shall be canceled and the number of shares of Series E Convertible Stock so canceled will again be issuable by the Corporation.
5.
Redemption
. The Series E Convertible Preferred Stock shall not be redeemable.
6.
Reorganization
.
6.1
General Provisions.
In case, at any time after the date hereof, of any capital reorganization, or any reclassification of the stock of the Corporation (other than a change in par value or as a result of a stock dividend or subdivision, split-up or combination of shares), or the consolidation or merger of the Corporation with or into another person (other than a consolidation or merger in which the Corporation is the continuing entity and which does not result in any change in the Common Stock), or of the sale or other disposition of all or substantially all the properties and assets of the Corporation as an entirety to any other. person, the shares of Series E Convertible Preferred Stock shall, after such reorganization, reclassification, consolidation, merger, sale or other disposition, be convertible into the kind and number of shares of stock or other securities or property of the Corporation or of the entity resulting from such consolidation or surviving such merger or to which such properties and assets shall have been sold or otherwise disposed to which such holder would have been entitled if immediately prior to such reorganization, reclassification, consolidation, merger, sale or other disposition it had converted its shares of Series E Convertible Preferred Stock into Common Stock. The provisions of this
Section 6.1
shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers, sales or other dispositions.
6.2
No
Impairment.
The Corporation will not, through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, including amending this Certificate of Designation, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this
Section 6
and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of Series E Convertible Preferred Stock against impairment. This provision shall not restrict the Corporation from amending its Articles of Incorporation in accordance with the General Corporation Law of the State of Nevada and the terms hereof.
7.
Voting Provisions
.
7.l
Generally.
Each share of Series E. Convertible Preferred Stock shall be entitled to one hundred ( l00) votes on all matters to come before the Common Stock shareholders or shareholders generally.
7.2
Limitation on
Votes.
Notwithstanding
Section 7.1,
each holder of Series E Convertible Stock will only be able to vote up to 4.99% (or, if the beneficial ownership limitation is increased hereunder, up to 9.99%) of all votes eligible to be cast on any matter to come before the Common Stock shareholder or shareholders generally.
7.3
Voting of Series E
Co
nv
ertible
Preferred
Stockholders
.
Each share of Series E Convertible Preferred Stock shall be entitled to one (1) vote on matters that only the Series E Convertible Preferred Stockholders are entitled to vote upon, including those matters set forth in
Section 8
. The limitation in
Section 7.2
does not apply to such a vote.
8.
Protective Provisions
. The Corporation may not take any of the following actions without the approval of75% of the holders of the outstanding Series E Convertible Preferred Stock: (i) effect a sale of all or substantially all of the Corporation’s assets or a reorganization, merger or consolidation transaction which results in the holders of the Corporation’s capital stock prior to the transaction owning less than fifty percent (50%) of the voting power of the Corporation’s capital stock after the transaction, (ii) alter or change the rights, preferences, or privileges of the Series E Convertible Preferred Stock, (iii) increase or decrease the number of authorized shares of Series E Convertible Preferred Stock, (iv) issue any shares of Series E Convertible Preferred Stock other than pursuant to the Securities Purchase Agreement or the Share Exchange Agreement or (v) authorize the issuance of securities having a preference over or on par with the Series E Convertible Preferred Stock.
9.
Notices
. Any and all notices or other communications or deliveries to be provided by the Holders hereunder including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service, addressed to the Corporation, at its principal place of business, attention: President, facsimile number
(
801
) 521-6
2
8
0
,
e-mail address
info
@
i
co
ni
cbra
nd
s
u
sa.
co
m
or such other facsimile number, e-mail address or address as the Corporation may specify for such purposes by notice to the Holders delivered in accordance with this Section 9. Any and all notices or other communications or deliveries to be provided by the Corporation hereunder shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number or address of such Holder appearing on the books of the Corporation. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth in this Section prior to 5:30 p.m. (New York City time) on any date, (ii) the next business day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth in this Section on a day that is not a business day or later than 5:30p.m. (New York City time) on any Trading Day, (iii) the second business day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given.
10.
Governing Law.
All questions concerning the construction, validity, enforcement and interpretation of this Certificate of Designation shall be governed by and construed and enforced in accordance with the internal laws of the State of Nevada, without regard to the principles of conflict of laws thereof. All legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “
Ne
w
York
Courts”
). The Corporation and each Holder hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding. The Corporation and each Holder hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Certificate of Designation and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law. The Corporation and each Holder hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Certificate of Designation or the transactions contemplated hereby. If the Corporation or any Holder shall commence an action or proceeding to enforce any provisions of this Certificate of Designation, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.
[remainder of page intentionally left blank; signature page to follow]
We further declare under penalty of perjury under the laws of the State of Nevada that the matters set forth in this certificate are true and correct of our own knowledge. The Corporation has caused this Certificate of Designation of Series E Convertible Preferred Stock to be duly executed by its Chief Executive Officer on May 21
,
2018.
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By:
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Richard J. DeCicco
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Its:
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Chief Executive Officer
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NOTICE OF CONVERSION
(TO BE EXECUTED BY THE REGISTERED HOLDER I N ORDER TO CONVERT
SHARES OF PREFERRED STOCK)
The undersigned hereby elects to convert the number of shares of Series E Convertible Preferred Stock indicated below into shares of common stock, par value $0.00 I per share (the “
Common
Stock”
), of Iconic Brands, Inc., a Nevada corporation (the “
C
o
rporatio
n
”), according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a Person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as may be required by the Corporation in accordance with the Purchase Agreement. No fee will be charged to the Holders for any conversion, except for any such transfer taxes.
Conversion calculations:
Date to Effect Conversion: _____________________________________________________________
Number of shares of Preferred Stock owned prior to Conversion: ________________________________
Number of shares of Preferred Stock to be Converted: ________________________________________
Number of shares of Common Stock to be Issued: ___________________________________________
Number of shares of Preferred Stock subsequent to Conversion: ________________________________
Address for Delivery: ______________________________
or
DWAC Instructions:
Broker no: ___________________
Account no:
________________
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[HOLDER]
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By:
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Name:
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Title:
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EXHIBIT 4.1
NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
COMMON STOCK PURCHASE WARRANT
ICONIC BRANDS, INC.
|
Warrant Shares: _______
|
|
Initial Exercise Date: Reverse Stock
Split Date (as defined in Purchase Agreement)
|
THIS COMMON STOCK PURCHASE WARRANT (the “
Warrant
”) certifies that, for value received, _____________ or its assigns (the “
Holder
”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the Reverse Stock Split Date (the “
Initial Exercise Date
”) and on or prior to 5:00 p.m. (New York City time) on the five (5) year anniversary of the Initial Exercise Date (the “
Termination Date
”) but not thereafter, to subscribe for and purchase from Iconic Brands, Inc., a Nevada corporation (the “
Company
”), up to ______ shares (as subject to adjustment hereunder, the “
Warrant Shares
”) of Common Stock. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).
Section 1
.
Definitions
. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “
Purchase Agreement
”), dated September ___, 2018, among the Company and the purchasers signatory thereto.
Section 2
.
Exercise
.
a)
Exercise of Warrant
. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed facsimile copy or PDF copy submitted by e-mail (or e-mail attachment) of the Notice of Exercise in the form annexed hereto (“
Notice of Exercise
”). Within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined in Section 2(d)(i) herein) following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within two (2) Trading Days of the date on which the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within one (1) Business Day of receipt of such notice.
The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.
b)
Exercise Price
. The exercise price per share of the Common Stock under this Warrant shall be
$0.005
, subject to adjustment hereunder (the “
Exercise Price
”).
c)
Cashless Exercise
. If at any time after the six-month anniversary of the Closing Date, there is no effective registration statement registering, or no current prospectus available for, the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised, in whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:
(A) = as applicable: (i) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise if such Notice of Exercise is (1) both executed and delivered pursuant to Section 2(a) hereof on a day that is not a Trading Day or (2) both executed and delivered pursuant to Section 2(a) hereof on a Trading Day prior to the opening of “regular trading hours” (as defined in Rule 600(b)(64) of Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) at the option of the Holder, either (y) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise or (z) the Bid Price of the Common Stock on the principal Trading Market as reported by Bloomberg L.P. as of the time of the Holder’s execution of the applicable Notice of Exercise if such Notice of Exercise is executed during “regular trading hours” on a Trading Day and is delivered within two (2) hours thereafter (including until two (2) hours after the close of “regular trading hours” on a Trading Day) pursuant to Section 2(a) hereof or (iii) the VWAP on the date of the applicable Notice of Exercise if the date of such Notice of Exercise is a Trading Day and such Notice of Exercise is both executed and delivered pursuant to Section 2(a) hereof after the close of “regular trading hours” on such Trading Day;
(B) = the Exercise Price of this Warrant, as adjusted hereunder; and
(X) = the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.
If Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9) of the Securities Act, the Warrant Shares shall take on the characteristics of the Warrants being exercised, and the holding period of the Warrant Shares being issued may be tacked on to the holding period of this Warrant. The Company agrees not to take any position contrary to this Section 2(c).
“
Bid Price
” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the bid price of the Common Stock for the time in question (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in the “Pink Sheets” published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.
“
VWAP
” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in the “Pink Sheets” published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.
Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c).
d)
Mechanics of Exercise
.
i.
Delivery of Warrant Shares Upon Exercise
. The Company shall cause the Warrant Shares purchased hereunder to be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“
DWAC
”) if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the Holder or (B) the Warrant Shares are eligible for resale by the Holder without volume or manner-of-sale limitations pursuant to Rule 144 (assuming cashless exercise of the Warrants), and otherwise by physical delivery of a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is the earliest of (i) two (2) Trading Days after the delivery to the Company of the Notice of Exercise, (ii) one (1) Trading Day after delivery of the aggregate Exercise Price to the Company and (iii) the number of Trading Days comprising the Standard Settlement Period after the delivery to the Company of the Notice of Exercise (such date, the “
Warrant Share Delivery Date
”). Upon delivery of the Notice of Exercise, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the Warrant Shares, provided that payment of the aggregate Exercise Price (other than in the case of a cashless exercise) is received within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period following delivery of the Notice of Exercise. If the Company fails for any reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise. The Company agrees to maintain a transfer agent that is a participant in the FAST program so long as this Warrant remains outstanding and exercisable. As used herein, “
Standard Settlement Period
” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Common Stock as in effect on the date of delivery of the Notice of Exercise.
ii.
Delivery of New Warrants Upon Exercise
. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.
iii.
Rescission Rights
. If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.
iv.
Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise
. In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in accordance with the provisions of Section 2(d)(i) above pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “
Buy-In
”), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.
v.
No Fractional Shares or Scrip
. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.
vi.
Charges, Taxes and Expenses
. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder;
provided
,
however
, that in the event that Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.
vii.
Closing of Books
. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.
e)
Holder’s Exercise Limitations
. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “
Attribution Parties
”)), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within one (1) Trading Day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates or Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported. The “
Beneficial Ownership Limitation
” shall be [4.99%] [9.99%] of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this Section 2(e) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61
st
day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.
Section 3
.
Certain
Adjustments
.
a)
Stock Dividends and Splits
. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re‑classification.
b)
Subsequent Equity Sales
. If the Company or any Subsidiary thereof, as applicable, at any time while this Warrant is outstanding, shall sell or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock Equivalents, at an effective price per share less than the Exercise Price then in effect (such lower price, the “
Base Share Price
” and such issuances collectively, a “
Dilutive Issuance
”) (it being understood and agreed that if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is less than the Exercise Price, such issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance at such effective price), then simultaneously with the consummation (or, if earlier, the announcement) of each Dilutive Issuance the Exercise Price shall be reduced and only reduced to equal the Base Share Price and the number of Warrant Shares issuable hereunder shall be increased such that the aggregate Exercise Price payable hereunder, after taking into account the decrease in the Exercise Price, shall be equal to the aggregate Exercise Price prior to such adjustment. Notwithstanding the foregoing, no adjustments shall be made, paid or issued under this Section 3(b) in respect of an Exempt Issuance. The Company shall notify the Holder, in writing, no later than the Trading Day following the issuance or deemed issuance of any Common Stock or Common Stock Equivalents subject to this Section 3(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “
Dilutive Issuance Notice
”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 3(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Warrant Shares based upon the Base Share Price regardless of whether the Holder accurately refers to the Base Share Price in the Notice of Exercise. If the Company enters into a Variable Rate Transaction, despite the prohibition thereon in the Purchase Agreement, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion or exercise price at which such securities may be converted or exercised.
c)
Subsequent Rights Offerings
. In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “
Purchase Rights
”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (
provided
,
however
, that, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).
d)
Pro Rata Distributions
. During such time as this Warrant is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “
Distribution
”), at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (
provided
,
however
, that, to the extent that the Holder's right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).
e)
Fundamental Transaction
. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “
Fundamental Transaction
”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “
Alternate Consideration
”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction, the Company or any Successor Entity (as defined below) shall, at the Holder’s option, exercisable at any time concurrently with, or within 30 days after, the consummation of the Fundamental Transaction (or, if later, the date of the public announcement of the applicable Fundamental Transaction), purchase this Warrant from the Holder by paying to the Holder an amount of cash equal to the Black Scholes Value of the remaining unexercised portion of this Warrant on the date of the consummation of such Fundamental Transaction. “
Black Scholes Value
” means the value of this Warrant based on the Black and Scholes Option Pricing Model obtained from the “OV” function on Bloomberg, L.P. (“
Bloomberg
”) determined as of the day of consummation of the applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date, (B) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction, (C) the underlying price per share used in such calculation shall be the greater of (i) the sum of the price per share being offered in cash, if any, plus the value of any non-cash consideration, if any, being offered in such Fundamental Transaction and (ii) the greater of (x) the last VWAP immediately prior to the public announcement of such Fundamental Transaction and (y) the last VWAP immediately prior to the consummation of such Fundamental Transaction and (D) a remaining option time equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date. The payment of the Black Scholes Value will be made by wire transfer of immediately available funds within five Business Days of the Holder’s election (or, if later, on the effective date of the Fundamental Transaction). The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “
Successor Entity
”) to assume in writing all of the obligations of the Company under this Warrant and the other Transaction Documents in accordance with the provisions of this Section 3(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.
f)
Calculations
. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.
g)
Notice to Holder
.
i.
Adjustment to Exercise Price
. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.
ii.
Notice to Allow Exercise by Holder
. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be delivered by facsimile or email to the Holder at its last facsimile number or email address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided in this Warrant constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.
Section 4
.
Transfer of Warrant
.
a)
Transferability
. Subject to compliance with any applicable securities laws and the conditions set forth in Section 4(d) hereof and to the provisions of Section 4.1 of the Purchase Agreement, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company within three (3) Trading Days of the date on which the Holder delivers an assignment form to the Company assigning this Warrant in full. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.
b)
New Warrants
. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the Initial Exercise Date and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.
c)
Warrant Register
. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “
Warrant Register
”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.
d)
Transfer Restrictions
. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be either (i) registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws or (ii) eligible for resale without volume or manner-of-sale restrictions or current public information requirements pursuant to Rule 144, the Company may require, as a condition of allowing such transfer, that the Holder or transferee of this Warrant, as the case may be, comply with the provisions of Section 5.7 of the Purchase Agreement.
e)
Representation by the Holder
. The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant and, upon any exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities law, except pursuant to sales registered or exempted under the Securities Act.
Section 5
.
Miscellaneous
.
a)
No Rights as Stockholder Until Exercise
. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3.
b)
Loss, Theft, Destruction or Mutilation of Warrant
. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.
c)
Saturdays, Sundays, Holidays, etc
. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding Business Day.
d)
Authorized Shares
.
The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).
Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.
Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.
e)
Jurisdiction
. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement.
f)
Restrictions
. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.
g)
Nonwaiver and Expenses
. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other provision of this Warrant or the Purchase Agreement, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.
h)
Notices
. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.
i)
Limitation of Liability
. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.
j)
Remedies
. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.
k)
Successors and Assigns
. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.
l)
Amendment
. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.
m)
Severability
. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.
n)
Headings
. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.
********************
(Signature Page Follows)
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.
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ICONIC BRANDS, INC.
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By:
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Name:
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Title:
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NOTICE OF EXERCISE
TO: ICONIC BRANDS, INC.
(1) The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.
(2) Payment shall take the form of (check applicable box):
[ ] in lawful money of the United States; or
[ ] if permitted the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).
(3) Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:
_______________________________
The Warrant Shares shall be delivered to the following DWAC Account Number:
_______________________________
_______________________________
_______________________________
(4)
Accredited Investor
. The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.
[SIGNATURE OF HOLDER]
Name of Investing Entity: ________________________________________________________________________
Signature of Authorized Signatory of Investing Entity
: _________________________________________________
Name of Authorized Signatory: ___________________________________________________________________
Title of Authorized Signatory: ____________________________________________________________________
Date: ________________________________________________________________________________________
EXHIBIT B
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to
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Name:
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(Please Print)
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Address:
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(Please Print)
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Phone Number:
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Email Address:
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Dated: _______________ __, ______
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Holder’s Signature:
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Holder’s Address:
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EXHIBIT 5.1
September 18, 2018
Iconic Brands, Inc.
44 Seabro Ave.
Amityville, NY 11701
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Re:
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Iconic Brands, Inc. Registration Statement on Form S-1 for an offering by certain of the Company’s shareholders of up to 240,000,000 shares of common stock
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Ladies and Gentlemen:
We have acted as counsel to Iconic Brands, Inc., a Nevada corporation (the “Company”), in connection with the proposed offering by certain of the Company’s shareholders of 240,000,000 shares of the Company’s common stock issuable to the selling shareholders upon the conversion of Series E Convertible Preferred Stock (the “Securities”) pursuant to the Company's Registration Statement on Form S-1, as amended (the “Registration Statement”) filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the “Act”).
This opinion is being furnished in accordance with the requirements of Item 16 of Form S-1 and Item 601(b)(5)(i) of Regulation S-K.
We have reviewed the Company's charter documents and the corporate proceedings taken by the Company in connection with the offer, issuance and sale of the Securities. Based on such review, we are of the opinion that the Securities have been duly authorized and, when issued and delivered upon conversion in accordance with the terms of the Series E Convertible Preferred Stock, will be duly authorized, validly issued, fully paid and nonassessable.
We consent to the filing of this opinion letter as Exhibit 5.1 to the Registration Statement and to the reference to this firm under the caption “Legal Matters” in the prospectus which is part of the Registration Statement. In giving this consent, we do not thereby admit that we are within the category of persons whose consent is required under Section 7 of the Act, the rules and regulations of the Securities and Exchange Commission promulgated thereunder, or Item 509 of Regulation S-K.
This opinion letter is rendered as of the date first written above and we disclaim any obligation to advise you of facts, circumstances, events or developments which hereafter may be brought to our attention and which may alter, affect or modify the opinion expressed herein. Our opinion is expressly limited to the matters set forth above and we render no opinion, whether by implication or otherwise, as to any other matters relating to the Company or the Securities.
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Very truly yours,
CLYDE SNOW & SESSIONS
by /s/ Brian A. Lebrecht
Brian A. Lebrecht
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EXHIBIT 10.1
D
ISTRIBUTION AGREEMENT
This Distribution Agreement (“Agreement”), dated this
1st
day of May, 2015, by and between Bivi LLC, a Nevada limited liability company (“Bivi”) and United Spirits, Inc. a New York corporation (“United”).
WITNESSETH:
WHEREAS,
Bivi is the brand owner of “BiVi 100 percent Sicilian Vodka” an Alcoholic Beverage (as defined below) that desires to establish a market for such beverages in the United States and around the world;
WHEREAS
, Bivi desires to work with United to distribute and wholesale Bivi’s Alcoholic Beverages, acting as the licensed importer and wholesaler;
N
O
W, THEREFORE
, in consideration of the promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
A
RTICLE I
DEFINITIONS
1.1. For purposes of this Agreement, the following terms have the meanings set forth below:
“
A
l
c
oholic Beverages
”
means Bivi brand vodka or such other alcoholic beverages as the parties agree in writing.
“
F
OB
” means “free on board” United’s warehouses in New York and New Jersey (“FOB Points”), meaning for purposes of this Agreement that (i) Bivi shall bear the expense and risk of loss of transporting Product to the FOB Points and (ii) that title to Product shall pass from Bivi to United at the FOB Point at which the Product is delivered.
“Force Majeure”
means the inability of Bivi to supply Product pursuant to
Article IV
as a direct result of: acts of God; strikes or other labor unrest; civil disorder; fire; explosion; perils of the sea; flood; drought; war; riots; sabotage; terrorism; accident; embargo; priority, requisition or allocation mandated by governmental action; changes in laws or regulations that impair the Production or export of Alcoholic Beverages into the Territory; shortage or failure of supply of ingredients or raw materials necessary to produce Product; or other cause beyond control of Bivi. The duration of any Force Majeure occurrence is limited to the period during which Bivi is unable to supply Product, or make reasonable alternative arrangements to supply Product, due of the event or condition giving rise to such Force Majeure occurrence.
“
L
aw
”, unless otherwise expressly stated in this Agreement, includes statutes, regulations, decrees, ordinances and other governmental requirements, whether federal, state, local or of other authority.
“
P
roduct
” means the Bivi brand vodka.
“
Territory
” means the Globally.
“
T
rademarks
” means the trademarks described in Schedule A to this Agreement as belonging to Bivi, as such Exhibit may be supplemented from time to time pursuant to Section 3.
(a) Unless the context of this Agreement otherwise requires, (i) words of any gender include each other gender; (ii) words using the singular or plural number also include the plural or singular number, respectively; (iii) the terms “hereof,” “herein,” “hereby” and derivative or similar words refer to this entire Agreement; (iv) the terms “Article”, “Section”, “Schedule” or “Exhibit” refer to the specified Article, Section, Schedule or Exhibit of this Agreement, unless otherwise specifically stated; (v) the words “include” or “including” shall mean “include, without limitation” or “including, without limitation;” and (vi) the word “or” shall be disjunctive but not exclusive.
(b) References to agreements and other documents shall be deemed to include all subsequent amendments and other modifications thereto.
(c) References to statutes shall include all regulations promulgated thereunder and, except to the extent specifically provided below, references to statutes or regulations shall be construed as including all statutory and regulatory provisions consolidating, amending or replacing the statute or regulation.
(d) The language used in this Agreement shall be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction shall be applied against any party. This Agreement is the joint drafting product of the parties hereto and each provision has been subject to negotiation and agreement and shall not be construed for or against any party as drafter thereof.
(e) All accounting terms used herein and not expressly defined herein shall have the meanings given to them under GAAP.
(f) All amounts in this Agreement are stated and shall be paid in United States dollars.
A
RTICLE II
C
ERTAIN UNDERTAKINGS OF BIVI
BIVI represents and warrants that (a) BIVI has and will maintain throughout the term of this Agreement the exclusive right to sell Product for export to the Territory; (b) there is not in effect any agreement between BIVI and any other person or entity giving any right to any such other person or entity to sell Product in the Territory; and (c) BIVI has the full contractual and corporate power and authority to perform its obligations under this Agreement.
A
RTICLE III
EXCLUSIVITY
3.1. Subject to the terms of this Agreement, BIVI hereby grants to United the exclusive right during the Term (as such term is defined herein to sell Product within the Territory, including for resale.
3.2. United agrees not to sell Product outside the Territory. United shall use its commercially reasonable efforts to prevent parties purchasing Product directly or indirectly from United from reselling such Product outside the Territory or in any manner not authorized by this Agreement.
3.3. United may not use any of the Trademarks, including but not limited to use on labels, packaging, promotional materials, displays and in advertising and promotion, except in a form, color, style, manner and appearance and with surrounding content (“Form”) and in connection with such goods or items as previously approved by BIVI as provided below. For purposes of this Agreement, any materials supplied by or on behalf of BIVI to United bearing any of the Trademarks for use in connection with the performance of this Agreement, shall be deemed approved by BIVI for ordinary use in the performance of this Agreement. To the extent that United wishes to use a Trademark in a Form or for a use other than one that has been previously approved, it shall submit a written request to BIVI specifying the requested new Form or use along with a sample of the use. If BIVI approves such request in writing (such approval not to be unreasonably withheld) United may commence use of the Trademark in the Form or use requested pursuant to the terms of the Agreement and subject to any reasonable limitations that may be imposed by BIVI in connection with its approval. As described above, BIVI may from time to time prescribe reasonable changes in the approved Form or use of the Trademarks and United shall comply with such changes provided that it is either permitted a reasonable period to exhaust the existing inventory of material that would no longer be deemed to constitute an approved use or is otherwise compensated for any costs that it may incur if it is not permitted to exhaust such inventory. Any new trademarks created by United at the request of BIVI for BIVI’s Products shall belong exclusively to BIVI and shall be added to Schedule A.
3.4. BIVI shall be deemed to be the exclusive owner of all intellectual property used or developed in connection with this Agreement by United or any other party that a) incorporates the Trademarks or any variations thereof or derivative works based upon any of the Trademarks; b) in the absence of this Agreement, would infringe upon or otherwise violate the rights of BIVI in the Trademarks under the laws of the Territory, or c) is based upon confidential or proprietary information or such other names, marks, ideas, concepts or material created by or belonging to BIVI. To the extent United assists BIVI in creating new Trademarks As between the parties and unless contrary to applicable law, United shall be the owner of any intellectual property independently developed by United that does not pertain to the areas set forth above.
3.5. United shall acquire no ownership rights in the Trademarks or variations thereon or derivative works based thereon or any intellectual property deemed to be owned by BIVI as a result of this Agreement. United shall, at any time requested by BIVI, whether during or subsequent to the term hereof, disclaim in writing any such property interest or ownership in the Trademarks. Upon the termination of the Joint Venture Agreement (as defined in the Company Agreement), all rights of United to use the Trademarks as provided herein and any other intellectual property belonging to BIVI shall be terminated and revert to BIVI. Notwithstanding the above, United shall be permitted, unless otherwise agreed, a reasonable time in which to exhaust any inventory of Product bearing or incorporating the Trademarks and United shall not be liable for any advertising and promotional activities that were scheduled in good faith prior to the termination and cannot be cancelled.
3.6. If, for any reason or circumstances, United is deemed under any law or regulation to have acquired any right or interest with respect to the Trademarks, United shall, at the request of BIVI, promptly execute any document reasonably needed in order for United to transfer to BIVI any and all such rights, titles and interests in and to the Trademarks, including the goodwill which these represent. Such obligation shall continue after termination or expiration of this Agreement and any extensions thereof.
3.7. United shall not, either directly or indirectly:
(a) establish, form, be an owner of, operate, administer, authorize or control any company, division, corporation, association or business entity under any name which includes any of the Trademarks, either in whole or part, or under any name which is similar to the Trademarks;
(b) use (except as expressly authorized by this Agreement to use the Trademarks), register, or in any other manner claim the ownership of a trademark, trade name, commercial name, firm name or service mark which includes any of the Trademarks either wholly or partially, or which is similar to any of the Trademarks; or
(c) use any Trademark on or in connection with any beer or other object other than a Product, except as expressly permitted by this Agreement.
3.8. United shall comply with all reasonable instructions from BIVI as to requirements for the use, protection and maintenance of the Trademarks. United shall do nothing nor knowingly permit anything within its control to happen which will diminish or adversely affect the right and title of BIVI to the Trademarks, to the goodwill and the good name associated therewith, or to their value, and United shall comply with all reasonable instructions it may receive from BIVI on this subject.
3.9. BIVI shall cause all of its suppliers of advertising, promotional materials or any other element that uses the Trademarks to identify the Products to obtain a license agreement from BIVI.
A
RTICLE IV
S
UPPLY OF PRODUCT LINE
4.1. BIVI shall initially supply to United 1008 cases of vodka that conform to the sample of vodka submitted to TTB for approval and which has been approved by the TTB for sale in the United States. Such Product will be delivered FOB 44 Seabro Avenue Amityville, NY 11701. The warehousing of the Product delivered shall occur in accordance with the provisions of Article V below.
4.2 After the initial supply, BIVI shall supply to United such volumes of Product as are required by United for importation and sale within the Territory pursuant to the Sales Budget agreed to in writing by BIVI. Such Product will also be distributed FOB 44 Seabro Avenue Amityville, NY 11701.
4.3. All orders for Product under this Agreement shall be made by United specifying the type of Product ordered and the quantities thereof and the intended delivery dates. All orders shall comply with the lead times agreed to by BIVI and United in writing.
4.4. All Product delivered to United shall be delivered on a consignment basis. In the case of the initial supply, BIVI shall have no right to request and receive the return of such Product (“Reclaim such Product”) from United for a period of 360 days from the delivery to United. As to subsequent shipments, BIVI shall have no right to Reclaim such Product for 180 days. BIVI’s right to Reclaim such Product shall be limited solely to United’s failure to meet specified sales targets agreed to in writing by United.
4.5. BIVI HEREBY REPRESENTS AND WARRANTS THAT THE PRODUCTS ARE NEW, FIRST CLASS PRODUCTS, THAT THEY ARE FIT FOR HUMAN CONSUMPTION, THAT THE PRODUCTS ARE UNADULTERATED, ARE MERCHANTABILITY AND ARE FIT FOR THE INTENDED PURPOSE. FURTHER, BIVI REPRESENTS AND WARRANTS THAT THE PRODUCT CONFORMS TO THE SAMPLE PRODUCT APPROVED BY TTB.
4.6 BIVI shall supply United with a certificate of product liability insurance with the following limits: 1 million/3 million USD. Product liability insurance with these limits will be maintained at all times for so long as United acts as the importer/distributor of BIVI’s Brands and for a tail period of at least 2 years.
4.7. In the event of any conflict between the provisions of any order and the provisions of this Agreement (including without limitation terms of payment and warranties concerning Product), the provisions of this Agreement shall govern.
A
RTICLE V
WAREHOUSING
5.1 United will warehouse the Products delivered by BIVI at warehouses to be approved by the BIVI Representative (as such term is defined herein. Title to such product shall remain in the name of BIVI. United shall not relocate the Products without the express written consent of the BIVI Representative.
5.2 No product shall be removed from the warehouse without the approval of the BIVI Representative except for sales to wholesalers in the ordinary course of business. Such sales shall only be made in accordance with the payment requirement specified in Section VII below.
A
RTICLE VI
PAYMENTS TO UNITED ON SALES
6.1 All payments to United from sales of the Product will be deposited for clearance into United's account. After said deposits clear the proceeds will be deposited to the Account of BiVi LLC at Bank of America. Any checks that are delivered to United will be deposited into the BiVi LLC Bank of America account. No checks or withdrawals from this account shall occur except to BIVI or the parties identified by them. BIVI shall retain for its own use all Net Proceeds from sales of the Product by United. Net Sales shall mean gross proceeds from sales of the Product, less any charge backs incurred from third party distributers of the Product.
6.2. United agrees to appoint Richard DeCicco as (“BIVI Representative”). In the event the BIVI representative ceases to serve in such capacity BIVI shall have the right to nominate another person to serve as the BIVI Representative and United agrees to promptly appoint such person. The BIVI Representative shall have full access during normal business hours to all books and records of United and United.
6.3 Within 10 days of the end of each calendar month, United will provide a full accounting of sales and charge backs in the form of financial statements consisting of a bank statement and cash flow statement and make such statements available to the BIVI Representative.
A
RTICLE VII
REPORTS
7.1. United and the BIVI Representative shall agree on the contents and timing of such reports to be supplied by United.
7.2. United shall deliver each report required by
Section 7.1
both (a) in writing and (b) by such other means of electronic reproduction as BIVI Representative may reasonably request from time to time. United shall cause each such report in writing to be signed by an authorized representative of United or of the party who generated the report. In the event of inconsistency between a report in writing and a report by electronic means, the report in writing shall control.
7.3. The BIVI Representative may at its own expense, upon reasonable advance notice to United, through accountants or other representatives designated by the BIVI Representative for such purposes, enter during normal business hours any storage facility or business office owned or controlled by United and examine such facilities, inventories and that portion of the books and records of United needed to determine the accuracy of any report delivered under this Agreement.
A
RTICLE VIII
COMPLIANCE WITH LAWS
8.1. During the term of this Agreement, United shall obtain and maintain in good standing, or otherwise have valid access to, all U.S. (federal and state) licenses required for the performance of this Agreement by United, including without limitation all licenses required for the importation or sale of Product in the Territory (“
Requisite Licenses
”).
8.2. United agrees to comply with all laws applicable to the selling of Product, including, without limitation, those relating to labels and identifying marks on Containers.
83 As and when requested by United, BIVI shall use its commercially reasonable efforts to sign and deliver to United such documents as United requires for filing with governmental authorities to comply with laws applicable to the importation or sale of Product.
A
RTICLE IX
TERM
The term of this Agreement shall commence on the date hereof and shall continue for a period of Ten years from the date first above written.
A
RTICLE X
GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without reference to its principals of conflicts of laws that would require application of the substantive laws of any other jurisdiction. BIVI and United hereby irrevocably consent to the exclusive personal jurisdiction and venue of the courts of the State of New York or the federal courts of the United States, in each case sitting in New York County, in connection with any action or proceeding arising out of or relating to this Agreement. United and BIVI hereby irrevocably waive, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of the venue of such action or proceeding brought in such a court and any claim that any such action or proceeding brought in such court has been brought in an inconvenient forum. United and BIVI irrevocably consent to the service of process with respect to any such action or proceeding in the manner provided for the giving of notices under
Section 10
, provided, the foregoing shall not affect the right of either United or BIVI to serve process in any other manner permitted by law. United and BIVI hereby agree that a final judgment in any suit, action or proceeding shall be conclusive and may be enforced in any jurisdiction by suit on the judgment or in any manner provided by applicable law.
A
RTICLE XI
MISCELLANEOUS
11.1. Neither party may assign any right under this Agreement without the prior written consent of the other party. Subject to the foregoing, this Agreement shall be binding upon and shall inure to the benefit of the parties and their respective successors and assigns.
11.2. The captions used in this Agreement are for convenience of reference only and shall not affect any obligation under this Agreement.
11.3. This Agreement may be executed in counterparts, each of which when so executed and delivered shall be deemed an original, and such counterparts, taken together, shall constitute one and the same instrument. Signatures sent by facsimile shall constitute and be binding to the same extent as originals. This Agreement may not be amended except by an instrument in writing signed by both parties.
11.4. Any notice, claims, requests, (except for requests made under Section 3.6 hereof) demands, or other communications required or permitted to be given hereunder shall be in writing and will be duly given if: (a) personally delivered, (b) sent by facsimile or (c) sent by Federal Express or other reputable overnight courier (for next business day delivery), shipping prepaid as follows:
11.5. During the term and for a period of 24 months after the termination of the agreement United will have no financial exposure of any actions, purchases, commitments, FET Taxes, or sny incumberances created by BiVi.
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If to United:
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United Spirits Inc.
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44 Seabro Avenue
Amityville, NY 11701
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With a copy to:
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If to BIVI:
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BiVi LLC
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44 Seabro Avenue
Amityville, NY 11726
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With a copy to:
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Richard J DeCicco
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71 Shore Drive
Copiague, NY 11726
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or such other address or addresses or facsimile numbers as the person to whom notice is to be given may have previously furnished to the others in writing in the manner set forth above. Notices will be deemed given at the time of personal delivery, if sent by facsimile, when sent with electronic notification of delivery or other confirmation of delivery or receipt, or, if sent by Federal Express or other reputable overnight courier, on the day of delivery.
11.5. This Agreement and the various schedules and exhibits thereto embody all of the understandings and agreements of every kind and nature existing between the parties hereto with respect to the transactions contemplated hereby. This Agreement supersedes all prior discussions, negotiations and agreements between the parties concerning the subject matter of this Agreement.
11.6. To the extent that any provision of this Agreement is invalid or unenforceable in the Territory or any state or other area of the Territory, this Agreement is hereby deemed modified to the extent necessary to make it valid and enforceable within such state or area, and the parties shall promptly agree in writing on the text of such modification.
11.7. The parties acknowledge that a breach or threatened breach by them of any provision of this Agreement will result in the other entity suffering irreparable harm which cannot be calculated or fully or adequately compensated by recovery of damages alone. Accordingly, the parties agree that any party may, in its discretion (and without limiting any other available remedies), apply to any court of law or equity of competent jurisdiction for specific performance and injunctive relief (without necessity of posting a bond or undertaking in connection therewith) in order to enforce or prevent any violations of this Agreement, and any party against whom such proceeding is brought hereby waives the claim or defense that such party has an adequate remedy at law and agrees not to raise the defense that the other party has an adequate remedy at law.
provided, however
, that the foregoing rights may not be exercised in the event that The failure of either party at any time to require performance of any provision of this Agreement shall in no manner affect such party’s right to enforce such provision at any later time. No waiver by any party of any provision, or the breach of any provision, contained in this Agreement shall be deemed to be a further or continuing waiver of such or any similar provision or breach.
11.8. This Agreement is binding upon and shall inure to the benefit of the parties hereto and their successors and permitted assigns. Nothing in this Agreement shall give any other Person any legal or equitable right, remedy or claim under or with respect to this Agreement or the transactions contemplated hereby.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date first written above.
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BIVI LLC
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UNITED SPIRITS, INC.
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By:
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/s/ Richard J DeCicco
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By:
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/s/ Richard J DeCicco
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Name:
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Richard J DeCicco
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Name:
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Richard J DeCicco
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Title:
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President
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Title:
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President
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EXHIBIT A
Tradema
rks
Bivi
Vodka
EXHIBIT 10.2
DISTRIBUTION AGREEMENT
This Distribution Agreement (“Agreement”), dated this 1st day of May, 2016, by and between Bellissima Spirits LLC, a Nevada limited liability company (“Bellissima”) and United Spirits, Inc. a New York corporation (“United”).
WITNESSETH:
WHEREAS, Bellissima Spirits LLC is the brand owner of “Bellissima Prosecco and Sparkling Wines.
Beverage (as defined below) that desires to establish a market for such beverages in the United States and around the world;
WHEREAS, Bellissima desires to work with United to distribute and wholesale Bellissima Alcoholic Beverages, acting as the licensed importer and wholesaler;
NOW, THEREFORE, in consideration of the promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
COMPENSATION
1.1 United Spirits will receive $1.00 (Gross) per case from the wholesale selling price to the distributor.
DEFINITIONS
1.1. For purposes of this Agreement, the following terms have the meanings set forth below:
“Alcoholic Beverages” means Bellissima brand Prosecco and Sparkling Wines or such other alcoholic beverages as the parties agree in writing.
“FOB” means “free on board” United’s warehouses in New York and New Jersey
(“FOB Points”), meaning for purposes of this Agreement that (i) Bellissima shall bear the expense and risk of loss of transporting Product to the FOB Points and (ii) that title to Product shall pass from Bellissima to United at the FOB Point at which the Product is delivered.
“Force Majeure” means the inability of Bellissima to supply Product pursuant to Article IV as a direct result of: acts of God; strikes or other labor unrest; civil disorder; fire; explosion; perils of the sea; flood; drought; war; riots; sabotage; terrorism; accident; embargo; priority, requisition or allocation mandated by governmental action; changes in laws or regulations that impair the Production or export of Alcoholic Beverages into the Territory; shortage or failure of supply of ingredients or raw materials necessary to produce Product; or other cause beyond control of Bellissima. The duration of any Force Majeure occurrence is limited to the period during which Bellissima is unable to supply Product, or make reasonable alternative arrangements to supply Product, due of the event or condition giving rise to such Force Majeure occurrence.
“Law”, unless otherwise expressly stated in this Agreement, includes statutes, regulations, decrees, ordinances and other governmental requirements, whether federal, state, local or of other authority.
“Product” means the Bellissima brand of Prosecco and Sparkling Wines.
“Territory” means the Globally.
“Trademarks” means the trademarks described in Schedule A to this Agreement as belonging to Bellissima, as such Exhibit may be supplemented from time to time pursuant to Section 3.
(a) Unless the context of this Agreement otherwise requires, (i) words of any gender include each other gender; (ii) words using the singular or plural number also include the plural or singular number, respectively; (iii) the terms “hereof,” “herein,” “hereby” and derivative or similar words refer to this entire Agreement; (iv) the terms “Article”,
“Section”, “Schedule” or “Exhibit” refer to the specified Article, Section, Schedule or Exhibit of this Agreement, unless otherwise specifically stated; (v) the words “include” or “including” shall mean “include, without limitation” or “including, without limitation;” and (vi) the word “or” shall be disjunctive but not exclusive.
(b) References to agreements and other documents shall be deemed to include all subsequent amendments and other modifications thereto.
(c) References to statutes shall include all regulations promulgated thereunder and, except to the extent specifically provided below, references to statutes or regulations shall be construed as including all statutory and regulatory provisions consolidating, amending or replacing the statute or regulation.
(d) The language used in this Agreement shall be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction shall be applied against any party. This Agreement is the joint drafting product of the parties hereto and each provision has been subject to negotiation and agreement and shall not be construed for or against any party as drafter thereof.
(e) All accounting terms used herein and not expressly defined herein shall have the meanings given to them under GAAP.
(f) All amounts in this Agreement are stated and shall be paid in United States dollars.
ARTICLE II
CERTAIN UNDERTAKINGS OF BELLISSIMA
BELLISSIMA represents and warrants that (a) BELLISSIMA has and will maintain throughout the term of this Agreement the exclusive right to sell Product for export to the Territory; (b) there is not in effect any agreement between BELLISSIMA and any other person or entity giving any right to any such other person or entity to sell Product in the Territory; and (c) BELLISSIMA has the full contractual and corporate power and authority to perform its obligations under this Agreement.
ARTICLE III
EXCLUSIVITY
3.1. Subject to the terms of this Agreement, BELLISSIMA hereby grants to United the exclusive right during the Term (as such term is defined herein to sell Product within the Territory, including for resale.
3.2. United agrees not to sell Product outside the Territory. United shall use its commercially reasonable efforts to prevent parties purchasing Product directly or indirectly from United from reselling such Product outside the Territory or in any manner not authorized by this Agreement.
3.3. United may not use any of the Trademarks, including but not limited to use on labels, packaging, promotional materials, displays and in advertising and promotion, except in a form, color, style, manner and appearance and with surrounding content (“Form”) and in connection with such goods or items as previously approved by BELLISSIMA as provided below. For purposes of this Agreement, any materials supplied by or on behalf of BELLISSIMA to United bearing any of the Trademarks for use in connection with the performance of this Agreement, shall be deemed approved by BELLISSIMA for ordinary use in the performance of this Agreement. To the extent that United wishes to use a Trademark in a Form or for a use other than one that has been previously approved, it shall submit a written request to BELLISSIMA specifying the requested new Form or use along with a sample of the use. If BELLISSIMA approves such request in writing (such approval not to be unreasonably withheld) United may commence use of the Trademark in the Form or use requested pursuant to the terms of the Agreement and subject to any reasonable limitations that may be imposed by BELLISSIMA in connection with its approval. As described above, BELLISSIMA may from time to time prescribe reasonable changes in the approved Form or use of the Trademarks and United shall comply with such changes provided that it is either permitted a reasonable period to exhaust the existing inventory of material that would no longer be deemed to constitute an approved use or is otherwise compensated for any costs that it may incur if it is not permitted to exhaust such inventory. Any new trademarks created by United at the request of BELLISSIMA for BELLISSIMA’s Products shall belong exclusively to BELLISSIMA and shall be added to Schedule A.
3.4. BELLISSIMA shall be deemed to be the exclusive owner of all intellectual property used or developed in connection with this Agreement by United or any other party that a) incorporates the Trademarks or any variations thereof or derivative works based upon any of the Trademarks; b) in the absence of this Agreement, would infringe upon or otherwise violate the rights of BELLISSIMA in the Trademarks under the laws of the Territory, or c) is based upon confidential or proprietary information or such other names, marks, ideas, concepts or material created by or belonging to BELLISSIMA. To the extent United assists BELLISSIMA in creating new Trademarks As between the parties and unless contrary to applicable law, United shall be the owner of any intellectual property independently developed by United that does not pertain to the areas set forth above.
3.5. United shall acquire no ownership rights in the Trademarks or variations thereon or derivative works based thereon or any intellectual property deemed to be owned by BELLISSIMA as a result of this Agreement. United shall, at any time requested by BELLISSIMA, whether during or subsequent to the term hereof, disclaim in writing any such property interest or ownership in the Trademarks. Upon the termination of the Joint Venture Agreement (as defined in the Company Agreement), all rights of United to use the Trademarks as provided herein and any other intellectual property belonging to BELLISSIMA shall be terminated and revert to BELLISSIMA. Notwithstanding the above, United shall be permitted, unless otherwise agreed, a reasonable time in which to exhaust any inventory of Product bearing or incorporating the Trademarks and United shall not be liable for any advertising and promotional activities that were scheduled in good faith prior to the termination and cannot be cancelled.
3.6. If, for any reason or circumstances, United is deemed under any law or regulation to have acquired any right or interest with respect to the Trademarks, United shall, at the request of BELLISSIMA, promptly execute any document reasonably needed in order for United to transfer to BELLISSIMA any and all such rights, titles and interests in and to the Trademarks, including the goodwill which these represent. Such obligation shall continue after termination or expiration of this Agreement and any extensions thereof.
3.7. United shall not, either directly or indirectly:
(a) establish, form, be an owner of, operate, administer, authorize or control any company, division, corporation, association or business entity under any name which includes any of the Trademarks, either in whole or part, or under any name which is similar to the Trademarks;
(b) use (except as expressly authorized by this Agreement to use the Trademarks), register, or in any other manner claim the ownership of a trademark, trade name, commercial name, firm name or service mark which includes any of the Trademarks either wholly or partially, or which is similar to any of the Trademarks; or
(c) use any Trademark on or in connection with any beer or other object other than a Product, except as expressly permitted by this Agreement.
3.8. United shall comply with all reasonable instructions from BELLISSIMA as to requirements for the use, protection and maintenance of the Trademarks. United shall do nothing nor knowingly permit anything within its control to happen which will diminish or adversely affect the right and title of BELLISSIMA to the Trademarks, to the goodwill and the good name associated therewith, or to their value, and United shall comply with all reasonable instructions it may receive from BELLISSIMA on this subject.
3.9. BELLISSIMA shall cause all of its suppliers of advertising, promotional materials or any other element that uses the Trademarks to identify the Products to obtain a license agreement from BELLISSIMA.
ARTICLE IV
SUPPLY OF PRODUCT LINE
4.1. BELLISSIMA shall supply to United 1 cases of Prosecco and Sparkling Wines Rose and Zero Sugar that conform to the samples submitted to TTB for approval and which has been approved by the TTB for sale in the United States. Such Product will be delivered FOB 44 Seabro Avenue Amityville, NY 11701. The warehousing of the Product delivered shall occur in accordance with the provisions of Article V below.
4.2 After the initial supply, BELLISSIMA shall supply to United such volumes of Product as are required by United for importation and sale within the Territory pursuant to the Sales Budget agreed to in writing by BELLISSIMA. Such Product will also be distributed FOB 44 Seabro Avenue Amityville, NY 11701.
4.3. All orders for Product under this Agreement shall be made by United specifying the type of Product ordered and the quantities thereof and the intended delivery dates. All orders shall comply with the lead times agreed to by BELLISSIMA and United in writing.
4.4. All Product delivered to United shall be delivered on a consignment basis. In the case of the initial supply, BELLISSIMA shall have no right to request and receive the return of such Product (“Reclaim such Product”) from United for a period of 360 days from the delivery to United. As to subsequent shipments, BELLISSIMA shall have no right to Reclaim such Product for 180 days. BELLISSIMA’s right to Reclaim such Product shall be limited solely to United’s failure to meet specified sales targets agreed to in writing by United.
4.5. BELLISSIMAHEREBY REPRESENTS AND WARRANTS THAT THE PRODUCTS ARE NEW, FIRST CLASS PRODUCTS, THAT THEY ARE FIT FOR HUMAN CONSUMPTION, THAT THE PRODUCTS ARE UNADULTERATED, ARE MERCHANTABILITY AND ARE FIT FOR THE INTENDED PURPOSE.
FURTHER, BELLISSIMAREPRESENTS AND WARRANTS THAT THE PRODUCT CONFORMS TO THE SAMPLE PRODUCT APPROVED BY TTB.
4.6 BELLISSIMA shall supply United with a certificate of product liability insurance with the following limits: 1 million/3 million USD. Product liability insurance with these limits will be maintained at all times for so long as United acts as the importer/distributor of BELLISSIMA’s Brands and for a tail period of at least 2 years.
4.7. In the event of any conflict between the provisions of any order and the provisions of this Agreement (including without limitation terms of payment and warranties concerning Product), the provisions of this Agreement shall govern.
ARTICLE V
WAREHOUSING
5.1 United will warehouse the Products delivered by BELLISSIMA at warehouses to be approved by the BELLISSIMA Representative (as such term is defined herein. Title to such product shall remain in the name of BELLISSIMA. United shall not relocate the Products without the express written consent of the BELLISSIMA Representative.
5.2 No product shall be removed from the warehouse without the approval of the BELLISSIMA Representative except for sales to wholesalers in the ordinary course of business. Such sales shall only be made in accordance with the payment requirement specified in Section VII below.
ARTICLE VI
PAYMENTS TO UNITED ON SALES
6.1 All payments to United from sales of the Product will be deposited for clearance into United’s account. After said deposits clear the proceeds will be deposited to the Account of Bellissima LLC at Bank of America. Any checks that are delivered to United will be deposited into the Bellissima LLC Bank of America account. No checks or withdrawals from this account shall occur except to BELLISSIMA or the parties identified by them. BELLISSIMA shall retain for its own use all Net Proceeds from sales of the Product by United. Net Sales shall mean gross proceeds from sales of the Product, less any charge backs incurred from third party distributers of the Product.
6.2. United agrees to appoint Richard DeCicco as (“BELLISSIMA Representative”). In the event the BELLISSIMA representative ceases to serve in such capacity BELLISSIMA shall have the right to nominate another person to serve as the BELLISSIMA Representative and United agrees to promptly appoint such person. The BELLISSIMA Representative shall have full access during normal business hours to all books and records of United and United.
6.3 Within 10 days of the end of each calendar month, United will provide a full accounting of sales and charge backs in the form of financial statements consisting of a bank statement and cash flow statement and make such statements available to the BELLISSIMA Representative.
ARTICLE VII
REPORTS
7.1. United and the BELLISSIMA Representative shall agree on the contents and timing of such reports to be supplied by United.
7.2. United shall deliver each report required by Section 7.1 both (a) in writing and (b) by such other means of electronic reproduction as BELLISSIMA Representative may reasonably request from time to time. United shall cause each such report in writing to be signed by an authorized representative of United or of the party who generated the report. In the event of inconsistency between a report in writing and a report by electronic means, the report in writing shall control.
7.3. The BELLISSIMA Representative may at its own expense, upon reasonable advance notice to United, through accountants or other representatives designated by the BELLISSIMA Representative for such purposes, enter during normal business hours any storage facility or business office owned or controlled by United and examine such facilities, inventories and that portion of the books and records of United needed to determine the accuracy of any report delivered under this Agreement.
ARTICLE VIII
COMPLIANCE WITH LAWS
8.1. During the term of this Agreement, United shall obtain and maintain in good standing, or otherwise have valid access to, all U.S. (federal and state) licenses required for the performance of this Agreement by United, including without limitation all licenses required for the importation or sale of Product in the Territory (“Requisite Licenses”).
8.2. United agrees to comply with all laws applicable to the selling of Product, including, without limitation, those relating to labels and identifying marks on Containers.
8.3 As and when requested by United, BELLISSIMA shall use its commercially reasonable efforts to sign and deliver to United such documents as United requires for filing with governmental authorities to comply with laws applicable to the importation or sale of Product.
ARTICLE IX
TERM
The term of this Agreement shall commence on the date hereof and shall continue for a period of perpetuity from the date first above written.
ARTICLE X
GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without reference to its principals of conflicts of laws that would require application of the substantive laws of any other jurisdiction. BELLISSIMA and United hereby irrevocably consent to the exclusive personal jurisdiction and venue of the courts of the State of New York or the federal courts of the United States, in each case sitting in New York County, in connection with any action or proceeding arising out of or relating to this Agreement. United and BELLISSIMA hereby irrevocably waive, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of the venue of such action or proceeding brought in such a court and any claim that any such action or proceeding brought in such court has been brought in an inconvenient forum.
United and BELLISSIMA irrevocably consent to the service of process with respect to any such action or proceeding in the manner provided for the giving of notices under Section 10, provided, the foregoing shall not affect the right of either United or BELLISSIMA to serve process in any other manner permitted by law. United and BELLISSIMA hereby agree that a final judgment in any suit, action or proceeding shall be conclusive and may be enforced in any jurisdiction by suit on the judgment or in any manner provided by applicable law.
ARTICLE XI
MISCELLANEOUS
11.1. Neither party may assign any right under this Agreement without the prior written consent of the other party. Subject to the foregoing, this Agreement shall be binding upon and shall inure to the benefit of the parties and their respective successors and assigns.
11.2. The captions used in this Agreement are for convenience of reference only and shall not affect any obligation under this Agreement.
11.3. This Agreement may be executed in counterparts, each of which when so executed and delivered shall be deemed an original, and such counterparts, taken together, shall constitute one and the same instrument. Signatures sent by facsimile shall constitute and be binding to the same extent as originals. This Agreement may not be amended except by an instrument in writing signed by both parties.
11.4. Any notice, claims, requests, (except for requests made under Section 3.6 hereof) demands, or other communications required or permitted to be given hereunder shall be in writing and will be duly given if: (a) personally delivered, (b) sent by facsimile or (c) sent by Federal Express or other reputable overnight courier (for next business day delivery), shipping prepaid as follows:
11.5. During the term and for a period of 24 months after the termination of the agreement United will have no financial exposure of any actions, purchases, commitments, FET Taxes, or any incumberances created by Bellissima.
If to United: United Spirits Inc.
44 Seabro Avenue
Amityville, NY 11701
With a copy to:
If to BELLISSIMA: BellissimaLLC
44 Seabro Avenue
Amityville, NY 11726
With a copy to: Richard J DeCicco
71 Shore Drive
Copiague, NY 11726
or such other address or addresses or facsimile numbers as the person to whom notice is to be given may have previously furnished to the others in writing in the manner set forth above. Notices will be deemed given at the time of personal delivery, if sent by facsimile, when sent with electronic notification of delivery or other confirmation of delivery or receipt, or, if sent by Federal Express or other reputable overnight courier, on the day of delivery.
11.5. This Agreement and the various schedules and exhibits thereto embody all of the understandings and agreements of every kind and nature existing between the parties hereto with respect to the transactions contemplated hereby. This Agreement supersedes all prior discussions, negotiations and agreements between the parties concerning the subject matter of this Agreement.
11.6. To the extent that any provision of this Agreement is invalid or unenforceable in the Territory or any state or other area of the Territory, this Agreement is hereby deemed modified to the extent necessary to make it valid and enforceable within such state or area, and the parties shall promptly agree in writing on the text of such modification.
11.7. The parties acknowledge that a breach or threatened breach by them of any provision of this Agreement will result in the other entity suffering irreparable
harm which cannot be calculated or fully or adequately compensated by recovery of damages alone. Accordingly, the parties agree that any party may, in its discretion (and without limiting any other available remedies), apply to any court of law or equity of competent jurisdiction for specific performance and injunctive relief (without necessity of posting a bond or undertaking in connection therewith) in order to enforce or prevent any violations of this Agreement, and any party against whom such proceeding is brought hereby waives the claim or defense that such party has an adequate remedy at law and agrees not to raise the defense that the other party has an adequate remedy at law. provided, however, that the foregoing rights may not be exercised in the event that The failure of either party at any time to require performance of any provision of this Agreement shall in no manner affect such party’s right to enforce such provision at any later time. No waiver by any party of any provision, or the breach of any provision, contained in this Agreement shall be deemed to be a further or continuing waiver of such or any similar provision or breach.
11.8. This Agreement is binding upon and shall inure to the benefit of the parties hereto and their successors and permitted assigns. Nothing in this Agreement shall give any other Person any legal or equitable right, remedy or claim under or with respect to this Agreement or the transactions contemplated hereby.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date first written above.
BELLISSIMA Spirits LLC UNITED SPIRITS, INC.
By: _______________________________
By: _______________________________
Name:Richard DeCicco Manager/Member Bellissima Spirits LLC
Name: Richard J DeCicco
Title: President Title: President United Spirits Inc
E
XHIBIT A
Trademarks
Bellissima Prosecco and Sparkling Wines (Trade Dress)
EXHIBIT 10.3
EXHIBIT 10.4
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this “
Agreement
”) is dated as of November 1, 2017, between Iconic Brands, Inc., a Nevada corporation (the “
Company
”), and each purchaser identified on the signature pages hereto (each, including its successors and assigns, a “
Purchaser
” and collectively, the “
Purchasers
”).
WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “
Securities Act
”), and Rule 506(b) promulgated thereunder, the Company desires to issue and sell to each Purchaser, and each Purchaser, severally and not jointly, desires to purchase from the Company, securities of the Company as more fully described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and each Purchaser agree as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, the following terms have the meanings set forth in this Section 1.1:
“Acquiring Person” shall have the meaning ascribed to such term in Section 4.5.
“
Action
” shall have the meaning ascribed to such term in Section 3.1(j).
“
Affiliate
” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.
“
Audit
” means the examination of the Company’s financial statements for the applicable fiscal year by Company’s accounting firm for purposes of rendering an opinion on the fairness, consistency and conformity with GAAP of such financial statements and the delivery of an opinion by the Company’s accounting firm with respect to such financial statements.
“
Board of Directors
” means the board of directors of the Company.
“
Business Day
” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.
“
Closings
” means the First Closing and the Second Closing, each, a “
Closing
”.
“
Closing Date
” means the First Closing Date and the Second Closing Date, as applicable.
“
Closing Statement
” means the Closing Statement in the form on
Annex A
attached hereto.
“
Commission
” means the United States Securities and Exchange Commission.
“
Common Stock
” means the common stock of the Company, par value $0.001 per share, and any other class of securities into which such securities may hereafter be reclassified or changed.
“
Common Stock Equivalents
” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.
“
Company Auditor
” means BMKR, LLP, with offices located at 1200 Veterans Memorial Highway, Suite 350, Hauppauge, New York 11788, and any successor accounting firm of the Company.
“
Company Counsel
” means Austin Legal Group, APC, with offices located at 3990 Old Town Avenue, Suite A-112, San Diego, California 92110.
“
Disclosure Schedules
” shall have the meaning ascribed to such term in Section 3.1.
“
EGS
” means Ellenoff Grossman & Schole LLP, with offices located at 1345 Avenue of the Americas, New York, New York 10105-0302.
“
Effective Date
” means the earliest of the date that (a) the Registration Statement registering all of the Shares has been declared effective by the Commission, (b) all of the Shares and Warrant Shares have been sold pursuant to Rule 144 or may be sold pursuant to Rule 144 without the requirement for the Company to be in compliance with the current public information required under Rule 144 and without volume or manner-of-sale restrictions, (c) following the one year anniversary of the Closing Date provided that a holder of Shares or Warrant Shares is not an Affiliate of the Company, or (d) all of the Shares and Warrant Shares may be sold pursuant to an exemption from registration under Section 4(a)(1) of the Securities Act without volume or manner-of-sale restrictions and Company Counsel has delivered to such holders a standing written unqualified opinion that resales may then be made by such holders of the Shares and Warrant Shares pursuant to such exemption which opinion shall be in form and substance reasonably acceptable to such holders.
“
Exchange Act
” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“
Exempt Issuance
” means the issuance of (a) shares of Common Stock or options to employees, officers or directors of the Company pursuant to any stock or option plan duly adopted for such purpose, by a majority of the non-employee members of the Board of Directors or a majority of the members of a committee of non-employee directors established for such purpose for services rendered to the Company, (b) securities upon the exercise or exchange of or conversion of any Securities issued hereunder and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement, provided that such securities have not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise price, exchange price or conversion price of such securities (other than in connection with stock splits or combinations) or to extend the term of such securities, (c) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Company, provided that any such issuance shall only be to a Person (or to the equityholders of a Person) which is, itself or through its subsidiaries, an operating company or an owner of an asset in a business synergistic with the business of the Company and shall provide to the Company additional benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities, and (d) securities issued upon conversion or exercise of any securities issued in connection with an issuance pursuant to clause (a) herein.
“
FCPA
” means the Foreign Corrupt Practices Act of 1977, as amended.
“
FDA
” shall have the meaning ascribed to such term in Section 3.1(kk).
“
FDCA
” shall have the meaning ascribed to such term in Section 3.1(kk).
“
First Closing Date
” means the Trading Day on which all of the Transaction Documents have been executed and delivered by the applicable parties thereto, and all conditions precedent to (i) the Purchasers’ obligations to pay the initial Subscription Amount and (ii) the Company’s obligations to deliver the Securities purchased at such First Closing, in each case, have been satisfied or waived, but in no event later than the third Trading Day following the date hereof.
“
GAAP
” shall have the meaning ascribed to such term in Section 3.1(h).
“
Indebtedness
” shall have the meaning ascribed to such term in Section 3.1(bb).
“
Intellectual Property Rights
” shall have the meaning ascribed to such term in Section 3.1(p).
“
Legend Removal Date
” shall have the meaning ascribed to such term in Section 4.1(c).
“
Liens
” means a lien, charge pledge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.
“
Lock-Up Agreement
” means the Lock-Up Agreement, dated as of the date hereof, by and among the Company and the directors and officers of the Company, in the form of
Exhibit D
attached hereto.
“
Material Adverse Effect
” shall have the meaning assigned to such term in Section 3.1(b).
“
Material Permits
” shall have the meaning ascribed to such term in Section 3.1(n).
“
Participation Maximum
” shall have the meaning ascribed to such term in Section 4.11(a).
“
Per Share Purchase Price
”, as to each Closing, equals $0.0025, subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement.
“
Person
” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
“
Pharmaceutical Product
” shall have the meaning ascribed to such term in Section 3.1(jj).
“
Pre-Notice
” shall have the meaning ascribed to such term in Section 4.11(b).
“
Pro Rata Portion
” shall have the meaning ascribed to such term in Section 4.11(e).
“
Proceeding
” means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding, such as a deposition), whether commenced or threatened.
“
Public Company Date
” means the date on which the Company (or any successor/surviving entity in a reverse merger or other business combination transaction) becomes subject to the reporting requirements of the Exchange Act.
“
Public Information Failure
” shall have the meaning ascribed to such term in Section 4.2(b).
“
Public Information Failure Payments
” shall have the meaning ascribed to such term in Section 4.2(b).
“
Purchaser Party
” shall have the meaning ascribed to such term in Section 4.8.
“
Registrable Securities
” means, as of any date of determination, (a) all Shares then issued and issuable pursuant to this Agreement, (b) all Warrant Shares then issued and issuable upon exercise of the Warrants (assuming on such date the Warrants are exercised in full without regard to any exercise limitations therein), (c) any additional shares of Common Stock issued and issuable in connection with any anti-dilution provisions in the Agreement or the Warrants (without giving effect to any limitations on issuance set forth in the Agreement or any limitations on exercise set forth in the Warrants) and (d) any securities issued or then issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing;
provided,
however
, that any such Registrable Securities shall cease to be Registrable Securities (and the Company shall not be required to maintain the effectiveness of any, or file another, Registration Statement hereunder with respect thereto) for so long as (a) a Registration Statement with respect to the sale of such Registrable Securities is declared effective by the Commission under the Securities Act and such Registrable Securities have been disposed of by the Holder in accordance with such effective Registration Statement, (b) such Registrable Securities have been previously sold in accordance with Rule 144, or (c) such securities become eligible for resale without volume or manner-of-sale restrictions and without current public information pursuant to Rule 144 as set forth in a written opinion letter to such effect, addressed, delivered and acceptable to the Transfer Agent and the affected Holders (assuming that such securities and any securities issuable upon exercise, conversion or exchange of which, or as a dividend upon which, such securities were issued or are issuable, were at no time held by any Affiliate of the Company, and all Warrants are exercised by “cashless exercise” as provided in Section 2(c) of each of the Warrants), as reasonably determined by the Company, upon the advice of counsel to the Company.
“
Registration Rights Agreement
” means the Registration Rights Agreement, dated on or about the date hereof, among the Company and the Purchasers, in the form of
Exhibit A
attached hereto.
“
Registration Statement
” means a registration statement meeting the requirements set forth in the Registration Rights Agreement and covering the resale by the Purchasers of the Shares and the Warrant Shares.
“
Required Approvals
” shall have the meaning ascribed to such term in Section 3.1(e).
“
Rule 144
” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.
“
Rule 424
” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.
“
SEC Reports
” means all reports, schedules, forms, statements and other documents required to be filed by the Company under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, including the exhibits thereto and documents incorporated by reference therein.
“
Second Closing
” shall have the meaning ascribed to such term in Section 2.1(b).
“
Second Closing Date
” means the date of the Second Closing.
“
Securities
” means the Shares, the Warrants and the Warrant Shares.
“
Securities Act
” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“
Shares
” means the shares of Common Stock issued or issuable to each Purchaser pursuant to this Agreement.
“
Short Sales
” means all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but shall not be deemed to include locating and/or borrowing shares of Common Stock).
“
Subscription Amount
” means, as to each Purchaser, the aggregate amount to be paid for Shares and Warrants purchased hereunder as specified below such Purchaser’s name on the signature page of this Agreement and next to the heading “Subscription Amount,” in United States dollars and in immediately available funds.
“
Subsequent Closing
” means a Closing following the First Closing.
“
Subsequent Financing
” shall have the meaning ascribed to such term in Section 4.11(a).
“
Subsequent Financing Notice
” shall have the meaning ascribed to such term in Section 4.11(b).
“
Subsidiary
” means any subsidiary of the Company as set forth on
Schedule 3.1(a)
and shall, where applicable, also include any direct or indirect subsidiary of the Company formed or acquired after the date hereof.
“
Trading Day
” means a day on which the principal Trading Market is open for trading.
“
Trading Market
” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, OTCQB, OTCQX or “Pink Sheets” published by OTC Markets Group, Inc. (or any successors to any of the foregoing).
“
Transaction Documents
” means this Agreement, the Warrants, the Lock-Up Agreement, the Registration Rights Agreement, all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated hereunder.
“
Transfer Agent
” means Island Stock Transfer, the current transfer agent of the Company, with a mailing address of 15500 Roosevelt Boulevard, Suite 301, Clearwater, Florida 33760 and a facsimile number of (727) 289-0069, and any successor transfer agent of the Company.
“
Variable Rate Transaction
” shall have the meaning ascribed to such term in Section 4.12(b).
“
VWAP
” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in the “Pink Sheets” published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.
“
Warrants
” means, collectively, the Common Stock purchase warrants delivered to the Purchasers at the Closing in accordance with Section 2.2(a) hereof, which Warrants shall be exercisable immediately and have a term of exercise equal to five (5) years, in the form of
Exhibit C
attached hereto.
“
Warrant Shares
” means the shares of Common Stock issuable upon exercise of the Warrants.
ARTICLE II.
PURCHASE AND SALE
2.1
Closings
.
(a)
First Closing
. On the First Closing Date, upon the terms and subject to the conditions set forth herein, substantially concurrent with the execution and delivery of this Agreement by the parties hereto, the Company agrees to sell, and the Purchasers, severally and not jointly, agree to purchase, up to an aggregate of $250,000 of Shares and Warrants. Each Purchaser shall deliver to the Company, via wire transfer or a certified check, immediately available funds equal to such Purchaser’s Subscription Amount as set forth on the signature page hereto executed by such Purchaser, and the Company shall deliver to each Purchaser its respective Shares and a Warrant, as determined pursuant to Section 2.2(a), and the Company and each Purchaser shall deliver the other items set forth in Section 2.2 deliverable at the Closing (the “
First Closing
”). Upon satisfaction of the covenants and conditions set forth in Sections 2.2 and 2.3, the First Closing shall occur at the offices of EGS or such other location as the parties shall mutually agree. In connection with one or more Closings, the Company acknowledges and agrees that SEG (as defined in Section 5.2) or another Purchaser hereunder may deliver all or a portion of its applicable Subscription Amount (and accordingly reduce the applicable Subscription Amount payable to the Company at the applicable Closing) to the Company Auditor for the payment of fees and expenses in connection with Audit for each of Company’s fiscal years ended December 31, 2015 and December 31, 2016 as contemplated by clause (i) of Section 4.7 herein.
(b)
Second Closing
. On the Second Closing Date, upon the terms and conditions set forth herein, the Company agrees to sell, and the Purchasers, severally and not jointly, agree to purchase, up to an aggregate of $250,000 of Shares and Warrants which closing shall occur on, or as soon as reasonably practicable following, and in any event within 5 Trading days of, the date on which on which (i) the Audit for the Company’s fiscal years ended December 31, 2015 and December 31, 2016 are completed, (ii) the Common Stock is registered under Section 12(g) of the Exchange Act, (iii) the Company is current in filing of reports required by the Exchange Act and (iv) the Common Stock is quoted for trading on OTCQB (the “
Second Closing
”);
provided
,
however
, that, to the extent that a Purchaser determines, in its sole discretion, that such Purchaser (together with such Purchaser’s Affiliates, and any Person acting as a group together with such purchaser or any of such Purchaser’s Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation, such Purchaser may elect to reduce the number of Shares purchased so as to not beneficially own in excess of the Beneficial Ownership Limitation. The “
Beneficial Ownership Limitation
” shall be 9.99% of the number of shares of Common Stock outstanding immediately after giving effect to the issuance of Securities on the applicable Closing Date. Each Purchaser shall deliver to the Company, via wire transfer or a certified check, immediately available funds equal to such Purchaser’s Subscription Amount as set forth on the signature page hereto executed by such Purchaser, and the Company shall deliver to each Purchaser its respective Shares and a Warrant, as determined pursuant to Section 2.2(a), and the Company and each Purchaser shall deliver the other items set forth in Section 2.2 deliverable at the Second Closing. Upon satisfaction of the covenants and conditions set forth in Sections 2.2 and 2.3, the Second Closing shall occur at the offices of EGS or such other location as the parties shall mutually agree.
2.2
Deliveries
.
(a) On or prior to each Closing Date (except as otherwise indicated), the Company shall deliver or cause to be delivered to each Purchaser the following:
(i) as to the First Closing, this Agreement duly executed by the Company;
(ii) as to the First Closing, a legal opinion of Company Counsel, substantially in the form of
Exhibit B
attached hereto, and as to each subsequent Closing a bring-down letter reasonably satisfactory to the Purchasers;
(iii) as to each Closing, a copy of the irrevocable instructions to the Transfer Agent instructing the Transfer Agent to deliver, on an expedited basis, a certificate evidencing a number of Shares equal to such Purchaser’s Subscription Amount, as to the applicable Closing, divided by the Per Share Purchase Price, registered in the name of such Purchaser;
(iv) as to each Closing, a Warrant registered in the name of such Purchaser to purchase up to a number of shares of Common Stock equal to 100% of such Purchaser’s Shares issued on such applicable Closing, with an exercise price equal to $0.01, subject to adjustment therein;
(v) as to each Closing, the Company shall have provided each Purchaser with the Company’s wire instructions, on Company letterhead and executed by the Chief Executive Officer or Chief Financial Officer;
(vi) as to each Subsequent Closing, a bring-down of the Disclosure Schedules;
(vii) as to the First Closing, the Lock-Up Agreements;
(viii) as to each Closing, a letter from the Transfer Agent to the Purchasers certifying as to the Company’s reservation of at least 250,000,000 shares of Common Stock for issuances upon exercise of the Warrants; and
(ix) as to the First Closing, the Registration Rights Agreement duly executed by the Company.
(b) On or prior to each Closing Date, each Purchaser shall deliver or cause to be delivered to the Company the following:
(i) as to the First Closing, this Agreement duly executed by such Purchaser;
(ii) as to each Closing, such Purchaser’s Subscription Amount by wire transfer to the account specified in writing by the Company, subject to the last sentence of Section 2.1(a), as applicable; and
(iii) as to the First Closing, the Registration Rights Agreement duly executed by such Purchaser.
2.3
Closing Conditions
.
(a) The obligations of the Company hereunder in connection with the Closing are subject to the following conditions being met:
(i) the accuracy in all material respects (or, to the extent representations or warranties are qualified by materiality or Material Adverse Effect, in all respects) on the applicable Closing Date of the representations and warranties of the Purchasers contained herein (unless as of a specific date therein in which case they shall be accurate as of such date);
(ii) all obligations, covenants and agreements of each Purchaser required to be performed at or prior to the applicable Closing Date shall have been performed; and
(iii) the delivery by each Purchaser of the items set forth in Section 2.2(b) of this Agreement.
(b) The respective obligations of the Purchasers hereunder in connection with each Closing are subject to the following conditions being met:
(i) the accuracy in all material respects (or, to the extent representations or warranties are qualified by materiality or Material Adverse Effect, in all respects) when made and on the applicable Closing Date of the representations and warranties of the Company contained herein (unless as of a specific date therein in which case they shall be accurate as of such date);
(ii) all obligations, covenants and agreements of the Company required to be performed at or prior to the applicable Closing Date shall have been performed;
(iii) the delivery by the Company of the items set forth in Section 2.2(a) of this Agreement;
(iv) as to the Second Closing, (i) the Company is current in filing of reports required by the Exchange Act, (ii) the Audits for Company’s fiscal years ended December 31, 2015 and December 31, 2016 are completed and (iii) the Common Stock is quoted for trading on OTCQB;
(v) as to the Second Closing, the Company shall have acquired Bellissima Spirits LLC and BiVi Vodka LLC, on terms and conditions reasonably satisfactory to the Purchasers;
(vi) there shall have been no Material Adverse Effect with respect to the Company since the date hereof; and
(vii) from the date hereof to the Closing Date, trading in the Common Stock shall not have been suspended by the Commission or the Company’s principal Trading Market, and, at any time prior to the applicable Closing, trading in securities generally as reported by Bloomberg L.P. shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported by such service, or on any Trading Market, nor shall a banking moratorium have been declared either by the United States or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of such Purchaser, makes it impracticable or inadvisable to purchase the Securities at the Closing.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1
Representations and Warranties of the Company
. Except as set forth in the Disclosure Schedules, which Disclosure Schedules shall be deemed a part hereof and shall qualify any representation or otherwise made herein to the extent of the disclosure contained in the corresponding section of the Disclosure Schedules, the Company hereby makes the following representations and warranties to each Purchaser as of the date hereof and as of each Closing:
(a)
Subsidiaries
. All of the direct and indirect subsidiaries of the Company are set forth on
Schedule 3.1(a)
. The Company owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens, and all of the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities. If the Company has no subsidiaries, all other references to the Subsidiaries or any of them in the Transaction Documents shall be disregarded.
(b)
Organization and Qualification
. The Company and each of the Subsidiaries is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Subsidiary is in violation nor default of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in: (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, prospects or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a “
Material Adverse Effect
”) and no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.
(c)
Authorization; Enforcement
. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and each of the other Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of each of this Agreement and the other Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, the Board of Directors or the Company’s stockholders in connection herewith or therewith other than in connection with the Required Approvals. This Agreement and each other Transaction Document to which it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.
(d)
No Conflicts
. The execution, delivery and performance by the Company of this Agreement and the other Transaction Documents to which it is a party, the issuance and sale of the Securities and the consummation by it of the transactions contemplated hereby and thereby do not and will not: (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.
(e)
Filings, Consents and Approvals
. The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than: (i) the filings required pursuant to Section 4.4 of this Agreement; (ii) the filing with the Commission pursuant to the Registration Rights Agreement; (iii) the notice and/or application(s) to each applicable Trading Market for the issuance and sale of the Securities and the listing of the Shares and Warrant Shares for trading thereon in the time and manner required thereby, (iv) the filing of Form D with the Commission and such filings as are required to be made under applicable state securities laws, and (v) the filing with the Commission of a registration statement registering the Company’s Common Stock under Section 12(b) or 12(g) of the Exchange Act (collectively, the “
Required Approvals
”).
(f)
Issuance of the Securities
. The Securities are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents. The Warrant Shares, when issued in accordance with the terms of the Transaction Documents, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents. The Company has reserved from its duly authorized capital stock the maximum number of shares of Common Stock issuable pursuant to this Agreement and the Warrants.
(g)
Capitalization
. The capitalization of the Company is as set forth on
Schedule 3.1(g)
, which
Schedule 3.1(g)
shall also include the number of shares of Common Stock owned beneficially, and of record, by Affiliates of the Company as of the date hereof. Except as set forth on
Schedule 3.1(g)
, the Company has not issued any capital stock, other than pursuant to the exercise of employee stock options under the Company’s stock option plans, the issuance of shares of Common Stock to employees pursuant to the Company’s employee stock purchase plans and pursuant to the conversion and/or exercise of Common Stock Equivalents outstanding as of the date of the most recent annual financial statement. No Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. Except as a result of the purchase and sale of the Securities or as set forth on
Schedule 3.1(g)
, there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire any shares of Common Stock or the capital stock of any Subsidiary, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents or capital stock of any Subsidiary. The issuance and sale of the Securities will not obligate the Company or any Subsidiary to issue shares of Common Stock or other securities to any Person (other than the Purchasers) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under any of such securities. There are no outstanding securities or instruments of the Company or any Subsidiary that contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to redeem a security of the Company or such Subsidiary. The Company does not have any stock appreciation rights or “phantom stock” plans or any similar plan or agreement. All of the outstanding shares of capital stock of the Company are duly authorized, validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. No further approval or authorization of any stockholder, the Board of Directors or others is required for the issuance and sale of the Securities. There are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders.
(h)
SEC Reports; Financial Statements
. Attached hereto as
Schedule 3.1(h)
are the annual financial statements of the Company for the past three fiscal years. The Company has never been an issuer subject to Rule 144(i) under the Securities Act. The financial statements of the Company on
Schedule 3.1(h)
comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved (“
GAAP
”), except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments. Following the Public Company Date, as of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading and the Company has filed the SEC Reports on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension.
(i)
Material Changes; Undisclosed Events, Liabilities or Developments
. Except as set forth on
Schedule 3.1(i)
, since the date of the latest annual financial statement on
Schedule 3.1(h)
: (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP, (iii) the Company has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock option plans. Following the Public Company date, except for the issuance of the Securities contemplated by this Agreement, no event, liability, fact, circumstance, occurrence or development has occurred or exists, or is reasonably expected to occur or exist, with respect to the Company or its Subsidiaries or their respective businesses, properties, operations, assets or financial condition, that would be required to be disclosed by the Company under applicable securities laws at the time this representation is made or deemed made that has not been publicly disclosed at least 1 Trading Day prior to the date that this representation is made
(j)
Litigation
. There is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “
Action
”) which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty. There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company.
(k)
Labor Relations
. No labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company, which could reasonably be expected to result in a Material Adverse Effect. None of the Company’s or its Subsidiaries’ employees is a member of a union that relates to such employee’s relationship with the Company or such Subsidiary, and neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe that their relationships with their employees are good. To the knowledge of the Company, no executive officer of the Company or any Subsidiary is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant in favor of any third party, and the continued employment of each such executive officer does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters. The Company and its Subsidiaries are in compliance with all U.S. federal, state, local and foreign laws and regulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(l)
Compliance
. Neither the Company nor any Subsidiary: (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any judgment, decree, or order of any court, arbitrator or other governmental authority or (iii) is or has been in violation of any statute, rule, ordinance or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws relating to taxes, environmental protection, occupational health and safety, product quality and safety and employment and labor matters, except in each case as could not have or reasonably be expected to result in a Material Adverse Effect.
(m)
Environmental Laws
. The Company and its Subsidiaries (i) are in compliance with all federal, state, local and foreign laws relating to pollution or protection of human health or the environment (including ambient air, surface water, groundwater, land surface or subsurface strata), including laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes (collectively, “
Hazardous Materials
”) into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands, or demand letters, injunctions, judgments, licenses, notices or notice letters, orders, permits, plans or regulations, issued, entered, promulgated or approved thereunder (“
Environmental Laws
”); (ii) have received all permits licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses; and (iii) are in compliance with all terms and conditions of any such permit, license or approval where in each clause (i), (ii) and (iii), the failure to so comply could be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect.
(n)
Regulatory Permits
. The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses, except where the failure to possess such permits could not reasonably be expected to result in a Material Adverse Effect (“
Material Permits
”), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit.
(o)
Title to Assets
. The Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them and good and marketable title in all personal property owned by them that is material to the business of the Company and the Subsidiaries, in each case free and clear of all Liens, except for (i) Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries (which Liens shall specifically include purchase money Liens) and (ii) Liens for the payment of federal, state or other taxes, for which appropriate reserves have been made therefor in accordance with GAAP and the payment of which is neither delinquent nor subject to penalties. Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases with which the Company and the Subsidiaries are in compliance.
(p)
Intellectual Property
. The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights and similar rights as necessary or required for use in connection with their respective businesses and which the failure to so have could have a Material Adverse Effect (collectively, the “
Intellectual Property Rights
”). None of, and neither the Company nor any Subsidiary has received a notice (written or otherwise) that any of, the Intellectual Property Rights has expired, terminated or been abandoned, or is expected to expire or terminate or be abandoned, within two (2) years from the date of this Agreement. Neither the Company nor any Subsidiary has received, since the date of the latest annual financial statements, a written notice of a claim or otherwise has any knowledge that the Intellectual Property Rights violate or infringe upon the rights of any Person, except as could not have or reasonably be expected to not have a Material Adverse Effect. To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights. The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties, except where failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(q)
Insurance
. The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged, including, but not limited to, directors and officers insurance coverage at least equal to the aggregate Subscription Amount. Neither the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost.
(r)
Transactions with Affiliates and Employees
. None of the officers or directors of the Company or any Subsidiary and, to the knowledge of the Company, none of the employees of the Company or any Subsidiary is presently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, providing for the borrowing of money from or lending of money to or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee, stockholder, member or partner, in each case in excess of $120,000 other than for: (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) other employee benefits, including stock option agreements under any stock option plan of the Company.
(s)
Internal Accounting Controls
. The Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that: (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
(t)
Certain Fees
. No brokerage or finder’s fees or commissions are or will be payable by the Company or any Subsidiary to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents. The Purchasers shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by the Transaction Documents.
(u)
Private Placement
. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, no registration under the Securities Act is required for the offer and sale of the Securities by the Company to the Purchasers as contemplated hereby. The issuance and sale of the Securities hereunder does not contravene the rules and regulations of the Trading Market.
(v)
Investment Company
. The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Securities, will not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended. The Company shall conduct its business in a manner so that it will not become an “investment company” subject to registration under the Investment Company Act of 1940, as amended.
(w)
Registration Rights
. Other than each of the Purchasers, no Person has any right to cause the Company to effect the registration under the Securities Act of any securities of the Company or any Subsidiary.
(x)
Maintenance Requirements; DTC
. The Company has not, in the 12 months preceding the date hereof, received notice from any Trading Market on which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Trading Market. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all applicable listing and maintenance requirements. The Common Stock is currently eligible for electronic transfer through the Depository Trust Company or another established clearing corporation and the Company is current in payment of the fees to the Depository Trust Company (or such other established clearing corporation) in connection with such electronic transfer. Following the Public Company Date, the Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act.
(y)
Application of Takeover Protections
. The Company and the Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti‑takeover provision under the Company’s certificate of incorporation (or similar charter documents) or the laws of its state of incorporation that is or could become applicable to the Purchasers as a result of the Purchasers and the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation as a result of the Company’s issuance of the Securities and the Purchasers’ ownership of the Securities.
(z)
Disclosure
. Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Company confirms that neither it nor any other Person acting on its behalf has provided any of the Purchasers or their agents or counsel with any information that it believes constitutes or might constitute material, non-public information. The Company understands and confirms that the Purchasers will rely on the foregoing representation in effecting transactions in securities of the Company. All of the disclosure furnished by or on behalf of the Company to the Purchasers regarding the Company and its Subsidiaries, their respective businesses and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, is true and correct and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. The press releases disseminated by the Company during the twelve months preceding the date of this Agreement taken as a whole do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made and when made, not misleading. The Company acknowledges and agrees that no Purchaser makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.2 hereof.
(aa)
No Integrated Offering
. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of (i) the Securities Act which would require the registration of any such securities under the Securities Act, or (ii) any applicable shareholder approval provisions of any Trading Market on which any of the securities of the Company are listed or designated.
(bb)
Solvency
. Based on the consolidated financial condition of the Company as of the Closing Date, after giving effect to the receipt by the Company of the proceeds from the sale of the Securities hereunder: (i) the fair saleable value of the Company’s assets exceeds the amount that will be required to be paid on or in respect of the Company’s existing debts and other liabilities (including known contingent liabilities) as they mature, (ii) the Company’s assets do not constitute unreasonably small capital to carry on its business as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, consolidated and projected capital requirements and capital availability thereof, and (iii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its liabilities when such amounts are required to be paid. The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt). The Company has no knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation under the bankruptcy or reorganization laws of any jurisdiction within one year from the Closing Date.
Schedule 3.1(bb)
sets forth as of the date hereof all outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the Company or any Subsidiary has commitments. For the purposes of this Agreement, “
Indebtedness
” means (x) any liabilities for borrowed money or amounts owed in excess of $10,000 (other than trade accounts payable incurred in the ordinary course of business), (y) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same are or should be reflected in the Company’s consolidated balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (z) the present value of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance with GAAP. Neither the Company nor any Subsidiary is in default with respect to any Indebtedness.
(cc)
Tax Status
. Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, the Company and its Subsidiaries each (i) has made or filed all United States federal, state and local income and all foreign income and franchise tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations and (iii) has set aside on its books provision reasonably adequate for the payment of all material taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company or of any Subsidiary know of no basis for any such claim.
(dd)
No General Solicitation
. Neither the Company nor any Person acting on behalf of the Company has offered or sold any of the Securities by any form of general solicitation or general advertising. The Company has offered the Securities for sale only to the Purchasers and certain other “accredited investors” within the meaning of Rule 501 under the Securities Act.
(ee)
Foreign Corrupt Practices.
Neither the Company nor any Subsidiary, to the knowledge of the Company or any Subsidiary, any agent or other person acting on behalf of the Company or any Subsidiary, has: (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company or any Subsidiary (or made by any person acting on its behalf of which the Company is aware) which is in violation of law or (iv) violated in any material respect any provision of FCPA.
(ff)
Accountants
. To the knowledge and belief of the Company, the Company Auditor: (i) is a registered public accounting firm as required by the Exchange Act and (ii) shall express its opinion with respect to the financial statements to be included in the Company’s Annual Report for the fiscal year ending December 31, 2017.
(gg)
No Disagreements with Accountants and Lawyers.
There are no disagreements of any kind presently existing, or reasonably anticipated by the Company to arise, between the Company and the accountants and lawyers formerly or presently employed by the Company and the Company is current with respect to any fees owed to its accountants and lawyers which could affect the Company’s ability to perform any of its obligations under any of the Transaction Documents.
(hh)
Acknowledgment Regarding Purchasers’ Purchase of Securities
. The Company acknowledges and agrees that each of the Purchasers is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated thereby. The Company further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated thereby and any advice given by any Purchaser or any of their respective representatives or agents in connection with the Transaction Documents and the transactions contemplated thereby is merely incidental to the Purchasers’ purchase of the Securities. The Company further represents to each Purchaser that the Company’s decision to enter into this Agreement and the other Transaction Documents has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives.
(ii)
Acknowledgment Regarding Purchaser’s Trading Activity.
Anything in this Agreement or elsewhere herein to the contrary notwithstanding (except for Section 4.14 hereof), it is understood and acknowledged by the Company that: (i) none of the Purchasers has been asked by the Company to agree, nor has any Purchaser agreed, to desist from purchasing or selling securities of the Company or to hold the Securities for any specified term, (ii) past or future open market or other transactions by any Purchaser, before or after the closing of this or future private placement transactions, may negatively impact the market price of the Company’s publicly-traded securities, and (iii) each Purchaser shall not be deemed to have any affiliation with or control over any arm’s length counter-party in any “derivative” transaction.
(jj)
Regulation M Compliance.
The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other securities of the Company.
(kk)
FDA
. As to each product subject to the jurisdiction of the U.S. Food and Drug Administration (“
FDA
”) under the Federal Food, Drug and Cosmetic Act, as amended, and the regulations thereunder (“
FDCA
”) that is manufactured, packaged, labeled, tested, distributed, sold, and/or marketed by the Company or any of its Subsidiaries (each such product, a “
Pharmaceutical Product
”), such Pharmaceutical Product is being manufactured, packaged, labeled, tested, distributed, sold and/or marketed by the Company in compliance with all applicable requirements under FDCA and similar laws, rules and regulations relating to registration, investigational use, premarket clearance, licensure, or application approval, good manufacturing practices, good laboratory practices, good clinical practices, product listing, quotas, labeling, advertising, record keeping and filing of reports, except where the failure to be in compliance would not have a Material Adverse Effect. There is no pending, completed or, to the Company's knowledge, threatened, action (including any lawsuit, arbitration, or legal or administrative or regulatory proceeding, charge, complaint, or investigation) against the Company or any of its Subsidiaries, and none of the Company or any of its Subsidiaries has received any notice, warning letter or other communication from the FDA or any other governmental entity, which (i) contests the premarket clearance, licensure, registration, or approval of, the uses of, the distribution of, the manufacturing or packaging of, the testing of, the sale of, or the labeling and promotion of any Pharmaceutical Product, (ii) withdraws its approval of, requests the recall, suspension, or seizure of, or withdraws or orders the withdrawal of advertising or sales promotional materials relating to, any Pharmaceutical Product, (iii) imposes a clinical hold on any clinical investigation by the Company or any of its Subsidiaries, (iv) enjoins production at any facility of the Company or any of its Subsidiaries, (v) enters or proposes to enter into a consent decree of permanent injunction with the Company or any of its Subsidiaries, or (vi) otherwise alleges any violation of any laws, rules or regulations by the Company or any of its Subsidiaries, and which, either individually or in the aggregate, would have a Material Adverse Effect. The properties, business and operations of the Company have been and are being conducted in all material respects in accordance with all applicable laws, rules and regulations of the FDA. The Company has not been informed by the FDA that the FDA will prohibit the marketing, sale, license or use in the United States of any product proposed to be developed, produced or marketed by the Company nor has the FDA expressed any concern as to approving or clearing for marketing any product being developed or proposed to be developed by the Company.
(ll) [RESERVED]
(mm)
Stock Option Plans
. Each stock option granted by the Company under the Company’s stock option plan was granted (i) in accordance with the terms of the Company’s stock option plan and (ii) with an exercise price at least equal to the fair market value of the Common Stock on the date such stock option would be considered granted under GAAP and applicable law. No stock option granted under the Company’s stock option plan has been backdated. The Company has not knowingly granted, and there is no and has been no Company policy or practice to knowingly grant, stock options prior to, or otherwise knowingly coordinate the grant of stock options with, the release or other public announcement of material information regarding the Company or its Subsidiaries or their financial results or prospects.
(nn)
Office of Foreign Assets Control
. Neither the Company nor any Subsidiary nor, to the Company's knowledge, any director, officer, agent, employee or affiliate of the Company or any Subsidiary is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“
OFAC
”).
(oo)
U.S. Real Property Holding Corporation
. The Company is not and has never been a U.S. real property holding corporation within the meaning of Section 897 of the Internal Revenue Code of 1986, as amended, and the Company shall so certify upon Purchaser’s request.
(pp)
Bank Holding Company Act
. Neither the Company nor any of its Subsidiaries or Affiliates is subject to the Bank Holding Company Act of 1956, as amended (the “
BHCA
”) and to regulation by the Board of Governors of the Federal Reserve System (the “
Federal Reserve
”). Neither the Company nor any of its Subsidiaries or Affiliates owns or controls, directly or indirectly, five percent (5%) or more of the outstanding shares of any class of voting securities or twenty-five percent or more of the total equity of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve. Neither the Company nor any of its Subsidiaries or Affiliates exercises a controlling influence over the management or policies of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve.
(qq)
Money Laundering
. The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance with applicable financial record-keeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, applicable money laundering statutes and applicable rules and regulations thereunder (collectively, the “
Money Laundering Laws
”), and no Action or Proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any Subsidiary with respect to the Money Laundering Laws is pending or, to the knowledge of the Company or any Subsidiary, threatened.
(rr)
No Disqualification Events
. With respect to the Securities to be offered and sold hereunder in reliance on Rule 506 under the Securities Act, none of the Company, any of its predecessors, any affiliated issuer, any director, executive officer, other officer of the Company participating in the offering hereunder, any beneficial owner of 20% or more of the Company’s outstanding voting equity securities, calculated on the basis of voting power, nor any promoter (as that term is defined in Rule 405 under the Securities Act) connected with the Company in any capacity at the time of sale (each, an “
Issuer Covered Person
” and, together, “
Issuer Covered Persons
”) is subject to any of the "Bad Actor" disqualifications described in Rule 506(d)(1)(i) to (viii) under the Securities Act (a “
Disqualification Event
”), except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). The Company has exercised reasonable care to determine whether any Issuer Covered Person is subject to a Disqualification Event. The Company has complied, to the extent applicable, with its disclosure obligations under Rule 506(e), and has furnished to the Purchasers a copy of any disclosures provided thereunder.
(ss)
Other Covered Persons
. The Company is not aware of any person (other than any Issuer Covered Person) that has been or will be paid (directly or indirectly) remuneration for solicitation of purchasers in connection with the sale of any Securities.
(tt)
Notice of Disqualification Events
. The Company will notify the Purchasers in writing, prior to the Closing Date of (i) any Disqualification Event relating to any Issuer Covered Person and (ii) any event that would, with the passage of time, become a Disqualification Event relating to any Issuer Covered Person.
3.2
Representations and Warranties of the Purchasers
. Each Purchaser, for itself and for no other Purchaser, hereby represents and warrants as of the date hereof and as of each Closing Date to the Company as follows (unless as of a specific date therein, in which case they shall be accurate as of such date):
(a)
Organization; Authority
. Such Purchaser is either an individual or an entity duly incorporated or formed, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation with full right, corporate, partnership, limited liability company or similar power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of the Transaction Documents and performance by such Purchaser of the transactions contemplated by the Transaction Documents have been duly authorized by all necessary corporate, partnership, limited liability company or similar action, as applicable, on the part of such Purchaser. Each Transaction Document to which it is a party has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.
(b)
Own Account
. Such Purchaser understands that the Securities are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own account and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Securities in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Securities in violation of the Securities Act or any applicable state securities law (this representation and warranty not limiting such Purchaser’s right to sell the Securities pursuant to the Registration Statement or otherwise in compliance with applicable federal and state securities laws). Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business.
(c)
Purchaser Status
. At the time such Purchaser was offered the Securities, it was, and as of the date hereof it is, and on each date on which it exercises any Warrants, it will be, an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act.
(d)
Experience of Such Purchaser
. Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.
(e)
General Solicitation
. Such Purchaser is not, to such Purchaser’s knowledge, purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.
(f)
Regulation M Compliance.
During any time where a Registration Statement for the Securities has been filed or is effective, Purchaser has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other securities of the Company.
The Company acknowledges and agrees that the representations contained in this Section 3.2 shall not modify, amend or affect such Purchaser’s right to rely on the Company’s representations and warranties contained in this Agreement or any representations and warranties contained in any other Transaction Document or any other document or instrument executed and/or delivered in connection with this Agreement or the consummation of the transactions contemplated hereby.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1
Transfer Restrictions
.
(a) The Securities may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of Securities other than pursuant to an effective registration statement or Rule 144, to the Company or to an Affiliate of a Purchaser or in connection with a pledge as contemplated in Section 4.1(b), the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act. As a condition of transfer, any such transferee shall agree in writing to be bound by the terms of this Agreement and the Registration Rights Agreement and shall have the rights and obligations of a Purchaser under this Agreement and the Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is required by this Section 4.1, of a legend on any of the Securities in the following form:
THIS SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.
The Company acknowledges and agrees that a Purchaser may from time to time pledge or grant a security interest in some or all of the Securities to a financial institution that is an “accredited investor” as defined in Rule 501(a) under the Securities Act and, if required under the terms of such arrangement, such Purchaser may transfer pledged or secured Securities to the pledgees or secured parties. Such a pledge or transfer would not be subject to approval of the Company and no legal opinion of legal counsel of the pledgee, secured party or pledgor shall be required in connection therewith. Further, no notice shall be required of such pledge. At the appropriate Purchaser’s expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Securities may reasonably request in connection with a pledge or transfer of the Securities, including, if the Securities are subject to registration pursuant to the Registration Rights Agreement, the preparation and filing of any required prospectus supplement under Rule 424(b)(3) under the Securities Act or other applicable provision of the Securities Act to appropriately amend the list of Selling Stockholders (as defined in the Registration Rights Agreement) thereunder.
(c) Certificates evidencing the Shares and Warrant Shares shall not contain any legend (including the legend set forth in Section 4.1(b) hereof), (i) while a registration statement (including the Registration Statement) covering the resale of such security is effective under the Securities Act, (ii) following any sale of such Shares or Warrant Shares pursuant to Rule 144, (iii) if such Shares or Warrant Shares are eligible for sale under Rule 144, or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission). The Company shall cause its counsel to issue a legal opinion to the Transfer Agent promptly after the Effective Date or at such time as such legend is no longer under this Section 4.1(c), if required by the Transfer Agent or requested by a Purchaser to effect the removal of the legend hereunder. If all or any portion of a Warrant is exercised at a time when there is an effective registration statement to cover the resale of the Warrant Shares, or if such Shares or Warrant Shares may be sold under Rule 144 and the Company is then in compliance with the current public information required under Rule 144, or if the Shares or Warrant Shares may be sold under Rule 144 without the requirement for the Company to be in compliance with the current public information required under Rule 144 as to such Shares or Warrant Shares or if such legend is not otherwise required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission) then such Warrant Shares shall be issued free of all legends. The Company agrees that following the Effective Date or at such time as such legend is no longer required under this Section 4.1(c), it will, no later than the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined below) following the delivery by a Purchaser to the Company or the Transfer Agent of a certificate representing Shares or Warrant Shares, as the case may be, issued with a restrictive legend (such second Trading Day, the “
Legend Removal Date
”), deliver or cause to be delivered to such Purchaser a certificate representing such shares that is free from all restrictive and other legends. The Company may not make any notation on its records or give instructions to the Transfer Agent that enlarge the restrictions on transfer set forth in this Section 4. Certificates for Securities subject to legend removal hereunder shall be transmitted by the Transfer Agent to the Purchaser by crediting the account of the Purchaser’s prime broker with the Depository Trust Company System as directed by such Purchaser. As used herein, “
Standard Settlement Period
” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Common Stock as in effect on the date of delivery of a certificate representing Shares or Warrants Shares, as the case may be, issued with a restrictive legend.
(d) From and after the Public Company Date, in addition to such Purchaser’s other available remedies, the Company shall pay to a Purchaser, in cash, (i) as partial liquidated damages and not as a penalty, for each $1,000 of Underlying Shares (based on the VWAP of the Common Stock on the date such Securities are submitted to the Transfer Agent) delivered for removal of the restrictive legend and subject to Section 4.1(c), $10 per Trading Day (increasing to $20 per Trading Day five (5) Trading Days after such damages have begun to accrue) for each Trading Day after the Legend Removal Date until such certificate is delivered without a legend and (ii) if the Company fails to (a) issue and deliver (or cause to be delivered) to a Purchaser by the Legend Removal Date a certificate representing the Securities so delivered to the Company by such Purchaser that is free from all restrictive and other legends and (b) if after the Legend Removal Date such Purchaser purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by such Purchaser of all or any portion of the number of shares of Common Stock, or a sale of a number of shares of Common Stock equal to all or any portion of the number of shares of Common Stock that such Purchaser anticipated receiving from the Company without any restrictive legend, then, an amount equal to the excess of such Purchaser’s total purchase price (including brokerage commissions and other out-of-pocket expenses, if any) for the shares of Common Stock so purchased (including brokerage commissions and other out-of-pocket expenses, if any) (the “
Buy-In Price
”) over the product of (A) such number of Underlying Shares that the Company was required to deliver to such Purchaser by the Legend Removal Date multiplied by (B) the lowest closing sale price of the Common Stock on any Trading Day during the period commencing on the date of the delivery by such Purchaser to the Company of the applicable Underlying Shares (as the case may be) and ending on the date of such delivery and payment under this clause (ii). Nothing herein shall limit such Purchaser’s right to pursue actual damages for the Company’s failure to deliver certificates representing the Securities as required by the Transaction Documents and such Purchaser shall have the right to pursue all remedies available to it at low or in equity, including, without limitation, a decree of specific performance and/or injunctive relief.
(e) Each Purchaser, severally and not jointly with the other Purchasers, agrees with the Company that such Purchaser will sell any Securities pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemption therefrom, and that if Securities are sold pursuant to a Registration Statement, they will be sold in compliance with the plan of distribution set forth therein, and acknowledges that the removal of the restrictive legend from certificates representing Securities as set forth in this Section 4.1 is predicated upon the Company’s reliance upon this understanding.
4.2
Furnishing of Information; Public Information
.
(a) If the Common Stock is not registered under Section 12(b) or 12(g) of the Exchange Act on the date hereof, the Company agrees to cause the Common Stock to be registered under Section 12(g) of the Exchange Act on or prior to the earlier of (i) one hundred and fifty (150) days following the date hereof and (ii) the Second Closing Date. Following the Public Company Date, until the earliest of the time that (i) no Purchaser owns Securities or (ii) the Warrants have expired, the Company covenants to maintain the registration of the Common Stock under Section 12(b) or 12(g) of the Exchange Act and to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company pursuant to the Exchange Act, provided that, if after becoming subject to the Exchange Act, the Company is thereafter no longer required to file reports pursuant to the Exchange Act, the Company will, for as long as any Purchaser owns Securities, prepare and furnish to the Purchasers and make publicly available in accordance with Rule 144(c) such information as is required for the Purchasers to sell the Securities, including without limitation, under Rule 144. The Company further covenants that it will take such further action as any holder of Securities may reasonably request, to the extent required from time to time to enable such Person to sell such Securities without registration under the Securities Act, including, without limitation, within the requirements of the exemption provided by Rule 144.
(b) At any time during the period commencing from the six (6) month anniversary of the date hereof and ending at such time that all of the Securities may be sold without the requirement for the Company to be in compliance with Rule 144(c)(1) and otherwise without restriction or limitation pursuant to Rule 144, if the Company (i) shall fail for any reason to satisfy the current public information requirement under Rule 144(c) or (ii) has ever been an issuer described in Rule 144(i)(1)(i) or becomes an issuer in the future, and the Company shall fail to satisfy any condition set forth in Rule 144(i)(2) (a “
Public Information Failure
”) then, in addition to such Purchaser’s other available remedies, the Company shall pay to a Purchaser, in cash, as partial liquidated damages and not as a penalty, by reason of any such delay in or reduction of its ability to sell the Securities, an amount in cash equal to one percent (1.0%) of the aggregate Subscription Amount of such Purchaser’s Securities on the day of a Public Information Failure and on every thirtieth (30
th
) day (pro rated for periods totaling less than thirty days) thereafter until the earlier of (a) the date such Public Information Failure is cured and (b) such time that such public information is no longer required for the Purchasers to transfer the Shares and Warrant Shares pursuant to Rule 144. The payments to which a Purchaser shall be entitled pursuant to this Section 4.2(b) are referred to herein as “
Public Information Failure Payments
.” Public Information Failure Payments shall be paid on the earlier of (i) the last day of the calendar month during which such Public Information Failure Payments are incurred and (ii) the third (3
rd
) Business Day after the event or failure giving rise to the Public Information Failure Payments is cured. In the event the Company fails to make Public Information Failure Payments in a timely manner, such Public Information Failure Payments shall bear interest at the rate of 1.5% per month (prorated for partial months) until paid in full. Nothing herein shall limit such Purchaser’s right to pursue actual damages for the Public Information Failure, and such Purchaser shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.
4.3
Integration
. The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market such that it would require shareholder approval prior to the closing of such other transaction unless shareholder approval is obtained before the closing of such subsequent transaction.
4.4
Securities Laws Disclosure; Publicity
. From and after the Public Company Date, the Company acknowledges and agrees that (i) all material, non-public information delivered to any of the Purchasers by the Company or any of its Subsidiaries, or any of their respective officers, directors, employees or agents in connection with the transactions contemplated by the Transaction Documents shall have been publicly disclosed and (ii) any and all confidentiality or similar obligations under any agreement, whether written or oral, between the Company, any of its Subsidiaries or any of their respective officers, directors, agents, employees or Affiliates on the one hand, and any of the Purchasers or any of their Affiliates on the other hand, shall terminate. From and after the Public Company Date, upon a Closing hereunder, the Company shall promptly issue a press release disclosing the material terms of such closing and shall filed a Current Report on Form 8-K as required by the Exchange Act. From and after the Public Company Date, the Company shall not publicly disclose the name of any Purchaser in any press release, or include the name of any Purchaser in any filing with the Commission or any regulatory agency or Trading Market, without the prior written consent of such Purchaser, except: (a) as required by federal securities law in connection with any registration statement contemplated by the Registration Rights Agreement or the Company’s reporting requirements under the Exchange Act and (b) to the extent such disclosure is required by law or Trading Market regulations, in which case the Company shall provide the Purchasers with prior notice of such disclosure permitted under this clause (b).
4.5
Shareholder Rights Plan
. No claim will be made or enforced by the Company or, with the consent of the Company, any other Person, that any Purchaser is an “Acquiring Person” under any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter adopted by the Company, or that any Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities under the Transaction Documents or under any other agreement between the Company and the Purchasers.
4.6
Non-Public Information
. From and after the Public Company Date, the Company covenants and agrees that neither it, nor any other Person acting on its behalf will provide any Purchaser or its agents or counsel with any information that constitutes, or the Company reasonably believes constitutes, material non-public information, unless prior thereto such Purchaser shall have consented to the receipt of such information and agreed with the Company to keep such information confidential. On or prior to the Public Company Date, the Company agrees to publicly disclose any and all material non-public information provided to the Purchasers. The Company understands and confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company. To the extent that the Company delivers any material, non-public information to a Purchaser without such Purchaser’s consent, the Company hereby covenants and agrees that such Purchaser shall not have any duty of confidentiality to Company, any of its Subsidiaries, or any of their respective officers, directors, agents, employees or Affiliates, or a duty to the Company, and of its Subsidiaries or any of their respective officers, directors, agents, employees or Affiliates not to trade on the basis of, such material, non-public information, provided that the Purchaser shall remain subject to applicable law. To the extent that any notice provided pursuant to any Transaction Document constitutes, or contains, material, non-public information regarding the Company or any Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Company understands and confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company.
4.7
Use of Proceeds
. Except as set forth on Schedule 4.7 attached hereto, the Company shall use the net proceeds from the sale of the Securities hereunder for (i) payment of fees and expenses related to the Audit for each of Company’s fiscal years ended December 31, 2015 and December 31, 2016, (ii) payment of fees and expenses in connection with quotation of Common Stock on OTCQB and (iii) working capital purposes and shall not use such proceeds: (a) for the satisfaction of any portion of the Company’s debt (other than payment of trade payables in the ordinary course of the Company’s business and prior practices), (b) for the redemption of any Common Stock or Common Stock Equivalents, (c) for the settlement of any outstanding litigation or (d) in violation of FCPA or OFAC regulations.
4.8
Indemnification of Purchasers
. Subject to the provisions of this Section 4.8, the Company will indemnify and hold each Purchaser and its directors, officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls such Purchaser (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling persons (each, a “Purchaser Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted against the Purchaser Parties in any capacity, or any of them or their respective Affiliates, by any stockholder of the Company who is not an Affiliate of such Purchaser Party, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is based upon a breach of such Purchaser Party’s representations, warranties or covenants under the Transaction Documents or any agreements or understandings such Purchaser Party may have with any such stockholder or any violations by such Purchaser Party of state or federal securities laws or any conduct by such Purchaser Party which constitutes fraud, gross negligence, willful misconduct or malfeasance). If any action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time to assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of counsel, a material conflict on any material issue between the position of the Company and the position of such Purchaser Party, in which case the Company shall be responsible for the reasonable fees and expenses of no more than one such separate counsel. The Company will not be liable to any Purchaser Party under this Agreement (y) for any settlement by a Purchaser Party effected without the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (z) to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any Purchaser Party’s breach of any of the representations, warranties, covenants or agreements made by such Purchaser Party in this Agreement or in the other Transaction Documents. The indemnification required by this Section 4.8 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or are incurred. The indemnity agreements contained herein shall be in addition to any cause of action or similar right of any Purchaser Party against the Company or others and any liabilities the Company may be subject to pursuant to law.
4.9
Reservation of Common Stock
. As of the date hereof, the Company has reserved and the Company shall continue to reserve and keep available at all times, free of preemptive rights, a number of shares of Common Stock that is sufficient for the purpose of enabling the Company to issue Shares pursuant to this Agreement and Warrant Shares pursuant to any exercise of the Warrants, but in no event less than 250,000,000 shares of Common Stock at any time which shall be reserved for issuance to the Purchasers pro rata based on each Purchaser’s respective Subscription Amount.
4.10
Listing of Common Stock
. The Company hereby agrees to use best efforts to maintain the listing or quotation of the Common Stock on the Trading Market on which it is currently listed, and concurrently with the Closing, the Company shall apply to list or quote all of the Shares and Warrant Shares on such Trading Market and promptly secure the listing of all of the Shares and Warrant Shares on such Trading Market. The Company further agrees, if the Company applies to have the Common Stock traded on any other Trading Market, it will then include in such application all of the Shares and Warrant Shares, and will take such other action as is necessary to cause all of the Shares and Warrant Shares to be listed or quoted on such other Trading Market as promptly as possible. The Company will then take all action reasonably necessary to continue the listing or quotation and trading of its Common Stock on a Trading Market and will comply in all respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the Trading Market. The Company agrees to maintain the eligibility of the Common Stock for electronic transfer through the Depository Trust Company or another established clearing corporation, including, without limitation, by timely payment of fees to the Depository Trust Company or such other established clearing corporation in connection with such electronic transfer.
4.11
Participation in Future Financing
.
(a) From the date hereof until the date that is the eighteen (18) month anniversary of Effective Date, upon any issuance by the Company or any of its Subsidiaries of Common Stock, Common Stock Equivalents for cash consideration, Indebtedness or a combination of units thereof (a “
Subsequent Financing
”), each Purchaser shall have the right to participate in up to an amount of the Subsequent Financing equal to 50% of the Subsequent Financing (the “
Participation Maximum
”) on the same terms, conditions and price provided for in the Subsequent Financing.
(b) At least five (5) Trading Days prior to the closing of the Subsequent Financing, the Company shall deliver to each Purchaser a written notice of its intention to effect a Subsequent Financing (“
Pre-Notice
”), which Pre-Notice shall ask such Purchaser if it wants to review the details of such financing (such additional notice, a “
Subsequent Financing Notice
”). Upon the request of a Purchaser, and only upon a request by such Purchaser, for a Subsequent Financing Notice, the Company shall promptly, but no later than one (1) Trading Day after such request, deliver a Subsequent Financing Notice to such Purchaser. The Subsequent Financing Notice shall describe in reasonable detail the proposed terms of such Subsequent Financing, the amount of proceeds intended to be raised thereunder and the Person or Persons through or with whom such Subsequent Financing is proposed to be effected and shall include a term sheet or similar document relating thereto as an attachment.
(c) Any Purchaser desiring to participate in such Subsequent Financing must provide written notice to the Company by not later than 5:30 p.m. (New York City time) on the fifth (5
th
) Trading Day after all of the Purchasers have received the Pre-Notice that such Purchaser is willing to participate in the Subsequent Financing, the amount of such Purchaser’s participation, and representing and warranting that such Purchaser has such funds ready, willing, and available for investment on the terms set forth in the Subsequent Financing Notice. If the Company receives no such notice from a Purchaser as of such fifth (5
th
) Trading Day, such Purchaser shall be deemed to have notified the Company that it does not elect to participate.
(d) If by 5:30 p.m. (New York City time) on the fifth (5
th
) Trading Day after all of the Purchasers have received the Pre-Notice, notifications by the Purchasers of their willingness to participate in the Subsequent Financing (or to cause their designees to participate) is, in the aggregate, less than the total amount of the Subsequent Financing, then the Company may effect the remaining portion of such Subsequent Financing on the terms and with the Persons set forth in the Subsequent Financing Notice.
(e) If by 5:30 p.m. (New York City time) on the fifth (5
th
) Trading Day after all of the Purchasers have received the Pre-Notice, the Company receives responses to a Subsequent Financing Notice from Purchasers seeking to purchase more than the aggregate amount of the Participation Maximum, each such Purchaser shall have the right to purchase its Pro Rata Portion (as defined below) of the Participation Maximum. “
Pro Rata Portion
” means the ratio of (x) the Subscription Amount of Securities purchased on the Closing Date by a Purchaser participating under this Section 4.11 and (y) the sum of the aggregate Subscription Amounts of Securities purchased on the Closing Date by all Purchasers participating under this Section 4.11.
(f) The Company must provide the Purchasers with a second Subsequent Financing Notice, and the Purchasers will again have the right of participation set forth above in this Section 4.11, if the Subsequent Financing subject to the initial Subsequent Financing Notice is not consummated for any reason on the terms set forth in such Subsequent Financing Notice within thirty (30) Trading Days after the date of the initial Subsequent Financing Notice.
(g) The Company and each Purchaser agree that if any Purchaser elects to participate in the Subsequent Financing, the transaction documents related to the Subsequent Financing shall not include any term or provision whereby such Purchaser shall be required to agree to any restrictions on trading as to any of the Securities purchased hereunder or be required to consent to any amendment to or termination of, or grant any waiver, release or the like under or in connection with, this Agreement, without the prior written consent of such Purchaser.
(h) Notwithstanding anything to the contrary in this Section 4.11 and unless otherwise agreed to by such Purchaser, the Company shall either confirm in writing to such Purchaser that the transaction with respect to the Subsequent Financing has been abandoned or shall publicly disclose its intention to issue the securities in the Subsequent Financing, in either case in such a manner such that such Purchaser will not be in possession of any material, non-public information, by the tenth (10
th
) Business Day following delivery of the Subsequent Financing Notice. If by such tenth (10
th
) Business Day, no public disclosure regarding a transaction with respect to the Subsequent Financing has been made, and no notice regarding the abandonment of such transaction has been received by such Purchaser, such transaction shall be deemed to have been abandoned and such Purchaser shall not be deemed to be in possession of any material, non-public information with respect to the Company or any of its Subsidiaries.
(i) Notwithstanding the foregoing, this Section 4.11 shall not apply in respect of an Exempt Issuance or a firm commitment underwritten offering of Common Stock or Common Stock Equivalents.
4.12
Subsequent Equity Sales
.
(a) From the date hereof until the date that is six (6) months following the Effective Date, neither the Company nor any Subsidiary shall issue, enter into any agreement to issue or announce the issuance or proposed issuance of any shares of Common Stock or Common Stock Equivalents.
(b) From the date hereof until such time as no Purchaser holds any of the Warrants, the Company shall be prohibited from incurring any Indebtedness or effecting or entering into an agreement to effect any issuance by the Company or any of its Subsidiaries of Common Stock or Common Stock Equivalents (or a combination of units thereof) involving a Variable Rate Transaction. “
Variable Rate Transaction
” means a transaction in which the Company (i) issues or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive, additional shares of Common Stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon, and/or varies with, the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity securities or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock or (ii) enters into, or effects a transaction under, any agreement, but not limited to, an equity line of credit or at-the-market offering, whereby the Company may issue securities at a future determined price. Any Purchaser shall be entitled to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall be in addition to any right to collect damages.
(c) Notwithstanding the foregoing, this Section 4.12 shall not apply in respect of an Exempt Issuance, except that no Variable Rate Transaction shall be an Exempt Issuance. For purposes of clarity, any issuance of Warrant Shares pursuant to the Warrant shall not be a Variable Rate Transaction.
4.13
Equal Treatment of Purchasers
. No consideration (including any modification of any Transaction Document) shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of the Transaction Documents unless the same consideration is also offered to all of the parties to the Transaction Documents. For clarification purposes, this provision constitutes a separate right granted to each Purchaser by the Company and negotiated separately by each Purchaser, and is intended for the Company to treat the Purchasers as a class and shall not in any way be construed as the Purchasers acting in concert or as a group with respect to the purchase, disposition or voting of Securities or otherwise.
4.14
Company Acknowledgement on Certain Transactions
. The Company expressly acknowledges and agrees that (i) no Purchaser makes any representation, warranty or covenant hereby that it will not engage in effecting transactions in any securities of the Company following the Public Company Date, (ii) no Purchaser shall be restricted or prohibited from effecting any transactions in any securities of the Company in accordance with applicable securities laws from and after the Public Company Date and (iii) no Purchaser shall have any duty of confidentiality or duty not to trade in the securities of the Company to the Company or its Subsidiaries from and after the Public Company Date. Notwithstanding anything herein to the contrary, each Purchaser agrees, severally and not jointly with any other Purchaser, that such Purchaser will not enter into any Short Sales from the period commencing on the Closing Date and ending on the date that such Purchaser no longer holds any Securities.
4.15
Form D; Blue Sky Filings
. The Company agrees to timely file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof, promptly upon request of any Purchaser. The Company shall take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for, or to qualify the Securities for, sale to the Purchasers at the Closing under applicable securities or “Blue Sky” laws of the states of the United States, and shall provide evidence of such actions promptly upon request of any Purchaser.
4.16 [RESERVED]
4.17
Acknowledgment of Dilution
. The Company acknowledges that the issuance of the Securities may result in dilution of the outstanding shares of Common Stock, which dilution may be substantial under certain market conditions. The Company further acknowledges that its obligations under the Transaction Documents, including, without limitation, its obligation to issue the Shares and Warrant Shares pursuant to the Transaction Documents, are unconditional and absolute and not subject to any right of set off, counterclaim, delay or reduction, regardless of the effect of any such dilution or any claim the Company may have against any Purchaser and regardless of the dilutive effect that such issuance may have on the ownership of the other stockholders of the Company.
4.18
Most Favored Nation Provision
. From the date hereof until the date that is the 18-month anniversary of Effective Date, to the extent a Purchaser still holds Shares, such Purchaser may elect, in its sole discretion, to exchange all or some of the Shares (but not the Warrants) then held by such Purchaser for additional securities (including any additional securities issued as part of a unit with such security) of the same type issued in such Subsequent Financing (such exchange to be made at the same time as the closing of such Subsequent Financing), on the same terms and conditions as the Subsequent Financing, based on the Per Share Purchase Price multiplied by the number of Shares being exchanged. By way of example, if the Company undertakes a Subsequent Financing of convertible debentures and warrants, each Purchaser shall have the right to participate in such Subsequent Financing and use the exchange of its Shares as consideration, on a $1 for $1 basis, in lieu of cash consideration. The Company shall provide prior written notice of any such Subsequent Financing in the manner set forth in Section 4.11. This Section 4.19(a) shall not apply in connection with a firm commitment underwritten offering of Common Stock or Common Stock Equivalents
4.19
Information Rights
. Until the Public Company Date, the Company shall deliver to each Purchaser the unaudited financial statements of the Company within forty five days following the end of each fiscal quarter and audited annual financial statements with one hundred and twenty (120) days following the end of each fiscal year. Each Purchaser shall also be entitled to customary inspection and visitation rights. These provisions shall terminate on the Public Company Date.
4.20
Piggy-Back Registrations
. If, at any time prior to the Effective Date there is not an effective Registration Statement covering all of the Shares and Warrant Shares and the Company shall determine to prepare and file with the Commission a registration statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with the Company’s stock option or other employee benefit plans, then the Company shall deliver to each Purchaser a written notice of such determination and, if within fifteen days after the date of the delivery of such notice, any such Purchaser shall so request in writing, the Company shall include in such registration statement all or any part of such Shares and Warrant Shares such Purchaser requests to be registered.
ARTICLE V.
MISCELLANEOUS
5.1
Termination
. This Agreement may be terminated by any Purchaser, as to such Purchaser’s obligations hereunder only and without any effect whatsoever on the obligations between the Company and the other Purchasers, by written notice to the other parties, if the First Closing has not been consummated on or before October ____, 2017; provided, however, that such termination will not affect the right of any party to sue for any breach by any other party (or parties).
5.2
Fees and Expenses
. At the First Closing, the Company shall reimburse the Special Equities Group, LLC or a designee thereof (“SEG”) the non-accountable sum of $25,000 for its legal fees and expenses. In lieu of foregoing reimbursement, the Subscription Amount to be paid by SEG or its designee at the First Closing may be reduced by $25,000. The Company shall deliver to each Purchaser, prior to the applicable Closing, a completed and executed copy of the Closing Statement, attached hereto as Annex A. Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all Transfer Agent fees (including, without limitation, any fees required for same-day processing of any instruction letter delivered by the Company and any exercise notice delivered by a Purchaser), stamp taxes and other taxes and duties levied in connection with the delivery of any Securities to the Purchasers.
5.3
Entire Agreement
. The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.
5.4
Notices
. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of: (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number or email attachment at the email address as set forth on the signature pages attached hereto at or prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number or email attachment at the email address as set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second (2
nd
) Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as set forth on the signature pages attached hereto. Following the Public Company Date, to the extent that any notice provided pursuant to any Transaction Document constitutes, or contains material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K.
5.5
Amendments; Waivers
. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Company and Purchasers which purchased at least 50.1% in interest of the Shares, based on the initial Subscription Amounts hereunder or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought, provided that if any amendment, modification or waiver disproportionately and adversely impacts a Purchaser (or group of Purchasers), the consent of such disproportionately impacted Purchaser (or group of Purchasers) shall also be required. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right. Any proposed amendment or waiver that disproportionately, materially and adversely affects the rights and obligations of any Purchaser relative to the comparable rights and obligations of the other Purchasers shall require the prior written consent of such adversely affected Purchaser, Any amendment effected in accordance with this Section 5.5 shall be binding upon each Purchaser and holder of Securities and the Company.
5.6
Headings
. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.
5.7
Successors and Assigns
. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Purchaser (other than by merger). Any Purchaser may assign any or all of its rights under this Agreement to any Person to whom such Purchaser assigns or transfers any Securities, provided that such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions of the Transaction Documents that apply to the “Purchasers.”
5.8
No Third-Party Beneficiaries
. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.8.
5.9
Governing Law
. All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal Proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any Action or Proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such Action or Proceeding is improper or is an inconvenient venue for such Proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such Action or Proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. If any party hereto shall commence an Action or Proceeding to enforce any provisions of the Transaction Documents, then, in addition to the obligations of the Company under Section 4.8, the prevailing party in such Action or Proceeding shall be reimbursed by the non-prevailing party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such Action or Proceeding.
5.10
Survival
. The representations and warranties contained herein shall survive the Closing and the delivery of the Securities.
5.11
Execution
. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to each other party, it being understood that the parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.
5.12
Severability
. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.
5.13
Rescission and Withdrawal Right
. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) any of the other Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Purchaser may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights; provided, however, that, in the case of a rescission of an exercise of a Warrant, the applicable Purchaser shall be required to return any shares of Common Stock subject to any such rescinded exercise notice concurrently with the return to such Purchaser of the aggregate exercise price paid to the Company for such shares and the restoration of such Purchaser’s right to acquire such shares pursuant to such Purchaser’s Warrant (including, issuance of a replacement warrant certificate evidencing such restored right).
5.14
Replacement of Securities
. If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction. The applicant for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement Securities.
5.15
Remedies
. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Purchasers and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the Transaction Documents and hereby agree to waive and not to assert in any Action for specific performance of any such obligation the defense that a remedy at law would be adequate.
5.16
Payment Set Aside
. To the extent that the Company makes a payment or payments to any Purchaser pursuant to any Transaction Document or a Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other Person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.
5.17
Independent Nature of Purchasers’ Obligations and Rights
. The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance or non-performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained herein or in any other Transaction Document, and no action taken by any Purchaser pursuant hereof or thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents. Each Purchaser shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. Each Purchaser has been represented by its own separate legal counsel in its review and negotiation of the Transaction Documents. For reasons of administrative convenience only, each Purchaser and its respective counsel have chosen to communicate with the Company through EGS. EGS does not represent all of the Purchasers and only represents SEG. It is expressly understood and agreed that each provision contained in this Agreement and in each other Transaction Document is between Company and a Purchaser, solely, and not between the Company and the Purchasers collectively and not between and among the Purchasers. The Company has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by any of the Purchasers.
5.18
Liquidated Damages
. The Company’s obligations to pay any partial liquidated damages or other amounts owing under the Transaction Documents is a continuing obligation of the Company and shall not terminate until all unpaid partial liquidated damages and other amounts have been paid notwithstanding the fact that the instrument or security pursuant to which such partial liquidated damages or other amounts are due and payable shall have been canceled.
5.19
Saturdays, Sundays, Holidays, etc
. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.
5.20
Construction
. The parties agree that each of them and/or their respective counsel have reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments thereto. In addition, each and every reference to share prices and shares of Common Stock in any Transaction Document shall be subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement.
5.21
WAIVER OF JURY TRIAL
. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY
.
(Signature Pages Follow)
IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
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ICONIC BRANDS, INC.
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Address for Notice:
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By:
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/s/ Richard DeCicco
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Title:
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President
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Fax:
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With a copy to (which shall not constitute notice):
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Email:
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[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
[PURCHASER SIGNATURE PAGES TO ICNB SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
Name of Purchaser: ________________________________________________________
Signature of Authorized Signatory of Purchaser
: __________________________________
Name of Authorized Signatory: ____________________________________________________
Title of Authorized Signatory: _____________________________________________________
Email Address of Authorized Signatory: ______________________________________________
Facsimile Number of Authorized Signatory: _____________________________________________
Address for Notice to Purchaser:
Address for Delivery of Securities to Purchaser (if not same as address for notice):
Subscription Amount (Total): $____________, allocated to First Closing: $___________; and Second Closing: $___________.
Shares (Total): ____________, allocated to First Closing: _______; and Second Closing: _______.
Warrant Shares (Total): __________, allocated to First Closing: _______; and Second Closing: ______.
EIN Number: _______________________
[SIGNATURE PAGES CONTINUE]
Annex A
CLOSING STATEMENT
Pursuant to the attached Securities Purchase Agreement, dated as of the date hereto, the purchasers shall purchase up to $______ of Common Stock and Warrants from Iconic Brands, Inc., a Nevada corporation (the “
Company
”). All funds will be wired into an account maintained by the Company. All funds will be disbursed in accordance with this Closing Statement.
Disbursement Date:
__________, _____
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I. PURCHASE PRICE
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Gross Proceeds to be Received
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$
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II.
DISBURSEMENTS
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$
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$
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$
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$
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$
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Total Amount Disbursed:
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$
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WIRE INSTRUCTIONS
:
See attached.
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Acknowledged and agreed
as of the date hereof:
ICONIC BRANDS, INC.
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By: _____________________________________
Name:
Title:
EXHIBIT 10.5
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this “
Agreement
”) is made and entered into as of November 1, 2017, between Iconic Brands, Inc., a Nevada corporation (the “
Company
”), and each of the several purchasers signatory hereto (each such purchaser, a “
Purchaser
” and, collectively, the “
Purchasers
”).
This Agreement is made pursuant to the Securities Purchase Agreement, dated as of the date hereof, between the Company and each Purchaser (the “
Purchase Agreement
”).
The Company and each Purchaser hereby agrees as follows:
1.
Definitions
.
Capitalized terms used and not otherwise defined herein that are defined in the Purchase Agreement shall have the meanings given such terms in the Purchase Agreement.
As used in this Agreement, the following terms shall have the following meanings:
“
Advice
” shall have the meaning set forth in Section 6(d).
“
Effectiveness Date
” means, with respect to the Initial Registration Statement required to be filed hereunder, the date that is 150 calendar days following the earlier of (i) the Filing Date and (ii) the date on which the Initial Registration Statement is filed with the Commission and with respect to any additional Registration Statements which may be required pursuant to Section 2(c) or Section 3(c), the 120th calendar day following the date on which an additional Registration Statement is required to be filed hereunder;
provided
,
however
, that, in the event the Company is notified by the Commission that one or more of the above Registration Statements will not be reviewed or is no longer subject to further review and comments, the Effectiveness Date as to such Registration Statement shall be the fifth Trading Day following the date on which the Company is so notified if such date precedes the dates otherwise required above, provided, further, if such Effectiveness Date falls on a day that is not a Trading Day, then the Effectiveness Date shall be the next succeeding Trading Day.
“
Effectiveness Period
” shall have the meaning set forth in Section 2(a).
“
Event
” shall have the meaning set forth in Section 2(d).
“
Event Date
” shall have the meaning set forth in Section 2(d).
“
Filing Date
” means, with respect to the Initial Registration Statement required hereunder, the 20th calendar day following the date of completion of the Audit for the Company’s fiscal years ended December 31, 2015 and December 31, 2016 and, with respect to any additional Registration Statements which may be required pursuant to Section 2(c) or Section 3(c), the earliest practical date on which the Company is permitted by SEC Guidance to file such additional Registration Statement related to the Registrable Securities.
“
Holder
” or “
Holders
” means the holder or holders, as the case may be, from time to time of Registrable Securities.
“
Indemnified Party
” shall have the meaning set forth in Section 5(c).
“
Indemnifying Party
” shall have the meaning set forth in Section 5(c).
“
Initial Registration Statement
” means the initial Registration Statement filed pursuant to this Agreement.
“
Losses
” shall have the meaning set forth in Section 5(a).
“
Plan of Distribution
” shall have the meaning set forth in Section 2(a).
“
Prospectus
” means the prospectus included in a Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated by the Commission pursuant to the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by a Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.
“
Registrable Securities
” means, as of any date of determination, (a) all Shares then issued and issuable pursuant to the Purchase Agreement, (b) all Warrant Shares then issued and issuable upon exercise of the Warrants (assuming on such date the Warrants are exercised in full without regard to any exercise limitations therein), (c) any additional shares of Common Stock issued and issuable in connection with any anti-dilution provisions in the Purchase Agreement or the Warrants (without giving effect to any limitations on issuance set forth in the Purchase Agreement or any limitations on exercise set forth in the Warrants) and (d) any securities issued or then issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing;
provided,
however
, that any such Registrable Securities shall cease to be Registrable Securities (and the Company shall not be required to maintain the effectiveness of any, or file another, Registration Statement hereunder with respect thereto) for so long as (a) a Registration Statement with respect to the sale of such Registrable Securities is declared effective by the Commission under the Securities Act and such Registrable Securities have been disposed of by the Holder in accordance with such effective Registration Statement, (b) such Registrable Securities have been previously sold in accordance with Rule 144, or (c) such securities become eligible for resale without volume or manner-of-sale restrictions and without current public information pursuant to Rule 144 as set forth in a written opinion letter to such effect, addressed, delivered and acceptable to the Transfer Agent and the affected Holders (assuming that such securities and any securities issuable upon exercise, conversion or exchange of which, or as a dividend upon which, such securities were issued or are issuable, were at no time held by any Affiliate of the Company, and all Warrants are exercised by “cashless exercise” as provided in Section 2(c) of each of the Warrants), as reasonably determined by the Company, upon the advice of counsel to the Company.
“
Registration Statement
” means any registration statement required to be filed hereunder pursuant to Section 2(a) and any additional registration statements contemplated by Section 2(c) or Section 3(c), including (in each case) the Prospectus, amendments and supplements to any such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in any such registration statement.
“
Rule 415
” means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.
“
Rule 424
” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.
“
Selling Stockholder Questionnaire
” shall have the meaning set forth in Section 3(a).
“
SEC Guidance
” means (i) any publicly-available written or oral guidance of the Commission staff, or any comments, requirements or requests of the Commission staff and (ii) the Securities Act.
2.
Shelf Registration
.
(a) On or prior to each Filing Date, the Company shall prepare and file with the Commission a Registration Statement covering the resale of all of the Registrable Securities that are not then registered on an effective Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415. Each Registration Statement filed hereunder shall be on Form S-1 and shall contain (unless otherwise directed by at least 85% in interest of the Holders) substantially the “
Plan of Distribution
” attached hereto as
Annex A
and substantially the “
Selling Stockholder
” section attached hereto as
Annex B
;
provided
,
however
, that no Holder shall be required to be named as an “underwriter” without such Holder’s express prior written consent. Subject to the terms of this Agreement, the Company shall use its best efforts to cause a Registration Statement filed under this Agreement (including, without limitation, under Section 3(c)) to be declared effective under the Securities Act as promptly as possible after the filing thereof, but in any event no later than the applicable Effectiveness Date, and shall use its best efforts to keep such Registration Statement continuously effective under the Securities Act until the date that all Registrable Securities covered by such Registration Statement (i) have been sold, thereunder or pursuant to Rule 144, or (ii) may be sold without volume or manner-of-sale restrictions pursuant to Rule 144 and without the requirement for the Company to be in compliance with the current public information requirement under Rule 144, as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Transfer Agent and the affected Holders (the “
Effectiveness Period
”). The Company shall telephonically request effectiveness of a Registration Statement as of 5:00 p.m. Eastern Time on a Trading Day. The Company shall immediately notify the Holders via facsimile or by e-mail of the effectiveness of a Registration Statement on the same Trading Day that the Company telephonically confirms effectiveness with the Commission, which shall be two days prior to the effectiveness of such Registration Statement. The Company shall, by 9:30 a.m. Eastern Time on the second Trading Day after the effective date of such Registration Statement, file a final Prospectus with the Commission as required by Rule 424. Failure to so notify the Holder within one (1) Trading Day of such notification of effectiveness or failure to file a final Prospectus as foresaid shall be deemed an Event under Section 2(d).
(b) Notwithstanding the registration obligations set forth in Section 2(a), if the Commission informs the Company that all of the Registrable Securities cannot, as a result of the application of Rule 415, be registered for resale as a secondary offering on a single registration statement, the Company agrees to promptly inform each of the Holders thereof and use its commercially reasonable efforts to file amendments to the Initial Registration Statement as required by the Commission, covering the maximum number of Registrable Securities permitted to be registered by the Commission, on Form S-3 or such other form available to register for resale the Registrable Securities as a secondary offering, subject to the provisions of Section 2(e); with respect to filing on Form S-3 or other appropriate form, and subject to the provisions of Section 2(d) with respect to the payment of liquidated damages;
provided
,
however
, that, prior to filing such amendment, the Company shall be obligated to use diligent efforts to advocate with the Commission for the registration of all of the Registrable Securities in accordance with the SEC Guidance, including without limitation, Compliance and Disclosure Interpretation 612.09.
(c) Notwithstanding any other provision of this Agreement and subject to the payment of liquidated damages pursuant to Section 2(d), if the Commission or any SEC Guidance sets forth a limitation on the number of Registrable Securities permitted to be registered on a particular Registration Statement as a secondary offering (and notwithstanding that the Company used diligent efforts to advocate with the Commission for the registration of all or a greater portion of Registrable Securities), unless otherwise directed in writing by a Holder as to its Registrable Securities, the number of Registrable Securities to be registered on such Registration Statement will be reduced as follows:
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a.
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First, the Company shall reduce Registrable Securities represented by Warrant Shares (applied, in the case that some Warrant Shares may be registered, to the Holders on a pro rata basis based on the total number of unregistered Warrant Shares held by such Holders); and
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b.
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Second, the Company shall reduce Registrable Securities represented by Shares (applied, in the case that some Shares may be registered, to the Holders on a pro rata basis based on the total number of unregistered Shares held by such Holders).
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In the event of a cutback hereunder, the Company shall give the Holder at least five (5) Trading Days prior written notice along with the calculations as to such Holder’s allotment. In the event the Company amends the Initial Registration Statement in accordance with the foregoing, the Company will use its best efforts to file with the Commission, as promptly as allowed by Commission or SEC Guidance provided to the Company or to registrants of securities in general, one or more registration statements on Form S-3 or such other form available to register for resale those Registrable Securities that were not registered for resale on the Initial Registration Statement, as amended.
(d) If: (i) the Initial Registration Statement is not filed on or prior to its Filing Date (if the Company files the Initial Registration Statement without affording the Holders the opportunity to review and comment on the same as required by Section 3(a) herein, the Company shall be deemed to have not satisfied this clause (i)), or (ii) the Company fails to file with the Commission a request for acceleration of a Registration Statement in accordance with Rule 461 promulgated by the Commission pursuant to the Securities Act, within five Trading Days of the date that the Company is notified (orally or in writing, whichever is earlier) by the Commission that such Registration Statement will not be “reviewed” or will not be subject to further review, or (iii) prior to the effective date of a Registration Statement, the Company fails to file a pre-effective amendment and otherwise respond in writing to comments made by the Commission in respect of such Registration Statement within twenty (20) calendar days after the receipt of comments by or notice from the Commission that such amendment is required in order for such Registration Statement to be declared effective, or (iv) a Registration Statement registering for resale all of the Registrable Securities is not declared effective by the Commission by the Effectiveness Date of the Initial Registration Statement, or (v) after the effective date of a Registration Statement, such Registration Statement ceases for any reason to remain continuously effective as to all Registrable Securities included in such Registration Statement, or the Holders are otherwise not permitted to utilize the Prospectus therein to resell such Registrable Securities, for more than three (3) consecutive Trading Days or more than an aggregate of ten (10) calendar days (which need not be consecutive calendar days) during any 12-month period (any such failure or breach being referred to as an “
Event
”, and for purposes of clauses (i) and (iv), the date on which such Event occurs, and for purpose of clause (ii) the date on which such five (5) Trading Day period is exceeded, and for purpose of clause (iii) the date which such twenty (20) calendar day period is exceeded, and for purpose of clause (v) the date on which such three (3) Trading Day or ten (10) calendar day period, as applicable, is exceeded being referred to as “
Event Date
”), then, in addition to any other rights the Holders may have hereunder or under applicable law, on each such Event Date and on each monthly anniversary of each such Event Date (if the applicable Event shall not have been cured by such date) until the applicable Event is cured, the Company shall pay to each Holder an amount in cash, as partial liquidated damages and not as a penalty, equal to the product of 1.0% multiplied by the aggregate Subscription Amount paid by such Holder pursuant to the Purchase Agreement. The parties agree that the maximum aggregate liquidated damages payable to a Holder under this Agreement shall be 6.0% of the aggregate Subscription Amount paid by such Holder pursuant to the Purchase Agreement. If the Company fails to pay any partial liquidated damages pursuant to this Section in full within seven days after the date payable, the Company will pay interest thereon at a rate of 18% per annum (or such lesser maximum amount that is permitted to be paid by applicable law) to the Holder, accruing daily from the date such partial liquidated damages are due until such amounts, plus all such interest thereon, are paid in full. The partial liquidated damages pursuant to the terms hereof shall apply on a daily pro rata basis for any portion of a month prior to the cure of an Event.
(e) If Form S-1 is not available for the registration of the resale of Registrable Securities hereunder, the Company shall (i) register the resale of the Registrable Securities on another appropriate form and (ii) undertake to register the Registrable Securities on Form S-1 as soon as such form is available, provided that the Company shall maintain the effectiveness of the Registration Statement then in effect until such time as a Registration Statement on Form S-1 covering the Registrable Securities has been declared effective by the Commission.
(f) Notwithstanding anything to the contrary contained herein, in no event shall the Company be permitted to name any Holder or affiliate of a Holder as any Underwriter without the prior written consent of such Holder.
3.
Registration Procedures
.
In connection with the Company’s registration obligations hereunder, the Company shall:
(a) Not less than five (5) Trading Days prior to the filing of each Registration Statement and not less than one (1) Trading Day prior to the filing of any related Prospectus or any amendment or supplement thereto (including any document that would be incorporated or deemed to be incorporated therein by reference), the Company shall (i) furnish to each Holder copies of all such documents proposed to be filed, which documents (other than those incorporated or deemed to be incorporated by reference) will be subject to the review of such Holders, and (ii) cause its officers and directors, counsel and independent registered public accountants to respond to such inquiries as shall be necessary, in the reasonable opinion of respective counsel to each Holder, to conduct a reasonable investigation within the meaning of the Securities Act. The Company shall not file a Registration Statement or any such Prospectus or any amendments or supplements thereto to which the Holders of a majority of the Registrable Securities shall reasonably object in good faith, provided that the Company is notified of such objection in writing no later than four (4) Trading Days after the Holders have been so furnished copies of a Registration Statement or one (1) Trading Day after the Holders have been so furnished copies of any related Prospectus or amendments or supplements thereto. Each Holder agrees to furnish to the Company a completed questionnaire in the form attached to this Agreement as
Annex C
(a “
Selling Stockholder Questionnaire
”) on a date that is not less than two (2) Trading Days prior to the Filing Date or by the end of the fourth (4
th
) Trading Day following the date on which such Holder receives draft materials in accordance with this Section.
(b) (i) Prepare and file with the Commission such amendments, including post-effective amendments, to a Registration Statement and the Prospectus used in connection therewith as may be necessary to keep a Registration Statement continuously effective as to the applicable Registrable Securities for the Effectiveness Period and prepare and file with the Commission such additional Registration Statements in order to register for resale under the Securities Act all of the Registrable Securities, (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement (subject to the terms of this Agreement), and, as so supplemented or amended, to be filed pursuant to Rule 424, (iii) respond as promptly as reasonably possible to any comments received from the Commission with respect to a Registration Statement or any amendment thereto and provide as promptly as reasonably possible to the Holders true and complete copies of all correspondence from and to the Commission relating to a Registration Statement (provided that, the Company shall excise any information contained therein which would constitute material non-public information regarding the Company or any of its Subsidiaries), and (iv) comply in all material respects with the applicable provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by a Registration Statement during the applicable period in accordance (subject to the terms of this Agreement) with the intended methods of disposition by the Holders thereof set forth in such Registration Statement as so amended or in such Prospectus as so supplemented.
(c) If during the Effectiveness Period, the number of Registrable Securities at any time exceeds 100% of the number of shares of Common Stock then registered in a Registration Statement, then the Company shall file as soon as reasonably practicable, but in any case prior to the applicable Filing Date, an additional Registration Statement covering the resale by the Holders of not less than the number of such Registrable Securities.
(d) Notify the Holders of Registrable Securities to be sold (which notice shall, pursuant to clauses (iii) through (vi) hereof, be accompanied by an instruction to suspend the use of the Prospectus until the requisite changes have been made) as promptly as reasonably possible (and, in the case of (i)(A) below, not less than one (1) Trading Day prior to such filing) and (if requested by any such Person) confirm such notice in writing no later than one (1) Trading Day following the day (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment to a Registration Statement is proposed to be filed, (B) when the Commission notifies the Company whether there will be a “review” of such Registration Statement and whenever the Commission comments in writing on such Registration Statement, and (C) with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the Commission or any other federal or state governmental authority for amendments or supplements to a Registration Statement or Prospectus or for additional information, (iii) of the issuance by the Commission or any other federal or state governmental authority of any stop order suspending the effectiveness of a Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose, (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose, (v) of the occurrence of any event or passage of time that makes the financial statements included in a Registration Statement ineligible for inclusion therein or any statement made in a Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to a Registration Statement, Prospectus or other documents so that, in the case of a Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and (vi) of the occurrence or existence of any pending corporate development with respect to the Company that the Company believes may be material and that, in the determination of the Company, makes it not in the best interest of the Company to allow continued availability of a Registration Statement or Prospectus,
provided
,
however
, in no event shall any such notice contain any information which would constitute material, non-public information regarding the Company or any of its Subsidiaries.
(e) Use its best efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order stopping or suspending the effectiveness of a Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment.
(f) Furnish to each Holder, without charge, at least one conformed copy of each such Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference to the extent requested by such Person, and all exhibits to the extent requested by such Person (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission; provided, that any such item which is available on the EDGAR system (or successor thereto) need not be furnished in physical form.
(g) Subject to the terms of this Agreement, the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto, except after the giving of any notice pursuant to Section 3(d).
(h) Prior to any resale of Registrable Securities by a Holder, use its commercially reasonable efforts to register or qualify or cooperate with the selling Holders in connection with the registration or qualification (or exemption from the Registration or qualification) of such Registrable Securities for the resale by the Holder under the securities or Blue Sky laws of such jurisdictions within the United States as any Holder reasonably requests in writing, to keep each registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things reasonably necessary to enable the disposition in such jurisdictions of the Registrable Securities covered by each Registration Statement; provided, that, the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified, subject the Company to any material tax in any such jurisdiction where it is not then so subject or file a general consent to service of process in any such jurisdiction.
(i) If requested by a Holder, cooperate with such Holder to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be delivered to a transferee pursuant to a Registration Statement, which certificates shall be free, to the extent permitted by the Purchase Agreement, of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any such Holder may request.
(j) Upon the occurrence of any event contemplated by Section 3(d), as promptly as reasonably possible under the circumstances taking into account the Company’s good faith assessment of any adverse consequences to the Company and its stockholders of the premature disclosure of such event, prepare a supplement or amendment, including a post-effective amendment, to a Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, neither a Registration Statement nor such Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Company notifies the Holders in accordance with clauses (iii) through (vi) of Section 3(d) above to suspend the use of any Prospectus until the requisite changes to such Prospectus have been made, then the Holders shall suspend use of such Prospectus. The Company will use its best efforts to ensure that the use of the Prospectus may be resumed as promptly as is practicable. The Company shall be entitled to exercise its right under this Section 3(j) to suspend the availability of a Registration Statement and Prospectus, subject to the payment of partial liquidated damages otherwise required pursuant to Section 2(d), for a period not to exceed 60 calendar days (which need not be consecutive days) in any 12-month period.
(k) Otherwise use commercially reasonable efforts to comply with all applicable rules and regulations of the Commission under the Securities Act and the Exchange Act, including, without limitation, Rule 172 under the Securities Act, file any final Prospectus, including any supplement or amendment thereof, with the Commission pursuant to Rule 424 under the Securities Act, promptly inform the Holders in writing if, at any time during the Effectiveness Period, the Company does not satisfy the conditions specified in Rule 172 and, as a result thereof, the Holders are required to deliver a Prospectus in connection with any disposition of Registrable Securities and take such other actions as may be reasonably necessary to facilitate the registration of the Registrable Securities hereunder.
(l) The Company shall use its best efforts to maintain eligibility for use of Form S-1 (or any successor form thereto) for the registration of the resale of Registrable Securities.
(m) The Company may require each selling Holder to furnish to the Company a certified statement as to the number of shares of Common Stock beneficially owned by such Holder and, if required by the Commission, the natural persons thereof that have voting and dispositive control over the shares. During any periods that the Company is unable to meet its obligations hereunder with respect to the registration of the Registrable Securities solely because any Holder fails to furnish such information within three Trading Days of the Company’s request, any liquidated damages that are accruing at such time as to such Holder only shall be tolled and any Event that may otherwise occur solely because of such delay shall be suspended as to such Holder only, until such information is delivered to the Company and an amendment to the Registration Statement is filed to incorporate Holder’s information, provided that such filing is made within two (2) days of receipt of such information from Holder.
4.
Registration Expenses
. All fees and expenses incident to the performance of or compliance with, this Agreement by the Company shall be borne by the Company whether or not any Registrable Securities are sold pursuant to a Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses of the Company’s counsel and independent registered public accountants) (A) with respect to filings made with the Commission, (B) with respect to filings required to be made with any Trading Market on which the Common Stock is then listed for trading, and (C) in compliance with applicable state securities or Blue Sky laws reasonably agreed to by the Company in writing (including, without limitation, fees and disbursements of counsel for the Company in connection with Blue Sky qualifications or exemptions of the Registrable Securities), (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities), (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company, (v) Securities Act liability insurance, if the Company so desires such insurance, and (vi) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement. In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder. In no event shall the Company be responsible for any broker or similar commissions of any Holder or, except to the extent provided for in the Transaction Documents, any legal fees or other costs of the Holders.
5.
Indemnification
.
(a)
Indemnification by the Company
. The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors, members, partners, agents, brokers (including brokers who offer and sell Registrable Securities as principal as a result of a pledge or any failure to perform under a margin call of Common Stock), investment advisors and employees (and any other Persons with a functionally equivalent role of a Person holding such titles, notwithstanding a lack of such title or any other title) of each of them, each Person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, members, stockholders, partners, agents and employees (and any other Persons with a functionally equivalent role of a Person holding such titles, notwithstanding a lack of such title or any other title) of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable attorneys’ fees) and expenses (collectively, “
Losses
”), as incurred, arising out of or relating to (1) any untrue or alleged untrue statement of a material fact contained in a Registration Statement, any Prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading or (2) any violation or alleged violation by the Company of the Securities Act, the Exchange Act or any state securities law, or any rule or regulation thereunder, in connection with the performance of its obligations under this Agreement, except to the extent, but only to the extent, that (i) such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder’s proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in a Registration Statement, such Prospectus or in any amendment or supplement thereto (it being understood that the Holder has approved Annex A hereto for this purpose) or (ii) in the case of an occurrence of an event of the type specified in Section 3(d)(iii)-(vi), the use by such Holder of an outdated, defective or otherwise unavailable Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated, defective or otherwise unavailable for use by such Holder and prior to the receipt by such Holder of the Advice contemplated in Section 6(d). The Company shall notify the Holders promptly of the institution, threat or assertion of any Proceeding arising from or in connection with the transactions contemplated by this Agreement of which the Company is aware. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such indemnified person and shall survive the transfer of any Registrable Securities by any of the Holders in accordance with Section 6(h).
(b)
Indemnification by Holders
. Each Holder shall, severally and not jointly, indemnify and hold harmless the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses, as incurred, to the extent arising out of or based solely upon: any untrue or alleged untrue statement of a material fact contained in any Registration Statement, any Prospectus, or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading (i) to the extent, but only to the extent, that such untrue statement or omission is contained in any information so furnished in writing by such Holder to the Company expressly for inclusion in such Registration Statement or such Prospectus or (ii) to the extent, but only to the extent, that such information relates to such Holder’s information provided in the Selling Stockholder Questionnaire or the proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in a Registration Statement (it being understood that the Holder has approved Annex A hereto for this purpose), such Prospectus or in any amendment or supplement thereto. In no event shall the liability of a selling Holder be greater in amount than the dollar amount of the proceeds (net of all expenses paid by such Holder in connection with any claim relating to this Section 5 and the amount of any damages such Holder has otherwise been required to pay by reason of such untrue statement or omission) received by such Holder upon the sale of the Registrable Securities included in the Registration Statement giving rise to such indemnification obligation.
(c)
Conduct of Indemnification Proceedings
. If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an “
Indemnified Party
”), such Indemnified Party shall promptly notify the Person from whom indemnity is sought (the “
Indemnifying Party
”) in writing, and the Indemnifying Party shall have the right to assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof; provided, that, the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have materially and adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such fees and expenses, (2) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding, or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and counsel to the Indemnified Party shall reasonably believe that a material conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and the reasonable fees and expenses of no more than one separate counsel shall be at the expense of the Indemnifying Party). The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld or delayed. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding.
Subject to the terms of this Agreement, all reasonable fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten Trading Days of written notice thereof to the Indemnifying Party; provided, that, the Indemnified Party shall promptly reimburse the Indemnifying Party for that portion of such fees and expenses applicable to such actions for which such Indemnified Party is finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) not to be entitled to indemnification hereunder.
(d)
Contribution
. If the indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified Party or insufficient to hold an Indemnified Party harmless for any Losses, then each Indemnifying Party shall contribute to the amount paid or payable by such Indemnified Party, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in this Agreement, any reasonable attorneys’ or other fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms.
The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. In no event shall the contribution obligation of a Holder of Registrable Securities be greater in amount than the dollar amount of the proceeds (net of all expenses paid by such Holder in connection with any claim relating to this Section 5 and the amount of any damages such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission) received by it upon the sale of the Registrable Securities giving rise to such contribution obligation.
The indemnity and contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties.
6.
Miscellaneous
.
(a)
Remedies
. In the event of a breach by the Company or by a Holder of any of their respective obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, shall be entitled to specific performance of its rights under this Agreement. Each of the Company and each Holder agrees that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall not assert or shall waive the defense that a remedy at law would be adequate.
(b)
No Piggyback on Registrations; Prohibition on Filing Other Registration Statements
. Neither the Company nor any of its security holders (other than the Holders in such capacity pursuant hereto) may include securities of the Company in any Registration Statements other than the Registrable Securities. The Company shall not file any other registration statements until all Registrable Securities are registered pursuant to a Registration Statement that is declared effective by the Commission, provided that this Section 6(b) shall not prohibit the Company from filing amendments to registration statements filed prior to the date of this Agreement.
(c) [RESERVED]
(d)
Discontinued Disposition
. By its acquisition of Registrable Securities, each Holder agrees that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section 3(d)(iii) through (vi), such Holder will forthwith discontinue disposition of such Registrable Securities under a Registration Statement until it is advised in writing (the “
Advice
”) by the Company that the use of the applicable Prospectus (as it may have been supplemented or amended) may be resumed. The Company will use its best efforts to ensure that the use of the Prospectus may be resumed as promptly as is practicable. The Company agrees and acknowledges that any periods during which the Holder is required to discontinue the disposition of the Registrable Securities hereunder shall be subject to the provisions of Section 2(d).
(e)
Piggy-Back Registrations
. If, at any time during the Effectiveness Period, there is not an effective Registration Statement covering all of the Registrable Securities and the Company shall determine to prepare and file with the Commission a registration statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with the Company’s stock option or other employee benefit plans, then the Company shall deliver to each Holder a written notice of such determination and, if within fifteen days after the date of the delivery of such notice, any such Holder shall so request in writing, the Company shall include in such registration statement all or any part of such Registrable Securities such Holder requests to be registered;
provided
,
however
, that, following the date on which no Warrants remain outstanding, the Company shall not be required to register any Registrable Securities pursuant to this Section 6(e) that are eligible for resale pursuant to Rule 144 (without volume restrictions or current public information requirements) promulgated by the Commission pursuant to the Securities Act or that are the subject of a then effective Registration Statement that is available for resales or other dispositions by such Holder.
(f)
Amendments and Waivers
. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and the Holders of 50.1% or more of the then outstanding Registrable Securities (for purposes of clarification, this includes any Registrable Securities issuable upon exercise or conversion of any Security), provided that, if any amendment, modification or waiver disproportionately and adversely impacts a Holder (or group of Holders), the consent of such disproportionately impacted Holder (or group of Holders) shall be required. If a Registration Statement does not register all of the Registrable Securities pursuant to a waiver or amendment done in compliance with the previous sentence, then the number of Registrable Securities to be registered for each Holder shall be reduced pro rata among all Holders and each Holder shall have the right to designate which of its Registrable Securities shall be omitted from such Registration Statement. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of a Holder or some Holders and that does not directly or indirectly affect the rights of other Holders may be given only by such Holder or Holders of all of the Registrable Securities to which such waiver or consent relates;
provided
,
however
, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the first sentence of this Section 6(f). No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of this Agreement unless the same consideration also is offered to all of the parties to this Agreement.
(g)
Notices
. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be delivered as set forth in the Purchase Agreement.
(h)
Successors and Assigns
. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder. The Company may not assign (except by merger) its rights or obligations hereunder without the prior written consent of all of the Holders of the then outstanding Registrable Securities. Each Holder may assign their respective rights hereunder in the manner and to the Persons as permitted under Section 5.7 of the Purchase Agreement.
(i)
No Inconsistent Agreements
. Neither the Company nor any of its Subsidiaries has entered, as of the date hereof, nor shall the Company or any of its Subsidiaries, on or after the date of this Agreement, enter into any agreement with respect to its securities, that would have the effect of impairing the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. Except as set forth on
Schedule 6(i)
, neither the Company nor any of its Subsidiaries has previously entered into any agreement granting any registration rights with respect to any of its securities to any Person that have not been satisfied in full.
(j)
Execution and Counterparts
. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.
(k)
Governing Law
. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be determined in accordance with the provisions of the Purchase Agreement.
(l)
Cumulative Remedies
. The remedies provided herein are cumulative and not exclusive of any other remedies provided by law.
(m)
Severability
. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.
(n)
Headings
. The headings in this Agreement are for convenience only, do not constitute a part of the Agreement and shall not be deemed to limit or affect any of the provisions hereof.
(o)
Independent Nature of Holders’ Obligations and Rights
. The obligations of each Holder hereunder are several and not joint with the obligations of any other Holder hereunder, and no Holder shall be responsible in any way for the performance of the obligations of any other Holder hereunder. Nothing contained herein or in any other agreement or document delivered at any closing, and no action taken by any Holder pursuant hereto or thereto, shall be deemed to constitute the Holders as a partnership, an association, a joint venture or any other kind of group or entity, or create a presumption that the Holders are in any way acting in concert or as a group or entity with respect to such obligations or the transactions contemplated by this Agreement or any other matters, and the Company acknowledges that the Holders are not acting in concert or as a group, and the Company shall not assert any such claim, with respect to such obligations or transactions. Each Holder shall be entitled to protect and enforce its rights, including without limitation the rights arising out of this Agreement, and it shall not be necessary for any other Holder to be joined as an additional party in any proceeding for such purpose. The use of a single agreement with respect to the obligations of the Company contained was solely in the control of the Company, not the action or decision of any Holder, and was done solely for the convenience of the Company and not because it was required or requested to do so by any Holder. It is expressly understood and agreed that each provision contained in this Agreement is between the Company and a Holder, solely, and not between the Company and the Holders collectively and not between and among Holders.
********************
(Signature Pages Follow)
IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.
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ICONIC BRANDS, INC.
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By:
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/s/ Richard DeCicco
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Name:
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Richard DeCicco
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Title:
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President
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[SIGNATURE PAGE OF HOLDERS FOLLOWS]
[SIGNATURE PAGE OF HOLDERS TO ICNB RRA]
Name of Holder: __________________________
Signature of Authorized Signatory of Holder
: __________________________
Name of Authorized Signatory: _________________________
Title of Authorized Signatory: __________________________
[SIGNATURE PAGES CONTINUE]
Annex A
Plan of Distribution
Each Selling Stockholder (the “
Selling Stockholders
”) of the securities and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their securities covered hereby on OTCQB or the principal Trading Market or any other stock exchange, market or trading facility on which the securities are traded or in private transactions. These sales may be at fixed or negotiated prices. A Selling Stockholder may use any one or more of the following methods when selling securities:
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ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
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block trades in which the broker‑dealer will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction;
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purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
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an exchange distribution in accordance with the rules of the applicable exchange;
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privately negotiated transactions;
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settlement of short sales;
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in transactions through broker‑dealers that agree with the Selling Stockholders to sell a specified number of such securities at a stipulated price per security;
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through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;
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a combination of any such methods of sale; or
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any other method permitted pursuant to applicable law.
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The Selling Stockholders may also sell securities under Rule 144 or any other exemption from registration under the Securities Act of 1933, as amended (the “
Securities Act
”), if available, rather than under this prospectus.
Broker-dealers engaged by the Selling Stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Stockholders (or, if any broker‑dealer acts as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA IM-2440.
In connection with the sale of the securities or interests therein, the Selling Stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the securities in the course of hedging the positions they assume. The Selling Stockholders may also sell securities short and deliver these securities to close out their short positions, or loan or pledge the securities to broker-dealers that in turn may sell these securities. The Selling Stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or create one or more derivative securities which require the delivery to such broker-dealer or other financial institution of securities offered by this prospectus, which securities such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
The Selling Stockholders and any broker-dealers or agents that are involved in selling the securities may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each Selling Stockholder has informed the Company that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the securities.
The Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the securities. The Company has agreed to indemnify the Selling Stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.
We agreed to keep this prospectus effective until the earlier of (A) the date on which all of the securities have been sold pursuant to this prospectus or Rule 144 under the Securities Act and (B) following the date on which no Warrants are outstanding, the date on which all of the securities may be resold pursuant to Rule 144 without regard to any volume or manner-of-sale limitations by reason of Rule 144 and without the requirement for the Company to be in compliance with the current public information under Rule 144 under the Securities Act. The resale securities will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling Stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of the common stock by the Selling Stockholders or any other person. We will make copies of this prospectus available to the Selling Stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).
SELLING SHAREHOLDERS
The common stock being offered by the selling shareholders are those previously issued to the selling shareholders, and those issuable to the selling shareholders, upon exercise of the warrants. For additional information regarding the issuances of those shares of common stock and warrants, see "Private Placement of Common Shares and Warrants" above. We are registering the shares of common stock in order to permit the selling shareholders to offer the shares for resale from time to time. Except for the ownership of the shares of common stock and the warrants, the selling shareholders have not had any material relationship with us within the past three years.
The table below lists the selling shareholders and other information regarding the beneficial ownership of the shares of common stock by each of the selling shareholders. The second column lists the number of shares of common stock beneficially owned by each selling shareholder, based on its ownership of the shares of common stock and warrants, as of ________, 2017, assuming exercise of the warrants held by the selling shareholders on that date, without regard to any limitations on exercises.
The third column lists the shares of common stock being offered by this prospectus by the selling shareholders.
In accordance with the terms of a registration rights agreement with the selling shareholders, this prospectus generally covers the resale of the sum of (i) the number of shares of common stock issued to the selling shareholders pursuant to the securities purchase agreement and (ii) the maximum number of shares of common stock issuable upon exercise of the related warrants, determined as if the outstanding warrants were exercised in full as of the trading day immediately preceding the date this registration statement was initially filed with the SEC, each as of the trading day immediately preceding the applicable date of determination and all subject to adjustment as provided in the registration right agreement, without regard to any limitations on the exercise of the warrants. The fourth column assumes the sale of all of the shares offered by the selling shareholders pursuant to this prospectus.
Under the terms of the warrants, a selling shareholder may not exercise the warrants to the extent such exercise would cause such selling shareholder, together with its affiliates and attribution parties, to beneficially own a number of shares of common stock which would exceed 9.99% of our then outstanding common stock following such exercise, excluding for purposes of such determination shares of common stock issuable upon exercise of the warrants which have not been exercised. The number of shares in the second column does not reflect this limitation. The selling shareholders may sell all, some or none of their shares in this offering. See "Plan of Distribution."
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Name of Selling Shareholder
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Number of shares of
Common Stock Owned
Prior to Offering
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Maximum Number of shares of
Common Stock
to be Sold Pursuant to this
Prospectus
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Number of shares of
Common Stock Owned
After Offering
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Annex C
ICONIC BRANDS, INC.
Selling Stockholder Notice and Questionnaire
The undersigned beneficial owner of common stock (the “
Registrable Securities
”) of Iconic Brands, Inc., a Nevada corporation (the “
Company
”), understands that the Company has filed or intends to file with the Securities and Exchange Commission (the “
Commission
”) a registration statement (the “
Registration Statement
”) for the registration and resale under Rule 415 of the Securities Act of 1933, as amended (the “
Securities Act
”), of the Registrable Securities, in accordance with the terms of the Registration Rights Agreement (the “
Registration Rights Agreement
”) to which this document is annexed. A copy of the Registration Rights Agreement is available from the Company upon request at the address set forth below. All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Registration Rights Agreement.
Certain legal consequences arise from being named as a selling stockholder in the Registration Statement and the related prospectus. Accordingly, holders and beneficial owners of Registrable Securities are advised to consult their own securities law counsel regarding the consequences of being named or not being named as a selling stockholder in the Registration Statement and the related prospectus.
NOTICE
The undersigned beneficial owner (the “
Selling Stockholder
”) of Registrable Securities hereby elects to include the Registrable Securities owned by it in the Registration Statement.
The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate:
QUESTIONNAIRE
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(a)
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Full Legal Name of Selling Stockholder
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(b)
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Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities are held:
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(c)
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Full Legal Name of Natural Control Person (which means a natural person who directly or indirectly alone or with others has power to vote or dispose of the securities covered by this Questionnaire):
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2.
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Address for Notices to Selling Stockholder:
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Telephone:
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Fax:
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Contact Person:
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3. Broker-Dealer Status:
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(a)
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Are you a broker-dealer?
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Yes
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No
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(b)
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If “yes” to Section 3(a), did you receive your Registrable Securities as compensation for investment banking services to the Company?
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Yes
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No
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Note:
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If “no” to Section 3(b), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.
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(c)
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Are you an affiliate of a broker-dealer?
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Yes
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No
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(d)
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If you are an affiliate of a broker-dealer, do you certify that you purchased the Registrable Securities in the ordinary course of business, and at the time of the purchase of the Registrable Securities to be resold, you had no agreements or understandings, directly or indirectly, with any person to distribute the Registrable Securities?
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Yes
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No
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Note:
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If “no” to Section 3(d), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.
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4. Beneficial Ownership of Securities of the Company Owned by the Selling Stockholder.
Except as set forth below in this Item 4, the undersigned is not the beneficial or registered owner of any securities of the Company other than the securities issuable pursuant to the Purchase Agreement.
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(a)
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Type and Amount of other securities beneficially owned by the Selling Stockholder:
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5. Relationships with the Company:
Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (owners of 5% of more of the equity securities of the undersigned) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years.
State any exceptions here:
The undersigned agrees to promptly notify the Company of any material inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof at any time while the Registration Statement remains effective; provided, that the undersigned shall not be required to notify the Company of any changes to the number of securities held or owned by the undersigned or its affiliates.
By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items 1 through 5 and the inclusion of such information in the Registration Statement and the related prospectus and any amendments or supplements thereto. The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Registration Statement and the related prospectus and any amendments or supplements thereto.
IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent.
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Date:
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Beneficial Owner:
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By:
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Name:
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Title:
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PLEASE FAX A COPY (OR EMAIL A .PDF COPY) OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE TO:
EXHIBIT 10.6
SHARE EXCHANGE AGREEMENT
This Share Exchange Agreement (this “
Agreement
”) is entered into on May 21, 2018 (the “
Effective Date
”) and is by and among Iconic Brands, Inc., a Nevada corporation (the “
Company
”), on the one hand, and Gregory M. Castaldo, an individual (“
Castaldo
”), Iroquois Master Fund Ltd., a Cayman Islands exempted limited company (“
Iroquois
”), Iroquois Capital Investment Group LLC, a Delaware limited liability company (“
ICIG
”), and The Special Equities Group, LLC, a Delaware limited liability company (“
SEG
,” and along with Castaldo, Iroquois and ICIG, each a “
Shareholder
” and collectively the “
Shareholders
”), on the other hand. Each of the Company and the Shareholders may be referred to herein as a “
Party
” and collectively as the “
Parties
.”
RECITALS
WHEREAS, the Shareholders are the beneficial and record owners of an aggregate of one hundred twenty million (120,000,000) shares of the issued and outstanding common stock of the Company (the “
Common Shares
”), which were issued pursuant to the Securities Purchase Agreement, dated as of November 1, 2017, between the Company and the Shareholders;
WHEREAS, the Shareholders desire to transfer to the Company, and the Company desires to acquire from the Shareholders, the Common Shares in exchange for shares of Series E Convertible Preferred Stock of the Company (the “
Exchange
”); and
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
AGREEMENT
1.
Exchange of Shares
.
(a) At the Closing (as defined in
Section 2
), subject to the terms and conditions set forth herein, the Shareholders shall convey, assign, and transfer to the Company, and the Company shall acquire and accept from the Shareholders, the Common Shares. The Common Shares shall be cancelled and added to the Company’s unissued and authorized shares of common stock.
(b) As consideration for the acquisition of the Common Shares, the Company shall issue to the Shareholders an aggregate of one million two hundred thousand (1,200,000) shares of the Company’s Series E Convertible Preferred Stock (the “
Preferred Shares
”), at a ratio of one (1) Preferred Share for each one hundred (100) Common Shares, as set forth on
Exhibit A
attached hereto. The Company shall deliver stock certificates representing the Preferred Shares to the Shareholders within five (5) business days of the Effective Date (the “
Preferred Certificates
”).
2.
Closing
. The closing of the Exchange (the “Closing”) will take place at 5:00 p.m. Eastern Time on the Effective Date. The Closing shall take place at the offices of the Company or via the electronic exchange of documents, unless another date, time, or place is agreed to in writing by the Parties hereto.
3.
Deliveries at Closing
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(a) The Company will deliver:
(i) to each Shareholder, a counterpart signature page to this Agreement;
(ii) evidence of the filing and acceptance of the Certificate of Designation of the Rights, Preferences, Privileges and Restrictions of the Preferred Shares (“
Certificate of Designation
”) from the Secretary of State of the State of Nevada; and
(iii) to each Shareholder, the Preferred Certificate registered in name of such Shareholder and satisfactory to such Shareholder, which may be delivered within five (5) business days of the Effective Date.
(b) Each Shareholder will deliver:
(i) to the Company, a counterpart signature page to this Agreement; and
(ii) to the Company, certificates evidencing the Common Shares, if existing, along with an executed Irrevocable Stock Power, or confirmation of instructions to its/his broker to transfer the Common Shares back to the Company, which may be delivered within five (5) business days of the Effective Date.
4.
Representations and Warranties of the Company
.
(a) The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of this Agreement by the Company and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, its board of directors or its stockholders in connection therewith. This Agreement has been duly executed by the Company and, when delivered in accordance with the terms hereof will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.
(b) The Preferred Shares and Conversion Shares (as defined below) are duly authorized and, when issued and paid for in accordance with this Agreement and the Certificate of Designation, will be duly and validly issued, fully paid and nonassessable, free and clear of all liens imposed by the Company other than restrictions on transfer provided for in this Agreement. The Conversion Shares, when issued in accordance with the terms of the Certificate of Designation, will be validly issued, fully paid and nonassessable, free and clear of all liens imposed by the Company other than restrictions on transfer provided for in the Certificate of Designation.
(c) The Company represents and agrees that the holding period of the Preferred Shares and Conversion Shares tack back to the original issue date of the Common Shares for Rule 144 purposes. The Company agrees not to take a position contrary to this paragraph. If requested by a Shareholder, the Company shall promptly, and in any event within 3 business days of such request, at the cost of the Company, deliver a legal opinion of outside counsel opining to the immediate availability of Rule 144 for the resale of the Preferred Shares and Conversion Shares.
5.
Representations and Warranties of the Shareholders
. Each Shareholder represents to the Company as of the date hereof that (a) at the time such Holder was offered the securities, it was, and as of the date hereof it is, and on each date on which it converts any Preferred Shares it will be, an “accredited investor” as defined in Rule 501(a) under the Securities Act, (b) it will acquire the Preferred Shares, and the shares of common stock issuable upon conversion of the Preferred Shares (the “
Conversion Shares
”), for its account for the purpose of investment and not with a view to the distribution or resale thereof, (c) it has such knowledge and experience in financial and business matters that the Shareholder is capable of evaluating the merits and risks of acquiring the Preferred Shares and Conversion Shares, and (d) the Shareholder understands the Preferred Shares and Conversion Shares have not been registered under the Securities Act of 1933 or under any other securities law and, therefore, none of the Preferred Shares or Conversion Shares can be sold, assigned, transferred, pledged or otherwise disposed of without registration under applicable securities laws or unless an exemption from such registration thereunder is available.
6.
Transfer Restrictions
. The Preferred Shares and Conversion Shares may not be sold, assigned, pledged, hypothecated or otherwise transferred except in accordance with applicable securities laws. The Company shall not be required (a) to transfer on its books any Preferred Shares or Conversion Shares that have been sold or otherwise transferred in violation of the foregoing transfer restrictions or (b) to treat as the owner of such Preferred Shares or Conversion Shares or to accord the right to vote or make distributions to any Shareholder or other transferee to whom such Preferred Shares or Conversion Shares shall have been so transferred.
7.
Amendment; Waiver
. No provision of this Agreement may be amended except by a written instrument signed by the Parties. No provision of this Agreement may be waived except by a written instrument signed by the Party against which such waiver is to be enforced. Except as expressly provided otherwise in a waiver, no such waiver shall constitute an ongoing or future waiver of any provision of this Agreement.
8.
Severability
. Should any provision of this Agreement be found by a court of competent jurisdiction to be illegal or unenforceable, such provision shall be severed from this Agreement and the other provisions shall continue in full force and effect.
9.
Counterparts
.
This Agreement may be executed in one or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same agreement. Facsimile copies of signed signature pages shall be binding originals for all purposes hereunder.
10.
Entire Agreement
. This Agreement constitutes the entire agreement and understanding between the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements, written or oral, between the parties with respect thereto.
11.
Governing Law; Venue
. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. Venue for any cause of action brought hereunder shall be in New York County, New York.
[remainder of page intentionally left blank, signature page to follow]
IN WITNESS WHEREOF, the parties have executed this Share Exchange Agreement as of the date first set forth above.
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“
Company
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“
Shareholders
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Iconic Brands, Inc.,
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The Special Equities Group, LLC
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a Nevada corporation
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/s/ Richard J. DeCicco
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By: Richard J. DeCicco
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By:
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Its: Chief Executive Officer
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Its:
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Iroquois Master Fund Ltd.
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By:
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Its:
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Iroquois Capital Investment Group, LLC
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By:
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Its:
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Gregory M. Castaldo
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Exhibit A
Selling Shareholders
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Name
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Common Shares
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Preferred Shares (Series E Convertible Preferred Stock)
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The Special Equities Group, LLC
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40,000,000
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400,000
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Iroquois Master Fund Ltd.
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30,000,000
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300,000
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Iroquois Capital Investment Group, LLC
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10,000,000
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100,000
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Gregory M. Castaldo
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40,000,000
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400,000
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Total
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120,000,000
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1,200,000
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EXHIBIT 10.7
AMENDMENT NO. 1
SECURITIES PURCHASE AGREEMENT
This First Amendment to the Securities Purchase Agreement (this “
Amendment
”) is entered into on May 21, 2018 by and among Iconic Brands, Inc., a Nevada corporation (the “
Company
”), and the purchasers identified on the signature pages hereto (including its successors and assigns, each a “
Purchaser
” and collectively with the other undersigned purchasers, the “
Purchasers
”). Each of the Purchasers and the Company may be referred to herein as a “
Party
” and collectively as the “
Parties
.”
RECITALS
WHEREAS, the Parties are parties to that certain Securities Purchase Agreement with an effective date of November 1, 2017 (the “
Agreement
”);
WHEREAS, the Parties desire to amend certain terms of the Agreement as set forth in this Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:
AGREEMENT
1. Section 2.1(b) of the Agreement is hereby amended and restated in its entirety as follows:
“(b)
Second Closing
. On the Second Closing Date, upon the terms and conditions set forth herein, the Company agrees to sell, and the Purchasers, severally and not jointly, agree to purchase, one million two hundred thousand (1,200,000) shares of Series E Preferred Shares and Warrants which closing shall occur on May 21, 2018, or as soon as reasonably practicable following, and in any event within five (5) Trading Days of, that date (the “
Second Closing
”). Each Purchaser shall deliver to the Company, via wire transfer or a certified check, immediately available funds equal to such Purchaser’s Subscription Amount as set forth on the signature page hereto executed by such Purchaser, and the Company shall deliver to each Purchaser its respective Series E Preferred Shares and a Warrant, as determined pursuant to Section 2.2(a), and the Company and each Purchaser shall deliver the other items set forth in Section 2.2 deliverable at the Second Closing. Upon satisfaction of the covenants and conditions set forth in Sections 2.2 and 2.3, the Second Closing shall occur at the offices of EGS or such other location as the parties shall mutually agree.
Following the Second Closing, the Company will: (i) file a registration statement to register the Common Stock under Section 12(g) of the Exchange Act and take all action necessary to have the registration statement declared effective by the Commission as soon as reasonably possible, (ii) remain current in filing of reports required by the Exchange Act until the Purchasers have sold all Registrable Securities, and (iv) apply for the Common Stock to be quoted for trading on OTCQB and promptly take all action necessary to have the application approved by the OTC Markets and have the Common Stock quoted on the OTCQB.”
2. Section 2.2(a) of the Agreement is hereby amended and restated in its entirety as follows:
“(a) On or prior to each Closing Date (except as otherwise indicated), the Company shall deliver or cause to be delivered to each Purchaser the following:
(i) as to the First Closing, this Agreement duly executed by the Company;
(ii) as to the First Closing, a legal opinion of Company Counsel, substantially in the form of
Exhibit B
attached hereto, and as to each subsequent Closing a legal opinion reasonably satisfactory to the Purchasers, which shall include customary opinions with respect to the Series E Preferred Shares reasonably satisfactory to the Purchasers;
(iii) as to the First Closing, a copy of the irrevocable instructions to the Transfer Agent instructing the Transfer Agent to deliver, on an expedited basis, a certificate evidencing a number of Shares equal to such Purchaser’s Subscription Amount, as to the applicable Closing, divided by the Per Share Purchase Price, registered in the name of such Purchaser;
(iv) as to the First Closing, a Warrant registered in the name of such Purchaser to purchase up to a number of shares of Common Stock equal to 100% of such Purchaser’s Shares issued on such applicable Closing, with an exercise price equal to $0.01, subject to adjustment therein;
(v) as to the Second Closing, a Warrant registered in the name of such Purchaser to purchase up to a number of shares of Common Stock equal to 100% of such Purchaser’s Conversion Shares on the Second Closing Date, with an exercise price equal to $0.01, subject to adjustment therein;
(vi) as to each Closing, the Company shall have provided each Purchaser with the Company’s wire instructions, on Company letterhead and executed by the Chief Executive Officer or Chief Financial Officer;
(vii) as to each Subsequent Closing, a bring-down of the Disclosure Schedules;
(viii) as to the First Closing, the Lock-Up Agreements;
(ix) as to the Second Closing, a letter from the Transfer Agent to the Purchasers certifying as to the Company’s reservation of at least 500,000,000 shares of Common Stock for issuances of Common Stock upon conversion of the Series E Preferred Shares and exercise of the Warrants;
(x) as to the First Closing, the Registration Rights Agreement duly executed by the Company;
(xi) as to the Second Closing, within five (5) Trading Days of the Second Closing Date, evidence of the filing and acceptance of the Certificate of Designation from the Secretary of State of the State of Nevada; and
(xii) as to the Second Closing, within five (5) Trading Days of the Second Closing Date, a certificate evidencing a number of Series E Preferred Shares equal to such Purchaser’s Subscription Amount, as to the Second Closing, divided by the Per Share Purchase Price and further divided by one hundred (100), registered in the name of such Purchaser.”
3. Definitions.
A. The following definitions are added to
Section 1.1
:
“
Certificate of Designation
” means the Certificate of Designation of the Rights, Preferences, Privileges and Restrictions of the Series E Convertible Preferred Stock to be filed with the Secretary of the State of Nevada, in the form attached hereto as Exhibit E.
“
Conversion Shares
” means the shares of Common Stock issuable upon conversion of the Series E Preferred Shares.
“
Share Exchange Agreement
” means the Share Exchange Agreement, dated as of May 21, 2018, between the Company and the Purchasers.
“
Series E Preferred Shares
” means shares of the Company’s Series E Convertible Preferred Stock having the rights, preferences and privileges set forth in the Certificate of Designation that are issued pursuant to the Share Exchange Agreement and this Agreement.
“
Underlying Shares
” means the Conversion Shares and the Warrant Shares.
B. The following definitions in
Section 1.1
are amended and restated in their entirety as follows:
“
Registrable Securities
” means, as of any date of determination, (a) all shares of Common Stock then issued and issuable upon conversion in full of the Series E Preferred Shares (assuming on such date that the Series E Preferred Shares are converted in full without regard to any conversion limitations therein), (b) all Warrant Shares then issued and issuable upon exercise of the Warrants (assuming on such date the Warrants are exercised in full without regard to any exercise limitations therein), (c) any additional shares of Common Stock issued and issuable in connection with any anti-dilution provisions in the Series E Preferred Shares or the Warrants (without giving effect to any limitations on conversion set forth in the Series E Preferred Shares or any limitations on exercise set forth in the Warrants) and (d) any securities issued or then issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing;
provided,
however
, that any such Registrable Securities shall cease to be Registrable Securities (and the Company shall not be required to maintain the effectiveness of any, or file another, Registration Statement hereunder with respect thereto) for so long as (a) a Registration Statement with respect to the sale of such Registrable Securities is declared effective by the Commission under the Securities Act and such Registrable Securities have been disposed of by the Holder in accordance with such effective Registration Statement, (b) such Registrable Securities have been previously sold in accordance with Rule 144, or (c) such securities become eligible for resale without volume or manner-of-sale restrictions and without current public information pursuant to Rule 144 as set forth in a written opinion letter to such effect, addressed, delivered and acceptable to the Transfer Agent and the affected Holders (assuming that such securities and any securities issuable upon exercise, conversion or exchange of which, or as a dividend upon which, such securities were issued or are issuable, were at no time held by any Affiliate of the Company, and all Warrants are exercised by “cashless exercise” as provided in Section 2(c) of each of the Warrants), as reasonably determined by the Company, upon the advice of counsel to the Company.
“
Registration Rights Agreement
” means the Registration Rights Agreement, dated on or about the date hereof, among the Company and the Purchasers, in the form of
Exhibit A
attached hereto, as amended.
“
Securities
” means the Shares, the Warrants, the Warrant Shares, the Series E Preferred Shares and the Conversion Shares.
“
Transaction Documents
” means this Agreement, the Certificate of Designation, the Warrants, the Lock-Up Agreement, the Registration Rights Agreement, all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated hereunder
4. Section 3.1(f) is hereby amended and restated in its entirety as follows:
“
Issuance of the Securities
. The Securities are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents. The Conversion Shares and the Warrant Shares, when issued in accordance with the terms of the Transaction Documents, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents. The Company has reserved from its duly authorized capital stock the maximum number of shares of Common Stock issuable pursuant to this Agreement, the Series E Preferred Shares and the Warrants.”
5. A new Section 3.1(uu) is inserted as follows:
“(uu) Audited Financials. As of May 18, 2018, the Audit for the Company’s fiscal year ended December 31, 2016 and December 31, 2017 have been completed and such Audit for such fiscal years meets the requirements for purposes of the effectiveness of the Registration Statement.”
6. Section 4.1(c) is hereby amended and restated in its entirety as follows:
“Certificates evidencing the Underlying Shares shall not contain any legend (including the legend set forth in Section 4.1(b) hereof): (i) while a registration statement (including the Registration Statement) covering the resale of such security is effective under the Securities Act, (ii) following any sale of such Underlying Shares pursuant to Rule 144 (assuming cashless exercise of the Warrants), (iii) if such Underlying Shares are eligible for sale under Rule 144 (assuming cashless exercise of the Warrants) or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission). The Company shall cause its counsel to issue a legal opinion to the Transfer Agent or the Purchaser promptly after the Effective Date or at such time as such legend is no longer required under this Section 4.1(c) if required by the Transfer Agent or requested by a Purchaser to effect the removal of the legend hereunder. If all or any Series E Preferred Shares are converted or any portion of a Warrant is exercised at a time when there is an effective registration statement to cover the resale of the Underlying Shares, or if such Underlying Shares may be sold under Rule 144 and the Company is then in compliance with the current public information required under Rule 144, or if the Underlying Shares may be sold under Rule 144 (assuming cashless exercise of the Warrants) without the requirement for the Company to be in compliance with the current public information required under Rule 144 as to such Underlying Shares and without volume or manner-of-sale restrictions or if such legend is not otherwise required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission) then such Underlying Shares shall be issued free of all legends. The Company agrees that following the Effective Date or at such time as such legend is no longer required under this Section 4.1(c), it will, no later than the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined below) following the delivery by a Purchaser to the Company or the Transfer Agent of a certificate representing Underlying Shares, as applicable, issued with a restrictive legend (such date, the “
Legend Removal Date
”), deliver or cause to be delivered to such Purchaser a certificate representing such shares that is free from all restrictive and other legends. The Company may not make any notation on its records or give instructions to the Transfer Agent that enlarge the restrictions on transfer set forth in this Section 4. Certificates for Underlying Shares subject to legend removal hereunder shall be transmitted by the Transfer Agent to the Purchaser by crediting the account of the Purchaser’s prime broker with the Depository Trust Company System as directed by such Purchaser. As used herein, “
Standard Settlement Period
” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Common Stock as in effect on the date of delivery of a certificate representing Underlying Shares, as applicable, issued with a restrictive legend.”
7. A new Section 4.21 is inserted as follows:
4.21
Form 10 Information
. The Company covenants to file “Form 10 information” (as such term is used in Rule 144(i)) for the Company with the Commission on or prior to June 8, 2018.
8. A new Section 4.22 is inserted as follows:
4.22
Company Covenants
. The Company covenants (i) file a registration statement to register the Common Stock under Section 12(g) of the Exchange Act and take all action necessary to have the registration statement declared effective by the Commission as soon as possible, (ii) to remain current in filing of reports required by the Exchange Act until the Purchasers no longer hold any Conversion Shares or Warrant Shares, and (iii) to apply for the Common Stock to be quoted for trading on OTCQB and promptly take all action necessary to have the application approved by the OTC Markets and have the Common Stock quoted on the OTCQB as soon as possible.
9. For purposes of clarity, no Shares will be issued to Purchasers in the Second Closing, only Series E Preferred Shares and Warrants.
10. Other than as set forth herein, the terms and conditions of the Agreement shall remain in full force and effect.
[remainder of page intentionally left blank; signature page to follow]
IN WITNESS WHEREOF, the Parties hereto have executed this Amendment No. 1 to the Securities Purchase Agreement as of the date first above written.
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Purchasers
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Iconic Brands, Inc.,
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The Special Equities Group, LLC
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a Nevada corporation
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By: Richard J. DeCicco
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By:
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Its: Chief Executive Officer
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Its:
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Iroquois Master Fund Ltd.
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By:
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Its:
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Iroquois Capital Investment Group, LLC
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By:
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Its:
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Gregory M. Castaldo
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EXHIBIT 10.8
AMENDMENT NO. 1
REGISTRATION RIGHTS AGREEMENT
This First Amendment to the Registration Rights Agreement (this “
Amendment
”) is entered into on May 21, 2018 by and among Iconic Brands, Inc., a Nevada corporation (the “
Company
”), and the purchasers identified on the signature pages hereto (including its successors and assigns, each a “
Purchaser
” and collectively with the other undersigned purchasers, the “
Purchasers
”). Each of the Purchasers and the Company may be referred to herein as a “
Party
” and collectively as the “
Parties
.”
RECITALS
WHEREAS, the Parties are parties to that certain Registration Rights Agreement with an effective date of November 1, 2017 (the “
Agreement
”);
WHEREAS, the Parties desire to amend certain terms of the Agreement as set forth in this Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:
AGREEMENT
1. The definition of “Filing Date” in Section 1 is hereby amended and restated in its entirety as follows:
“
Filing Date
” means, with respect to the Initial Registration Statement required hereunder, June 8, 2018 and, with respect to any additional Registration Statements which may be required pursuant to Section 2(c) or Section 3(c), the earliest practical date on which the Company is permitted by SEC Guidance to file such additional Registration Statement related to the Registrable Securities.”
2. The definition of “Registrable Securities” in Section 1 is hereby amended and restated in its entirety as follows:
“
Registrable Securities
” means, as of any date of determination, (a) all shares of Common Stock then issued and issuable upon conversion in full of the Series E Preferred Shares (assuming on such date that the Series E Preferred Shares are converted in full without regard to any conversion limitations therein), (b) all Warrant Shares then issued and issuable upon exercise of the Warrants (assuming on such date the Warrants are exercised in full without regard to any exercise limitations therein), (c) any additional shares of Common Stock issued and issuable in connection with any anti-dilution provisions in the Series E Preferred Shares or the Warrants (without giving effect to any limitations on conversion set forth in the Series E Preferred Shares or any limitations on exercise set forth in the Warrants) and (d) any securities issued or then issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing;
provided,
however
, that any such Registrable Securities shall cease to be Registrable Securities (and the Company shall not be required to maintain the effectiveness of any, or file another, Registration Statement hereunder with respect thereto) for so long as (a) a Registration Statement with respect to the sale of such Registrable Securities is declared effective by the Commission under the Securities Act and such Registrable Securities have been disposed of by the Holder in accordance with such effective Registration Statement, (b) such Registrable Securities have been previously sold in accordance with Rule 144, or (c) such securities become eligible for resale without volume or manner-of-sale restrictions and without current public information pursuant to Rule 144 as set forth in a written opinion letter to such effect, addressed, delivered and acceptable to the Transfer Agent and the affected Holders (assuming that such securities and any securities issuable upon exercise, conversion or exchange of which, or as a dividend upon which, such securities were issued or are issuable, were at no time held by any Affiliate of the Company, and all Warrants are exercised by “cashless exercise” as provided in Section 2(c) of each of the Warrants), as reasonably determined by the Company, upon the advice of counsel to the Company.”
3. Clause (b) of Section 2(c) is hereby amended and restated in its entirety as follows:
“b. Second, the Company shall reduce Registrable Securities represented by Conversion Shares (applied, in the case that some Conversion Shares may be registered, to the Holders on a pro rata basis based on the total number of unregistered Conversion Shares held by such Holders).”
4. Other than as set forth herein, the terms and conditions of the Agreement shall remain in full force and effect.
[remainder of page intentionally left blank; signature page to follow]
IN WITNESS WHEREOF, the Parties hereto have executed this Amendment No. 1 to the Registration Rights Agreement as of the date first above written.
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Company
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“
Purchasers
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Iconic Brands, Inc.,
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The Special Equities Group, LLC
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a Nevada corporation
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By: Richard J. DeCicco
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By:
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Its: Chief Executive Officer
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Its:
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Iroquois Master Fund Ltd.
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By:
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Its:
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Iroquois Capital Investment Group, LLC
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By:
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Its:
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Gregory M. Castaldo
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EXHIBIT 23.1
