UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________ to ________
Commission
file number:
(Exact Name of Registrant as Specified in Its Charter)
| (State or Other Jurisdiction | (I.R.S. Employer | |
| of Incorporation or Organization) | Identification No.) | |
| (Address of Principal Executive Offices) | (Zip Code) |
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or Section 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
☒
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.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller
Reporting Company | |
| Emerging
Growth Company |
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 pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐
Yes ☒
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The
|
As of May 23, 2022, there were shares of the registrant’s common stock outstanding.
VINCO VENTURES, INC.
TABLE OF CONTENTS
| 2 |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q for the period ended March 31, 2022 (the “Quarterly Report”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements relate to future events including, without limitation, our ability to raise capital, our operational and strategic initiatives or our future financial performance. We have attempted to identify forward-looking statements by using terminology such as “anticipates,” “believes,” “expects,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predict,” “should” or “will” or the negative of these terms or other comparable terminology. These statements are only predictions; uncertainties and other factors may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels or activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Our expectations are as of the date this Quarterly Report is filed, and we do not intend to update any of the forward-looking statements after the date this Quarterly Report is filed to confirm these statements to actual results, unless required by law.
You should not place undue reliance on forward looking statements. The cautionary statements set forth in this Quarterly Report identify important factors which you should consider in evaluating our forward-looking statements. These factors include, among other things:
| ● | Our ability to effectively execute our business plans including transitioning from being focused on end-to-end consumer product innovation, development, and commercialization to being focused on digital media, advertising and content technologies innovation, development, and commercialization; | |
| ● | Our ability to manage our expansion, growth and operating expenses; | |
| ● | Our ability to protect our brands, reputation and intellectual property rights; | |
| ● | Our ability to obtain adequate financing to support our development plans; | |
| ● | Our ability to repay our debts; | |
| ● | Our ability to rely on third-party suppliers, content contributors, developers, and other business partners; | |
| ● | Our ability to evaluate and measure our business, prospects and performance metrics; | |
| ● | Our ability to compete and succeed in a highly competitive and evolving industry; | |
| ● | Our ability to respond and adapt to changes in technology and consumer behavior; | |
| ● | Our dependence on information technology, and being subject to potential cyberattacks, security problems, network disruptions, and other incidents; | |
| ● | Our ability to comply with complex and evolving laws and regulations including those relating to privacy, data use and data protection, content, competition, safety and consumer protection, e-commerce, digital assets and other matters, many of which are subject to change and uncertain interpretation; | |
| ● | Our ability to enhance disclosure and financial reporting controls and procedures and remedy the existing weakness; | |
| ● | Risks in connection with completed or potential acquisitions, dispositions and other strategic growth opportunities and initiatives; | |
| ● | Risks related to the completion of our planned spin-off of Cryptyde, Inc. (“Cryptyde”) and the achievement of our expected benefits to stockholders from this planned spin-off; | |
| ● | Risks related to the integration of completed acquisitions and the achievement of our expected benefits from our acquisitions and investments, including, but not limited to, our investment in Lomotif Private Limited (“Lomotif”) through ZVV Media Partners, LLC (“ZVV”), our joint venture with ZASH Global Media and Entertainment Corporation (“ZASH”), and our acquisitions of AdRizer, LLC (“AdRizer”) and Honey Badger Media, LLC (“Honey Badger”); | |
| ● | Various risks related to health epidemics, pandemics and similar outbreaks, such as the coronavirus disease 2019 (“COVID-19”) pandemic, which may have material adverse effects on our business, financial position, results of operations and/or cash flows; | |
| ● | Other risk factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2021. |
Specifically, our investment in Lomotif and related growth initiatives may fail to deliver our expected benefits, for reasons relating to including, but not limited to, our and Lomotif’s capital requirements and whether we will be able to raise capital as needed; our ability to successfully develop the business and revenue models for Lomotif’s social media platform; whether Lomotif can retain its existing users and attract new users to its platform; whether our cross-platform user engagement strategy will enhance our ability to monetize the Lomotif platform; whether Lomotif can attract and maintain relationships with influencers, artists, and other content creators or publishers who will provide compelling content to the platform; our ability to integrate the operations of Lomotif within the Vinco Ventures conglomerate and create synergies between Lomotif and other businesses and assets we have acquired or plan to acquire, including AdRizer; the ability of Lomotif’s platform and associated promotional activities to compete effectively for user engagement; Lomotif’s ability to retain reliable developers, vendors and suppliers to support its operations; failure of third parties to promote Lomotif’s platform and associated products and services effectively or at all; breaches of network and data security measures; a disruption or failure of networks and information systems; Lomotif’s ability to protect its patents and other intellectual property and operate its businesses without infringing upon the intellectual property rights of others; changes in local, state, federal and international laws and regulations that may adversely affect Lomotif’s business or prospects; risk of attempts at unauthorized or improper use of the platform and resulting damages to Lomotif’s reputation; the inability to maintain or increase the value of the Lomotif brands; the inability to successfully respond to rapid changes in technologies and user tastes and preferences and remain competitive; the impact of any legal proceedings or governmental action against Lomotif; and whether Lomotif will continue to receive the services of key management and retain qualified personnel.
In addition, AdRizer’s advertising business and our efforts to integrate AdRizer with our other businesses or investments such as Lomotif and Honey Badger are subject to risks including, but not limited to, AdRizer is faced with intensive competition in the digital advertising industry; high customer concentration, long sales cycles and payment-related risks may subject AdRizer to significant fluctuations or declines in revenues; the reliability of operational and performance issues with AdRizer’s platform, whether real or perceived, including a failure to respond to technological changes or to upgrade its technology systems, may adversely affect AdRizer’s business and operational results; AdRizer’s technology solutions are dependent on third parties including data hosting service, data providers and various technology, software, products and services from third parties or available as open source; AdRizer’s business practices are subject to governmental regulation, legal requirements or industry standards relating to consumer privacy, data protection and consumer protection, and unfavorable changes or failure by AdRizer to comply with these laws and regulations could substantially harm its business; and to the extent the use of “third-party cookies” or other technology to uniquely identify devices is rejected by Internet users, restricted by government regulations, blocked or limited by technical changes on end users’ devices and web browsers, AdRizer’s performance may decline and AdRizer may lose advertisers.
These and other factors discussed above could cause results to differ materially from those expressed in the estimates made by any independent parties and by us.
| 3 |
USE OF MARKET AND INDUSTRY DATA
This Quarterly Report includes market and industry data that we have obtained from third-party sources, including industry publications, as well as industry data prepared by our management on the basis of its knowledge of and experience in the industries in which we operate (including our management’s estimates and assumptions relating to such industries based on that knowledge). Management has developed its knowledge of such industries through its experience and participation in these industries. While our management believes the third-party sources referred to in this Quarterly Report are reliable, neither we nor our management have independently verified any of the data from such sources referred to in this Quarterly Report or ascertained the underlying economic assumptions relied upon by such sources. Furthermore, internally prepared and third-party market prospective information, in particular, are estimates only and there will usually be differences between the prospective and actual results, because events and circumstances frequently do not occur as expected, and those differences may be material. Also, references in this Quarterly Report to any publications, reports, surveys or articles prepared by third parties should not be construed as depicting the complete findings of the entire publication, report, survey or article. The information in any such publication, report, survey or article is not incorporated by reference in this Quarterly Report.
TRADEMARKS, SERVICE MARKS AND TRADE NAMES
Solely for convenience, we refer to trademarks in this Quarterly Report without the ® or the ™ or symbols, but such references are not intended to indicate that we will not assert, to the fullest extent under applicable law, our rights to our own trademarks. Other service marks, trademarks and trade names referred to in this Quarterly Report, if any, are the property of their respective owners, although for presentational convenience we may not use the ® or the ™ symbols to identify such trademarks.
OTHER PERTINENT INFORMATION
Unless the context otherwise indicates, when used in this Quarterly Report, the terms “Vinco Ventures”, “Vinco”, “we,” “us,” “our,” the “Company” and similar terms refer to Vinco Ventures, Inc., a Nevada corporation formerly known as Edison Nation, Inc., Xspand Products Lab, Inc. and Idea Lab Products, Inc., and all of our consolidated subsidiaries and variable interest entities.
| 4 |
PART I - FINANCIAL INFORMATION
Vinco Ventures, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
| March 31, 2022 | December 31, 2021 | |||||||
| Assets* | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash - short term | - | |||||||
| Short-term investments | ||||||||
| Accounts receivable, net | ||||||||
| Inventory, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Loans held-for-investment- current portion | ||||||||
| Due from related party | ||||||||
| Total current assets | ||||||||
| Restricted cash long-term | - | |||||||
| Property and equipment, net | ||||||||
| Right of use assets, net | ||||||||
| Loan held-for-investment | ||||||||
| Loan held-for-investment - related parties | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Cost method investments | ||||||||
| Other assets | - | |||||||
| Total assets | $ | $ | ||||||
| Liabilities and stockholders’ equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other current liabilities | ||||||||
| Current portion of operating lease liabilities | ||||||||
| Current portion of convertible notes payable, net of debt issuance costs of $ | ||||||||
| Current portion of notes payable | - | |||||||
| Current portion of notes payable - related parties | ||||||||
| Total current liabilities | ||||||||
| Operating lease liabilities, net of current portion | ||||||||
| Convertible notes payable - related parties, net of current portion | ||||||||
| Notes payable -related parties, net of current portion | ||||||||
| Convertible notes payable, net of current portion, net of debt issuance costs of $ | - | |||||||
| Derivative liability | ||||||||
| Deferred tax liability | ||||||||
| Deferred acquisition purchase price | - | |||||||
| Total Liabilities | $ | $ | ||||||
| Commitments and contingencies (Note 14) | ||||||||
| Stockholders’ equity (deficit) | ||||||||
| Common stock, $par value, shares authorized; and shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively | $ | $ | ||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity (deficit) attributable to Vinco Ventures, Inc. | ( | ) | ||||||
| Noncontrolling interest | ||||||||
| Total stockholders’ equity (deficit) | ( | ) | ||||||
| Total liabilities and stockholders’ equity (deficit) | $ | $ | ||||||
| * |
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 5 |
Vinco Ventures, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| For the Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Revenues | ||||||||
| Product sales | $ | $ | ||||||
| Digital advertising and media sales | ||||||||
| Licensing revenues | ||||||||
| Total revenue, net | ||||||||
| Cost of revenues | ||||||||
| Packaging products | ||||||||
| Digital advertising and media sales | ||||||||
| Total costs of revenue | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| Selling, general and administrative | ||||||||
| Total Operating Expenses | ||||||||
| Operating loss | ( | ) | ( | ) | ||||
| Other income (expense): | ||||||||
| Interest income (expense) | ( | ) | ( | ) | ||||
| Loss on issuance of warrants | ( | ) | ( | ) | ||||
| Change in fair value of warrant liability | ( | ) | ||||||
| Other income (loss) | ( | ) | ||||||
| Total other income (expense) | ( | ) | ( | ) | ||||
| Loss before income taxes | ( | ) | ( | ) | ||||
| Income tax expense | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Net (loss) income attributable to noncontrolling interests | $ | ( | ) | $ | ||||
| Net loss attributable to Vinco Ventures, Inc. from continuing operations | $ | ( | ) | $ | ( | ) | ||
| Net Loss from discontinued operations | ( | ) | ||||||
| Net loss attributable to Vinco Ventures, Inc. | ( | ) | ( | ) | ||||
| Net loss per share- basic and diluted | ||||||||
| Net loss per share- continuing operations | $ | ( | ) | $ | ( | ) | ||
| Net loss per share- discontinued operations | ( | ) | ||||||
| Net loss per share | $ | ( | ) | $ | ( | ) | ||
| Weighted Average Number of Common Shares Outstanding -basic and diluted | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 6 |
Vinco Ventures, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
| Retained | ||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-in | Earnings Accumulated | Non-controlling | Total Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | (Deficit) | Interest | Equity | |||||||||||||||||||||||||
| Balance, January 1, 2021 | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Sale of common stock - investors | - | - | - | - | ||||||||||||||||||||||||||||
| Issuance of common stock - note holders | - | - | - | - | ||||||||||||||||||||||||||||
| Issuance of common stock - consultants | - | - | - | - | ||||||||||||||||||||||||||||
| Issuance of common stock - employees | - | - | - | - | ||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of warrants | - | - | - | - | ||||||||||||||||||||||||||||
| Exercise of warrant liabilities | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Issuance of common stock for acquisition | - | - | - | - | ||||||||||||||||||||||||||||
| Share-based compensation | - | - | - | - | ||||||||||||||||||||||||||||
| Net income | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance, March 31, 2021 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance, January 1, 2022 | - | ( | ) | |||||||||||||||||||||||||||||
| Issuance of common stock - exercise of warrants | - | - | - | - | ||||||||||||||||||||||||||||
| Conversions under notes payable | ||||||||||||||||||||||||||||||||
| Offering costs upon exercise of warrants | - | - | - | - | ( | ) | - | - | ( | ) | ||||||||||||||||||||||
| Issuance of common stock - consultants | ( | ) | - | |||||||||||||||||||||||||||||
| Share-based compensation | - | - | - | - | - | |||||||||||||||||||||||||||
| Exercise of warrant liabilities | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Net income | - | - | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 7 |
Vinco Ventures, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Cash Flow from Operating Activities | ||||||||
| Net loss attributable to Vinco Ventures, Inc. | $ | ( | ) | $ | ( | ) | ||
| Net (loss) income attributable to noncontrolling interest | ( | ) | ||||||
| Net loss | ( | ) | ( | ) | ||||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Discontinued operations | ( | ) | ||||||
| Amortization of financing costs | ||||||||
| Share-based compensation | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of right of use asset | ||||||||
| Change in fair value of short-term investment | ||||||||
| Loss on issuance of warrants | ||||||||
| Change in fair value of warrant liability | ( | ) | ||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ||||||
| Prepaid expenses and other assets | ( | ) | ||||||
| Accounts payable | ( | ) | ( | ) | ||||
| Accrued expenses and other liabilities | ( | ) | ( | ) | ||||
| Net Cash used in Operating Activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Issuance of loans held-for-investment-related parties | ( | ) | ||||||
| Issuance of loans held-for-investment | ( | ) | ( | ) | ||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Purchase of intangible assets | ||||||||
| Acquisition of business, net of cash acquired (Note 3) | ( | ) | ||||||
| Net Cash used in Investing Activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Net repayments under line of credit | ( | ) | ||||||
| Net (repayments) borrowings under convertible notes payable | ( | ) | ||||||
| Net borrowings under notes payable | ||||||||
| Net repayments under notes payable | ( | ) | ( | ) | ||||
| Net repayments under notes payable - related parties | ( | ) | ||||||
| Fees paid for financing costs | ( | ) | ||||||
| Net proceeds from exercise of warrants | ||||||||
| Net proceeds from issuance of common stock | ||||||||
| Net Cash provided by Financing Activities | ||||||||
| Net Increase in Cash and Cash Equivalents | ||||||||
| Cash and Cash Equivalents - Beginning of Period | ||||||||
| Cash and Cash Equivalents - End of Period | $ | $ | ||||||
| Supplemental Disclosures of Cash Flow Information: | ||||||||
| Cash paid during the year for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ( | ) | ||||
| Noncash investing and financing activity: | ||||||||
| Issuance of warrants to note holders | $ | $ | ||||||
| Deferred acquisition costs | $ | $ | ||||||
| Shares issued to note holders | $ | $ | ||||||
| Conversions under notes payable | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 8 |
Vinco Ventures, Inc. and Subsidiaries
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Basis of Presentation and Nature of Operations
The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and with Form 10-Q and Article 10 of Regulation S-X of the United States Securities and Exchange Commission (the “SEC”). Accordingly, they do not contain all information and footnotes required by GAAP for annual financial statements. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries and consolidated variable interest entities. All intercompany balances and transactions have been eliminated in consolidation. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of March 31, 2022 and the results of operations, changes in stockholders’ equity, and cash flows for the periods presented. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the operating results for the full fiscal year for any future period.
These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. The Company’s accounting policies are described in the Notes to Consolidated Financial Statements in its Annual Report on Form 10-K for the year ended December 31, 2021, and updated, as necessary, in this Quarterly Report.
As used herein, the terms the “Company,” “Vinco Ventures”, “Vinco” “we,” “us,” “our” and similar terms refer to Vinco Ventures, Inc., a Nevada corporation incorporated on July 18, 2017 and when appropriate, its wholly-owned and majority-owned operating subsidiaries and consolidated variable interest entities. The Company was formerly known as Edison Nation Inc., Xspand Products Lab, Inc. and Idea Lab Products, Inc. prior to its name change to “Vinco Ventures, Inc” on November 10, 2020.
Vinco Ventures is focused on digital media, advertising and content technologies.
As
of March 31, 2022, Vinco Ventures wholly-owned subsidiaries included: AdRizer, LLC (“AdRizer”), Cryptyde, Inc.
(“Cryptyde”), Cryptyde Shared Services, LLC, TBD Safety, LLC, Vinco Ventures Shared Services LLC, Ferguson Containers, Inc.
(“Ferguson”), CBAV1, LLC, Pirasta, LLC (“Pirasta”), Honey Badger Media LLC (“Honey Badger”), EVNT
Platform LLC dba Emmersive Entertainment (“EVNT”), BlockHiro, LLC and Edison Nation Holdings, LLC. Edison Nation Holdings,
LLC is the single member of Edison Nation, LLC and Everyday Edisons, LLC. Edison Nation, LLC is the single member of Safe TV Shop, LLC.
Vinco Ventures owns a
| 9 |
Liquidity
For
the three months ended March 31, 2022, our operations lost $
As
of March 31, 2022, we had total current assets
of $
Our principal sources of capital are our cash and cash equivalents, and cash generated from the sale of our securities. Our principal uses of capital are operating expenses, including amounts required to fund working capital and capital expenditures, acquisition costs, loans and capital contributions to our subsidiaries and consolidated variable interest entities. We currently anticipate that our available funds and cash flow from financing activities will be sufficient to meet our operational cash needs and fund our planned acquisitions and investments for at least the next twelve months from the issuance of the financial statements.
Note 2 — Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Vinco Ventures, Inc. and its wholly-owned subsidiaries, majority owned subsidiaries and consolidated variable interest entities. All intercompany balances and transactions have been eliminated.
Use of Estimates
Preparation of financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, together with amounts disclosed in the related notes to the financial statements.
| 10 |
The Company’s significant estimates used in these financial statements include, but are not limited to, accounts receivable reserves, the valuation allowance related to the Company’s deferred tax assets, the recoverability and useful lives of long-lived assets, debt conversion features, stock-based compensation, certain assumptions related to the valuation of the reserved shares and the assets acquired and liabilities assumed related to the Company’s acquisitions. Certain of the Company’s estimates could be affected by external conditions, including those unique to the Company and general economic conditions. It is reasonably possible that these external factors could have an effect on the Company’s estimates and could cause actual results to differ from those estimates.
Significant Accounting Policies
Significant accounting policies are disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. There have been no changes in such policies or the application of such policies during the three months ended March 31, 2022 except as follows with regard to revenue recognition in connection with AdRizer:
Revenue Recognition
Generally, the Company considers all revenues as arising from contracts with customers. Revenue is recognized based on the five-step process outlined in the Accounting Standards Codification (“ASC”) 606:
Step 1 – Identify the Contract with the Customer – A contract exists when (a) the parties to the contract have approved the contract and are committed to perform their respective obligations, (b) the entity can identify each party’s rights regarding the goods or services to be transferred, (c) the entity can identify the payment terms for the goods or services to be transferred, (d) the contract has commercial substance and it is probable that the entity will collect substantially all of the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer.
Step 2 – Identify Performance Obligations in the Contract – Upon execution of a contract, the Company identifies as performance obligations each promise to transfer to the customer either (a) goods or services that are distinct, or (b) a series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer. To the extent a contract includes multiple promised goods or services, the Company must apply judgment to determine whether the goods or services are capable of being distinct within the context of the contract. If these criteria are not met, the goods or services are accounted for as a combined performance obligation.
Step 3 – Determine the Transaction Price – When (or as) a performance obligation is satisfied, the Company shall recognize as revenue the amount of the transaction price that is allocated to the performance obligation. The contract terms are used to determine the transaction price. Generally, all contracts include fixed consideration. If a contract did include variable consideration, the Company would determine the amount of variable consideration that should be included in the transaction price based on expected value method. Variable consideration would be included in the transaction price, if in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract would not occur.
Step 4 – Allocate the Transaction Price – After the transaction price has been determined, the next step is to allocate the transaction price to each performance obligation in the contract. If the contract only has one performance obligation, the entire transaction price will be applied to that obligation. If the contract has multiple performance obligations, the transaction price is allocated to the performance obligations based on the relative standalone selling price (SSP) at contract inception.
Step 5 – Satisfaction of the Performance Obligations (and Recognize Revenue) – Revenue is recognized when (or as) goods or services are transferred to a customer. The Company satisfies each of its performance obligations by transferring control of the promised good or service underlying that performance obligation to the customer. Control is the ability to direct the use of and obtain substantially all of the remaining benefits from an asset. It includes the ability to prevent other entities from directing the use of and obtaining the benefits from an asset. Indicators that control has passed to the customer include: a present obligation to pay; physical possession of the asset; legal title; risks and rewards of ownership; and acceptance of the asset(s). Performance obligations can be satisfied at a point in time or over time.
Product
The Company’s product revenues are recognized when control of the goods are transferred to the customer, which is upon shipment of the finished goods to the customer. All sales have fixed pricing and there are currently no material variable components included in the Company’s revenue. Additionally, the Company will issue credits for defective merchandise, historically these credits for defective merchandise have not been material. Based on the Company’s analysis of the revenue standards, revenue recognition from the sale of finished goods to customers, which represents the majority of the Company’s revenues, was not impacted by the adoption of the new revenue standards
| 11 |
Digital media advertising and licensing
The Company’s digital media advertising revenues are generated primarily from the posting of original digital content through third-party online platforms which are then delivered to users of the online platform across the customer’s digital advertising platform and becomes monetizable to the Company, which the Company concludes is its performance obligation. The Company recognizes revenue when control of the services are transferred to customers and the transaction price is determined by the third-party online platform. Revenue from the digital media platform is primarily recognized based on impressions delivered to customers. An “impression” is delivered when an advertisement appears on pages viewed by users. Licensing revenues are derived from the sale of a licensee’s products that incorporates the Company’s intellectual property. Royalty revenues are recognized during the quarter in which the Company receives a report from the licensee detailing the shipment of products that incorporate the Company’s intellectual property, which receipt is in the quarter following the licensee’s sale of such products to its customers. Royalties are calculated as a percentage of the revenues received by the Company’s licensees on sales of products incorporating the Company’s intellectual property. For AdRizer, FASB ASC 606 requires an entity to determine whether it is a principal (recognizes revenue at the gross amount) or an agent (recognizes revenue at the net amount) for each promised good or service. Based on the FASB guidance, the Company has determined that AdRizer is the principal for each promised good or service, thus, revenue is recognized at the gross amount of the transactions. Revenue from traffic sales and traffic management services are generally recognized at the end of each month when the performance obligation is satisfied.
Note 3 — Acquisitions and Divestitures
Acquisitions
AdRizer, LLC
On
February 11, 2022, the Company acquired all of the outstanding equity interests of AdRizer and cancelled all outstanding performance
units under AdRizer’s phantom equity plan (“Performance Units”) pursuant to that certain Unit Purchase Agreement among
the Company, AdRizer, the members of AdRizer and the holders of Performance Units of AdRizer (collectively, the “Seller Members”),
and Innovative Assets LLC, in its capacity as the sellers’ representative (the “Unit Purchase Agreement”), resulting
in AdRizer becoming a wholly-owned subsidiary of the Company. The purchase price paid and payable consists of (i) $
If
a Company change of control transaction occurs on or prior to January 1, 2024, the issuance of the Purchase Price Equity may be accelerated
to allow each Seller Member to participate in such transaction on the same terms as other common stockholders of the Company (the “Acceleration”),
provided that, to the extent that the consideration to be paid to the common stockholders of the Company in such transaction does not
consist entirely of cash or free-trading securities listed on a national stock exchange, (i) each Seller Member may elect the Acceleration
except with respect to Purchase Price Equity issuable in respect of the Performance Units, and (b) if any Seller Member has not elected
the Acceleration, to the extent permitted and with respect to the Performance Units, the Company shall (i) pay each such applicable Seller
Member a cash amount equal to
| 12 |
Upon the closing of the acquisition, AdRizer entered into a new employment agreement with its chief executive officer, Kenneth Bond. Certain Seller Members including those who are employees, officers, directors or managers of AdRizer and their affiliates also agreed to be bound by three-year post-closing non-competition and non-solicitation restrictive covenants pursuant to the Unit Purchase Agreement.
The Company has accounted for the AdRizer acquisition as a business combination under the acquisition method of accounting. The Company has classified the Purchase Price Equity as a deferred acquisition liability.
The purchase price allocation presented below is preliminary given the recent closing of the AdRizer acquisition. We are in the process of evaluating additional information necessary to finalize the valuation of assets acquired and liabilities assumed as of the acquisition date including, but not limited to, post-closing adjustments to the working capital acquired and identification and valuation of developed technology and intangible assets acquired, fair value of AdRizer’s investment in Mind Tank, LLC, as well as the fair value of the equity consideration transferred. The final fair value determination could result in material adjustments to the values presented in the preliminary purchase price allocation, including other intangible assets, goodwill and the related tax impact of such adjustments. We expect to finalize the purchase price allocation within the measurement period.
| AdRizer | ||||
| Cash paid | $ | |||
| Fair value of deferred acquisition price | ||||
| Purchase consideration | $ | |||
| AdRizer | ||||
| Cash and cash equivalents | $ | |||
| Accounts receivable | ||||
| Other current assets | ||||
| Property and equipment | ||||
| Intangible assets, including goodwill | ||||
| Total assets acquired | ||||
| Accounts payable and accrued expenses | ||||
| Total liabilities assumed | ||||
| $ | ||||
The
Company recognized $
| 13 |
The activity of AdRizer is included in the Company’s consolidated financial statements from the acquisition date to March 31, 2022. The amounts of revenue and earnings of AdRizer from the acquisition date of February 11, 2022 to March 31, 2022 are as follows:
| Revenue | $ | |||
| Net income |
The following represents the pro forma consolidated statement of operations as if AdRizer had been included in the consolidated results of operations of the Company for the three month period ended March 31, 2022 and 2021. The pro forma financial information is for illustrative purposes only, does not include the pro forma adjustments that would be required under Regulation S-X for pro forma financial information, is not necessarily indicative of the financial position or results of operations that would have been realized if the acquisition had been completed on the dates indicated, does not reflect synergies that might have been achieved, nor is it indicative of future operating results or financial position. The pro forma information is based upon currently available information and does not reflect any additional depreciation or amortization that would have been charged assuming fair value adjustments to developed technology and other intangible assets, together with the consequential tax effects, which have not yet been finalized.
| For the Three Months | ||||||||
| Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Revenues, net | ||||||||
| Net loss attributable to Vinco Ventures, Inc. | ( | ) | ( | ) | ||||
Asset Acquisitions
Emmersive Entertainment Asset Contribution
On
April 17, 2021, Vinco and EVNT entered into (and closed on) a certain Asset Contribution Agreement (“Asset Contribution Agreement”)
with Emmersive Entertainment, Inc. (“Emmersive”), pursuant to which Emmersive contributed/transferred to the Company the
assets used for Emmersive’s business, which include digital assets, software and certain physical assets (the “Contributed
Assets”) in consideration for, among other things, the Company assuming certain obligations of Emmersive, hiring certain employees,
and issuing
Earn-Out Target 1: .
Earn-Out Target 2:
| 14 |
Earn-Out Target 3: .
Earn Out Target 4: .
On
April 17, 2021, the transactions under both the Asset Contribution Agreement and Amended Operating Agreement closed. The Preferred Units
and Conditional Preferred Units were valued at $
The following table summarizes the aggregate purchase price consideration paid for the acquisition of the asset:
| April 17, 2021 | ||||
| Fair value of shares reserved for future issuance and earn out shares | $ | |||
| Fair value of assumed notes payable | ||||
| Total | ||||
On February 25, 2022, Emmersive, certain former shareholders of Emmersive (collectively, the “Emmersive Parties”), the Company and EVNT entered into a Termination and Release Agreement, terminating certain transaction documents dated April 17, 2021, in connection with which the Emmersive Parties and Cryptyde also entered into a Milestone Agreement for the earnout shares to be earned and any remaining consideration to be paid by Cryptyde with an effective date of both the agreements upon the spin-off of Cryptyde being declared effective by the SEC (the “Effective Date”). Upon the Effective Date, the agreements will release the Company of the obligation to deliver the additional earn-out shares provided under the Asset Contribution Agreement. The contingent consideration to be paid by Cryptyde upon the successful completion of the spin-off are described below:
Earned Shares: Issuance of registered shares of common stock of Cryptyde (“Cryptyde Shares”) within 30 days after the effectiveness of our first registration statement following the spin-off.
Milestone
1:
Milestone
2:
Milestone
3:
| 15 |
Divestitures
CBAV1, LLC Divestiture
On
March 12, 2021, the bankruptcy court approved the sale of CBAV1, LLC’ assets used for its business of selling children’s
products to BTL Diffusion SARL, the winning bidder, at the auction held on March 10, 2021 and March 11, 2021 for a total sum
of $
A first closing of the CBAV1-BTL Transaction occurred on April 16, 2021, with the transfer of assets and release of funds completed on April 21, 2021. Contemporaneously with the closing on April 21, 2021, a certain license agreement between CBAV1 and Edison Nation, LLC terminated and any remaining operational assets of Edison Nation were transferred to BTL.
The table below shows the assets that the Company transferred to BTL and the components of the loss on discontinued operations:
April 21, 2021 | ||||
| Cash received from buyer | ||||
| Accounts receivable | ( | ) | ||
| Inventory | ( | ) | ||
| Prepaid expenses | ( | ) | ||
| Intangible assets | ( | ) | ||
| Loss on divestiture | ||||
| Operating loss of discontinued operations | ||||
| Bankruptcy costs | ||||
| Loss on discontinued operations | ||||
Expected Spin-Off of Cryptyde, Inc.
On November 8, 2021, our subsidiary Cryptyde initially filed, and on January 25, 2022, March 18, 2022 and May 13, 2022 amended, a Form 10 registration statement with the SEC (the “Form 10”) in connection with our planned spin-off of Cryptyde, subject to certain conditions as described in the registration statement, including the effectiveness of the registration statement, receipt of an opinion of counsel to the effect that, among other things, the spin-off and related transactions should qualify as tax-free for United States federal income tax purposes under Sections 368(a)(1)(D) and 355 of the Internal Revenue Code, and Nasdaq having approved the listing of Cryptyde’s common stock. Cryptyde holds our packaging, Bitcoin mining services, and Web3 (decentralized internet) products businesses.
On May 16, 2022, the Form 10 was declared effective. The record date for the spin-off is May 18, 2022 and the distribution date is scheduled for May 27, 2022. Upon completion of the spin-off, Cryptyde would become an independent, publicly traded company.
Note 4 — Variable Interest Entities
The Company is involved in the formation of various entities considered to be Variable Interest Entities (“VIEs”). The Company evaluates the consolidation of these entities as required pursuant to ASC Topic 810 relating to the consolidation of VIEs.
The Company’s determination of whether it is the primary beneficiary of VIE is based in part on an assessment of whether or not the Company and its related parties are exposed to the majority of the risks and rewards of the entity. Typically, the Company is entitled to substantially all or a portion of the economics of these VIEs. The Company is the primary beneficiary of the VIE entities. The assets of the VIEs can be used to settle obligations of the consolidated entities. Conversely, liabilities recognized as a result of consolidating these VIEs do not represent additional claims on the Company’s general assets.
| 16 |
The following table presents the carrying values of the assets and liabilities of entities that are VIEs and consolidated by the Company as of March 31, 2022 and December 31, 2021:
| March 31, 2022 | December 31, 2021 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Prepaid expenses and other current assets | ||||||||
| Other Investments | ||||||||
| Due from Related Party | ||||||||
| Loan Interest Receivable | ||||||||
| Total current assets | ||||||||
| Loan Held-for-Investment | ||||||||
| Loan Held-for-Investment, related parties | ||||||||
| Property and Equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Cost Method Investments | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and stockholders’ equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Intercompany | ||||||||
| Notes Payable | ||||||||
| Total liabilities | $ | $ | ||||||
The following table presents the operations of entities that are VIEs and consolidated by the Company as of March 31, 2022 and 2021:
For the Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Revenues, net | $ | $ | ||||||
| Cost of revenues | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| Selling, general and administrative | ||||||||
| Operating (loss) income | ( | ) | ||||||
| Other (expense) income: | ||||||||
| Interest expense | ( | ) | ||||||
| Other income | ||||||||
| Total other (expense) income | ( | ) | ||||||
| Loss before income taxes | ( | ) | ||||||
| Income tax expense | ||||||||
| Net loss | $ | ( | ) | $ | ||||
| 17 |
As of March 31, 2022, the Company had no unconsolidated VIEs. The Company has consolidated both ZVV and Lomotif, for which the Company has determined it holds a variable interest.
ZVV Media Partners, LLC and Lomotif Private Limited
On January 19, 2021, Vinco Ventures, ZASH and ZVV entered into a Contribution Agreement pursuant to which each of Vinco Ventures and Zash contributed to ZVV certain media and entertainment assets in order for ZVV to engage in the development and production of consumer facing content and related activities.
On or around February 23, 2021, ZASH entered into a Securities Purchase Agreement (the “Lomotif SPA”) with Lomotif and certain shareholders of Lomotif (the “Lomotif Selling Shareholders”) to acquire a controlling interest in Lomotif.
On July 19, 2021, ZASH, Lomotif, the Lomotif Selling Shareholders and ZVV entered into a Deed of Variation and Supplement whereby, among other things, ZASH novated all of its rights and obligations under the Lomotif SPA to ZVV and ZVV assumed all of ZASH’s rights and obligations under the Lomotif SPA.
On
July 22, 2021,
On
July 25, 2021, ZVV completed the acquisition of an
Note 5 — Short-Term Investments
As of March 31, 2022 and December 31, 2021, short-term investments consisted of the following:
| March 31, 2022 | December 31, 2021 | |||||||
| Jupiter Wellness, Inc. (JUPW) | $ | $ | ||||||
| Unrealized losses | ( | ) | ( | ) | ||||
| Total short-term investments | $ | $ | ||||||
Note 6 — Property and Equipment, net
As of March 31, 2022 and December 31, 2021, property and equipment consisted of the following:
| March 31, 2022 | December 31, 2021 | |||||||
| Buildings – rental property | $ | $ | ||||||
| Building improvements | ||||||||
| Equipment and machinery | ||||||||
| Furniture and fixtures | ||||||||
| Computer software | ||||||||
| Molds | ||||||||
| Vehicles | ||||||||
| Leasehold Improvements | - | |||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Total property and equipment, net | $ | $ | ||||||
Depreciation
expense for the three months ended March 31, 2022 and 2021 was $
| 18 |
Note 7 —— Loans held for investment
As of March 31, 2022 and December 31, 2021, loans held-for-investment consisted of the following:
| March 31, 2022 | December 31, 2021 | |||||||
| Loans held-for-investment: | ||||||||
| PZAJ Holdings, LLC (i) | $ | $ | ||||||
| Carlin Haynes, LLC (ii) | $ | $ | ||||||
| Total loans held-for-investment | $ | $ | ||||||
| (i) | PZAJ
Holdings, LLC (“PZAJ”) is an entertainment content development company engaged in the acquisition, financing, development,
production, and distribution of films and television projects. As of March 31, 2022, the Company has loaned $ |
The
interest rate on the notes is
As of March 12, 2022, PZAJ, its existing members and the Company entered into a Limited Liability Company Agreement
of PZAJ, pursuant to which the loans extended by Vinco or on its behalf to PZAJ in the aggregate amount of $ | |
| (ii) |
As of March 31, 2022 and December 31, 2021, loans held-for-investment – related parties consisted of the following:
| March 31, 2022 | December 31, 2021 | |||||||
| Loans held-for-investment – related parties: | ||||||||
| Zash Global Media and Entertainment Corporation (iii) | ||||||||
| Magnifi U (iv) | ||||||||
| Wattum Management (v) | ||||||||
| Total loans held-for-investment – related parties | $ | $ | ||||||
| 19 |
| (iii) |
As
of March 31, 2022, the Company has loaned $
In
the event that ZASH issues and sells preferred equity securities to one or more investors in an arm’s length
transaction or series of related transactions with the principal purpose of raising capital that results in aggregate gross proceeds
to ZASH of at least $ |
| (iv) | |
| (v) |
Note 8 —Cost-method investments
As of March 31, 2022 and December 31, 2021, cost method investments consisted of the following:
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Hyperreal Digital, Inc. | $ | $ | ||||||
| Total cost-method investments | $ | $ | ||||||
Note 9 — Fair Value of Financial Instruments
The Company measures the fair value of financial assets and liabilities based on the guidance of ASC 820 “Fair Value Measurements and Disclosures” (“ASC 820”) which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.
ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:
Level 1 — quoted prices in active markets for identical assets or liabilities
Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level 3 — inputs that are unobservable (for example, cash flow modeling inputs based on assumptions)
The carrying amounts of the Company’s financial instruments, such as cash, accounts receivable and accounts payable, approximate fair values due to the short-term nature of these instruments. The carrying amount of the Company’s notes payable approximates fair value because the effective yields on these obligations, which include contractual interest rates, taken together with other features such as concurrent issuance of warrants, are comparable to rates of returns for instruments of similar credit risk.
| 20 |
The following fair value of financial assets and liabilities and the input level used to determine the fair value as of March 31, 2022 and December 31, 2021 is presented below:
Fair Value Measurements as of March 31, 2022 | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Assets: | ||||||||||||
| Short-term investments | $ | $ | $ | |||||||||
| Liabilities: | ||||||||||||
| Warrant liability | ||||||||||||
| Total | ||||||||||||
Fair Value Measurements as of December 31, 2021 | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Assets: | ||||||||||||
| Short-term investments | $ | $ | $ | |||||||||
| Liabilities: | ||||||||||||
| Warrant liability | ||||||||||||
| Total | ||||||||||||
The following table presents a reconciliation of the Company’s liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2022 and 2021, respectively:
| Warrant Liability | ||||
| Balance, January 1, 2022 | $ | |||
| Issuance of warrants | ||||
| Change in fair value of warrants | ||||
| Exercise of warrants | ( | ) | ||
| Balance, March 31, 2022 | $ | |||
| Warrant Liability | ||||
| Balance, January 1, 2021 | $ | |||
| Issuance of warrants | ||||
| Change in fair value of warrants | ( | ) | ||
| Exercise of warrants | ( | ) | ||
| Balance, March 31, 2021 | $ | |||
| 21 |
Note 10 — Intangible assets, net
As of March 31, 2022, intangible assets consisted of the following:
| Remaining Weighted | ||||||||||||||||||
| Estimated Useful | Average Useful | Gross Carrying | Accumulated | Net Carrying | ||||||||||||||
| Life | Life | Amount | Amortization | Amount | ||||||||||||||
| Finite lived intangible assets: | ||||||||||||||||||
| Customer relationships | $ | $ | $ | |||||||||||||||
| Developed technology | ||||||||||||||||||
| Membership network | ||||||||||||||||||
| Digital media platform | ||||||||||||||||||
| Influencer network | ||||||||||||||||||
| Total finite lived intangible assets | $ | $ | $ | |||||||||||||||
| Indefinite lived intangible assets: | ||||||||||||||||||
| Trademarks and tradenames | Indefinite | $ | $ | $ | ||||||||||||||
| Total indefinite lived intangible assets | $ | $ | $ | |||||||||||||||
| Total intangible assets | $ | $ | $ | |||||||||||||||
As of December 31, 2021, intangible assets consisted of the following:
| Remaining Weighted | ||||||||||||||||||
| Estimated Useful | Average Useful | Gross Carrying | Accumulated | Net Carrying | ||||||||||||||
| Life | Life | Amount | Amortization | Amount | ||||||||||||||
| Finite lived intangible assets: | ||||||||||||||||||
| Customer relationships | $ | $ | $ | |||||||||||||||
| Developed technology | ||||||||||||||||||
| Membership network | ||||||||||||||||||
| Digital media platform | ||||||||||||||||||
| Influencer network | ||||||||||||||||||
| Total finite lived intangible assets | $ | $ | $ | |||||||||||||||
| Indefinite lived intangible assets: | ||||||||||||||||||
| Trademarks and tradenames | Indefinite | $ | $ | $ | ||||||||||||||
| Total indefinite lived intangible assets | $ | $ | $ | |||||||||||||||
| Total intangible assets | $ | $ | $ | |||||||||||||||
Amortization
expense for the three months ended March 31, 2022 and 2021 was $
The estimated future amortization of intangibles subject to amortization as of March 31, 2022 was as follows:
| For the Years Ended December 31, | Amount | |||
| 2022 (excludes amortization through March 31, 2022) | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total | $ | |||
| 22 |
Note 11 — Debt
As of March, 31, 2022 and December 31, 2021, debt consisted of the following:
| March 31, 2022 | December 31, 2021 | |||||||
| - | 27,644 | |||||||
| Notes payable – related parties | ||||||||
| Convertible notes payable | ||||||||
| Convertible notes payable of Lomotif Private Limited | - | |||||||
| Convertible notes payable of Lomotif Private Limited – related parties | ||||||||
| Debt issuance costs | ( | ) | ( | ) | ||||
| Total debt | ||||||||
Convertible Notes Payable – Related Parties
ZASH – February and March 2021
On
February 23, 2021, Lomotif Private Limited obtained a loan in the amount of $
Convertible Notes Payable
Hudson Bay Financing – July 2021
On
July 22, 2021 Vinco Ventures consummated a private placement offering (the “July 2021 Offering”) whereby pursuant to the
Securities Purchase Agreement (the “July 2021 Purchase Agreement”) entered into by the Company on July 22, 2021 with Hudson
Bay Master Fund Ltd as investor the Company issued a Senior Secured Convertible Note in the amount of $
The
July 2021 Note carries no interest unless and until an event of default shall occur and the July 2021 Note matures on
Palladium Capital Group,
LLC. acted as placement agent for the July 2021 Offering.
Pursuant
to the July 2021 Purchase Agreement, the investor received the July 2021 Warrant. The July 2021 Warrant contained an exercise
price of $
| 23 |
On
March 9, 2022, the Company, Cryptyde and the noteholder of the July 2021 Note entered into an Amendment Agreement (the
“Amendment Agreement”) whereby the parties agreed to, among other things:
On April 29, 2022, the Company, Cryptyde and the Holder entered into a Second Amendment Agreement (the “Second Amendment Agreement”) whereby the parties agreed to amend the First Amendment Agreement to replace the date of “April 30, 2022” in Section 7(m) of the First Amendment Agreement to “May 6, 2022.”
On May 6, 2022, the Company and the Holder entered into a Third Amendment Agreement (the “Third Amendment Agreement”) whereby the parties agreed to amend the Second Amendment Agreement to replace the date of “May 6, 2022” in Section 7(m) of the Second Amendment Agreement to “May 11, 2022.”
The scheduled maturities of the debt for the next five years as of March 31, 2022, are as follows:
| For the Years Ended December 31, | Amount | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | - | |||
| 2025 | - | |||
| 2026 | - | |||
| Less: debt discount | ( | ) | ||
| $ | ||||
Note 12 — Warrant Liability
For
the three months ended March 31, 2022, the Company issued warrants to purchase shares of the Company’s common stock related
to the Warrant Exercise Agreement dated December 20, 2021, with a warrant holder, in which the Company agreed to issue
| 24 |
The Company’s outstanding warrants set forth below were valued using the Monte-Carlo simulation pricing model to calculate the March 31, 2022 fair value of the warrants with the following assumptions:
Dividend Yield | Expected Volatility | Risk-free Interest Rate | Expected Life | |||||||||||
| Hudson Bay Warrant; June 4, 2021 | % | % | % | |||||||||||
| Hudson Bay Series A Warrant; September 1, 2021 | % | % | % | |||||||||||
| Palladium Capital Group Series A Warrant; September 1, 2021 | % | % | % | |||||||||||
| Hudson Bay Warrant; November 10, 2021 | % | % | % | |||||||||||
| Palladium Capital Warrant; November 10, 2021 | % | % | % | |||||||||||
| Hudson Bay Warrant; December 20, 2021 | % | % | % | |||||||||||
| Palladium Capital Warrant; December 20, 2021 | % | % | % | |||||||||||
Note 13 — Related Party Transactions
ZASH Global Media and Entertainment Corporation
As
of March 31, 2022, Lomotif owed ZASH $
Magnifi U, Inc.
On
October 12, 2021, ZVV entered into a promissory note (the “Magnifi U Note”) with Magnifi U, Inc. (“Magnifi U”),
pursuant to which ZVV loaned Magnifi U $
Wattum Management Inc.
On
October 12, 2021, Cryptyde entered into a promissory note (the “Wattum Note”) with Wattum Management, Inc. (“Wattum”),
pursuant to which Cryptyde loaned Wattum $
Note 14— Commitments and Contingencies
Operating Leases
The Company has entered into non-cancellable operating leases for office, warehouse, and distribution facilities, with original lease periods expiring through 2024. In addition to minimum rent, certain of the leases require payment of real estate taxes, insurance, common area maintenance charges, and other executory costs. Differences between rent expense and rent paid are recognized as adjustments to operating lease right-of-use assets on the consolidated balance sheets.
Total
rent expense for the three months ended March 31, 2022 and 2021 was $
| 25 |
Legal Contingencies
The Company is involved in claims and litigation in the ordinary course of business, some of which seek monetary damages, including claims for punitive damages, which are not covered by insurance. For certain pending matters, accruals have not been established because such matters have not progressed sufficiently through discovery, and/or development of important factual information and legal information is insufficient to enable the Company to estimate a range of possible loss, if any. An adverse determination in one or more of these pending matters could have an adverse effect on the Company’s consolidated financial position, results of operations or cash flows.
We are, and may in the future become, subject to various legal proceedings and claims that arise in or outside the ordinary course of business.
Gerald Whitt, et al. v. Vinco Ventures, CBAV1, LLC, et al.
On October 27, 2020, Gerald Whitt, et al, the minority shareholders of Cloud b Inc. (“Whitt Plaintiffs”) filed a civil complaint in the Superior Court of the State of California against Vinco Ventures, Inc., CBAV1, LLC and other parties, alleging fraudulent concealment, breach of fiduciary duty, breach of contract, breach of confidence, intentional misrepresentation, negligent misrepresentation, unfair business practices and civil conspiracy (the “Whitt Complaint”). Defendants have not been served with the Whitt Complaint. On or about June 4, 2021, CBAV1 entered into a settlement agreement with the trustee for Cloud b, Inc., whereby all derivative claims on behalf of Cloud B, Inc. in the Whitt Complaint were released as to CBAV1 and its affiliates, shareholders, officers, directors, employees and other parties. There are a limited number of non-derivative claims against individuals that were not released that are not expected to have any impact on the Company.
Vinco Ventures, Inc., et al. v. Milam Knecht & Warner, LLP, Michael D. Milam, Gerald Whitt, Alexander Whitt, et al.
On December 31, 2020, Vinco Ventures, Inc., and other parties, filed a complaint against the Whitt Plaintiffs, and other parties, with the United States District Court for Eastern District of Pennsylvania, alleging intentional misrepresentation, negligent misrepresentation, negligence, conspiracy, unfair business practices, abuse of process, civil extortion, trade libel and defamation. All claims were dismissed and/or settled except for two (2) claims (unfair business practices and defamation) against Gerald Whitt.
Note 15 — Stockholders’ Equity
Common Stock
The Company is authorized to issue shares of common stock. As of March 31, 2022 and December 31, 2021, there were and shares of common stock issued and outstanding, respectively.
During
the three months ended March 31, 2022, warrant shares of were exercised and the Company received proceeds of $
Preferred Stock
The Company does not currently have any shares of preferred stock authorized for issuance
Stock-Based Compensation
On September 4, 2021, the Company’s board of directors approved the Vinco Ventures, Inc. 2021 Equity Incentive Plan (the “2021 Plan”). The 2021 Plan provides for the issuance of up to (remaining as of March 31, 2022) shares of Common Stock to help align the interests of management and our stockholders and reward our executive officers for improved Company performance. Stock incentive awards under the 2021 Plan can be in the form of stock options, restricted stock units, performance awards and restricted stock that are made to employees, directors and service providers. Awards are subject to forfeiture until vesting conditions have been satisfied under the terms of the award. The exercise price of stock options is equal to the fair market value of the underlying Common Stock on the date of grant.
| Shares | Weighted Average Exercise Price | Remaining Contractual Life in Years | Aggregate Intrinsic | |||||||||||||
| Balance, December 31, 2021 | $ | |||||||||||||||
| Granted | - | |||||||||||||||
| Balance, March 31, 2022 | $ | |||||||||||||||
| Exercisable, March 31, 2022 | $ | |||||||||||||||
As of March 31, 2022, there were unvested options to purchase shares of the Common Stock and there was unrecognized equity-based compensation expense that the Company expected to recognize over a remaining weighted-average period.
| 26 |
Net Earnings or Loss per Share
Basic net (loss) income per common share is computed by dividing net (loss) income by the weighted average number of vested common shares outstanding during the period. Diluted net income per common share is computed by dividing net income by the weighted average number vested of common shares, plus the net impact of common shares (computed using the treasury stock method), if dilutive, resulting from the exercise of dilutive securities. In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive. As of March 31, 2022 and 2021, the Company excluded the common stock equivalents summarized below, which entitle the holders thereof to ultimately acquire shares of common stock, from its calculation of earnings per share, as their effect would have been anti-dilutive.
| As of | ||||||||
| March 31, 2022 | March 31, 2021 | |||||||
| Shares reserved in exchange for the cancellation of certain non-voting membership interest in EVNT Platform, LLC | ||||||||
| Options | ||||||||
| Convertible shares under notes payable | ||||||||
| Series B Convertible Stock | ||||||||
| Warrants | ||||||||
| Shares to be issued | ||||||||
| Total | ||||||||
Note 16 —Customer Concentrations
For the three months ended March 31, 2022 and 2021 the following customers that represented more than 10% of total net revenues:
| For the three months ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Customer: | ||||||||
| Customer A | % | |||||||
| Customer B | % | |||||||
| * |
For the three months ended March 31, 2022 and 2021, the following geographical regions represented more than 10% of total net revenues:
| For the three Months ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Region: | ||||||||
| North America | % | % | ||||||
| Asia-Pacific | % | % | ||||||
| Europe | % | % | ||||||
| 27 |
Note 17 — Subsequent Events
Exchange Agreement
On
May 12, the Company entered into an agreement with the holder of the Company’s warrants for the purchase of the Company’s
common stock for $ issued on November 10, 2021 (the “November 2021 Warrants”) and the Company’s warrants for the
purchase of the Company’s common stock for $ issued on December 20, 2021 (the “December 2021 Warrants”) whereby
the Company and the holder agreed the holder could exchange its warrants for the Company’s common shares. The exchange ratio agreed
to is for each November 2021 Warrant exchanged the holder would receive
Furthermore,
Pursuant to Section 7(n) of the Exchange Agreement, until October 9, 2022, the holder agreed to grant, free of charge, to the Company any reasonable and necessary waivers and extensions solely in connection with the Company’s obligations (i) to file an Initial Registration Statement pursuant to that certain Registration Rights Agreements between the Company and the holder dated as of November 11, 2021, as amended (the “November 2021 RRA”), and that certain Registration Rights Agreements between the Company and the holder dated as of December 20, 2021, as amended (the “December 2021 RRA” ), and (ii) to file a definitive proxy statement to approve the transactions contemplated by the November WEA and December WEA; provided, however, the holder shall retain the right to deliver an Alternate Exercise Notice (as defined in each of the November Warrant Exercise Agreement and December Warrant Exercise Agreement) to the Company as permitted pursuant to the terms thereof. The exchange agreement also requires the holder to continue to hold the common shares received under the exchange for a certain period of time.
On May 19, the holder
exchanged
Warrant Exercise Agreements
On May 12, 2022, the
Company entered into warrant exercise agreement with two holders of the Company’s warrants for the purchase of the Company’s
common stock for $
The May WEA and the Exchange Agreement also require the participating holders to continue to hold shares for a certain period of time as set forth in the May WEA and the Exchange Agreement.
Shareholder Proposals for Increase of Authorized Common and Preferred Shares
On May 13, 2022, the Company filed a preliminary proxy statement for a Special Meeting of Stockholders to seek approval of proposals to increase the number of authorized shares of common stock under the Company’s Amended and Restated Articles of Incorporation from to and increase the number of authorized shares of preferred stock under the Company’s Amended and Restated Articles of Incorporation from to .
| 28 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
You should read the following discussion of our financial condition and results of operations in conjunction with our condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission. In addition to our historical condensed consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, as well as in Part I, Item 1A, “Risk Factors” of our Annual Report of Form 10-K for the year ended December 31, 2021.
Overview
Vinco Ventures is Focused on Digital Media, Advertising and Content Technologies
Vinco Ventures, formerly known as Edison Nation, Inc., Xspand Products Lab, Inc. and Idea Lab Products, Inc., is a Nevada corporation incorporated on July 18, 2017. In connection with the acquisition of an 80% equity interest in Lomotif by ZVV, our joint venture with ZASH in 2021, and our recent acquisition of AdRizer, we are transitioning from focusing on innovation, development and commercialization of end-to-end consumer products to innovation, development and commercialization of digital media, advertising and content technologies. We currently operate the platforms and businesses described below through our significant subsidiaries and consolidated variable interest entities:
| ● | Lomotif Social Media Platform |
Lomotif and the Lomotif App - ZVV currently owns an 80% equity interest in Lomotif, a Singapore-based video-sharing and live streaming social networking platform that is committed to democratizing video creation and increasing user reach through our content development, live streaming and cross-platform engagement initiatives. The Lomotif app allows its users to create their own music videos by selecting pictures and videos from the camera, mixing them with music and transforming video clips into music videos. Lomotif users can watch videos of other creators on the Lomotif platform and share their videos on the Lomotif platform or on various third-party social media platforms such as TikTok, Instagram, YouTube and Twitch. The Lomotif platform offers LoMoTV, a digital entertainment and lifestyle content network offering original programming. Our strategy includes expanding Lomotif’s reach through our live-streaming entertainment initiatives involving social media influencers and leading artists and entertainers.
The Lomotif app is available in the Apple and Google stores and is a grassroots social community with dedicated users spanning from Asia, South America to the United States. As of the date of this Quarterly Report, Lomotif has not generated significant revenue and we are developing means to monetize the content creation and streaming capabilities of the Lomotif platform including our plan to leverage the AdRizer technologies to enable advertisers to more effectively engage with the Lomotif platform, content and its users.
| ● | End-to-End Fully Integrated Programmatic Advertising Platform |
AdRizer and the Cortex Platform – Our wholly-owned subsidiary AdRizer provides technology solutions to automate the use of artificial intelligence for digital advertising analytics and programmatic media buying through its core platform, Cortex. Cortex provides real-time analytics for marketing spend and revenue optimization and delivers ad-campaign creation, optimalization and monetization at scale. Cortex integrates with various traffic partners, including Google, MSN, Instagram, Facebook, Twitter, and others, and is able to deliver real-time attribution against a wide range of advertiser and publisher metrics such as revenue by source, author, article, and conversion event. AdRizer targets advertisers, advertising agencies, publishers and other advertising technology companies as its audience for the Cortex platform offerings.
AdRizer generates revenue from the Cortex platform through two major sources: (1) the traffic acquisition of digital advertising spaces to advertisers from multiple digital advertising technologies, and (2) developing marketing campaigns and strategies for some of the top direct-to-customers (“DTC”) companies. We believe that AdRizer’s Cortex platform provides small- to medium-sized enterprises with an efficient and effective end-to-end, fully integrated platform that allows its users to control their marketing and branding campaigns in real-time. We also expect to integrate AdRizer’s technologies with the Lomotif platform and content and the Honey Badger digital commerce company.
| 29 |
| ● | Streaming Music Non-Fungible Token (“NFT”) Platform |
E-NFT.com – Our wholly-owned subsidiary EVNT Platform LLC, dba Emmersive Entertainment (“EVNT”) offers a platform for artists and content owners to distribute their intellectual property. EVNT’s proprietary streaming process seeks to make NFTs affordable by seeking to reduce mining fees with the goal of enabling fans to engage with content in new ways with EVNT’s multi-media delivery system. EVNT generates revenue from the development of custom, digital artwork and digital music that is sold in the form of non-fungible tokens through a third-party marketplace.
| ● | Full-Service Digital Commerce Company |
Honey Badger - Our wholly-owned subsidiary Honey Badger offers a full-service digital commerce strategies solution focused on brand specific messaging and designing comprehensive digital campaigns from creation to monetization for celebrities and influencers. As a digital commerce company, Honey Badger leverages millions of followers in its network to grow advertiser-based revenue as well as Vinco’s brands and holdings. Honey Badger generates revenue from providing digital marketing services for brands and influencers.
| ● | New Consumer Product Development and Commercialization Platform |
Edison Nation – Led by our wholly-owned subsidiary Edison Nation, LLC, (‘Edison Nation”) we provide a platform to match an innovator’s intellectual property with vertical consumer product category leaders in a licensing structure whereby the innovator can earn up to 50% of the contracted licensing fee. Product categories include kitchenware, small appliances, toys, pet care, baby products, health & beauty aids, entertainment venue merchandise, and housewares. We also have a number of internally developed brands (“EN Brands”) which act as a launchpad for new innovative items that have matriculated through the innovation portal. These EN Brands include Cloud B, Pirasta, Uber Mom, Lily and Grey, Trillion Trees, and Barkley Lane. Additionally, we offer a partnership model for entrepreneurs and businesses that are seeking to elevate their existing brands. Recent partnerships for Vinco Ventures include 4Keeps Roses and Mother K. Within the partnership model, the Company seeks to identify new lines of distribution and provide innovation through development of new items that enhance the brand’s overall image and consumer adoption. Edison Nation generates revenue primarily from the sale of personal protective equipment, consumer products and licensing of products for intellectual property owners.
| ● | Cryptyde Businesses Expected to be Spun-Off |
Cryptyde – Our wholly-owned subsidiary Crytypde, Inc. plans to offer three initial business lines, Web3 (decentralized internet) products, Bitcoin mining services, and consumer packaging operated by Ferguson Containers, Inc (“Ferguson”). Through its Web3 products business line, Cryptyde will seek to acquire and build brands that use decentralized blockchain technologies in a variety of consumer-facing industries, such as music, movies, digital art, ticketing and event services, and gaming. Cryptyde’s Bitcoin mining services will aim to make Bitcoin mining accessible to consumers previously priced out of the area. Ferguson manufactures and sells custom packaging for a variety of products and is expected to offer revenue streams for the spun-off business.
| 30 |
Corporate Strategy
We are transitioning from focusing on innovation, development and commercialization of end-to-end consumer products to innovation, development and commercialization of digital media, advertising and content technologies. Today’s consumers have shorter attention spans and are unlikely to commit to lengthy content unless they are convinced of its value. The right piece of short-form content enables brands to rapidly communicate key messages, improving the asset’s ability to capture the attention of target audiences. Short-form content is also a ready-made resource for users who consume content on mobile devices. Additionally, video generates a much larger number of shares than long-form content, text or image posts. By investing in Lomotif, our short-form video sharing and social media platform, AdRizer and related growth initiatives, we are aiming to grow into an integrated robust social media, content development and digital advertising company, with millions of users around the world.
In February 2022 we acquired AdRizer. We expect to integrate AdRizer’s Cortex technologies with the Lomotif platform and content and Honey Badger’s services and solutions to optimize revenue generation opportunities. We have also invested in activities to generate content for the Lomotif platform and to expand its user base and engagement such as launching LoMoTV, hosting and live streaming concerts and celebrity events. We expect to further this effort by continuing to invest in acquisitions, joint ventures, and growing our own capacity to create and distribute content. For example, we expect that future joint ventures, licensing, loan financing or other arrangements with ZASH and PZAJ Holdings, LLC will generate entertainment content that we plan to distribute through the Lomotif platform, among other distribution channels.
In connection with our transition, we are also in the process of spinning off Cryptyde, which holds our packaging, Bitcoin mining services, and Web3 (decentralized internet) products businesses, in an effort to create value for our stockholders.
Recent Developments
The following is a description of recent events regarding important developments which we believe are important to an understanding of our business, financial position and results of operations.
Acquisition of AdRizer
On October 1, 2021, ZVV and ZASH and AdRizer entered into a Letter of Intent (as amended, the “LOI”) for ZASH or ZVV to acquire all the outstanding equity interests of AdRizer.
On February 11, 2022, Vinco Ventures, ZASH and ZVV entered into an Assignment and Assumption Agreement, whereby ZASH and ZVV assigned to Vinco Ventures, and Vinco Ventures assumed, all of the rights and obligations of ZASH and ZVV under the LOI, in consideration of a cash payment by Vinco Ventures to ZASH of $6.75 million upon the closing of the acquisition.
On February 11, 2022, Vinco Ventures, AdRizer, the members of AdRizer and the holders of performance units (the “Performance Units”) of AdRizer under its phantom equity plan (collectively, the “Seller Members”), and Innovative Assets LLC, in its capacity as the sellers’ representative, entered into and consummated the transactions contemplated by a definitive Unit Purchase Agreement (the “AdRizer Purchase Agreement”), whereby the Company acquired all of the outstanding equity interests of AdRizer (the “Purchased Interests”) from the Seller Members and canceled the Performance Units, resulting in AdRizer becoming a wholly-owned subsidiary of the Company. The purchase price paid and payable to the Seller Members for the Purchased Interests and in consideration of the cancellation of the Performance Units consists of (i) $38 million in cash paid at closing, of which $10 million was deposited in an escrow account to secure the Seller Members’ indemnification obligations under the AdRizer Purchase Agreement, subject to customary post-closing adjustments for working capital and other items, and (ii) up to 10 million shares of the Company’s common stock to be issued on January 1, 2024 (the “Buyer Share Issuance Date”), determined by dividing $50 million by the volume weighted average price of the Company’s common stock reported by Bloomberg LP for the 20 trading days preceding such date, subject to a floor price of $5.00 and maximum price of $8.00 per share (the “Purchase Price Equity”). Pursuant to the AdRizer Purchase Agreement, the Company has agreed to file a resale registration statement on form S-1 or S-3 no later than 90 days prior to the Buyer Share Issuance Date if permitted by the SEC, and otherwise no later than 5 business days after the Buyer Share Issuance Date, to register the resale of the Purchase Price Equity and to use commercially reasonable efforts to cause the registration statement to become effective as soon as practicable after filing. In addition, the Company has agreed to furnish AdRizer with working capital in the amount of $1 million by each 3-month anniversary of the closing date until the Company has furnished AdRizer with a total of $5 million in working capital.
Upon the closing of the acquisition, AdRizer entered into a new employment agreement with its chief executive officer, Kenneth Bond. Certain Seller Members including those who are employees, officers, directors or managers of AdRizer and their affiliates also agreed to be bound by three-year post-closing non-competition and non-solicitation restrictive covenants pursuant to the Purchase Agreement.
| 31 |
Expected Spin-Off of Cryptyde, Inc.
On November 8, 2021, our subsidiary Cryptyde initially filed, and on January 25, 2022, March 18, 2022 and May 13, 2022 amended, a Form 10 registration statement with the SEC (the “Form 10”) in connection with our planned spin-off of Cryptyde, subject to certain conditions as described in the registration statement, including the effectiveness of the registration statement, receipt of an opinion of counsel to the effect that, among other things, the spin-off and related transactions should qualify as tax-free for United States federal income tax purposes under Sections 368(a)(1)(D) and 355 of the Internal Revenue Code, and Nasdaq having approved the listing of Cryptyde’s common stock. Cryptyde holds our packaging, Bitcoin mining services, and Web3 (decentralized internet) products businesses.
On May 16, 2022, the Form 10 was declared effective. The record date for the spin-off is May 18, 2022 and the distribution date is scheduled for May 27, 2022. Upon completion of the spin-off, Cryptyde would become an independent, publicly traded company.
Closing of Cryptyde Financing
On January 26, 2022, Cryptyde entered into a Securities Purchase Agreement (the “Note Securities Purchase Agreement”) with an accredited investor (the “Note Investor”) for the issuance and sale of a Senior Convertible Note with an initial principal amount of $33,333,333 at a conversion price of $10.00 per share of Cryptyde’s common stock, par value $0.001 (the “Cryptyde Common Stock”) and a warrant (the “Warrant”) to purchase up to 3,333,333 shares of Common Stock with an initial exercise price of $10.00 per share of Cryptyde Common Stock (the “Note Private Placement”).
Cryptyde and the Note Investor closed on the transactions contemplated by the Note Securities Purchase Agreement on May 5, 2022. At the closing, Cryptyde issued to the Note Investor the Warrant to purchase up to 3,333,333 shares of Cryptyde Common Stock with an exercise price of $10.00 per share.
Amendment to the July 2021 Note
On March 9, 2022, the Company, Cryptyde and the noteholder of the Senior Secured Convertible Note issued by the Company on July 22, 2021 (the “July 2021 Note) entered into an Amendment Agreement (the “Amendment Agreement”) whereby the parties agreed to, among other things: (i) amend certain provisions of the July 2021 Note to (a) convert $10,000 of the principal amount of the July 2021 Note at a conversion price of $0.01 into shares of the Company’s common stock, (b) extend the maturity date under the July 2021 Note to July 22, 2023, (c) increase the interest rate on the July 2021 Note from zero percent (0%) to six percent (6.0%), (d) reduce the maximum cap of the minimum cash in the control account from $100,000,000 to $80,000,000, and (e) require the Company to redeem $33,000,000 of the principal of the July 2021 Note, together with accrued and unpaid interest and accrued and unpaid late charges on such principal and interest, on July 22, 2022; (ii) to extend certain dates relating to (x) the Company’s registration of certain securities under the Warrant Exercise Agreements dated September 1, 2021, November 11, 2021 and December 20, 2021 to April 30, 2022, (y) the Company’s filing of a proxy statement to April 30, 2022 and (z) Company holding a stockholder meeting and obtaining a stockholder vote to June 4, 2022 or July 4, 2022 in the event that the Company receives comments from the SEC with respect to the proxy statement; and (iii) to waive any adjustments to convertible securities or options as a result of the Adjusted Conversion Price (as defined in the Amendment Agreement).
On April 29, 2022, the Company, Cryptyde and the Holder entered into a Second Amendment Agreement (the “Second Amendment Agreement”) whereby the parties agreed to amend the First Amendment Agreement to replace the date of “April 30, 2022” in Section 7(m) of the First Amendment Agreement to “May 6, 2022.”
On May 6, 2022, the Company and the Holder entered into a Third Amendment Agreement (the “Third Amendment Agreement”) whereby the parties agreed to amend the Second Amendment Agreement to replace the date of “May 6, 2022” in Section 7(m) of the Second Amendment Agreement to “May 11, 2022.”
Warrant Exercise and Issuance
For the three months ended March 31, 2022, the Company issued warrants to purchase shares of the Company’s common stock related to the Warrant Exercise Agreement dated December 20, 2021, with a warrant holder, in which the Company agreed to issue 2.25 warrants with an exercise price of $3.265 to the warrant holder for every warrant the warrant holder exercised from the period commencing December 20, 2021 and ending on February 28, 2022. In conjunction with this agreement, the warrant holder exercised 36,894,569 warrants in the first three months of 2022 which generated $111,029,493 in gross proceeds to the Company during the three months ended March 31, 2022. In conjunction with the agreement, the Company issued 83,012,781 warrants to the holder and 6,641,022 to the placement agent for the agreement. The warrants have an exercise price of $3.265, a five year term, and provide registration rights to the holder along with other terms that cause the warrants to qualify for liability treatment. The initial fair value of the warrants issued during the three months ended March 31, 2022 was $243,681,478.
| 32 |
Exchange Agreement
On May 12, 2022, the Company entered into an agreement with the holder of the Company’s warrants for the purchase of the Company’s common stock for $4.527 issued on November 10, 2021 (the “November 2021 Warrants”) and the Company’s warrants for the purchase of the Company’s common stock for $3.2653 issued on December 20, 2021 (the “December 2021 Warrants”) whereby the Company and the holder agreed the holder could exchange its warrants for the Company’s common shares. The exchange ratio agreed to is for each November 2021 Warrant exchanged the holder would receive 0.77 of a share of the Company’s common stock, and for each December 2021 Warrant exchanged the holder would receive 0.81 of a share of the Company’s common stock. The holder is entitled to exchange its November 2021 Warrants and its December 2021 Warrants under the agreement from May 19, 2022 until the sixtieth (60th) day immediately following the date in which the Company’s receives approval from its stockholders for the increase in authorization of common shares from 250,000,000 to 750,000,000 (the “Shareholder Approval Date”). On May 13, 2022, the Company filed a preliminary proxy statement for a Special Meeting of Stockholder’s to, among other things, seek the approval from its stockholders for this matter.
Furthermore, pursuant to the exchange agreement, on or prior to the second business day following the Shareholder Approval Date, the Company shall deliver to the holder an additional number of shares of Common Stock equal to 7% of the sum of each of the November 2021 Warrants and December 2021 Warrants exchanged by the holder during this period. In addition, the exchange agreement allows the holder for up to 60 days after the Shareholder Approval Date for (i) each November 2021 Warrant may be exchanged for 42% of a November 2021 Exchanged Warrant Share, and (ii) each December 2021 Warrants may from time to time be exchanged for 42% of a December 2021 Exchanged Warrant Share.
Pursuant to Section 7(n) of the Exchange Agreement, until October 9, 2022, the holder agreed to grant, free of charge, to the Company any reasonable and necessary waivers and extensions solely in connection with the Company’s obligations (i) to file an Initial Registration Statement pursuant to that certain Registration Rights Agreements between the Company and the holder dated as of November 11, 2021, as amended (the “November 2021 RRA”), and that certain Registration Rights Agreements between the Company and the holder dated as of December 20, 2021, as amended (the “December 2021 RRA” ), and (ii) to file a definitive proxy statement to approve the transactions contemplated by the November WEA and December WEA; provided, however, the holder shall retain the right to deliver an Alternate Exercise Notice (as defined in each of the November Warrant Exercise Agreement and December Warrant Exercise Agreement) to the Company as permitted pursuant to the terms thereof. The exchange agreement also requires the holder to continue to hold the common shares received under the exchange for a certain period of time.
On May 19, 2022, the holder exchanged 500,000 November 2021 Warrants for 385,000 shares of the Company’s common stock, and 18,090,123 December 2021 Warrants for 14,653,000 shares of the Company’s common stock. The Company did not receive any proceeds from the cashless exercises.
Warrant Exercise Agreements
On May 12, 2022, the Company entered into warrant exercise agreement with two holders of the Company’s warrants for the purchase of the Company’s common stock for $9.00 per share issued on September 1, 2022 (the “Series A September 2021 Warrants”) whereby the Company and the holders agreed to a cashless exercise whereby each holder would receive 0.50 of a share of the Company’s common stock for each Series A September 2021 Warrant that is exercised by the holder. On May 19, the holders exchanged 15,000,000 Series A September 2021 Warrants for 7,500,000 shares of the Company’s common stock. The Company did not receive any proceeds from the cashless exercise.
The May WEA and the Exchange Agreement also require the participating holders to continue to hold shares for a certain period of time as set forth in the May WEA and the Exchange Agreement.
Shareholder Proposals for Increase of Authorized Common and Preferred Shares
On May 13, 2022, the Company filed a preliminary proxy statement for a Special Meeting of Stockholders for approval of proposals to increase the number of authorized shares of common stock under the Company’s Amended and Restated Articles of Incorporation from 250,000,000 to 750,000,000 and increase the number of authorized shares of preferred stock under the Company’s Amended and Restated Articles of Incorporation from 0 to 30,000,000.
| 33 |
Letter Agreement
Pursuant to that certain Warrant Exercise Agreement (as amended, the “September WEA”) dated as of September 1, 2021 between the Company and an accredited investor (the “Holder”), the Company sold warrants to the Holder representing the right to acquire shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”) at an initial exercise price of $9.00 per share, subject to adjustments as set forth in the September WEA (the “Series A September 2021 Warrants”) and (ii) on May 12, 2022, the Company and the Holder entered into that certain Warrant Exercise Agreement (the “May WEA”) whereby the parties, among other things, adjusted the Holder’s exercise price of its Series A September 2021 Warrant and eliminated certain provisions of the Series A September 2021 Warrants as an offer to all of the Series A September 2021 Warrants inducement to fully exercise its Series A September 2021 Warrant on a cashless basis on May 19, 2022.
On May 18, 2022, the Company and the holder entered into that certain Letter Agreement (the “Letter Agreement”) whereby the parties further amended the Series A September A Warrants to require that that Company only needs to maintain the Required Reserve Amount (as defined in the Series A September Warrants) on and after the Shareholder Approval Date (as defined in the May WEA).
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements as well as the reported expenses during the reporting periods. The accounting estimates that require our most significant, difficult and subjective judgments have an impact on revenue recognition, the determination of share-based compensation and financial instruments. We evaluate our estimates and judgments on an ongoing basis. Actual results may differ materially from these estimates under different assumptions or conditions.
There have been no changes in such policies or the application of such policies during the three months ended March 31, 2022 except as follows:
Revenue Recognition
Generally, the Company considers all revenues as arising from contracts with customers. Revenue is recognized based on the five-step process outlined in the Accounting Standards Codification (“ASC”) 606:
Step 1 – Identify the Contract with the Customer – A contract exists when (a) the parties to the contract have approved the contract and are committed to perform their respective obligations, (b) the entity can identify each party’s rights regarding the goods or services to be transferred, (c) the entity can identify the payment terms for the goods or services to be transferred, (d) the contract has commercial substance and it is probable that the entity will collect substantially all of the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer.
Step 2 – Identify Performance Obligations in the Contract – Upon execution of a contract, the Company identifies as performance obligations each promise to transfer to the customer either (a) goods or services that are distinct, or (b) a series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer. To the extent a contract includes multiple promised goods or services, the Company must apply judgement to determine whether the goods or services are capable of being distinct within the context of the contract. If these criteria are not met, the goods or services are accounted for as a combined performance obligation.
Step 3 – Determine the Transaction Price – When (or as) a performance obligation is satisfied, the Company shall recognize as revenue the amount of the transaction price that is allocated to the performance obligation. The contract terms are used to determine the transaction price. Generally, all contracts include fixed consideration. If a contract did include variable consideration, the Company would determine the amount of variable consideration that should be included in the transaction price based on expected value method. Variable consideration would be included in the transaction price, if in the Company’s judgement, it is probable that a significant future reversal of cumulative revenue under the contract would not occur.
Step 4 – Allocate the Transaction Price – After the transaction price has been determined, the next step is to allocate the transaction price to each performance obligation in the contract. If the contract only has one performance obligation, the entire transaction price will be applied to that obligation. If the contract has multiple performance obligations, the transaction price is allocated to the performance obligations based on the relative standalone selling price (SSP) at contract inception.
Step 5 – Satisfaction of the Performance Obligations (and Recognize Revenue) – Revenue is recognized when (or as) goods or services are transferred to a customer. The Company satisfies each of its performance obligations by transferring control of the promised good or service underlying that performance obligation to the customer. Control is the ability to direct the use of and obtain substantially all of the remaining benefits from an asset. It includes the ability to prevent other entities from directing the use of and obtaining the benefits from an asset. Indicators that control has passed to the customer include: a present obligation to pay; physical possession of the asset; legal title; risks and rewards of ownership; and acceptance of the asset(s). Performance obligations can be satisfied at a point in time or over time.
Product
The Company’s product revenues are recognized when control of the goods are transferred to the customer, which is upon shipment of the finished goods to the customer. All sales have fixed pricing and there are currently no material variable components included in the Company’s revenue. Additionally, the Company will issue credits for defective merchandise, historically these credits for defective merchandise have not been material. Based on the Company’s analysis of the revenue standards, revenue recognition from the sale of finished goods to customers, which represents the majority of the Company’s revenues, was not impacted by the adoption of the new revenue standards
Digital media advertising and licensing
The Company’s digital media advertising revenues are generated primarily from the posting of original digital content through third-party online platforms which are then delivered to users of the online platform across the customer’s digital advertising platform and becomes monetizable to the Company, which the Company concludes is its performance obligation. The Company recognizes revenue when control of the services are transferred to customers and the transaction price is determined by the third-party online platform. Revenue from the digital media platform is primarily recognized based on impressions delivered to customers. An “impression” is delivered when an advertisement appears on pages viewed by users. Licensing revenues are derived from the sale of a licensee’s products that incorporates the Company’s intellectual property. Royalty revenues are recognized during the quarter in which the Company receives a report from the licensee detailing the shipment of products that incorporate the Company’s intellectual property, which receipt is in the quarter following the licensee’s sale of such products to its customers. Royalties are calculated as a percentage of the revenues received by the Company’s licensees on sales of products incorporating the Company’s intellectual property. For AdRizer, FASB ASC 606 requires an entity to determine whether it is a principal (recognizes revenue at the gross amount) or an agent (recognizes revenue at the net amount) for each promised good or service. Based on the FASB guidance, the Company has determined that AdRizer is the principal for each promised good or service, thus, revenue is recognized at the gross amount of the transactions. Revenue from traffic sales and traffic management services are generally recognized at the end of each month when the performance obligation is satisfied.
| 34 |
Results of Operations
Three Months Ended March 31, 2022 versus Three Months Ended March 31, 2021
The following tables set forth information comparing the components of net income (loss) for the three months ended March 31, 2022 and 2021:
Results of Operations
| Three Months Ended March 31, | Period over Period Change | |||||||||||||||
| 2022 | 2021 | $ | % | |||||||||||||
| Revenue | ||||||||||||||||
| Consumer products | $ | 3,757,552 | $ | 2,153,306 | $ | 1,604,246 | 74.5 | % | ||||||||
| Digital advertising and media revenue | 7,726,369 | 350,566 | 7,375,803 | 2104.0 | % | |||||||||||
| Royalty income | 50,898 | 61,290 | (10,392 | ) | -17.0 | % | ||||||||||
| Total revenue, net | 11,534,819 | 2,565,162 | 8,969,657 | 349.7 | % | |||||||||||
| Cost of revenues | ||||||||||||||||
| Packaging products | 3,156,993 | 1,393,063 | 1,763,930 | 126.6 | % | |||||||||||
| Digital advertising and media revenue | 7,776,663 | 260,318 | 7,516,345 | 2887.4 | % | |||||||||||
| 10,933,656 | 1,653,381 | 9,280,275 | 561.3 | % | ||||||||||||
| Gross profit | 601,163 | 911,781 | -310,618 | -34.1 | % | |||||||||||
| Gross profit % | 5.2 | % | 35.5 | % | -30.3 | % | -85.3 | % | ||||||||
Revenue
For the three months ended March 31, 2022, revenues from continuing operations increased by $8,970,000 or 349.7%, as compared to the three months ended March 31, 2021. The increase was primarily due to the impact of the Company’s acquisition of AdRizer in February 2022, which generated $7,653,000 of revenue for the Company during the first quarter of 2022. AdRizer’s revenue consists of digital advertising sales and services to advertisers. In addition, the increase in revenues was due to revenue from CW Machines, a 51% owned subsidiary of Cryptyde. CW Machines generated $1,573,000 in sales of crypto mining equipment in the first quarter of 2022 that did not exist in the first quarter of 2021.
Cost of Revenues
For the three months ended March 31, 2022, cost of revenues increased by $9,280,000 or 561.36%, as compared to the three months ended March 31, 2021. The increase was primarily due to the costs of traffic acquisition at AdRizer and the costs of crypto mining machines at CW Machines, Each of these cost types did not occur in the first quarter of 2021.
Gross Profit
For the three months ended March 31, 2022, gross profit decreased by $311,000, or 34.1%, as compared to the three months ended March 31, 2021. The decrease reflected the impact of the Company’s new business lines of digital media and advertising from AdRizer, traffic acquisition and content creation costs of which were higher than expected as that business began its operations as a wholly-owned subsidiary of the Company, along with the impact of the Company’s sales of crypto mining machines which have a lower margin than the Company’s traditional packaging product sales.
| 35 |
Operating Expenses
Selling, general and administrative costs
| Three Months Ended March 31, | Period over Period Change | |||||||||||||||
| 2022 | 2021 | $ | % | |||||||||||||
| Selling, general and administrative costs | ||||||||||||||||
| Compensation, benefits and payroll taxes | $ | 5,763,122 | $ | 500,033 | $ | 5,263,089 | 1052.5 | % | ||||||||
| Depreciation and amortization | 1,590,209 | 424,033 | 1,166,175 | 275.0 | % | |||||||||||
| Stock based compensation | 1,143,445 | 8,697,502 | (7,554,057 | ) | -86.9 | % | ||||||||||
| Advertising, marketing and promotions | 4,636,246 | 269,960 | 4,366,287 | 1617.4 | % | |||||||||||
| Legal, professional fees, and transaction costs | 11,764,602 | 1,414,391 | 10,350,211 | 731.8 | % | |||||||||||
| Selling, general and administrative costs | 1,900,483 | 354,961 | 1,589,353 | 447.8 | % | |||||||||||
| Total selling, general and administrative costs | $ | 26,798,107 | $ | 11,660,880 | $ | 15,137,227 | 129.28 | % | ||||||||
Selling, general and administrative costs (“SGA costs”) increased significantly during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021 due to a significant expansion of the Company’s activities requiring SGA costs as it continued to transition into a digital media and entertainment company in 2022. In addition, the increase in SGA costs reflect the impact of costs associated with the Company’s newly acquired subsidiary AdRizer, which was acquired in February 2022. Total SGA costs from continuing operations were $26,798,000 in the first three months of 2022 as compared to $11,661,000 in the first three months of 2021, an increase of $15,137,000. The largest increase was due to the impact of legal, professional fees and transaction related costs related to the Company’s acquisition of AdRizer, its proposed spin-off of its Cryptyde business, and the costs associated with the preparation and audit of its annual financial report. The Company’s compensation costs and its marketing and advertising costs have also increased significantly in the first quarter of 2022 as the Company had added to its payrolls, staff of Lomotif, and AdRizer as well as its internal staff focused on its digital media business which did not exist in the first quarter of 2021. These costs increases were partially offset by a significant decrease in stock-based compensation costs, which decreased by $7,492,000 in the first quarter of 2022 as compared to the first quarter of 2021.
Other Income (Expense)
| Three Months Ended March 31, | Period over Period Change | |||||||||||||||
| 2022 | 2021 | $ | % | |||||||||||||
| Other income (expense) | ||||||||||||||||
| Interest expense, net | (22,427,461 | ) | (12,694,933 | ) | (9,732,528 | ) | 76.7 | % | ||||||||
| Loss on issuance of warrants | (243,681,478 | ) | (75,156,534 | ) | (168,524,944 | ) | 224.2 | % | ||||||||
| Change in fair value of warrant liability | (86,948,858 | ) | 36,381,542 | (123,330,400 | ) | -339.0 | % | |||||||||
| Other income (expense) | 149,594 | (44,296 | ) | 193,890 | -437.7 | % | ||||||||||
| Total other income (expense) | $ | (352,908,203 | ) | $ | (51,514,221 | ) | $ | (301,393,982 | ) | 585.1 | % | |||||
| 36 |
Interest expense, net
Interest expense was approximately $22,427,000 for the three months ended March 31, 2022 versus approximately $12,695,000 during the three months ended March 31, 2021. The increase in interest expense was related to the amortization of financing fees of the convertible note issued to Hudson Bay Master Fund Ltd. (“Hudson Bay”) in July 2021.
Loss on issuances of warrants and change in fair value of warrant liability
The Company classifies a warrant to purchase shares of its common stock as a liability on its consolidated balance sheets as such warrant is a free-standing financial instrument that may require the Company to transfer consideration upon exercise. Each warrant is initially recorded at fair value on date of grant using the sing the Monte-Carlo simulation pricing model and subsequently re-measured to fair value at each subsequent balance sheet date. Changes in fair value of the warrant are recognized as a component of other income (expense), net in the consolidated statement of operations and comprehensive loss. The Company will continue to adjust the liability for changes in fair value until the earlier of the exercise or expiration of the warrant.
During the first three months of 2022, loss on issuances of warrants was $243,681,000 due to the 89,653,803 warrants issued during the period, while the change in fair value of warrant liability for the 160,701,887 warrants outstanding as of March 31, 2022 was an increase of $86,949,000, for a net other expense of approximately $330,630,000 due to warrants recognized by the Company for the three months ended March 31, 2022.
Net Loss
| Three Months Ended March 31, | Period over Period Change | |||||||||||||||
| 2022 | 2021 | $ | % | |||||||||||||
| Loss before income taxes | $ | (379,105,147 | ) | $ | (62,263,320 | ) | $ | (316,841,827 | ) | 508.79 | % | |||||
| Income tax expense | - | - | - | |||||||||||||
| Net loss | (379,105,147 | ) | (62,263,320 | ) | (316,841,827 | ) | 508.79 | % | ||||||||
| Net (loss) income attributable to noncontrolling interests | (6,157,190 | ) | 28,034 | (6,185,224 | ) | -22063.3 | % | |||||||||
| Net loss attributable to Vinco Ventures, Inc. from continuing operations | (372,947,957 | ) | (62,291,354 | ) | (310,656,603 | ) | 498.7 | % | ||||||||
| Net Loss from discontinued operations | - | (178,200 | ) | 178,200 | -100.0 | % | ||||||||||
| Net loss attributable to Vinco Ventures, Inc. | $ | (372,947,957 | ) | $ | (62,469,554 | ) | $ | (310,478,403 | ) | 497.90 | % | |||||
| Net loss attributable to Vinco Ventures, per share | - | - | ||||||||||||||
| Net loss per share- continuing operations | $ | (3.05 | ) | $ | (3.28 | ) | $ | 0.23 | -7.1 | % | ||||||
| Weighted Average Number of Common Shares Outstanding -basic and diluted | 122,176,851 | 19,055,006 | 103,121,845 | 541.2 | % | |||||||||||
| 37 |
Net Loss
The Company incurred a net loss of $372,948,000 during the first three months of 2022 as compared to a net loss of $62,470,000 during the first three months of 2021, an increase of $310,478,000 or 497.0%. The significant increase in net loss was primarily triggered by the impact of the Company’s requirement to recognize the fair value of warrants that the Company issued and the change in fair values of exercised and outstanding warrants during 2021. The total impact of warrant liability accounting during the three months ended March 31, 2022 was a net other expense of $330,630,000 as compared to a net other expense of $38,775,000 in the first three months of 2021. The warrant liability amounts are affected by the fair value of the Company’s stock which is the market price of the Company’s common stock as traded on the Nasdaq Capital Market. During the first three months of 2022, the Company’s stock price ranged from a low of $2.04 and a high of $5.19 per share, which had significant impact on the fair market value of the Company’s warrants on their grant and exercise dates. The other expense due to warrant liability constituted 87.4% of the Company’s net loss for the three months ended March 30, 2022 and 60% of the Company’s net loss for the three months ended March 30, 2021. The remaining increase in net loss during the first three months of 2022 was driven by the increased size of the Company due to ZVV’s ownership of an 80% equity interest in Lomotif, the Company’s acquisition of AdRizer and its transition into a digital media, advertising and content technologies company, which caused the Company to increase its headcount, and its sales and marketing activities during the first three months of 2022.
Cash Flows
During the three months ended March 31, 2022 and 2021, our sources and uses of cash were as follows:
| Three Months Ended March 31, | Period over Period Change | |||||||||||||||
| 2022 | 2021 | $ | % | |||||||||||||
| Net Cash used by Operating Activities | $ | (42,014,284 | ) | $ | (4,140,110 | ) | $ | (38,024,174 | ) | 918.4 | % | |||||
| Net Cash Used in Investing Activities | (35,677,139 | ) | (12,018,228 | ) | (23,658,911 | ) | 196.69 | % | ||||||||
| Net Cash provided by Financing Activities | 100,859,195 | 21,434,728 | 79,574,467 | 371.2 | % | |||||||||||
| Net Increase in Cash and Cash Equivalents | 23,167,772 | 5,276,390 | 17,891,382 | 339.1 | % | |||||||||||
| Cash and Cash Equivalents - Beginning of Year | 187,612,176 | 249,356 | 187,362,820 | 75138.7 | % | |||||||||||
| Cash and Cash Equivalents - End of Year | $ | 210,779,948 | $ | 5,525,746 | $ | 205,254,202 | 3714.5 | % | ||||||||
Cash Flows from Operating Activities
Net cash used in operating activities from continuing operations for the three months ended March 31, 2022 was $42,014,000, which included a net loss of $379,105,000 that included $355,570,000 of non-cash expense items. The use of cash for operations during the first three months of 2022 reflected the costs incurred by the business, including the costs associated with the operation, marketing and promotion of Lomotif, along with the amount of professional fees incurred by the Company during the period. In additional, the Company paid down approximately $9,009,000 in accrued expenses during the first three months of 2022. Net cash used in operating activities from continuing operations for the three months ended March 31, 2021 was $4,140,000, which included a net loss of $62,263,000 that included $60,253,000 of non-cash expense items.
| 38 |
Cash Flows from Investing Activities
Net cash used in investing activities was $35,677,000 during the first three months of 2022, which was primarily due to the net cash paid for the acquisition of AdRizer by the Company in February 2022.
Cash Flows from Financing Activities
Cash provided by financing activities for the three months ended March 31, 2022 totaled $100,859,000, which related primarily to net proceeds from the exercise of warrants.
Net Increase (Decrease) in Cash and Cash Equivalents
As a result of the cash activities described above, during the three months ended March 31, 2022, the Company’s cash increased by $23,167,772 and as of January 1, 2022, the Company had $187,612,000 in cash and cash equivalents, which included $80,000,000 held in a restricted cash account.
Liquidity and Capital Resources
| As of March 31, | Period over Period Change | |||||||||||||||
| 2022 | 2021 | $ | % | |||||||||||||
| Assets | ||||||||||||||||
| Cash and cash equivalents | $ | 130,779,948 | $ | 87,612,176 | $ | 43,167,772 | 49.3 | % | ||||||||
| Restricted cash | - | 100,000,000 | (100,000,000 | ) | 0.0 | % | ||||||||||
| Other current assets | 51,645,168 | 32,129,291 | 19,515,877 | 60.7 | % | |||||||||||
| Total current assets | 182,425,115 | 219,741,467 | (37,316,352 | ) | -17.0 | % | ||||||||||
| Intangible assets, including goodwill | 219,429,315 | 162,105,597 | 57,323,718 | 35.4 | % | |||||||||||
| Other long term assets | 98,824,279 | 23,295,665 | 75,528,614 | 324.2 | % | |||||||||||
| 318,253,594 | 185,401,262 | 132,852,332 | 71.7 | % | ||||||||||||
| Total Assets | $ | 500,678,709 | $ | 405,142,729 | $ | 95,535,980 | 23.6 | % | ||||||||
| Liabilities | ||||||||||||||||
| Accounts payables and accrued expenses | 22,155,028 | 25,622,271 | (3,467,243 | ) | -13.5 | % | ||||||||||
| Current portion of long-term debt | 19,959,861 | 44,467,275 | (24,507,414 | ) | -55.1 | % | ||||||||||
| Total current liabilities | 42,114,889 | 70,089,546 | (27,974,657 | ) | -39.9 | % | ||||||||||
| Long -term debt | 47,066,715 | 2,691,551 | 44,375,164 | 1648.7 | % | |||||||||||
| Warrant liability | 429,167,462 | 198,566,170 | 230,601,292 | 116.1 | % | |||||||||||
| Other long term liabilities | 23,358,420 | 70,197,966 | (46,839,546 | ) | -66.7 | % | ||||||||||
| Total Liabilities | 541,707,486 | 271,455,687 | 228,136,910 | 84.40 | % | |||||||||||
| 39 |
As discussed above, the Company incurred significant losses during the first three months of 2022, and has a history of losses since inception. Since 2021, a significant percentage of its losses has been driven by non-cash expenses items, especially losses caused by liability accounting for its investor warrants. The Company used approximately $43 million in cash for operations during the first three months of 2022. This amount included approximately $8.2 million for transaction related costs associated with its acquisition of AdRizer in February 2022, and a $10 million payment of accrued registration rights penalties owed to Hudson Bay. In addition to these items, the Company used approximately $25 million in its operations during the first three months of 2022. This amount included significant investments in sales, marketing and promotional activities which the Company engaged in during the first quarter to drive awareness and interest in the Lomotif application and Lomotif branded websites, especially for events livestreamed on the Lomotif platform. During the first quarter, the Company live streamed and promoted the Shaq Fun House event in January and the Okeechobee Music Festival in February. These expenses were intended to create traffic and interactions with the Lomotif digital properties with the goal of generating advertising revenue opportunities utilizing the capabilities of AdRizer, which the Company expects will reduce its operating cash needs during the rest of 2022, although there is no guarantee that the Company will successfully do so. If additional advertising revenues are not generated as quickly, or in sufficient amount, the Company will need to utilize its unrestricted cash on hand to fund its operations. As of March 31, 2022, the Company had $130,780,612 of unrestricted cash on hand.
Furthermore, the Company may determine it is in the best interests of the Company to pursue additional investments, acquisitions, or funding of marketing and promotional efforts as the Company expands its presence and capabilities within the digital media marketplace. To do so, the Company may require additional cash resources that the Company could generate through the sale of common stock, the exercise of outstanding warrants, and the issuance of convertible debt, each of which the Company has utilized to raise capital since 2021. The Company believes that it will continue to have access to debt or equity financing, if needed, to pursue additional investments and acquisitions, though there is no assurance that such financing will be available on terms acceptable to the Company, if at all, and any equity-linked financing opportunities will be limited by the Company’s current authorized shares of capital stock available for issuance if the Company’s stockholders do not approve the proposed increases in its authorized capital stock at its next scheduled meeting of stockholders. If the Company is unable to raise additional capital if needed, the Company believes it can implement steps to conserve its unrestricted cash on hand and address any going concern issues, including but not limited to the following steps:
| ● | Reduce headcount, | |
| ● | Reduce marketing, promotional and content development and production activities, | |
| ● | Sell assets or subsidiaries. |
Off-Balance Sheet Arrangements
We did not have, during the periods presented, and we do not currently have, any relationships with any organizations or financial partnerships, such as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
| 40 |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Principal Executive Officer and Principal Financial and Accounting Officer has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report. Based on such evaluation, the Company’s Principal Executive Officer and Principal Financial and Accounting Officer have concluded that, as of the end of such period covered by this Quarterly Report, the Company’s disclosure controls and procedures were not effective to provide reasonable assurance that information that it is required to disclose in reports that the Company files with the SEC is recorded, processed, summarized and reported within the time periods specified by the Exchange Act rules and regulations.
Changes in Internal Control over Financial Reporting
During the three months ended March 31, 2022, there were no changes in our internal control over financial reporting that materially affected our internal control over financial reporting as of March 31, 2022.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of management, including our principal executive officer, we have completed an evaluation of the effectiveness of our internal control over financial reporting based on the 2013 Committee of Sponsoring Organizations (COSO) framework. Based on this evaluation under the COSO framework, management concluded that our internal control over financial reporting was not effective as of March 31, 2022.
As of December 31, 2021, management completed an effective assessment of the Company’s internal control over financial reporting based on the COSO framework. Management has concluded that as of December 31, 2021, our internal control over financial reporting was not effective to detect the inappropriate application of GAAP. Management identified the following material weakness set forth below in our internal control over financial reporting.
| The Company was unable to provide a timely financial reporting package in connection with the year end audit. This was primarily the result of the Company’s limited accounting personnel. This also limits the extent to which the Company can segregate incompatible duties and has a lack of controls in place to ensure that all material transactions and developments impacting the financial statements are reflected. There is a risk under the current circumstances that intentional or unintentional errors could occur and not be detected. |
In the first quarter of 2022, the Company has added additional accounting personnel and began the implementation of a new accounting system. Management has concluded that the material weakness described above currently exists as of March 31, 2022. The Company plans to engage with outside consultants to strengthen its capabilities and help the Company in the design and assessment of its internal controls over financial reporting to further reduce and remediate existing control deficiencies during 2022.
We are not required by current SEC rules to include, and do not include, an auditor’s attestation report regarding our internal controls over financial reporting. Accordingly, our registered public accounting firm has not attested to management’s reports on our internal control over financial reporting.
| 41 |
PART II
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Company is party to legal actions that are routine and incidental to its business. However, based upon available information and in consultation with legal counsel, management does not expect the ultimate disposition of any or a combination of these actions to have a material adverse effect on the Company’s assets, business, cash flow, condition (financial or otherwise), liquidity, prospects and\or results of operations.
ITEM 1A. RISK FACTORS
[Not Applicable]
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities; Uses of Proceeds from Registered Securities
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
Letter Agreement
Pursuant to that certain Warrant Exercise Agreement (as amended, the “September WEA”) dated as of September 1, 2021 between the Company and an accredited investor (the “Holder”), the Company sold warrants to the Holder representing the right to acquire shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”) at an initial exercise price of $9.00 per share, subject to adjustments as set forth in the September WEA (the “Series A September 2021 Warrants”) and (ii) on May 12, 2022, the Company and the Holder entered into that certain Warrant Exercise Agreement (the “May WEA”) whereby the parties, among other things, adjusted the Holder’s exercise price of its Series A September 2021 Warrant and eliminated certain provisions of the Series A September 2021 Warrants as an offer to all of the Series A September 2021 Warrants inducement to fully exercise its Series A September 2021 Warrant on a cashless basis on May 19, 2022.
On May 18, 2022, the Company and the holder entered into that certain Letter Agreement (the “Letter Agreement”) whereby the parties further amended the Series A September A Warrants to require that that Company only needs to maintain the Required Reserve Amount (as defined in the Series A September Warrants) on and after the Shareholder Approval Date (as defined in the May WEA).
The foregoing description of the terms of the Letter Agreement and the transactions contemplated thereby, does not purport to be complete and is qualified in its entirety by reference to the Letter Agreement, which is filed as Exhibit 10.12 hereto.
ITEM 6. EXHIBITS
| 101.INS* | Inline XBRL Instance Document | * | ||
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | * | ||
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | * | ||
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | * | ||
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | * | ||
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | * | ||
| 104* | Cover Page Interactive Data File (embedded within the Inline XBRL document) | * |
| * | Filed herewith. |
| ** | Furnished herewith. |
| 42 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: May 23, 2022
| VINCO VENTURES, INC. | ||
| By: | /s/ Lisa King | |
| Lisa King | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| 43 |