Our Management's Discussion and Analysis contains not only statements that are
historical facts, but also statements that are forward-looking (within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934). Forward-looking statements are, by their very
nature, uncertain and risky. These risks and uncertainties include
international, national and local general economic and market conditions;
demographic changes; our ability to sustain, manage, or forecast growth; our
ability to successfully make and integrate acquisitions; existing government
regulations and changes in, or the failure to comply with, government
regulations; adverse publicity; competition; fluctuations and difficulty in
forecasting operating results; changes in business strategy or development
plans; business disruptions; the ability to attract and retain qualified
personnel; the ability to protect technology; and other risks that might be
detailed from time to time in our filings with the Securities and Exchange
Commission.
You should read the following discussion and analysis of our financial condition
and plan of operations together with and our consolidated financial statements
and the related notes appearing elsewhere in this Annual Report on Form 10-K. In
addition to historical information, this discussion and analysis contains
forward-looking statements that involve risks, uncertainties and assumptions.
Our actual results may differ materially from those discussed below. Factors
that could cause or contribute to such differences include, but are not limited
to, those identified below, and those discussed in the section titled "Risk
Factors" included elsewhere in this Annual Report on Form 10-K. All amounts in
this report are in U.S. dollars, unless otherwise noted.
Overview
We are engaged in the development and sale of alcohol and non-alcohol brands
that are "better-for-you" ("BFY") and "better-for-the-planet". TopPop, our
wholly owned subsidiary, produces low calorie, "ready to go" products,
ready-to-freeze ("RTF") products and ready-to-drink ("RTD") products in
sustainable, flexible and stand-up pouch packaging. TopPop is also a leader in
the "cocktails-to-go" pouches and alcohol ice-pop market. Our brands include
"Bellissima" by Christie Brinkley, a premium BFY collection of Prosecco,
Sparkling Wines, and Still Wines, all certified vegan and made with organic
grapes. Bellissima is strategically positioned with its Zero Sugar Wines. We
operate in multiple states, sell and distribute across the globe and have
Fortune 500 customers that include some of the world's largest alcohol beverage
companies and brands. United Distributors, Inc., ("United") is our 100% owned
subsidiary which sells our Bellissima, Bella, Sonja Sangria and other alcohol
beverages to state distributors. United holds all applicable state and federal
licenses in order to sell these products to state distributors in accordance
with the United States three tier distribution platform.
We have expertise in developing, from product inception to wholesale
distribution or direct to consumer through the QVC distribution channel, and in
branding alcohol beverages for our company and for third parties. We market and
place products into national distribution through long-standing industry
relationships approximately 45 national or regional alcoholic beverage
distributors. We currently market and sell the following product lines:
· Bellissima Prosecco - these products comprise a line of all-natural and vegan
Prosecco and Sparkling Wines made with organic grapes, including a Zero
Sugar, Zero Carb option, a DOC Brut and a Sparkling Rose. The Bellissima line
of Prosecco and Sparkling Wines includes two new flavor profiles, a Zero
Sugar/Zero Carb Sparkling Rose and a Rose Prosecco;
· Bellissima Zero Sugar Still Wines - this line of five still wines was
launched in March 2022 and are certified vegan and are made with organic
grapes.
· Bella Sprizz Aperitifs - these products comprise a line of aperitifs
consisting of three different expressions, a classic Italian aperitif, an
all-natural elderflower aperitif and a classic Italian bitter;
· Ready-to-Freeze and Ready-to-Drink Alcoholic Products - these products are
currently produced under contract for third-party national and regional
brands and for our Boozy Pops® product line; and
· BiVi Vodka - a celebrity-branded vodka that we have sold since 2018 under the
brand "BiVi 100 percent Sicilian Vodka" and which currently does not
represent a material portion of our sales.
In addition, we develop and market private label spirits for established
domestic and international chains.
As a result of our July 2021 acquisition of 100% of the equity of TopPop, we are
now a vertically integrated company for the development, production and
distribution of alcoholic brands. TopPop is a premier product development,
contract manufacturing and packaging company that specializes in flexible
packaging applications in the food, beverage and health categories. It has the
federal and state licenses necessary to manufacture and blend malt, wine and
spirits-based products. In June 2020, TopPop opened a 27,000-square-foot
FDA-approved manufacturing facility in Marlton, New Jersey with a Safe Quality
Food certification. In September 2021, TopPop leased an additional 65,000 square
feet facility for manufacturing in Pennsauken, New Jersey. Construction is now
complete, and the facility reached full-scale production capability at the end
of March 2022. The facility includes approximately $4 million of high-speed
packaging equipment and is expected to triple our production capacity.
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For its first product line, TopPop identified the single serve, RTD and RTF as
ripe for product and packaging innovation. TopPop introduced an alcohol-infused
ice pop in June 2020 and began marketing the concept to major alcohol companies.
In addition, it developed its own product line trademarked under the name
BoozyPopz® which is expected to be sold through e-commerce platforms and
wholesaled directly to sports and entertainment venues. TopPop manufactured
approximately 8 million ice pops from its launch in June 2020 through December
31, 2020 and manufactured approximately 42 million ice pops during the year
ended December 31, 2021. TopPop has also developed a pipeline for the single
serve, RTD alcohol cocktail market and anticipates launching a line of products
in this market in 2022. TopPop designs and markets flexible packaging for its
RTD and RTF products with formulations that are low calorie and contain healthy
and natural ingredients. With the opening of TopPop's new facility at the end of
the first quarter of 2022, we expect to have the capacity to manufacture over
150 million units in 2022.
We believe TopPop brings to us additional synergies and opportunities for
cross-promoting new and existing products to a broader customer base and better
positions our company to establish and support our brands and to create
sustainable packaging solutions to the consumable goods market. We believe our
focus on lifestyle branding and the rising "Better-for-You,"
"Better-for-the-Planet" consumer categories has made us a leader in developing
celebrity brands worldwide, such as our Bellissima Prosecco by Christie
Brinkley. Our mission is to be an industry leader in the brand development,
marketing and sales of alcoholic beverages and related products by capitalizing
on our ability to procure products from around the world and to develop unique
and innovative packaging to create brand and product line extensions. We plan to
leverage our relationships to add value to our products and to create brand
awareness in unbranded niche categories.
Recent Developments
COVID-19
As a result of COVID-19, we have seen a shift away from the traditional
brick-and-mortar business to a direct-to-consumer business. Although we expect
brick-and-mortar to rebound, we also expect the director-to-consumer model to
stay post-COVID-19, as consumers embrace the convenience of having their
alcoholic beverages delivered to their doorstep. As we expand our relationship
with QVC and our own direct-to-consumer platform through our website, we believe
we are well positioned to execute on this opportunity.
TopPop Acquisition
On July 26, 2021, we completed the acquisition of TopPop. In connection with
such acquisition, the former TopPop members received, in the aggregate(a)
$3,694,273 in cash, net of cash acquired, by transfer of immediately available
funds, (b) 26,009,600 shares of our common stock, which shares were valued in
the aggregate at $10,143,744, or $0.39 per share, (c) $5,042,467 aggregate
principal amount of our promissory notes and (d) future additional payments as
earnout consideration valued at $20,204,505 to be paid in cash and stock. The
earn-out payments, if any, will be made (i) following the 12-month period
commencing on August 1, 2021, in an aggregate amount equal to the excess, if
any, of: (A) 1.96 times TopPop's EBITDA for the period over (B) the aggregate
amount of the closing promissory notes repaid in cash during period; provided,
however, no such amount shall be payable if (i)(A) does not exceed (i)(B); and
(ii) following the 12-month period commencing on August 1, 2022, in an aggregate
amount equal to the excess, if any, of: (A) 1.96 times TopPop's EBITDA for such
period over (B) the aggregate amount of the closing promissory notes repaid in
cash during the period; provided, however, no such amount shall be payable if
(ii)(A) does not exceed (ii)(B). The earn-out payments will be made, at the
election of each former TopPop member, in cash or in shares of our common stock
or a combination thereof, less any reserve for possible indemnification
payments, provided that not less than 45% of the value of each earn-out payment
shall be paid in common stock. If paid in shares of common stock, such shares
shall be valued at the then-prevailing market rate.
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Series A-2 Convertible Preferred Stock Financing
On July 26, 2021, we entered into securities purchase agreements dated as of
July 26, 2021 with certain accredited investors for the sale of our
newly-created Series A-2 Convertible Preferred Stock, par value $0.001 per share
(the "Series A-2 Preferred Stock"), shares of common stock, and warrants to
purchase shares of common stock.
Pursuant to the purchase agreements, the shares of Series A-2 Preferred Stock,
common stock and warrants were sold in two tranches, the first of which closed
on July 26, 2021 for gross proceeds of $18,372,354 for the sale of an aggregate
of 18,800 shares of Series A-2 Preferred Stock, an aggregate of 6,711,997 shares
of common stock, and warrants to purchase an aggregate of 73,338,203 shares of
common stock. Of the $18,372,354 gross proceeds we received upon the closing of
the first tranche, $15,603,385 was paid in cash net of fees of $2,808,320.
The second tranche closed on January 5, 2022 in which the Company sold 12,257.76
shares of Series A-2 Preferred Stock, 4,781,004 shares of common stock and
warrants to purchase 40,018,583 shares of common stock for gross proceeds of
approximately $12.2 million and net proceeds of approximately $10.8 million
after deduction of placement agent commissions and expenses of the offering.
Such net proceeds are expected to be used by the Company for domestic and
international expansion of its Bellissima brand, the expansion of the production
facilities of the Company's TopPop subsidiary, new product launches, marketing,
and other general working capital purposes.
The warrants are exercisable for a period of five years from the date of
issuance at an exercise price of $0.3125 per share. The Warrants may be
exercised on a cashless basis if the shares of common stock underlying the
warrants are not then registered for resale pursuant to an effective
registration statement under the Securities Act.
In connection with this offering, we entered into a Placement Agency Agreement
with Dawson James Securities, Inc. (the "Placement Agent"), pursuant to which at
the closing of the first tranche under the purchase agreements we paid to the
Placement Agent a cash fee in the amount of $2,050,000 and at the closing of the
second tranche under the purchase agreements we paid to the Placement Agent a
cash fee in the amount of $1,150,000. In addition, we agreed to pay to the
Placement Agent a fee in connection with any cash exercise of any of the
Warrants in an amount equal to 10% of the cash amount received by us upon any
such exercise. Pursuant to the Placement Agency Agreement, as additional
consideration for the services of the Placement Agent, we also issued to the
Placement Agent or its designees in connection with the closing of the first
tranche under the purchase agreements 2,194 shares of Series A-2 Preferred Stock
and an additional 1,096 shares of Series A-2 Preferred Stock in connection with
the closing of the second tranche under the purchase agreements. The fees paid
to the Placement Agent were accounted for as financing costs and reduces the
additional paid in capital from the financing.
Redemption of Series F Convertible Preferred Stock
On July 26, 2021, we entered into redemption agreements with two holders of our
Series F Convertible Preferred Stock, pursuant to which we redeemed all their
outstanding shares of our Series F Convertible Preferred Stock for an aggregate
purchase price of $225,000 in accordance with the terms of such redemption
agreements. Any remaining outstanding shares of Series F Convertible Preferred
Stock was exchanged pursuant to the following agreements.
Exchange of Issued and Outstanding Series E, F and G Convertible Preferred Stock
and Series E, F and G Common Stock Purchase Warrants
On July 26, 2021, we entered into securities exchange agreements with the
holders of our outstanding (a) Series E Convertible Preferred Stock, Series F
Convertible Preferred Stock and Series G Convertible Preferred Stock (the
"Existing Preferred Stock"), and (b) Series E Common Stock Purchase Warrants,
Series F Common Stock Purchase Warrants and Series G Common Stock Purchase
Warrants (the "Existing Warrants" and together with the Existing Preferred
Stock, collectively, the "Existing Securities"), pursuant to which such holders
exchanged (i) all Existing Preferred Stock held by each holder for shares of
Series A-2 Preferred Stock and Warrants, and (ii) all Existing Warrants held by
each holder for shares of common stock. In connection with such exchange,
2,115,224 shares of Series E Convertible Preferred Stock, 2,189 shares of Series
F Convertible Preferred Stock, 1,475 shares of Series G Convertible Preferred
Stock were exchanged for an aggregate of 3,555 shares of Series A-2 Preferred
Stock, Warrants to purchase an aggregate of 14,304,880 shares of common stock,
and 2,209,517 shares of common stock for an aggregate value of $3,663,651.
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Upon such exchange, the Existing Securities were cancelled and all contractual
(or similar) rights, preferences and obligations relating to such Existing
Securities became null and void and of no further effect whatsoever.
Exchange of Issued and Outstanding Series A Preferred Stock
On July 26, 2021, we entered into a securities exchange agreement dated as of
July 26, 2021 with Richard DeCicco, who, at the time of execution and delivery
of such agreement, was our Chief Executive Officer, Chief Financial Officer,
chairman of our board of directors and the holder of our one issued and
outstanding share of Series A Preferred Stock, and is currently our Chairman of
the Board and President. Pursuant to such agreement, Mr. DeCicco exchanged his
one share of Series A Preferred Stock for 25,600,000 shares of our common stock.
Upon such exchange, the Series A Preferred Stock, which previously gave Mr.
DeCicco two votes for every one vote of our outstanding voting securities, was
cancelled and all contractual (or similar) rights, preferences and obligations
relating to such Series A Preferred Stock became null and void and of no further
effect whatsoever.
Purchase of all Issued and Outstanding Capital Stock of United Spirits, Inc.
On July 26, 2021, we entered into a securities purchase agreement with Mr.
DeCicco pursuant to which we purchased from Mr. DeCicco all of the issued and
outstanding capital stock of United Spirits, Inc., a New York corporation
("United"). Pursuant to such purchase agreement, Mr. DeCicco transferred to us
100% of the issued and outstanding capital stock of United in exchange for a
purchase price of $1,000,000. The purchase agreement contains customary
representations, warranties and covenants of the parties thereto, and the
closing of the transactions contemplated by such purchase agreement was subject
to the satisfaction of certain closing conditions, including, without
limitation, certain approvals from various state liquor authorities. Prior to
the closing of such transaction, we marketed and sold our wine and spirts
products pursuant to an exclusive marketing and distribution agreement between
United and us.
Amended and Restated LLC Agreements of Bellissima Spirits LLC and BiVi LLC
On July 26, 2021, we, and each other member identified therein, including Mr.
DeCicco and Rosanne Faltings, our vice president of sales and a member of the
Board, entered into an Amended and Restated Limited Liability Company Agreement
dated as of July 26, 2021 of Bellissima and BiVi. Such agreement provides that
the manager of Bellissima and BiVi, currently Mr. DeCicco, may cause Bellissima
and BiVi to make distributions of available cash flow to the members pro rata in
accordance with their cash flow ratios, of which we are entitled to 100% of any
such distribution of available cash flow. Such agreement also provides that the
manager shall cause Bellissima and BiVi to make distributions of net proceeds
attributable to certain capital events to members pro rata in accordance with
their membership interest percentage, of which we are entitled to 54% of any
such distribution of net proceeds and Mr. DeCicco and Ms. Faltings are entitled
to 15.34% and 15.33%, respectively. Transfers of membership interests in
Bellissima and BiVi are generally restricted and such agreement provides for
preemptive rights, rights of first refusal, and rights of co-sale, in each case,
in accordance with the terms and conditions set forth therein.
On April 22, 2022 we entered into a Second Amended and Restated Limited
Liability Company Agreement of Bellissima, which provides that upon (i) a sale
of all or substantially all of our assets, (ii) a change of control of us, (iii)
a sale of equity following which our shareholders immediately prior to such
transaction do not own, immediately following such transaction, a majority of
the voting and economic rights in us, or (iv) a merger, consolidation or similar
transaction involving us, each of Mr. DeCicco and Ms. Faltings will be entitled
to sell their interest in Bellissima to us in exchange for the value of their
equity interest in Bellissima that they would have received upon the sale of
their equity interest in Bellissima, upon the sale of Bellissima, which value
will be determined by an independent third-party appraiser.
Results of Operations for the Years Ended December 31, 2021 and 2020
Introduction
We had sales of $4,960,016 and $2,848,913 for the years ended December 31, 2021
and 2020, respectively. Our cost of sales was $4,628,734 and $1,330,441 for the
years ended December 31, 2021 and 2020, respectively. Our operating expenses
were $10,592,867 and $4,716,564, for the years ended December 31, 2021 and 2020,
respectively. Our operating expenses consisted mostly of salaries, professional
fees, royalties and fulfilment costs along with marketing and advertising costs,
occupancy costs, and travel and entertainment.
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Revenues and Net Operating Loss
Our revenues, operating expenses, and net operating loss for the years ended
December 31, 2021 and 2020 were as follows:
Year Ended Year Ended
December 31, December 31, Increase /
2021 2020 (Decrease)
Sales $ 4,960,016 $ 2,848,913 $ 2,111,103
Cost of Sales 4,628,734 1,330,441 3,298,293
Gross Profit 331,282 1,518,472 (1,187,190 )
Operating expenses:
Officers' compensation 627,000 415,000 212,000
Fulfillment Costs 287,466 536,255 (248,789 )
Royalties 160,119 497,253 (337,135 )
Professional fees 2,874,968 962,481 1,912,487
Travel and entertainment 194,785 41,208 153,577
Other operating expenses, including
occupancy 6,309,392 1,462,922 4,846,470
Total general and administrative 10,453,730 3,915,119 6,538,611
Selling and marketing 716,727 801,445 (84,718 )
Gain from the cancellation of accrued
royalties (577,590 ) - (577,590 )
Total operating expenses 10,592,867 4,716,564 5,876,303
Net operating loss from continuing
operations (10,261,585 ) (3,198,092 ) (7,063,493 )
Gain on forgiveness of PPP loan 28,458 - 28,458
Interest expense (271,749 ) - (271,749 )
Loss on Investment in Can B Corp - (483,472 ) (483,472 )
Net loss (10,504,876 ) (3,681,564 ) (6,823,312 )
Net loss attributable to noncontrolling
interests in subsidiaries and variable
interest entity (40,882 ) (109,962 ) 69,080
Net Loss attributable to Iconic Brands $ (10,463,994 ) $ (3,571,602 ) $ (6,892,392 )
Sales
Our sales are comprised of sales of BiVi Sicilian Vodka, Bellissima Prosecco and
Sparkling Wine, the line of Hooters brand products and our RTF TopPop products.
Sales were $4,960,016 and $2,848,913 for the years ended December 31, 2021 and
2020, respectively, which resulted in an increase of $2,111,103 or approximately
74%. The increase was due primarily to $2,192,119 sales from our newly acquired
TopPop products.
Cost of Sales
Cost of sales was $4,628,734, or approximately 93% of sales, and $1,330,441, or
approximately 47% of sales, for the years ended December 31, 2021 and 2020,
respectively. Cost of sales includes the cost of the products purchased from our
suppliers, freight-in costs and import duties. Cost of sales for the year ended
December 31, 2021 for our alcohol sales was approximately 51% of sales, which
was similar to the prior year, while the costs associated with our TopPop
acquisition were approximately 151% of sales. The increase was due to TopPop
increased costs of production since July 25, 2021 from (i) significant labor
costs and scrap costs from a large rework of a customer order due to an isolated
error in blending of batched raw materials and lot coding by a vendor of TopPop,
(ii) write down of perishable inventory as the summer production season wound
down and a customer who ended production early who would not reimburse TopPop
for unused raw materials. The targeted cost of goods for TopPop products is
approximately 51% and we expect to achieve that margin in future years. Four
semi-automated cartoning machines were purchased by TopPop to significantly
reduce labor costs and will be installed during 1st quarter 2022 and the
referenced batching and coding errors by the vendor have been process corrected
and approved by the customer.
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Officers Compensation
Officers' compensation was $627,000 for the year ended December 31, 2021 and
$415,000 for the year ended December 31, 2020. This increase of $212,000 was due
to bonus payments and additional compensation for new officers.
Fulfillment Costs
Fulfillment costs were $287,466 for the year ended December 31, 2021 and
$536,255 for the year ended December 31, 2020. This decrease of $248,789 was
primarily due to lower QVC sales in 2021.
Professional and Consulting Fees
Professional and consulting fees were $2,874,968 for the year ended December 31,
2021, and $962,481 for the year ended December 31, 2020, an increase of
$1,912,487. Professional and consulting fees consist primarily of legal and,
accounting services. The increase from 2020 to 2021 was primarily related to
additional expenses of approximately $1.6 million from the newly acquired TopPop
in 2021.
Royalties and Gain from Cancellation of Accrued Royalties
We accrued royalty expenses of $160,119 and recognized a gain from the
cancellation of royalties of $577,590 for the year ended December 31, 2021
compared to expenses of $497,253 for the year ended December 31, 2020. Royalties
decreased due primarily to the cancellation of accrued, but unpaid, royalties as
part of the amended licensing agreement with Hooters signed in the fourth
quarter of 2021.
Selling and Marketing
Selling and Marketing expenses were $716,727 and $801,445 for the years ended
December 31, 2021 and 2020, respectively, which was a decrease of $84,718, or
11%. Decrease is primarily due to the concentration of operating expenses
towards the acquisition of TopPop in 2021 rather than on marketing activities.
We expect marketing expenses to increase somewhat in 2022.
Travel and Entertainment
Travel and entertainment expenses were $194,785 and $41,208 for the years ended
December 31, 2021 and 2020, respectively, an increase of $153,577, or 373%,
between the periods. The increase was a result of limited travel during the year
ended December 31, 2020, due to the COVID-19 environment. During the year ended
December 31, 2021, our personnel attended numerous product development events.
Other Operating Expenses
Other operating expenses were $6,309,392 and $1,462,922 for the years ended
December 31, 2021 and 2020, respectively, an increase of $4,846,470, or 373%,
between the periods. The increase was primarily related to amortization of
intangibles of approximately $1,300,000, payroll costs of approximately
$2,200,000, equity based compensation to employees of approximately $891,000 and
rent expense of 424,523. Payroll costs have increased due to hiring additional
personnel and with the acquisition of TopPop in 2021.
Net Operating Loss
We had a loss from operations of $10,261,585 for the year ended December 31,
2021, and $3,198,092 for the year ended December 31, 2020, an increase of
$7,063,493 or approximately 221%. Net operating loss increased as set forth
above.
Other Income (Expense)
We had other nonoperating expenses of $243,291 for the year ended December 31,
2021, primarily due to interest expense of $271,749, while we had a loss on
investment in and receivable from Can B Corp of $483,472 for the year ended
December 31, 2020.
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Net (income) Loss attributable to Noncontrolling Interests in Subsidiaries
Net income attributable to noncontrolling interests in subsidiaries represented
49% of the net income of Bellissima and BiVi (of which we own 51%) and is
accounted for as a increase in the net loss attributable to us. Net loss
attributable to noncontrolling interests in subsidiaries for the year ended
December 31, 2021 was $40,882 compared to net loss of $109,962 for the year
ended December 31, 2020. With the acquisition of United, there is no longer a
noncontrolling interest associated with this entity, as it is now a 100%-owned
subsidiary, see note 5 in the Notes to the Consolidated Financial Statements.
Net Loss Attributable to Iconic Brands, Inc.
The net loss attributable to Iconic Brands, Inc. was $10,463,994 for the year
ended December 31, 2021 and $3,571,602 for the year ended December 31, 2020, an
increase of $6,892,392 or approximately 193%. The net loss from Iconic Brands
increased primarily because of the items described above.
Liquidity and Capital Resources
Introduction
During the year ended December 31, 2021, and December 31, 2020, we had negative
operating cash flows. Our cash on hand as of December 31, 2021, was $2,190,814.
During 2021, cash used in operations was $4,090,659. Of the equity financing
that we entered into on July 26, 2021, the Company received approximately $15.6
million, net of fees, from the first tranche and approximately $10.8 million,
net of fees, from the second tranche which closed on January 5, 2022. With the
funding of the second tranche of the equity financing, we believe we have
sufficient capital to fund our operations in the near term.
Going Concern
Our cash, current assets, total assets, current liabilities, and total
liabilities as of December 31, 2021 and December 31, 2020, respectively, are as
follows:
December 31, December 31,
2021 2020 Change
Cash $ 2,190,814 $ 457,041 $ 1,733,773
Total Current Assets 4,346,003 1,298,999 3,047,004
Total Assets 50,706,656 1,354,892 49,351,764
Total Current Liabilities 16,650,909 3,183,015 13,467,894
Total Liabilities
31,593,601 3,183,015 28,410,586
Our cash increased $1,733,773 and total current assets increased $3,047,004
because of our equity financing and acquisition of TopPop, respectively. Our
total current liabilities increased $13,467,894 primarily because of the current
portion of contingent consideration, notes payable issued to the former owners
of TopPop as consideration in the acquisition and operating lease liabilities
from the warehouses that TopPop leases. Our total liabilities increased
$28,410,586 as a result of recognition of contingent payments associated with
the TopPop acquisition of $20,204,505. Our stockholders' equity increased from a
deficit of $1,828,123 to an equity balance of $19,113,055 due primarily to the
issuance of stock associated with the TopPop acquisition and the equity
financing.
In order to repay our obligations in full or in part when due, we may be
required to raise significant capital from other sources and to execute on our
business plans for TopPop. There is no assurance, however, that we will be
successful in these efforts. Please see the Risk Factors beginning on page 12 of
this Annual Report Form 10-K.
Cash Requirements
Our cash on hand as of December 31, 2021 was $2,190,814. On January 5, 2022, the
Company closed the second tranche of the equity financing and sold 12,257 shares
of Series A-2 Preferred Stock, 4,781,004 shares of common stock and warrants to
purchase 40,018,583 shares of common stock for approximately $10.8 million, net
of fees. Such net proceeds are expected to be used by the Company for domestic
and international expansion of its Bellissima brand, the expansion of the
production facilities of the Company's TopPop subsidiary, new product launches,
marketing, and other general working capital purposes. We anticipate that the
funding from financing activities and product sales will be enough to sustain us
for the next 12 months from the date of this filing.
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Sources and Uses of Cash
Operations
Our net cash used in operating activities for the years ended December 31, 2021
and 2020 was $4,090,659 and $1,070,853, respectively, an increase of $3,019,806.
The use for operating activities included a net loss of $10,504,876. Changes to
working capital included increases of $4,914,745 related to accounts receivable,
$474,085 for inventory partially offset by decrease of $2,298,147 related to
accounts payable and accrued expenses. The net loss was further offset by
non-cash transactions of $2,469,592 related to equity compensation, $1,327,614
related to amortization of intangibles.
Investments
For the year ended December 31, 2021, we used cash for investing activities of
$8,230,906. This cash was used for the acquisition of TopPop, United and
purchases of fixed assets. For the year ended December 31, 2020, we used cash
for investing activities of $19,708 for the purchase of furniture and equipment.
Financing
Our net cash provided from financing activities for the year ended December 31,
2021 was $14,055,338 compared to $1,283,964 of cash provided by financing
activities for the year ended December 31, 2020. The significant inflow of cash
in 2021 represents proceeds from the financing transaction of approximately
$15.6 million, net of fees, and proceeds from notes payable of approximately
$976,000, partially offset by the payment of notes payable of $2,315,380.
Critical Accounting Policies and Estimates
See Note 2 of the Notes to Consolidated Financial Statements for the years ended
December 31, 2021 and 2020.
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