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.) | |
| 14450 | ||
| (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.
☐
Yes ☒
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).
☐Yes
☒
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 | ||
As of April 7, 2023, 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 September 30, 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 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 investment in Magnifi U Inc. (“Magnifi U”), 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”); | |
| ● | 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. 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.
| 4 |
PART ONE – FINANCIAL INFORMATION
Vinco Ventures, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2022 | December 31, 2021 | |||||||
| (Unaudited) | ||||||||
| 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 | ||||||||
| Loan held-for-investment | ||||||||
| Loans held-for-investment - related parties - current portion, net of allowance for loan losses of $ | ||||||||
| Current assets of discontinued operations | ||||||||
| 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, net of allowance for loan losses of $ | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Investment in Mind Tank, LLC | ||||||||
| Investments | ||||||||
| Film and television productions | ||||||||
| Other assets | ||||||||
| Due from related party, net of allowance for losses of $ | ||||||||
| Due from Cryptyde net of allowance for losses of $ | ||||||||
| Non-current assets of discontinued operations | ||||||||
| 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 | ||||||||
| Current liabilities of discontinued operations | ||||||||
| 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 | ||||||||
| Derivative liability | ||||||||
| Deferred tax liability | ||||||||
| Deferred acquisition purchase price | ||||||||
| Non-current liabilities of discontinued operations | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 14) | ||||||||
| Stockholders’ Equity | ||||||||
| Common stock, $ par value, shares authorized; and shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity attributable to Vinco Ventures, Inc. | ||||||||
| Noncontrolling interest | ( | ) | ||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
| * | The assets of the variable interest entities (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 (Note 4). |
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 5 |
Vinco
Ventures, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenues | ||||||||||||||||
| Total revenue, net | $ | $ | $ | $ | ||||||||||||
| Cost of revenues | ||||||||||||||||
| Total costs of revenue | ||||||||||||||||
| Gross profit (deficit) | ( | ) | ( | ) | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Impairment expense | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest (expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss on issuance of warrants | ( | ) | ( | ) | ( | ) | ||||||||||
| Loss on inventory write down | ( | ) | ||||||||||||||
| Loss on investments | ( | ) | ||||||||||||||
| Change in fair value of warrant liability | ( | ) | ( | ) | ||||||||||||
| Change in fair value of contingent purchase price related to Adrizer, LLC acquisition | ||||||||||||||||
| Loan loss expense | ( | ) | ( | ) | ||||||||||||
| Loss on debt extinguishment | ( | ) | ( | ) | ||||||||||||
| Other income (loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| Total other income (expense) | ( | ) | ( | ) | ( | ) | ||||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax expense | ||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss 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- Noncontrolling interests | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss per share – Vinco Ventures, Inc. | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| 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
(Unaudited)
For the Nine Months ended September 30, 2022 and 2021:
| Preferred Stock | Common Stock | Additional Paid in | Retained Earnings (Accumulated | Non-controlling | Total Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Share | Amount | Capital | Deficit) | Interest | Equity | |||||||||||||||||||||||||
| Balance, January 1, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Sale of common stock – investors | - | |||||||||||||||||||||||||||||||
| Issuance of common stock - noteholders | - | |||||||||||||||||||||||||||||||
| Issuance of common stock - consultants | - | |||||||||||||||||||||||||||||||
| Issuance of common stock - employees | - | |||||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of warrants | - | |||||||||||||||||||||||||||||||
| Offering costs -exercise of warrants | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Issuance of common stock for acquisition | - | |||||||||||||||||||||||||||||||
| Share-based compensation | - | - | ||||||||||||||||||||||||||||||
| Conversion under notes payable | - | |||||||||||||||||||||||||||||||
| Exercise of warrant liabilities | - | - | ||||||||||||||||||||||||||||||
| Shares reserved for future issuance of common stock as consideration for the Emmersive asset acquisition | - | - | ||||||||||||||||||||||||||||||
| Conversion of preferred stock to common | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Noncontrolling interest | - | - | ||||||||||||||||||||||||||||||
| Net (loss) income | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||||
| Balance, January 1, 2022 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||
| Issuance of common stock – noteholders, net of offering costs | - | |||||||||||||||||||||||||||||||
| Issuance of common stock - consultants | - | |||||||||||||||||||||||||||||||
| Warrants exercised, net of offering costs | - | |||||||||||||||||||||||||||||||
| Share-based compensation | - | - | ||||||||||||||||||||||||||||||
| Exercise of warrant liabilities | - | - | ||||||||||||||||||||||||||||||
| Write off of investments | - | - | ||||||||||||||||||||||||||||||
| Investment in Magnifi U | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Common stock issued by Cryptyde, Inc. | - | - | ||||||||||||||||||||||||||||||
| Spin-off of Cryptyde, Inc. | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 7 |
For the three months ended September 30, 2022 and 2021:
| Preferred Stock | Common Stock | Additional Paid in | Retained Earnings (Accumulated | Non-controlling | Total Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Share | Amount | Capital | Deficit) | Interest | Equity | |||||||||||||||||||||||||
| Balance, July 1, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| Sale of common stock – investors | - | |||||||||||||||||||||||||||||||
| Issuance of common stock - noteholders | - | |||||||||||||||||||||||||||||||
| Issuance of common stock - consultants | - | |||||||||||||||||||||||||||||||
| Issuance of common stock - employees | - | ( | ) | |||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of warrants | - | |||||||||||||||||||||||||||||||
| Offering costs -exercise of warrants | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Issuance of common stock for acquisition | - | |||||||||||||||||||||||||||||||
| Share-based compensation | - | - | ||||||||||||||||||||||||||||||
| Conversion under notes payable | - | |||||||||||||||||||||||||||||||
| Exercise of warrant liabilities | - | - | ||||||||||||||||||||||||||||||
| Noncontrolling interest | - | - | ||||||||||||||||||||||||||||||
| Net (loss) income | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||||
| Balance, July 1, 2022 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||
| Issuance of common stock – noteholders, net of offering costs | - | |||||||||||||||||||||||||||||||
| Share-based compensation | - | - | ||||||||||||||||||||||||||||||
| Investment in Magnifi U | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| 8 |
Vinco Ventures, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash Flow from Operating Activities | ||||||||
| Net loss attributable to Vinco Ventures, Inc. | $ | ( | ) | $ | ( | ) | ||
| Net loss attributable to noncontrolling interest | ( | ) | ( | ) | ||||
| Net loss | ( | ) | ( | |||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Discontinued operations | ( | ) | ( | ) | ||||
| Amortization of financing costs | ||||||||
| Share-based compensation | ||||||||
| Depreciation and amortization | ||||||||
| Loss on disposal of assets | ||||||||
| Loss on disposal of joint venture | ||||||||
| Amortization of right of use asset | ||||||||
| Change in fair value of short-term investment | ||||||||
| Write off of investments | ||||||||
| Impairment of AdRizer goodwill | ||||||||
| Impairment of Lomotif goodwill | ||||||||
| Impairment of Uber Mom and Pirasta | ||||||||
| Impairment of Edison Nation goodwill | ||||||||
| Impairment of AdRizer intangible assets | ||||||||
| Impairment of Lomotif intangible assets | ||||||||
| Impairment of Edison Nation intangible assets | ||||||||
| Impairment of E-NFT intangible assets | ||||||||
| (Gain) loss on debt extinguishment | ( | ) | ||||||
| Change in allowance for loan losses | ||||||||
| Loss on issuance of warrants | ||||||||
| Change in fair value of warrant liability | ( | ) | ||||||
| Inventory write-off | ( | ) | ||||||
| Exit of investment | ||||||||
| Change in fair value of deferred acquisition | ( | ) | ||||||
| Equity method investment - Income share of Mind Tank LLC | ( | ) | ||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Prepaid expenses and other assets | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Related party, net | ( | ( | ) | |||||
| Accrued expenses and other liabilities | ( | ) | ( | ) | ||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Net Cash Used in Operating Activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Issuance of loans held-for-investment-related parties | ( | ) | ||||||
| Repayments of loans held-for-investment-related parties | ||||||||
| Issuance of loans held-for-investment | ( | ) | ||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Cash received from sale of assets of CBAV 1, LLC | ||||||||
| Funding of loan receivable | ( | ) | ||||||
| Consolidation of Magnifi U (VIE) | ||||||||
| Acquisition of business, net of cash acquired | ( | ) | ( | ) | ||||
| Net Cash (Used in) Provided by Investing Activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Net (repayments) under line of credit | ( | ) | ||||||
| Net (repayments) borrowings under convertible notes payable | ||||||||
| Net (repayments) borrowings under notes payable | ( | ) | ( | ) | ||||
| Net (repayments) borrowings under notes payable - related parties | ( | ) | ( | ) | ||||
| Warrants settled for cash | ( | ) | ||||||
| Payments under convertible notes | ( | ) | ||||||
| Fees paid for financing costs | ( | ) | ||||||
| Net proceeds from exercise of warrants | ||||||||
| Net proceeds from issuance of common stock | ||||||||
| Common stock issued by Cryptyde, Inc. | ||||||||
| Cash paid with Cryptyde, Inc. spinoff | ( | ) | ||||||
| Net Cash (Used in) Provided by Financing Activities | ( | ) | ||||||
| Net (Decrease) Increase in Cash and Cash Equivalents and Restricted Cash | ( | ) | ||||||
| Cash and Cash Equivalents and Restricted Cash - Beginning of Period | ||||||||
| Cash and Cash Equivalents and Restricted Cash - 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 purchase price | $ | $ | ||||||
| Share issued to holders of line of credit | $ | $ | ||||||
| Shares issued to note holders | $ | $ | ||||||
| Shares issued for the acquisition of Lomotif Private Limited | $ | $ | ||||||
| Conversions under notes payable | $ | ( | ) | $ | ||||
| Shares reserved for EVNT, LLC | $ | $ | ||||||
| Asset acquisition of Love is Blurred, LLC – Repayment of held-for-investment-related parties | $ | $ | ||||||
| Consolidation of Magnifi U (VIE), net of cash | $ | ( | ) | $ | ||||
| Acquisition of business, net of cash acquired | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 9 |
Vinco Ventures, Inc. and Subsidiaries
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Basis of Presentation and Nature of Operations
Unaudited Interim Condensed Consolidated Financial Information
The unaudited 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 September 30, 2022 and the results of operations, changes in stockholders’ equity, and cash flows for the periods presented. The interim results are not necessarily indicative of the operating results to be expected for the fiscal year ending December 31, 2022 or for any other interim period or for any other future year.
The unaudited condensed consolidated financial statements and related financial information should be read in conjunction with the audited 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 “Annual Report”). 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.
Description of the Business
Vinco Ventures is focused on digital media, advertising and content technologies.
As
of September 30, 2022, Vinco Ventures’ wholly-owned subsidiaries included: AdRizer, Vinco Ventures Shared Services LLC, Honey Badger,
EVNT Platform LLC DBA Emmersive Entertainment (“EVNT”), Love is Blurred 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
Going Concern and Liquidity
These condensed consolidated financial statements have been prepared assuming that we will continue as a going concern. This basis of accounting contemplates the recovery of our assets and the satisfaction of our liabilities in the normal course of business.
The
Company has incurred and continues to incur losses from operations as well as negative cash flows from operations. For the nine
months ended September 30, 2022, the Company had a net loss of $
| 10 |
Management’s plans include evaluating different strategies to obtain required funding for future operations, developing and implementing cost reduction initiatives, and pursuing revenue generating programs with strategic partners. As these plans have not yet been implemented, management has concluded that substantial doubt about the Company’s ability to continue as a going concern has not been alleviated.
The condensed consolidated financial statements do not include any adjustments relating to the recoverability and reclassification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.
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.
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, impairment valuation estimates, the recoverability and useful lives of long-lived assets, debt conversion features, fair value of warrant liabilities, 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 nine months ended September 30, 2022. As a result of the acquisition of Adrizer, the Company added a new revenue stream, Digital Media Advertising and Licensing, to its Revenue Recognition policy. Additionally, as a result of the Company’s interest in Love is Blurred, the Company has recorded Film and Television Production assets in accordance with Topic 926. As a result of these changes in the first nine months of 2022, new investments have been recognized. The details for each of these topics are as follows:
Revenue Recognition
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 as disclosed in the Company’s Annual Report on Form 10-K. Additional clarification on the Company’s Digital Media Advertising and Licensing revenue recognition policy is provided below.
| 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 purchases traffic (spots on a web page) from third party providers. The Company generates revenue by charging their clients for traffic that they purchase from third-parties. The Company also charges a client traffic management fee that is based on a percentage of the amount of traffic purchased by AdRizer for the client. AdRizer built a proprietary software which provides real-time analytics. Utilizing the Company’s software, the Company’s media buyers create, deploy and manage ad campaigns to generate profit. 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. For impressions-based digital advertising, revenues are recognized as impressions are delivered over the term of the arrangement, while revenue from non-impressions-based digital advertising is recognized over the period that the advertisements are displayed. Such amounts are recognized net of agency commissions and provisions for estimated sales incentives, including rebates, rate adjustments or discounts.
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. Total licensing revenues for the nine months ended September 30, 2022 are $
Identification of a Customer and Gross Versus Net Revenue Recognition
In the normal course of business, the Company acts as or uses an intermediary or agent in executing transactions with third parties. When the intermediary or agent is determined to be the Company’s customer, the Company records revenue based on the amount it expects to receive from the agent or intermediary based on contractual terms with the customer.
In other circumstances, the determination of whether revenue should be reported on a gross or net basis is based on an assessment of whether the Company is acting as the principal or an agent in the transaction. If the Company is acting as a principal in a transaction, the Company reports revenue on a gross basis. If the Company is acting as an agent in a transaction, the Company reports revenue on a net basis. The determination of whether the Company is acting as a principal or an agent in a transaction involves judgment and is based on an evaluation of the terms of the arrangement. The Company serves as the principal in transactions in which it controls the goods or services prior to being transferred to the ultimate customer.
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.
Film and Television Productions
The Company accounts for the film and television productions in accordance with Topic 926, Entertainment – Films. Production costs qualifying for capitalization, are recorded as film and television productions on the consolidated balance sheet and amortized using forecast methods that match amortization to estimated revenue. Currently all productions are actively under development and, as such, amortization has not commenced.
Investments
Investments in equity securities (excluding equity method investments) with readily determinable fair values are accounted for at fair value. For investments in equity securities without readily determinable fair values, the Company elects the measurement alternative permitted under GAAP to measure these investments at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer.
| 12 |
Investments
in which the Company has the ability to exercise significant influence but does not control and is not the primary beneficiary are equity
method investments. Significant influence typically exists if the Company has a
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
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.
| 13 |
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 which include customer relationships and trade name, and the fair value of AdRizer’s
investment in Mind Tank, LLC, of which we own
The fair value in AdRizer, and AdRizer’s investment in Mind Tank, used several methodologies to arrive at the current estimate. To value assets, fixed assets were reported at NBV which approximates fair value. The fair value of the intangible assets employed the following methodologies: customer relationships (Distributor method); developed technology (Multi- period Excess Earnings Method); trade name (Relief-from-Royalty); and the existing workforce was also valued (Replacement Cost method) but is included in Goodwill for reporting purposes. The estimated useful life of the various intangibles was based on the cash flow estimated for the particular asset. Qualitative factors regarding the valuation included expected synergies between businesses and integration of the technology.
The following purchase price allocation is preliminary and details management’s estimate and allocation of the purchase price and fair value of the asset acquired and liabilities assumed at the time of closing.
| AdRizer | ||||
| Cash paid | $ | |||
| Fair value of deferred acquisition price | ||||
| Purchase consideration | $ | |||
| AdRizer | ||||
| Cash and cash equivalents | $ | |||
| Accounts receivable | ||||
| Other current assets | ||||
| Property and equipment | ||||
| Investment in Mind Tank, LLC | ||||
| Customer relationships | ||||
| Developed technology | ||||
| Trade Name | ||||
| Goodwill | ||||
| Total assets acquired | ||||
| Accounts payable and accrued expenses | ||||
| Total liabilities assumed | ||||
| $ | ||||
Statement of Cash Flow reconciliation:
| Purchase consideration | $ | |||
| Fair value of deferred acquisition price | ( | ) | ||
| Cash and cash equivalents, acquired | ( | ) | ||
| Net cash paid | $ |
During
the nine months ended September 30, 2022, the Company made a provisional estimate and adjustment for amortization of the preliminary
intangible assets including customer list, developed technology, and trade name. The Company has estimated a -year useful life and
recorded amortization expense of approximately $
The
Company recognized $
| 14 |
The activity of AdRizer is included in the Company’s consolidated financial statements from the acquisition date to September 30, 2022. The amounts of revenue and earnings of AdRizer from the acquisition date of February 11, 2022 to September 30, 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 nine-month period ended September 30, 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 Nine Months Ended September 30, | ||||||||
| 2022 (Unaudited) | 2021 (Unaudited) | |||||||
| Revenues, net | $ | $ | ||||||
| Net loss attributable to Vinco Ventures, Inc. | $ | ( | ) | $ | ( | ) | ||
PZAJ Holdings, LLC
On
May 12, 2022, the Company entered into an agreement with PZAJ Holdings, LLC (“PZAJ”) to Convert Promissory Note to Capital
Contributions (“5/12/2022 Conversion Agreement”). Under the 5/12/2022 Conversion Agreement, the Company was to be admitted
as a PZAJ Member with
Because condition(s) precedent to the Company’s admission to PZAJ as a member and to the May 12, 2022 Agreement to Convert Promissory Note to Capital Contributions failed to occur, the Company did not record a membership interest in PZAJ. The notes receivable due from PZAJ will continue to be reported by the Company. Because the intent is to be admitted as a member in exchange for the cancellation of the notes receivable, the Company will not establish a reserve against the loans that are included in the conversion agreement as the fair value of the membership interest approximates the fair value of the loans receivable.
During
the nine months ended September 30, 2022, the Company held eight loans for investment with PZAJ, a related party, totaling $
The
notes are principally funding film or TV production assets, all of which are still in production. As of September 30, 2022, $
| 15 |
Asset Acquisitions
Love is Blurred, LLC
On
June 21, 2022, ZASH and the Company entered into a Love is Blurred LLC Membership Interest Assignment Agreement (“LIB Membership
Interest Agreement”). Pursuant to the LIB Membership Interest Agreement, ZASH sold
The LIB LLC assets consist principally of a single film production asset. Because LIB LLC is not a business, the acquisition has been accounted for as an asset.
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
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 our subsidiary Cryptyde, Inc (“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 released the Company of the obligation to deliver the additional earn-out shares provided under the Asset Contribution Agreement. The Cryptyde spin-off occurred on June 29, 2022, and therefore the Company is no longer liable for any contingent consideration to Emmersive.
In
addition, with the sale of Cryptyde, there was a change in how the Company planned to utilize the EVNT platform from its acquisition.
Management made the determination that it was no longer interested in continuing to operate and profit from E-NFT. The developed technology
intangible asset for the EVNT platform of $
| 16 |
Divestitures
Spin-Off of Cryptyde, Inc.
On
November 8, 2021, 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
On May 16, 2022, the Form 10 was declared effective. The Record Date for the spin-off was May 18, 2022. Effective June 29, 2022, Cryptyde separated from the Company and the distribution of its common stock was completed. Upon completion of the spin-off, Cryptyde became an independent, publicly traded company (NasdaqCM: TYDE). The distribution was made in the amount of one share of Cryptyde common stock for every ten shares of our common stock owned by our stockholders at the close of business on the Record Date.
Also, in connection with the spinoff, we entered into definitive agreements with Cryptyde that, among other things, set forth the terms and conditions of the separation and distribution. The agreements set forth the principles and actions taken or to be taken in connection with the separation and the distribution and provide a framework for our relationship with Cryptyde from and after the separation and the distribution. The agreements include a Separation and Distribution Agreement and a Tax Matters Agreement.
On
January 26, 2022,
On June 29, 2022, . On the Distribution Date, each holder of Vinco common stock received one share of Cryptyde common stock for every ten shares of Vinco common stock held at the close of business on the Record Date.
The results of our Cryptyde businesses have been reflected as discontinued operations in the current year period through the date of the spinoff and in the prior year period.
| 17 |
Details of assets and liabilities related to the spin-off of Cryptyde are as follows:
June 29, 2022 | December 31, 2021 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Loan receivable, related party | ||||||||
| Loan Interest Receivable, related party | ||||||||
| Fixed assets, net | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Current liabilities | $ | $ | ||||||
| Total Current Liabilities | ||||||||
| Other liabilities: | ||||||||
| Due company (former parent), net | $ | $ | ||||||
| Other liabilities | ||||||||
| Net assets of spin-off / discontinued operations: | ||||||||
| Net assets of spin-off / discontinued operations | $ | $ | ||||||
The following cash flow supplementary information summarizes the distribution:
| June 29, 2022 | ||||
| Cash distributed | $ | |||
| Other assets distributed | ||||
| Liabilities distributed | ( | ) | ||
| Net assets distributed | $ | |||
Details of earnings (loss) from discontinued operations included in our condensed consolidated statements of operations are as follows:
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenues, net | $ | $ | $ | $ | ||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross Profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Operating Income | ( | ) | ||||||||||||||
| Other (expense) Income | ||||||||||||||||
| Interest income (expense) | ( | ) | ( | ) | ||||||||||||
| Other income (loss) | ||||||||||||||||
| Total other (expense) income | ||||||||||||||||
| (Loss) Income Before Income Taxes | ( | ) | ||||||||||||||
| Income tax expense | ||||||||||||||||
| Net (Loss) Income | $ | $ | $ | ( | ) | $ | ||||||||||
During
the time Cryptyde was under management of the Company, cash advances were made to Cryptyde for management fees, working capital, and
financing needs, as well as other operating expenses that were paid for on behalf of Cryptyde. As of September 30, 2022, amounts due
from Cryptyde, net of allowance for losses of $
Write-off of Best Party Concepts, LLC and Global Clean Solutions, LLC
The
Company wrote-off its investment in Best Party Concepts, LLC and Global Clean Solutions, LLC as of June 30, 2022 due to insignificant
activity and a decision to not pursue business in the foreseeable future. The write-off attributed to Best Party Concepts equaled $
| 18 |
Note 4 — Variable Interest Entities
The Company is involved in the formation of various entities considered to be 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.
The following table presents the carrying values of the assets and liabilities of entities that are VIEs and consolidated by the Company as of September 30, 2022 and December 31, 2021:
| September 30, 2022 | December 31, 2021 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Due from related party, current | ||||||||
| Loan held-for-investment, related parties, current, net of allowance for loan losses of $ | ||||||||
| Total current assets | ||||||||
| Due from related party, non-current, net of allowance for losses of $ | ||||||||
| Loan interest receivable, non-current, net of allowance for loan losses of $ | ||||||||
| Loan held-for-investment | ||||||||
| Loan held-for-investment, related parties | ||||||||
| Investment in subsidiary | ||||||||
| Total other assets | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Cost method Investments | ||||||||
| Right of use assets, net | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and stockholders’ equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other current liabilities | ||||||||
| Operating lease liabilities | ||||||||
| Total current liabilities | ||||||||
| Intercompany | ||||||||
| Notes payable | ||||||||
| Due to related party | ||||||||
| Total liabilities | $ | $ | ||||||
The following table presents the operations of entities that are VIEs and consolidated by the Company as of September 30, 2022 and 2021:
| For the Three Months | For the Nine Months | |||||||||||||||
| Ended September 30, | Ended September 30, | |||||||||||||||
| 2022 | 2021 | 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 | ||||||||||||||||
| Loan loss expense | ( | ) | ( | ) | ||||||||||||
| Total Other Expense | ||||||||||||||||
| Loss Before Income Taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax expense | ||||||||||||||||
| Net (Loss) Income | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| 19 |
As
of September 30, 2022, the Company had no unconsolidated VIEs. The Company has consolidated Magnifi U, ZVV, and Lomotif for which the
Company has determined it holds a variable interest. ZVV currently owns an
Magnifi U Inc.
On
May 19, 2021, the Audit Committee approved the Company entering into a secured loan to Magnifi U for up to $
On
October 12, 2021, ZVV Media loaned $
On December 30, 2021 the Vinco Ventures, Inc. Board of Directors unanimously approved Vinco Ventures, Inc. to hire all then-current employees of Magnifi U, as part of the strategic investment in the platform.
As a result of the Board of Directors approval to hire all then-current employees of Magnifi U, and subsequent onboarding of Magnifi U employees in January 2022, the Company reconsidered the relationship as prescribed in ASC 810-10-35-4. The Company concluded consolidation was appropriate.
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
Investments in equity securities with readily determinable fair values are carried at fair value, and changes in unrealized gains or losses are reported in current period earnings. As of September 30, 2022 and December 31, 2021, short-term investments consisted of the following:
September 30, 2022 | December 31, 2021 | |||||||
| Jupiter Wellness, Inc. (JUPW) | $ | $ | ||||||
| Unrealized losses | ( | ) | ( | ) | ||||
| Total short-term investments | $ | $ | ||||||
| 20 |
Note 6 — Property and Equipment, net
As of September 30, 2022 and December 31, 2021, property and equipment consisted of the following:
September 30, 2022 | December 31, 2021 | |||||||
| Software | $ | $ | ||||||
| Furniture and fixtures | ||||||||
| Computers | ||||||||
| Leasehold improvements | ||||||||
| Equipment | ||||||||
| Construction in progress | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Total property and equipment, net | $ | $ | ||||||
Depreciation
expense for the three months ended September 30, 2022 and 2021 was $
Note 7 — Loans Held for Investment
As of September 30, 2022 and December 31, 2021, loans held-for-investment consisted of the following:
September 30, 2022 | December 31, 2021 | |||||||
| Loans held-for-investment: | ||||||||
| Carlin Haynes, LLC (i) | $ | $ | ||||||
| Total loans held-for-investment | $ | $ | ||||||
| (i) |
As of September 30, 2022, and December 31, 2021, loans held-for-investment – related parties consisted of the following:
September 30, 2022 | December 31, 2021 | |||||||
| Loans held-for-investment – related parties: | ||||||||
| PZAJ Holdings, LLC(ii) | $ | $ | ||||||
| ZASH Global Media and Entertainment Corporation (iii) | ||||||||
| Allowance for loan losses – PZAJ Holdings, LLC | ( | ) | ||||||
| Allowance for loan losses – Zash Global Media and Entertainment Corporation | ( | ) | ||||||
| Total Loans Held-For-Investment – Related Parties | $ | $ | ||||||
| (ii) | |
| (iii) | |
| As of September 30, 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 $ | |
| On December 30, 2021 the Vinco Ventures, Inc. Board of Directors unanimously approved Vinco Ventures, Inc hiring of then-current employees of ZASH. The founding members of ZASH were not hired by Vinco. | |
| As
of September 30, 2022, the Company has loaned $ |
Note 8 — Investments
As of September 30, 2022. And December 31, 2021, our non-current investments consisted of the following:
September 30, 2022 | December 31, 2021 | |||||||
| Hyperreal Digital, Inc. | $ | $ | ||||||
| Total Investments | $ | $ | ||||||
This investment does not have a readily determinable fair value and therefore it is measured at cost less impairment.
| 21 |
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 a 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.
The following fair value of financial assets and liabilities and the input level used to determine the fair value as of September 30, 2022 and December 31, 2021 is presented below:
Fair Value Measurements as of September 30, 2022 | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Assets: | ||||||||||||
| Short-term investments | $ | $ | $ | |||||||||
| Liabilities: | ||||||||||||
| Warrant liability | ||||||||||||
| Purchase consideration | - | - | ||||||||||
| 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 nine months ended September 30, 2022 and 2021, respectively:
Warrant Liability | Purchase Consideration | |||||||
| Balance, January 1, 2022 | $ | $ | ||||||
| Issuance of warrants | ||||||||
| Change in fair value of warrants | ( | ) | ( | ) | ||||
| Warrants settled for cash | ( | ) | ||||||
| Exercise of warrants | ( | ) | ||||||
| Balance, September 30, 2022 | $ | $ | ||||||
| 22 |
Note 10 — Intangible Assets and Goodwill
As of September 30, 2022, intangible assets consisted of the following:
| Estimated | Remaining Weighted Average | Initial | Current | Net | |||||||||||||||
| Useful | Useful | Carrying | Period | Accumulated | Carrying | ||||||||||||||
| Life | Life | Amount | Impairment | Amortization | Amount | ||||||||||||||
| Finite lived intangible assets: | |||||||||||||||||||
| Customer relationships | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||
| Developed technology | ( | ) | ( | ) | |||||||||||||||
| Membership network | ( | ) | |||||||||||||||||
| Digital media platform | ( | ) | |||||||||||||||||
| Influencer network | ( | ) | |||||||||||||||||
| Trademarks and tradenames | ( | ) | |||||||||||||||||
| 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:
| Estimated | Remaining Weighted Average | Gross | Net | |||||||||||||
| Useful | Useful | Carrying | Accumulated | 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 | $ | $ | $ | |||||||||||||
Given the downturn in the Company’s business during the three months ended September 30, 2022, the Company determined that there was an early impairment indicator which would trigger an impairment test as of September 30, 2022. The Company engaged an independent third party to perform a quantitative assessment of goodwill and intangible assets related to Lomotif and Adrizer as of September 30, 2022.
The
valuation methods used in the quantitative fair value assessment of the intangible assets used was a multi-period excess earnings method
for developed technology, distributor method for customer relationships and relief from royalty for tradenames. Based on quantitative
testing performed, the Company determined that the fair value based on a discounted cash flow model is less than the carrying value for
developed technology intangible assets related to Lomotif and AdRizer. The Company wrote off $
Further, based on the quantitative impairment test for customer relationships and tradenames, the Company determined that the sum of undiscounted cash flows is greater than or equal to the carrying value for customer relationships and trade name and therefore further impairment testing is not required no impairment and no adjustment to carrying value was deemed necessary.
In
addition to the impairment analysis for Lomotif and Adrizer, during the three months ended September 30, 2022, due to changes in business
strategy, the Company abandoned its consumer products business, Edison Nation, and decided not to utilize E-NFT, a legacy technology
from the EVNT Platform. As a result, the Company no longer expects any future benefit from the related intangible assets and has determined
it necessary to fully impair the related intangible assets. During the three months ended September 30, 2022, the Company recorded the
following write offs; $
Amortization
expense for the three months ended September 30, 2022 and 2021 was $
The estimated future amortization of intangibles subject to amortization as of September 30, 2022 was as follows:
| Amount | ||||
| 2022 (excludes amortization through September 30, 2022) | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total | $ | |||
The changes in the carrying amount of goodwill for the period January 1, 2021 through September 30, 2022, consisted of the following:
| Amount | ||||
| Balance, January 1, 2021 | $ | |||
| Impairment | ( | ) | ||
| Acquisition of Lomotif Private Limited | ||||
| December 31, 2021 | ||||
| Impairment | ( | ) | ||
| Acquisition of AdRizer | ||||
| Balance, September 30, 2022 | $ | |||
| 23 |
The
Company determined that a triggering event under ASC 350-20: Impairment – Goodwill had occurred. The current guidance requires an entity to consider whether an event has occurred or circumstances have changed
that would more likely than not reduce the fair value of a reporting unit.
Due to various management
disputes between existing members of the Board of Directors and members of executive management; the receipt of an Alternate
Exercise Notice (with respect to
Taken in conjunction with the resulting Going Concern, the Company
abandoned its product businesses. Our consumer products business was led by Edison Nation. Edison Nation had a number of internally
developed brands (“EN Brands”), including Cloud B, Pirasta, Uber Mom, Lily and Grey, Trillion Trees, and
Barkley Lane. The Company impaired the related intangible assets in the third quarter, which included customer relationships, developed
technology, membership network and trademarks of $
In
addition, with the spinoff of Cryptyde, the Company made the determination that it was no longer interested in continuing to operate and profit from E-NFT. The developed technology
intangible asset for the EVNT platform of $
Further
the Company performed a quantitative impairment test for both the remaining goodwill and intangible assets of the remaining business, Lomotif
and AdRizer, and recorded impairment charges of $
Note 11 — Debt
As of September 30, 2022 and December 31, 2021, debt consisted of the following:
September 30, 2022 | December 31, 2021 | |||||||
| Notes payable | $ | $ | ||||||
| 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, as amended carries interest at
| 24 |
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
$
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: (i) amend certain provisions of the July 2021
Note to (a) convert $
The Company accounted for the amendment as a modification of debt and as a result, extended the amortization of the deferred financing fees of the original note over the remaining term of the amended agreement. In addition, the Company recorded additional deferred financing fees as a result of the issuance of shares of common stock with a per share value of $ in conjunction with the amendment.
On
July 22, 2022, as required by the March 9, 2022 amendment to the July 2021 Note, the Company made a cash payment of $
On
August 18, 2022, as a result of the Company being in default on its existing senior secured convertible note, the Company was required
to purchase a portion of the outstanding Note. The Company purchased $
On
August 19, 2022, the note holder elected to convert $
The scheduled maturities of the debt for the next five years as of September 30, 2022, are as follows:
| Amount | ||||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Less: debt discount | ( | ) | ||
| $ | ||||
| 25 |
Note 12 — Warrant Liability
For
the nine months ended September 30, 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 %
of the number of Exercised Warrant Shares at an exercise price of $
Under
the May 2022 Warrant Exchange Agreement, dated May 12, 2022, the Company entered into an agreement with the holder of the Company’s
July 2021 Notes 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 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 the Warrant Exercise Agreement dated May 12, 2022, no shares issued or issuable with respect to the Outstanding Warrants shall in
the aggregate exceed
On
May 19, 2022, the holder exchanged
On July 5, 2022, the Holder submitted Alternate Exercise Notices to the Company with respect to (i) exercise shares under the November Warrants, and (ii) exercise shares under the December Warrants, for an aggregate payment equal to $ (the “Warrant Payment”). On July 6, 2022, the Company made the Warrant Payment, in cash, to the Holder pursuant to the Alternate Exercise Notices and, as a result, a total of warrants held by the Holder were canceled.
For the Three Months ended September 30, 2022 | ||||||||||||||||||||
| Series | Exercise Price* | Initial Grants | As of June 30, 2022 | Exercises | Remaining | |||||||||||||||
| June | $ | |||||||||||||||||||
| September A | $ | |||||||||||||||||||
| November | $ | ( | ) | |||||||||||||||||
| December | $ | ( | ) | |||||||||||||||||
| ( | ) | |||||||||||||||||||
For the Nine Months ended September 30, 2022 | ||||||||||||||||||||
| Series | Exercise Price* | Initial Grants | As of Dec 31, 2021 | Exercises | Remaining | |||||||||||||||
| June | $ | ( | ) | |||||||||||||||||
| July | $ | ( | ) | |||||||||||||||||
| September A | $ | ( | ) | |||||||||||||||||
| November | $ | ( | ) | |||||||||||||||||
| December | $ | ( | ||||||||||||||||||
| ( | ) | |||||||||||||||||||
| * | - |
| 26 |
The Company’s outstanding warrants set forth below were valued using the Monte-Carlo simulation pricing model to calculate the September 30, 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 | % | % | % | |||||||||||||
| Palladium Capital Warrant; November 10, 2021 | % | % | % | |||||||||||||
| Palladium Capital Warrant; December 20, 2021 | % | % | % | |||||||||||||
Note 13 — Related Party Transaction
| Due from Related Parties as of September 30, 2022 | ||||
| ZASH Global Media | ||||
| Allowance for losses | ( | ) | ||
| Other | ||||
| Balance, September 30, 2022 | $ | |||
As
of September 30, 2022, the Company has provided ZASH with cash advances of $
ZASH Global Media and Entertainment Corporation
As
of September 30, 2022, Lomotif owed ZASH $
On
June 29, 2022, the Company and ZVV entered into a Secured Promissory Note (the “Note”) in the original principal amount of
$
In connection with the Note, on the Issue Date, the Company and ZVV entered into a Security and Pledge Agreement (the “Security Agreement”). Pursuant to the Security Agreement and to provide security for ZVV’s repayment of all loans under the Note, ZVV granted, among other things, a second priority security interest and lien upon all of ZVV’s property to the Company.
| 27 |
Magnifi U, Inc.
On
October 12, 2021, ZVV entered into a promissory note (the “Magnifi U Note”) with Magnifi U, pursuant to which ZVV loaned
Magnifi U $
As
of September 30, 2022, Lisa King had one member of her extended family working at Magnifi U with an annual salary in excess of $
MindTank LLC
On June 1, 2020, AdRizer LLC entered into an operating agreement by and among Mind Tank Media LLC and Mind Tank, LLC. The company evaluated accounting for Mind Tank, LLC in accordance with Topic 810 – Consolidations and concluded while Mind Tank LLC is a variable interest entity in accordance with ASC 810-10, it was not the primary beneficiary and has used accounting under the equity method prescribed in ASC 323.
For
the three months ended September 30, 2022, AdRizer LLC recorded operating revenue on sales to Mind Tank, LLC totaling $
PZAJ Holdings LLC
As of September 30, 2022, Ted Farnsworth held the position of Initial Chairman of the Board of Managers at PZAJ Holdings, LLC.
Brian Hart
Prior
to appointment as a member of Board of Directors of the Company, Mr. Hart previously provided consulting services to the Company earlier
in 2022 pursuant to which he received $
Note 14— Commitments and Contingencies
AI-Pros Licensing Agreements
On July 22, 2022, the Company entered into one of two anticipate software license agreements with its strategic partner, AI-Pros Inc. (“AI-Pros”). The license provides Vinco the right to use AI-Pros’ tools and technologies, which could allow Vinco to participate in a social media platform that it believes can significantly enhance its position in the digital advertising markets.
The Company is in the process of terminating the software licensing agreements with AI-Pros.
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 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 September 30, 2022 and 2021 was $
Supplemental balance sheet information related to leases are as follows:
| September 30, 2022 | ||||
| Operating leases - ROU assets | $ | |||
| Operating lease liabilities (current) | $ | |||
| Operating lease liabilities (noncurrent) | ||||
| Total operating lease liabilities | $ | |||
Future minimum lease payments under operating leases as of September 30, 2022, are as follows:
| Operating Lease | ||||
| 2022 (Oct-Dec) | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Undiscounted Cash Flows | ||||
| Less: Implied Interest | ( | ) | ||
| Total operating lease liabilities | $ | |||
As
of September 30, 2022, the weighted-average remaining lease term for operating leases is
| 28 |
Legal Contingencies
On August 5, 2022, Vinco Ventures, Inc. was subject to a Temporary Restraining Order (“TRO”) filed in the State of Nevada. The TRO outlined various management disputes between existing members of the Board of Directors and members of executive management. On September 28, 2022, the Company entered into a settlement agreement (the “Agreement”) with respect to the litigation entitled “Vinco Ventures, Inc. v. Theodore Farnsworth, Lisa King, Roderick Vanderbilt and Erik Noble” in the Eight Judicial District Court located in Clark County, Nevada. The Agreement set forth the following, among other things (a) Ross Miller is the interim sole CEO and shall run the Company under the oversight of the Company’s Board of Directors, with Lisa King and Rod Vanderbilt remaining as directors, (b) John Colucci, former Co-CEO and Phillip Jones, former CFO, both resigned effective immediately as officers and director (in the case of Colucci) of the Company, (c) Michael Distasio and Elliot Goldstein resigned effective immediately as Directors of the Company, (e) John Colucci received three month’s severance and Phillip Jones received four month’s severance, in addition to any accrued and unpaid payroll, (f) The Company shall pay six months’ worth of COBRA payments for Jones, (g) All directors are to be paid all director fees due to the date of severance, (h) Elliot Goldstein is to be paid $ in lieu to any matters related to his stock options and RSUs, (i) All outgoing directors and officers entered into three year noncompete agreements with the Company, and (j) All parties entered into mutual releases with the Company.
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.
The Company is, and may in the future become, subject to various legal proceedings and claims that arise in or outside the ordinary course of business.
Note 15 — Stockholders’ Equity
Common Stock
For the period ending September 30, 2022, the Company reported it was authorized to issue shares of common stock. As of September 30, 2022 and December 31, 2021, there were and shares of common stock issued and outstanding, respectively.
During
the nine months ended September 30, 2022, warrant shares of were exercised and the Company received proceeds of $
On October 14, 2022, the Company filed an amendment to its Articles of Incorporation to reallocate its previously authorized million shares of stock as million shares of Common Stock and million shares of Preferred Stock, which Preferred Stock may be issued upon the subsequent filing with the Nevada Secretary of State of one or more certificates of designation for series of preferred stock. It subsequently amended the filing to be million shares of Common Stock and million shares of Series A perpetual non-convertible preferred stock of the Company designated as Series A Preferred Stock.
Preferred Stock
The Company is authorized to issue shares of preferred stock, with the par value to be established upon 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 September 30, 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, 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.
| 29 |
| Shares | Weighted Average Exercise Price | Remaining Contractual Life in Years | Aggregate Intrinsic Value | |||||||||||||
| Balance, December 31, 2021 | $ | |||||||||||||||
| Granted | $ | - | - | |||||||||||||
| Forfeited | $ | - | - | |||||||||||||
| Balance, September 30, 2022 | $ | |||||||||||||||
| Exercisable, September 30, 2022 | $ | |||||||||||||||
As of September 30, 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.
Lomotif has a stock option plan for their employees. The 2021 Equity Incentive Plan is intended to help Lomotif to secure and retain qualified resources. The Plan has reserved shares.
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 September 30, 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. The potential dilution from common stock equivalents is computed using the treasury stock method based on the average market value of our common stock during the period.
For the three and nine month period ending September 30, 2022, due to reported net losses of $ and $, the calculation of our diluted weighted-average common shares outstanding excludes all common stock equivalents as the effect would be anti-dilutive.
| As of | ||||||||
| September 30, 2022 | December 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 | ||||||||
| Warrants | ||||||||
| Total | ||||||||
Note 16 —Customer Concentrations
For the nine months ended September 30, 2022 and 2021 the following customers that represented more than 10% of total net revenues:
For the Nine Months ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Customer: | ||||||||
| Customer A | * | % | ||||||
| Customer B | % | * | ||||||
| Customer C | % | * | ||||||
| Customer D | % | * | ||||||
| ● |
| 30 |
For the nine months ended September 30, 2022 and 2021, the following geographical regions represented more than 10% of total net revenues:
| For the Nine Months ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Region: | ||||||||
| North America | % | % | ||||||
Note 17 — Subsequent Events
Management Changes
On
October 26, 2022, the Company entered into an engagement agreement with Ankura Consulting Group for interim CFO services, with Brendan
Bosack, one of its principals, named as Interim CFO of the Company. The agreement calls for services to be rendered at $
ZASH Global Media Equity Transaction
On
December 19, 2022, the Vinco Ventures, Inc. entered into a material definitive agreement to complete the purchase of the membership
interests (“Membership Interests”) in ZVV Media Partners from ZASH Global Media. The purchase price shall be (a)
shares of Vinco Ventures, Inc.’s Series B Preferred Stock (which shall be convertible into
million common shares of ZVV Media Partners, for which issuance will be subject to Nasdaq rules) and for which a Certificate of
Designation was to be filed in the State of Nevada before December 21, 2022 (and will be issued in the near future), was subject to
approval of both ZVV Media Partners and ZASH Global Media and compliance with all Nasdaq and SEC compliance (“Purchase
Equity”), and (b) the deemed satisfaction of all outstanding indebtedness and other obligations owing from ZASH Global Media
to ZVV Media Partners or the ZVV Media Partners , including, without limitation, pursuant to (i) the Promissory Note issued by ZASH
Global Media to ZVV Media Partners dated February 18, 2021 in the original principal amount of $
Nasdaq
On August 26, 2022, the Company filed a Current Report on Form 8-K in which it disclosed that it had received notification from The Nasdaq Stock Market, LLC (“Nasdaq”) that required the Company to submit to Nasdaq, on or before October 17, 2022, a Plan of Compliance with regard to the filing of its Quarterly Report on Form 10-Q for the period ended June 30, 2022. The Plan of Compliance was submitted as of October 17, 2022.
As a result of a delinquency notice received, the Company submitted a plan of compliance to file the second quarter 10-Q and the third quarter 10-Q no later than February 13, 2023. The Company submitted the update to this plan of compliance to Nasdaq confirming the above referenced timetable. The Company was unable to file Form 10-Q for the periods ending June 30, 2022 and September 30, 2022 by February 13, 2023. The Company filed Form 10-Q for the period ended June 30, 2022 on February 22, 2023.
On November 17, 2022, the Company received a notice (the “November Notice”) from Nasdaq advising the Company that it was not in compliance with Nasdaq’s continued listing requirements under the Nasdaq Listing Rule 5250(c)(1) (“Rule 5250”) as a result of the Company’s failure to file its Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 (“Form 10-Q”) with the United States SEC in a timely manner, which deadline was November 14, 2022. Rule 5250 requires listed companies to timely file all required periodic reports with the SEC.
On
December 1, 2022, the Company received a notice (the “December Notice”) from Nasdaq advising the Company that it was not
in compliance with Nasdaq’s continued listing requirements under the Nasdaq Listing Rule 5550(a)(2) (“Rule 5550”) as
a result of requiring listed securities to maintain a minimum bid price of $ per share. Based upon the closing bid price for the last
30 consecutive business days, the Company no longer meets this requirement. However, Rule 5550 also provides the Company a compliance
period of 180 calendar days in which to regain compliance. If at any time during this 180 day period the closing bid price of the Company’s
security is at least $
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On February 14, 2023, the Company received a Staff Determination letter (the “Letter”) from Nasdaq. The Letter states that on August 19 and November 17, 2022, the Company was notified that it did not comply with Nasdaq’s filing requirements set forth in Rule 5250 because it had not filed its Form 10-Q for the period ended June 30, 2022, and its Form 10-Q for the period ended September 30, 2022 (the “Delinquent Filings”). Staff granted the Company an exception until January 31, 2023, to regain compliance with Rule 5250. Subsequently, on January 26, 2023, the Company requested additional time to file the Delinquent Filings and Staff granted the Company an exception until February 13, 2023, to regain compliance with the Rule.
Upon further review, it was determined that the Company did not meet the terms of the exception because it had not filed the Delinquent Filings by February 13, 2023. The Company appealed the determination to a Hearings Panel (the “Panel”), pursuant to the procedures set forth in the Nasdaq Listing Rule 5800 Series. A hearing request will stay the suspension of the Company’s securities and the filing of the Form 25-NSE pending the Panel’s decision. The Company filed a hearing request and remitted the hearing filing fee on February 16, 2023. The hearing occurred on March 30, 2023 and the Company is awaiting additional instruction from Nasdaq.
Equity Changes
On October 14, 2022, the Company filed an amendment to its Articles of Incorporation to reallocate its previously authorized million shares of stock as million shares of Common Stock and million shares of Preferred Stock, which Preferred Stock may be issued upon the subsequent filing with the Nevada Secretary of State of one or more certificates of designation for series of preferred stock. It subsequently amended the filing to be million shares of Common Stock and million shares of Preferred Stock.
Acquisition of National Enquirer
On February 6, 2023, the Company entered into a joint venture with ICON Publishing, LLC to acquire for cash the National Enquirer (both U.S. and U.K. editions), the National Examiner, and Globe under an Asset Purchase Agreement from magazine publisher A360 Media, LLC. The transaction includes the acquisition of all print and digital assets and owned intellectual property of the National Enquirer, National Examiner and Globe. The closing of the acquisition is subject to certain consents and customary conditions to closing as described in the Asset Purchase Agreement.
Subject to the
terms and conditions of the agreement, the aggregate purchase price for the purchased assets (the “Purchase Price”) is up
to $
Securities Purchase Agreement
On
February 5, 2023, the Company has entered into a Securities Purchase Agreement for the sale of a $
Each holder of outstanding share of Series A Preferred Stock will have the voting rights to vote together with the class of stockholders of Common Stock, as a single class, upon any matter submitted to the stockholders of Common Stock for a vote as of a record date established by the Board of Directors of the Company. For so long as any Series A shares remain issued and outstanding, the holders of each share shall have the right to vote, in an amount equal to one percent (1%) of the total voting power of then-outstanding shares of Common Stock of the Company entitled to vote in such class, calculated as provided herein.
The Company closed the transaction on February 10, 2023.
Exchange Agreement
On
February 5, 2023, the Company entered into an Exchange Agreement with an accredited investor (the “Holder”) pursuant to which
the Company and the Holder desire: (i) to exchange $
The
Company and the Holder agreed that Section 2 of the July Note is amended and restated to be non-interest bearing except if there is an
event of default at which time the interest rate shall be
On
February 10, 2022, the Holder released $
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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 on 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, our recent acquisition of AdRizer which includes 50% of Mind Tank, our investments into entertainment and motion picture company PZAJ, and our strategic investments in the TMX and Magnifi U platforms, we are transitioning from focusing on innovation, development and commercialization of end-to-end consumer products to the creation of a content-centric ecosystem with an emphasis on innovation, content development and commercialization of print and digital media, advertising, and distribution platforms. Additionally, with a focus on profitability, future mergers and acquisitions will be considered if they enhance the full ecosystem, provide more exclusive content, and create unique experiences for our active users. 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 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.
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The Lomotif app is available in the Apple and Google stores and is a grassroots social community with dedicated users spanning Asia, South America, and 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.
As of September 30, 2022, there has been a downward trend in the number of monthly active users (“MAU”) and daily active users (“DAU”) of the Lomotif technology as a result of the following reasons:
| ● | Overall drop in MAU, DAU and creations is in part due to an update requirement by the Apple Appstore. The update has limited Lomotif’s music library. This muted much of the content. | |
| ● | Moderation of explicit content. | |
| ● | New Apple privacy features limit apps abilities to track users, which in turn may limit recommendations and ad revenue. | |
| ● | With a focus on bugs and fixes and to integrate advertising placement in the app and on the website, Lomotif did not introduce a steady stream of new features, thus potentially impacting creation and retention metrics. | |
| ● | Some user acquisition tests did not yield the desired conversion rates from views to active users. |
As of September 30,2022, there has been an upward trend in the impressions and reach across the Lomotif website ecosystem. This cross-platform strategy was implemented in order to test various types of content, promotions and advertising, and intended to mitigate the decline in advertising and revenue opportunities. Lomotif measures active users on the platform, as well as users on the Lomotif website, Lomotif promotional sites, views of live events, and views of original Lomotif content shared on other social sites. Key metrics include active users on platform, users on Lomotif sites, site visits, content views, reach and impressions. AdRizer is anticipated to generate advertising revenue through ad placements in the Lomotif app and on Lomotif websites based on traffic, views, and impressions.
| ● | 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, optimization 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) the development of 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 as well as the Honey Badger digital commerce company.
| ● | 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 influencer relationships and followers in their 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.
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Corporate Strategy
We are transitioning from focusing on innovation, development and commercialization of end-to-end consumer products to the creation of a content-centric ecosystem with an emphasis on innovation, content development and commercialization of print and digital media, advertising, and distribution platforms. Additionally, with a focus on profitability, future mergers and acquisitions will be considered if they enhance the full ecosystem, provide more exclusive content, and create unique experiences for our active users. The right content enables brands to rapidly communicate key messages, improving the asset’s ability to capture the attention of target audiences. Video and digital 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 MindTank, related growth initiatives and investments such as PZAJ, TMX and Magnifi U, 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 continue to integrate AdRizer’s Cortex technologies with the Lomotif platform and content 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 and 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 have completed the process of spinning off Cryptyde.
Recent Developments
The following is a description of recent events regarding 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, “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 (“Performance Units”) of AdRizer under its phantom equity plan (collectively, “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 (“AdRizer Purchase Agreement”), whereby the Company acquired all of the outstanding equity interests of AdRizer (“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 (“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 (“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.
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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.
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 (“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 was May 18, 2022. Effective June 29, 2022, Cryptyde separated from the Company and the distribution of its common stock was completed. Upon completion of the spin-off, Cryptyde became an independent, publicly traded company (NasdaqCM: TYDE). The distribution was made in the amount of one share of Cryptyde common stock for every ten shares of our common stock owned by our stockholders at the close of business on the Record Date.
Also, in connection with the spinoff, we entered into definitive agreements with Cryptyde that, among other things, set forth the terms and conditions of the separation and distribution. The agreements set forth the principles and actions taken or to be taken in connection with the separation and the distribution and provide a framework for our relationship with Cryptyde from and after the separation and the distribution. The agreements include a Separation and Distribution Agreement and a Tax Matters Agreement.
The results of our Cryptyde businesses have been reflected as discontinued operations in the current year period through the date of the spinoff and in the prior year period.
Closing of Cryptyde Financing
On January 26, 2022, Cryptyde entered into a Securities Purchase Agreement (“Note Securities Purchase Agreement”) with an accredited investor (“Note Investor”) for the issuance of a (i) 1,500,000 shares of Cryptyde Common Stock, and (ii) a warrant to purchase up to 1,500,000 shares of Cryptyde Common Stock with an exercise price of $8.00 per share of Cryptyde Common Stock. In addition, Cryptyde issued a warrant to the placement agent to purchase up to 240,000 shares of Cryptyde Common Stock with an initial exercise price of $8.00 per share of Cryptyde Common Stock. The transaction closed on May 20, 2022. The consideration paid to Cryptyde was $12,000,000 and was reflected as an increase in noncontrolling interest of the Company’s consolidated financial statements.
On June 29, 2022, Vinco Ventures, Inc. distributed 100% of the shares of Cryptyde’s common stock held by Vinco to holders of shares of Vinco common stock, subject to certain conditions. On the Distribution Date, each holder of Vinco common stock received one share of Cryptyde common stock for every ten shares of Vinco common stock held at the close of business on the Record Date.
Love is Blurred, LLC
The purpose of Love is Blurred, LLC (“LIB LLC”) was to produce audiovisual content for ZASH’s business. Consistent with this purpose, the LIB LLC held the rights to “Love Is Blurred,” a TV reality show in production to be distributed via cable television syndication while also streaming exclusively on Lomotif. No related revenue streams to date as the production is still in development.
The LIB LLC assets consist principally of a single film production asset. Because the LIB LLC is not a business, the acquisition has been accounted for as an asset.
The purchase price was $1,250,000 by which the Company paid ZASH the $1,250,000 purchase price by reducing the outstanding balance on a loan between the Company and ZASH. The acquisition closed on June 21, 2022.
Amendment to the July 2021 Note
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: (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 Common Stock, (b) extend the maturity date under the July 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) the 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).
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On April 29, 2022, the Company, Cryptyde and the Holder entered into a Second Amendment Agreement (“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 (“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 nine months ended September 30, 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 225% of the number of Exercised Warrant Shares at 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 nine months of 2022 which generated $111,029,493 in gross proceeds to the Company during the nine months ended September 30, 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 nine months ended September 30, 2022 was $243,681,478. (see Note 12 — Warrant Liability)
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 (“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 (“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 77% of a share of the Company’s common stock, and for each December 2021 Warrant exchanged the holder would receive 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 (“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 (“November 2021 RRA”), and that certain Registration Rights Agreements between the Company and the holder dated as of December 20, 2021, as amended (“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.
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On May 19, the holder exchanged 500,000 November 2021 Warrants for 385,000 shares of the Company’s common stock, 12,000,000 September 2021 Warrants for 6,000,000 shares and 18,090,123 December 2021 Warrants for 14,653,000 shares of the Company’s common stock. On May 126, 2022, the holder exchanged 27,840,000 December 2021 Warrants for 22,550,400 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 (“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, 2022 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.
Letter Agreement
Pursuant to that certain Warrant Exercise Agreement (as amended, “September WEA”) dated as of September 1, 2021 between the Company and an accredited investor (“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 (“Common Stock”) at an initial exercise price of $9.00 per share, subject to adjustments as set forth in the September WEA (“Series A September 2021 Warrants”) and (ii) on May 12, 2022, the Company and the Holder entered into that certain Warrant Exercise Agreement (“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 (“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).
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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, financial instruments, liabilities associated with the Company’s outstanding warrants, business combinations, impairment valuation, and asset acquisitions. 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 nine months ended September 30, 2022 except as follows:
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 nine months ended September 30, 2022. As a result of the acquisition of Adrizer, the Company added a new revenue stream, Digital Media Advertising and Licensing, to its Revenue Recognition policy. Additionally, as a result of the Company’s interest in Love is Blurred, the Company has recorded Film and Television Production assets in accordance with Topic 926. As a result of these changes in the first nine months of 2022, new Investments have been recognized. The details for each of these topics are as follows:
Revenue Recognition
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 as disclosed in the Company’s Annual Report on Form 10-K. Additional clarification on the Company’s Digital Media Advertising and Licensing revenue recognition policy is provided below.
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. For impressions-based digital advertising, revenues are recognized as impressions are delivered over the term of the arrangement, while revenue from non-impressions-based digital advertising is recognized over the period that the advertisements are displayed. Such amounts are recognized net of agency commissions and provisions for estimated sales incentives, including rebates, rate adjustments or discounts.
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.
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Identification of a Customer and Gross versus Net Revenue Recognition
In the normal course of business, the Company acts as or uses an intermediary or agent in executing transactions with third parties. When the intermediary or agent is determined to be the Company’s customer, the Company records revenue based on the amount it expects to receive from the agent or intermediary.
In other circumstances, the determination of whether revenue should be reported on a gross or net basis is based on an assessment of whether the Company is acting as the principal or an agent in the transaction. If the Company is acting as a principal in a transaction, the Company reports revenue on a gross basis. If the Company is acting as an agent in a transaction, the Company reports revenue on a net basis. The determination of whether the Company is acting as a principal or an agent in a transaction involves judgment and is based on an evaluation of the terms of the arrangement. The Company serves as the principal in transactions in which it controls the goods or services prior to being transferred to the ultimate customer.
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.
Film and Television Productions
The Company accounts for the film and television productions in accordance with Topic 926, Entertainment – Films. Production costs qualifying for capitalization, are recorded as film and television productions on the consolidated balance sheet and amortized using forecast methods that match amortization to estimated revenue. Currently all productions are actively under development and, as such, amortization has not commenced.
Investments
Investments in equity securities (excluding equity method investments) with readily determinable fair values are accounted for at fair value. For investments in equity securities without readily determinable fair values, the Company elects the measurement alternative permitted under GAAP to measure these investments at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer.
Investments in which the Company has the ability to exercise significant influence but does not control and is not the primary beneficiary are equity method investments. Significant influence typically exists if the Company has a 20% to 50% ownership interest in a venture unless persuasive evidence to the contrary exists. Under this method of accounting, the Company records its proportionate share of the net earnings or losses of equity method investees and a corresponding increase or decrease to the investment balances. Cash payments to equity method investees such as additional investments, loans and advances and expenses incurred on behalf of investees as well as payments from equity method investees such as dividends, distributions and repayments of loans and advances are recorded as adjustments to investment balances. The Company applies the cumulative earnings approach for determining the cash flow presentation of cash distributions received from equity method investees. Distributions received are included in the consolidated statements of cash flows as operating activities, unless the cumulative distributions exceed the Company’s portion of the cumulative equity in the net earnings of the equity method investment, in which case the excess distributions are deemed to be returns of the investment and are classified as investing activities in the consolidated statements of cash flows. The Company evaluates its equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may not be recoverable.
| 40 |
Results of Operations
Three Months Ended September 30, 2022 versus Three Months Ended September 30, 2021
The following tables set forth information comparing the components of net income (loss) for the three months ended September 30, 2022 and 2021:
| For the Three Months Ended September 30, | Period over Period Change | |||||||||||||||
| 2022 | 2021 | $ | % | |||||||||||||
| Revenues | ||||||||||||||||
| Total revenue, net | $ | 5,563,392 | $ | 229,004 | $ | 5,334,388 | 2329.39 | % | ||||||||
| Cost of revenues | ||||||||||||||||
| Total costs of revenue | 6,799,103 | 99,334 | 6,699,769 | 6744.69 | % | |||||||||||
| Gross profit | (1,235,711 | ) | 129,670 | (1,365,381 | ) | -1052.97 | % | |||||||||
| Operating expenses: | ||||||||||||||||
| Selling, general and administrative | 19,470,629 | 25,606,702 | (6,136,073 | ) | -23.96 | % | ||||||||||
| Impairment Expense | 152,417,936 | - | 152,417,936 | - | ||||||||||||
| Total Operating Expenses | 171,888,564 | 25,606,702 | 146,281,862 | 571.26 | % | |||||||||||
| Operating loss | (173,124,275 | ) | (25,477,032 | ) | (147,647,243 | ) | 579.53 | % | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest income (expense) | (4,311,410 | ) | (26,997,803 | ) | 22,686,393 | -84.03 | % | |||||||||
| Loss on issuance of warrants | - | (206,948,147 | ) | 206,948,147 | -100.00 | % | ||||||||||
| Loss on inventory write down | - | - | - | - | ||||||||||||
| Loss on investments | - | - | - | - | ||||||||||||
| Change in fair value of warrant liability | 80,269,169 | (287,117,556 | ) | 367,386,725 | -127.96 | % | ||||||||||
| Change in fair value of contingent purchase price related to Adrizer, LLC acquisition | 3,158,124 | - | 3,158,124 | - | ||||||||||||
| Loan loss expense | (36,422,210 | ) | - | (36,422,210 | ) | - | ||||||||||
| Loss on debt extinguishment | (37,235,055 | ) | - | (37,235,055 | ) | - | ||||||||||
| Other (loss) income | (73,220 | ) | (515,647 | ) | 442,427 | -85.80 | % | |||||||||
| Total other income (expense) | 5,385,398 | (521,579,153 | ) | 526,964,551 | -101.03 | % | ||||||||||
| (Loss) income before income taxes | (167,738,877 | ) | (547,056,185 | ) | 379,317,308 | -69.34 | % | |||||||||
| Income tax expense | - | - | - | - | ||||||||||||
| Net (loss) income | $ | (167,738,877 | ) | $ | (547,056,185 | ) | $ | 379,317,308 | -69.34 | % | ||||||
| Net (loss) income attributable to noncontrolling interests | $ | (68,756,763 | ) | $ | (3,885,333 | ) | $ | (64,871,430 | ) | 1669.65 | % | |||||
| Net (loss) income attributable to Vinco Ventures, Inc. from continuing operations | $ | (98,982,114 | ) | $ | (543,170,852 | ) | $ | 444,188,738 | -81.78 | % | ||||||
| Net income (loss) from discontinued operations | - | 707,722 | (707,722 | ) | -100.00 | % | ||||||||||
| Net (loss) income attributable to Vinco Ventures, Inc. | $ | (98,982,114 | ) | $ | (542,463,130 | ) | $ | 443,481,016 | -81.75 | % | ||||||
| 41 |
Revenue
For the three months ended September 30, 2022, revenues from continuing operations increased by $5,334,388 or 2329.39%, as compared to the three months ended September 30, 2021. The increase was due to the impact of the Company’s acquisition of AdRizer in February 2022, which generated $5,485,360 of revenue for the Company during the third quarter of 2022. AdRizer’s revenue consists of digital advertising sales and services to advertisers.
Cost of Revenues
For the three months ended September 30, 2022, cost of revenues from continuing operations increased by $6,699,769 or 6744.69%, as compared to the three months ended September 30, 2021. The increase was due to the costs of traffic acquisition and content creation at AdRizer.
Gross Profit
For the three months ended September 30, 2022, gross profit decreased by $1,365,381, or 1052.97%, as compared to the three months ended September 30, 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 recently began its operations as a wholly-owned subsidiary of the Company.
Operating Expenses
Selling, general and administrative costs
| For the Three Months Ended September 30, | Period over Period Change | |||||||||||||||
| Selling, general and administrative costs | 2022 | 2021 | $ | % | ||||||||||||
| Compensation, benefits and payroll taxes | $ | 5,311,460 | $ | 2,427,069 | $ | 2,884,391 | 118.8 | % | ||||||||
| Depreciation and amortization | 983,597 | 3,959,315 | (2,975,718 | ) | -75.2 | % | ||||||||||
| Stock based compensation | 1,040,883 | 6,813,000 | (5,772,117 | ) | -84.7 | % | ||||||||||
| Advertising, marketing and promotions | 825,459 | 4,302,891 | (3,477,432 | ) | -80.8 | % | ||||||||||
| Legal, professional fees, and transaction costs | 5,315,691 | 5,841,474 | (525,783 | ) | -9.0 | % | ||||||||||
| Selling, general and administrative costs | 5,993,539 | 2,262,953 | 3,730,586 | 164.9 | % | |||||||||||
| Total selling, general and administrative costs | $ | 19,470,629 | $ | 25,606,702 | $ | (6,136,073 | ) | -24.0 | % | |||||||
Selling, general and administrative costs (“SGA costs”) were $19,470,629 in the three months ending September 30, 2022 as compared to $25,606,702 in the three months ending September 30, 2021, a decrease of $6,136,073. This decrease was due to a significant decrease in the Company’s depreciation and amortization expense related to the impairment of intangible assets during the three months ended September 30, 2022. Additionally, the decrease in the Company’s stock price resulted in a decrease in stock based compensation expense.
Other Income (Expense)
| For the Three Months Ended September 30, | Period over Period Change | |||||||||||||||
| 2022 | 2021 | $ | % | |||||||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | $ | (4,311,410 | ) | $ | (26,997,803 | ) | $ | 22,686,393 | -84.0 | % | ||||||
| Loss on issuance of warrants | - | (206,948,147 | ) | 206,948,147 | -100.0 | % | ||||||||||
| Loss on inventory write down | - | - | - | - | ||||||||||||
| Loss on dissolution of investment | - | - | - | - | ||||||||||||
| Change in fair value of warrant liability | 80,269,169 | (287,117,556 | ) | 367,386,725 | -128.0 | % | ||||||||||
| Change in fair value of contingent purchase price related to Adrizer, LLC acquisition | 3,158,124 | - | 3,158,124 | - | ||||||||||||
| Loan loss expense | (36,422,210 | ) | - | (36,422,210 | ) | |||||||||||
| Loss on debt extinguishment | (37,235,055 | ) | - | (37,235,055 | ) | - | ||||||||||
| Other loss | (73,220 | ) | (515,647 | ) | 442,427 | -85.8 | % | |||||||||
| Total other income (expense) | $ | 5,385,398 | $ | (521,579,153 | ) | $ | 526,964,551 | -101.0 | % | |||||||
| 42 |
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 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.
For the three months ended September 30, 2022, the Company had no losses from issuance of warrants as compared to a loss of $206,948,147 during the three months ended September 30, 2021.
On July 6, 2022, the Company made a payment, in cash, of $33,886,612 to the Holder of its convertible debt pursuant to an Alternate Exercise Notice of the warrants. As a result, a total of 82,260,699 warrants held by the Holder were settled. The cash payment effectively extinguished a significant portion of the outstanding warrants with the Holder. The accounting for this transaction follows ASC 815-40-40-2, Derecognition. As the warrants were previously classified as liabilities and were settled in cash, gains or losses realized on the settlement are included in the income statement. The Company had valuations of the warrants done at both June 30, 2022 and July 6, 2022 (the payment date). The fair value is determined at settlement and any gain or loss not recognized in prior period as recognized in earnings. The impact of the alternate exercise cash payment resulted in a non-cash gain on the settlement of the warrants totaling $61,471,799 booked to change in fair value of the warrants.
On August 18, 2022, as a result of the Company being in default of its existing senior secured convertible note, the Company was required to purchase a portion of the outstanding Note. The Company purchased $55,000,000 of the principal amount of the note for $65,000,000 in cash. The Company was permitted to release $70,000,000 of its restricted cash with $65,000,000 for the repurchase of the debt and $5,000,000 to unrestricted cash.
The Company assessed whether this transaction met the criteria for a troubled debt restructuring and concluded the transaction was an extinguishment. Accordingly, the Company treated the additional $10,000,000 cash paid as a premium to extinguish the $55,000,000 of principal. Similar to a prepayment premium, this additional cost is included in loss on extinguishment in the period along with the $27,235,055 of previously deferred non-cash financing fees. As such, the entire $37,235,055 was recorded as a loss during Q3 2022.
Net Loss
| For the Three Months Ended September 30, | Period over Period Change | |||||||||||||||
| 2022 | 2021 | $ | % | |||||||||||||
| Loss before income taxes | (167,738,877 | ) | (547,056,185 | ) | 379,317,308 | -69.3 | % | |||||||||
| Income tax expense | - | - | - | - | ||||||||||||
| Net loss | (167,738,877 | ) | (547,056,185 | ) | 379,317,308 | -69.3 | % | |||||||||
| Net loss attributable to noncontrolling interests | (68,756,763 | ) | (3,885,333 | ) | (64,871,430 | ) | 1669.6 | % | ||||||||
| Net loss attributable to Vinco Ventures, Inc. from continuing operations | (98,982,114 | ) | (543,170,852 | ) | 444,188,738 | -81.8 | % | |||||||||
| Net income from discontinued operations | - | 707,722 | (707,722 | ) | -100.0 | % | ||||||||||
| Net loss attributable to Vinco Ventures, Inc. | (98,982,114 | ) | (542,463,130 | ) | 443,481,016 | -81.8 | % | |||||||||
| Net (loss) income per share – Basic and Diluted | ||||||||||||||||
| Net loss per share - Continuing operations | (0.68 | ) | (7.65 | ) | 6.97 | -91.1 | % | |||||||||
| Net loss per share - Noncontrolling interests | (0.28 | ) | (0.05 | ) | (0.23 | ) | 416.2 | % | ||||||||
| Net loss per share – Vinco Ventures, Inc. | (0.40 | ) | (7.60 | ) | 7.19 | -94.7 | % | |||||||||
| Net loss per share - Discontinued operations | - | 0.01 | (0.01 | ) | -100 | % | ||||||||||
| Net loss per share | (0.40 | ) | (7.59 | ) | 7.18 | -94.7 | % | |||||||||
| Weighted Average Number of Common Shares Outstanding - Basic and Diluted | 245,170,631 | 71,516,431 | 173,654,200 | 242.8 | % | |||||||||||
| 43 |
For the three months ended September 30, 2022, the Company had net loss from continuing operations of $98,982,114 as compared to a net loss of $543,170,852 during the three months ended September 30, 2021, a decrease of $444,188,738 or 81.8%. The change 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 the third quarter of 2021. During 2021, the Company experienced a wide range of prices from a low of $1.24 and high of $10.82 per share, which can have a significant impact on the fair market value of the Company’s warrants and equity compensation instruments of their grant dates, vesting dates and exercise dates. The remaining increase in net loss during 2021 was driven by the increased size of the Company due to ZVV’s acquisition of an 80% equity interest in Lomotif (on July 25, 2021) and its transition into a media and entertainment Company, which caused the Company to increase its headcount, its sales and marketing activities, and its legal and professional fees incurred in connection with its acquisitions, contracts and proposed spin-off activities.
For the three months ended September 30, 2022, the Company had a net loss attributable to noncontrolling interests of $68,756,763 as compared to a net loss attributable to noncontrolling interests of $3,885,333 during the three months ended September 30, 2021, an increase of $64,871,430 or 1669.6%. The change in net loss attributable to noncontrolling interests was primarily triggered by the losses incurred from Lomotif, ZVV, and Magnifi U during the third quarter of 2022.
Nine Months Ended September 30, 2022 versus Nine Months Ended September 30, 2021
The following tables set forth information comparing the components of net income (loss) for the nine months ended September 30, 2022 and 2021:
| For the Nine Months Ended September 30, | Period over Period Change | |||||||||||||||
| 2022 | 2021 | $ | % | |||||||||||||
| Revenues | ||||||||||||||||
| Total revenue, net | $ | 23,705,959 | $ | 1,721,631 | $ | 21,984,328 | 1276.95 | % | ||||||||
| Cost of revenues | ||||||||||||||||
| Total costs of revenue | 25,522,133 | 786,457 | 24,735,676 | 3145.20 | % | |||||||||||
| Gross profit | (1,816,175 | ) | 935,174 | (2,751,349 | ) | -294.21 | % | |||||||||
| Operating expenses: | ||||||||||||||||
| Selling, general and administrative | 75,058,655 | 42,298,760 | 32,759,895 | 77.45 | % | |||||||||||
| Impairment Expense | 152,871,385 | - | 152,871,385 | 0.00 | % | |||||||||||
| Total Operating Expenses | 227,930,040 | 42,298,760 | 185,631,280 | 438.86 | % | |||||||||||
| Operating loss | (229,746,215 | ) | (41,363,586 | ) | (188,382,629 | ) | 455.43 | % | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | (42,946,190 | ) | (42,375,399 | ) | (570,791 | ) | 1.35 | % | ||||||||
| Loss on issuance of warrants | (243,681,478 | ) | (415,803,862 | ) | 172,122,384 | -41.40 | % | |||||||||
| Loss on inventory write down | (365,001 | ) | - | (365,001 | ) | - | ||||||||||
| Loss on investments | (1,641,521 | ) | - | (1,641,521 | ) | - | ||||||||||
| Change in fair value of warrant liability | 166,379,348 | (287,891,003 | ) | 454,270,351 | -157.79 | % | ||||||||||
| Change in fair value of contingent purchase price related to Adrizer, LLC acquisition | 15,328,124 | - | 15,328,124 | - | ||||||||||||
| Loan loss expense | (36,422,210 | ) | - | (36,422,210 | ) | - | ||||||||||
| Loss on debt extinguishment | (37,235,055 | ) | - | (37,235,055 | ) | - | ||||||||||
| Other loss | 142,385 | (939,292 | ) | 1,081,677 | -115.16 | % | ||||||||||
| Total other expense | (180,441,599 | ) | (747,009,556 | ) | 566,567,957 | -75.84 | % | |||||||||
| Loss before income taxes | (410,187,814 | ) | (788,373,142 | ) | 378,185,328 | -47.97 | % | |||||||||
| Income tax expense | - | - | - | - | ||||||||||||
| Net loss | $ | (410,187,814 | ) | $ | (788,373,142 | ) | $ | 378,185,328 | -47.97 | % | ||||||
| Net loss attributable to noncontrolling interests | $ | (87,446,819 | ) | $ | (3,834,756 | ) | $ | (83,612,063 | ) | 2180.38 | % | |||||
| Net loss attributable to Vinco Ventures, Inc. from continuing operations | $ | (322,740,995 | ) | $ | (784,538,386 | ) | $ | 461,797,391 | -58.86 | % | ||||||
| Net loss from discontinued operations | (3,260,912 | ) | (4,063,044 | ) | 802,132 | -19.74 | % | |||||||||
| Net loss attributable to Vinco Ventures, Inc. | (326,001,907 | ) | (788,601,430 | ) | 462,599,523 | -58.64 | % | |||||||||
| 44 |
Revenue
For the nine months ended September 30, 2022, revenues from continuing operations increased by $21,984,328 or 1276.9%, as compared to the nine months ended September 30, 2021. The increase was due to the impact of the Company’s acquisition of AdRizer in February 2022, which generated $23,705,959 of revenue for the Company from the date of acquisition through September 30, 2022.
Cost of Revenues
For the nine months ended September 30, 2022, cost of revenues from continuing operations increased by $24,735,676 or 3145.2%, as compared to the nine months ended September 30, 2021. The increase was due to the costs of traffic acquisition and content creation at AdRizer. Cost of revenues of the Company’s Cryptyde subsidiary of approximately $9,466,949 were excluded from these amounts since the Company spun-off its ownership in Cryptyde on June 29, 2022.
Gross Profit
For the nine months ended September 30, 2022, gross profit decreased by $2,751,349, or 294.2%, as compared to the nine months ended September 30, 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 recently began its operations as a wholly-owned subsidiary of the Company.
Operating Expenses
Selling, general and administrative costs
| Nine Months Ended September 30, | Period over Period Change | |||||||||||||||
| 2022 | 2021 | $ | % | |||||||||||||
| Selling, general and administrative costs | ||||||||||||||||
| Compensation, benefits and payroll taxes | $ | 15,891,952 | $ | 4,009,909 | 11,882,043 | 296.3 | % | |||||||||
| Depreciation and amortization | 5,908,829 | 4,975,315 | 933,514 | 18.8 | % | |||||||||||
| Stock based compensation | 3,225,210 | 16,816,769 | (13,591,559 | ) | -80.8 | % | ||||||||||
| Advertising, marketing and promotions | 16,794,546 | 4,754,984 | 12,039,562 | 253.2 | % | |||||||||||
| Legal, professional fees, and transaction costs | 21,369,581 | 8,607,766 | 12,761,815 | 148.3 | % | |||||||||||
| Selling, general and administrative costs | 11,868,538 | 3,134,017 | 8,734,521 | 278.7 | % | |||||||||||
| Total selling, general and administrative costs | $ | 75,058,655 | $ | 42,298,760 | 32,759,895 | 77.4 | % | |||||||||
SGA costs from continuing operations increased significantly during the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 due to a significant expansion of the Company’s activities requiring SGA costs, professional fees, and advertising as it transitioned 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 $75,058,655 in the nine months ending September 30, 2022 as compared to $42,298,760 in the nine months ending September 30, 2021, an increase of $32,759,895. A large portion of the year to date increase was due to the increase in advertising, marketing and promotions cost during the second quarter of 2022, which included the costs the Company spent on its promotions and live-streaming of the Electronic Daisy Carnival music event in Las Vegas in May. In addition, the Company saw large increases in legal and professional fees and compensation costs in 2022 as compared to the 2021 periods, as the overall size and scope of the business has increased significantly since 2021, primarily due to the additions of Lomotif and AdRizer since the 2021 periods.
| 45 |
Other Income (Expense)
| For the Nine Months Ended September 30, | Period over Period Change | |||||||||||||||
| 2022 | 2021 | $ | % | |||||||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | $ | (42,946,190 | ) | $ | (42,375,399 | ) | $ | (570,791 | ) | 1.3 | % | |||||
| Loss on issuance of warrants | (243,681,478 | ) | (415,803,862 | ) | 172,122,384 | -41.4 | % | |||||||||
| Loss on inventory write down | (365,001 | ) | - | (365,001 | ) | - | ||||||||||
| Loss on dissolution of investment | (1,641,521 | ) | - | (1,641,521 | ) | - | ||||||||||
| Change in fair value of warrant liability | 166,379,348 | (287,891,003 | ) | 454,270,351 | -157.8 | % | ||||||||||
| Change in fair value of contingent purchase price related to Adrizer, LLC acquisition | 15,328,124 | - | 15,328,124 | - | ||||||||||||
| Loan loss expense | (36,422,210 | ) | - | (36,422,210 | ) | - | ||||||||||
| Loss on debt extinguishment | (37,235,055 | ) | - | (37,235,055 | ) | - | ||||||||||
| Other income (loss) | 142,385 | (939,292 | ) | 1,081,677 | -115.2 | % | ||||||||||
| Total other income (expense) | $ | (180,441,599 | ) | $ | (747,009,556 | ) | $ | 566,567,957 | -75.8 | % | ||||||
Loss on issuances of warrants and change in fair value of warrant liability
For the nine months ended September 30, 2022, loss on issuances of warrants was $243,681,478, due to 89,653,803 warrants issued during the first quarter of 2022, while the aggregated change in fair value of warrant liability was an increase of $166,379,348, for a net other expense of $77,302,130 due to warrants recognized by the Company for the nine months ended September 30, 2022. The primary change in fair value of the warrant liability is driven by the decline in the Company’s stock price.
Additionally, on July 6, 2022, the Company made a payment, in cash, to the Holder of its convertible debt pursuant to an Alternate Exercise Notice of the warrants. As a result, a total of 82,260,699 warrants held by the Holder were settled. The cash payment effectively extinguished a significant portion of the outstanding warrants with the Holder. The accounting for this transaction follows ASC 815-40-40-2, Derecognition. As the warrants were previously classified as liabilities and were settled in cash, gains or losses realized on the settlement are included in the income statement. The Company had valuations of the warrants done at both June 30, 2022 and July 6, 2022 (the payment date). The fair value is determined at settlement and any gain or loss not recognized in prior period as recognized in earnings. The impact of the alternate exercise cash payment resulted in a non-cash gain on the settlement of the warrants totaling $61,471,799 booked to change in fair value of warrants.
Loss on debt extinguishment
On August 18, 2022, as a result of the Company being in default of its existing senior secured convertible note, the Company was required to purchase a portion of the outstanding Note. The Company purchased $55,000,000 of the principal amount of the note for $65,000,000 in cash. The Company was permitted to release $70,000,000 of its restricted cash with $65,000,000 for the repurchase of the debt and $5,000,000 to unrestricted cash.
The Company assessed whether this transaction met the criteria for a troubled debt restructuring and concluded the transaction was an extinguishment. Accordingly, the Company treated the additional $10,000,000 cash paid as a premium to extinguish the $55,000,000 of principal. In line with extinguishment accounting, the Company amortized the remaining unamortized deferred financing fees related to the Note and recorded a $27,235,055 non-cash loss on extinguishment. As such, the entire $37,235,055 was recorded as a loss during Q3 2022.
| 46 |
Net Loss
| For the Nine Months Ended September 30, | Period over Period Change | |||||||||||||||
| 2022 | 2021 | $ | % | |||||||||||||
| Loss before income taxes | (410,187,814 | ) | (788,373,142 | ) | 378,185,328 | -48.0 | % | |||||||||
| Income tax expense | - | - | - | |||||||||||||
| Net loss | (410,187,814 | ) | (788,373,142 | ) | 378,185,328 | -48.0 | % | |||||||||
| Net loss attributable to noncontrolling interests | (87,446,819 | ) | (3,834,756 | ) | (83,612,063 | ) | 2180.4 | % | ||||||||
| Net loss attributable to Vinco Ventures, Inc. from continuing operations | (322,740,995 | ) | (784,538,386 | ) | 461,797,391 | -58.9 | % | |||||||||
| Net loss from discontinued operations | (3,260,912 | ) | (4,063,044 | ) | 802,132 | -19.7 | % | |||||||||
| Net loss attributable to Vinco Ventures, Inc. | (326,001,907 | ) | (788,601,430 | ) | 462,599,523 | -58.7 | % | |||||||||
| Net loss per share - Basic and Diluted | ||||||||||||||||
| Net loss per share- Continuing operations | (1.91 | ) | (18.63 | ) | 16.72 | -89.7 | % | |||||||||
| Net loss per share- Noncontrolling interests | (0.41 | ) | (0.09 | ) | (0.32 | ) | 350.2 | % | ||||||||
| Net loss per share – Vinco Ventures, Inc. | (1.51 | ) | (18.54 | ) | 17.03 | -91.9 | % | |||||||||
| Net loss per share - Discontinued operations | (0.02 | ) | (0.10 | ) | 0.08 | -84.2 | % | |||||||||
| Net loss per share | (1.52 | ) | (18.63 | ) | 17.11 | -91.8 | % | |||||||||
| Weighted Average Number of Common Shares Outstanding - Basic and Diluted | 214,411,979 | 42,326,468 | 172,085,511 | 406.6 | % | |||||||||||
For the nine months ended September 30, 2022, the Company had a net loss from continuing operations of $322,740,995 as compared to a net loss of $784,538,386 during the nine months ended September 30, 2021, a decrease of $461,797,391 or 58.9%. The change 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 the third quarter of 2021. During 2021, the Company experienced a wide range of prices from a low of $1.24 and high of $10.82 per share, which can have a significant impact on the fair market value of the Company’s warrants and equity compensation instruments of their grant dates, vesting dates and exercise dates. The remaining increase in net loss during 2021 was driven by the increased size of the Company due to ZVV’s acquisition of an 80% equity interest in Lomotif (on July 25, 2021) and its transition into a media and entertainment Company, which caused the Company to increase its headcount, its sales and marketing activities, and its legal and professional fees incurred in connection with its acquisitions, contracts and proposed spin-off activities.
For the nine months ended September 30, 2022, the Company had a net loss attributable to noncontrolling interests of $87,446,819 as compared to a net loss of $3,834,756 attributable to noncontrolling interests during the nine months ended September 30, 2021. The change in net loss attributable to noncontrolling interests was primarily triggered by the losses incurred from Lomotif, ZVV, and Magnifi U during the third quarter of 2022.
Cash Flows
During the nine months ended September 30, 2022 and 2021, our sources and uses of cash were as follows:
| Nine Months Ended September 30, | Period over Period Change | |||||||||||||||
| 2022 | 2021 | $ | % | |||||||||||||
| Net Cash used in Operating Activities | $ | (98,770,185 | ) | $ | (21,796,639 | ) | $ | (76,973,546 | ) | 353.1 | % | |||||
| Net Cash used in Investing Activities | (39,707,939 | ) | (108,662,799 | ) | 68,954,860 | -63.5 | % | |||||||||
| Net Cash provided by Financing Activities | (18,947,502 | ) | 280,147,631 | (299,095,133 | ) | -106.8 | % | |||||||||
| Net increase (decrease) in Cash and Cash Equivalents | (157,425,626 | ) | 149,688,193 | (307,113,819 | ) | -205.2 | % | |||||||||
| Cash, Cash Equivalents, and Restricted Cash - Beginning of Period | 187,612,176 | 249,356 | 187,362,820 | 75138.7 | % | |||||||||||
| Cash, Cash Equivalents, and Restricted Cash - End of Period | $ | 30,186,550 | $ | 149,937,549 | $ | (119,750,999 | ) | -79.9 | % | |||||||
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Cash Flows from Operating Activities
Net cash used in operating activities from continuing operations for the nine months ended September 30, 2022 was $98,770,185, including a net loss of $410,187,814 of which $311,246,487 were non-cash expense items. The use of cash for operations during the first nine 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 addition, the Company paid approximately $17,685,424 of net working capital outflows for prepayments and payments of accounts payables, accrued expenses and other liabilities during the first nine months of 2022. Net cash used in operating activities from continuing operations for the nine months ended September 30, 2021 was $21,796,639, which included a net loss of $788,373,142 that included $153,325,944 of non-cash expense items.
Cash Flows from Investing Activities
Net cash used in investing activities was $39,707,939 during the first nine months of 2022, which was primarily due to the net cash paid for the acquisition of AdRizer by the Company in February offset by allowances for loan losses established during the three months ended September 30, 2022. Net cash used in investing activities from continuing operations for the nine months ended September 30, 2021 was $108,662,799 primarily related to the net cash paid for the acquisition of Lomotif by the Company in July 2021.
Cash Flows from Financing Activities
Net cash used in financing activities for the nine months ended September 30, 2022 totaled $18,947,502, which related to payments under convertible notes of $88,000,000 and payments for the retirement of warrants of $33,886,612 offset by net proceeds from the exercise of warrants totaling $101,036,838. Net cash provided by financing activities from continuing operations for the nine months ended September 30, 2021 was $280,147,631 which related to proceeds from the exercise of warrants of $167,961,099 and borrowings under convertible notes payable totaling $120,501,538.
Net Increase (Decrease) in Cash and Cash Equivalents
As a result of the cash activities described above, during the nine months ended September 30, 2022, the Company’s cash decreased by $157,425,626 and as of September 30, 2022, the Company had $30,186,550 in cash and cash equivalents which included $10,000,000 held in a restricted cash account.
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Liquidity and Capital Resources
This should be read together with the Going Concern and Liquidity section under Note 1 — Basis of Presentation and Nature of Operations.
| As of September 30, | Period over Period Change | |||||||||||||||
| 2022 | 2021 | $ | % | |||||||||||||
| Assets | ||||||||||||||||
| Cash and cash equivalents | $ | 20,186,550 | $ | 49,937,549 | $ | (29,750,999 | ) | -59.6 | % | |||||||
| Restricted cash | - | 100,000,000 | (100,000,000 | ) | -100.0 | % | ||||||||||
| Other current assets | 14,177,620 | 24,978,527 | (10,800,907 | ) | -43.2 | % | ||||||||||
| Total current assets | 34,364,169 | 174,916,076 | (140,551,907 | ) | -80.4 | % | ||||||||||
| Intangible assets, including goodwill | 59,770,229 | 160,945,913 | (101,175,614 | ) | -62.9 | % | ||||||||||
| Other long term assets | 23,074,594 | 1,052,695 | 22,021,899 | 2092.0 | % | |||||||||||
| Total non-current assets | 82,844,893 | 161,998,608 | (79,153,715 | ) | -48.9 | % | ||||||||||
| Total Assets | $ | 117,209,063 | $ | 336,914,684 | $ | (219,705,621 | ) | -65.2 | % | |||||||
| Liabilities | ||||||||||||||||
| Accounts payables and accrued expenses | 12,413,424 | 8,627,574 | 3,785,850 | 43.9 | % | |||||||||||
| Current portion of long-term debt and warrant liability | 20,102,835 | 28,609,677 | (8,506,842 | ) | -29.7 | % | ||||||||||
| Other current liabilities | 185,186 | 190,695 | (5,509 | ) | -2.9 | % | ||||||||||
| Total current liabilities | 32,701,445 | 37,427,946 | (4,726,501 | ) | -12.6 | % | ||||||||||
| Long -term debt | 2,608,923 | 2,873,244 | (264,321 | ) | -9.2 | % | ||||||||||
| Warrant liability | 14,031,830 | 468,612,700 | (454,580,870 | ) | -97.0 | % | ||||||||||
| Other long term liabilities | 8,383,468 | - | 8,383,468 | - | ||||||||||||
| Total Liabilities | 57,725,665 | 508,913,890 | (451,188,225 | ) | -88.7 | % | ||||||||||
As discussed above, the Company incurred significant losses during the first nine 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 $98,770,185 in cash for operations during the first nine months of 2022. This amount included $8,216,000 for transaction related costs associated with its acquisition of AdRizer in February 2022, and a $10,000,000 payment of accrued registration rights penalties owed to Hudson Bay. This amount also 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 nine months of the year, the Company live streamed and promoted the Shaq Fun House event in January, the Okeechobee Music Festival in February, and the Electronic Daisy Carnival (“EDC”) in May. 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. To date, these efforts have not led to any meaningful revenue and there is no guarantee that the Company will successfully do so. If additional advertising revenues are not generated quickly, or in sufficient amount, the Company will need to utilize its unrestricted cash on hand to fund its operations.
As a result of the Company’s repayments to Hudson Bay and a lack of issuable stock, it has been unable to raise significant proceeds with which to increase its liquidity.
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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. As of the date of this report, the Company’s ability to raise additional capital is restricted by its lack of available, authorized but not outstanding common shares. The Company is currently seeking authorization from its shareholders to increase the number of shares it is authorized to issue under its Articles of Incorporation, but has not received the requisite vote needed to pass the proposal. Therefore, as discussed in Note 1 to the Company’s financial statements attached herein, these conditions raise substantial doubt about the Company’s ability to continue as a going concern and meet its obligations through twelve months following the date the condensed consolidated financial statements are issued. As a result, until the Company is able to raise additional capital, the Company has begun 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, | |
| ● | Evaluate the sales of 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.
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.
Management’s Report on Internal Control over Financial Reporting
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 September 30, 2022.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting.
However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
As of December 31, 2021, and September 30, 2022, management completed an assessment of the Company’s internal control over financial reporting based on the COSO framework. Management has concluded that as of December 31, 2021, and September 30,2022, 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.
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The Company was unable to provide a timely financial reporting package in connection with its December 31, 2021 Form 10-K 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, related party transactions, and developments or significant unusual transactions 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.
Subsequent to December 31, 2021, the Company was unable to provide timely financing reporting packages for periods ending March 31, 2022, June 30, 2022 and September 30, 2022 Form 10-Q. The Company was subject to circumstances which included:
| ● | On July 21, 2022, the Board duly appointed John Colucci as interim co-Chief Executive Officer of the Company and ratified the appointment of Theodore Farnsworth as co-Chief Executive Officer to serve together with Mr. Colucci in lieu of Lisa King in such capacity. Mr. Farnsworth’s appointment as co-Chief Executive Officer was previously reported in a Form 8-K filed by the Company on July 14, 2022. [Prior to Mr. Colucci’s appointment as interim co-Chief Executive Officer and prior to his appointment as a director, Mr. Colucci had been determined by the Board to be an independent director within the meaning of Nasdaq Listing Rule 5605(a)(2).] The board unanimously agreed to replace the vacant independent board seat with a qualified independent director within the next 30 days. | |
| ● | As a result of the appointment of John Colucci as interim co-Chief Executive Officer the Company was found to be not in compliance with the Nasdaq continued listing requirements that the Board be comprised of a majority of independent directors and that the audit committee of the Board be comprised of at least three independent directors. On July 22, 2022, the Company was notified by Nasdaq of the foregoing noncompliance. The Company and the Nominating and Corporate Governance Committee of the Board commenced a search for an additional independent director to replace Mr. Colucci as a director and enable the Company to cure such noncompliance as soon as practicable. | |
| ● | Based on the discovery of the lack of disclosure of 3rd-party related transactions and information that brought into question whether Mr. Colucci met the requirements of independence for NASDAQ listing when he became an independent director, the company hired independent counsel to determine whether Mr. Colucci met these requirements. The Chairman recommended to the board that Mr. Colucci step down immediately as an independent director for the next sixty days until the determination of whether independence was met. | |
| ● | On August 3, 2022, the Company filed a lawsuit against each of Ted Farnsworth, Lisa King, Rod Vanderbilt and Erik Noble, alleging four causes of action, including: (i) breach of fiduciary duty, (ii) aiding and abetting breach of fiduciary duty, (iii) civil conspiracy and (iv) declaratory and injunctive relief in the event that no other legal remedy is available to the Company. | |
| ● | On September 28, 2022, the Company entered into a settlement agreement with respect to the litigation, in which it appointed Ross Miller the sole CEO of the Company. John Colucci and Phillip Jones, former CFO, both resigned effectively immediately as executives of the Company. Michael DiStasio and Elliot Goldstein resigned effective immediately as Directors of the Company. No CFO was immediately appointed following Mr. Jones’ resignation. | |
| ● | On October 26, 2022, Brendan Bosack was appointed interim CFO of the Company. | |
| ● | On November 11, 2022, the management of the Company executed a reduction-in-force plan to reduce operating costs and better align its workforce expenses with the needs of its business. Under this Plan, the Company reduced its workforce by 39 employees (approximately 65%). |
These circumstances may have impacted our internal control over financial reporting which may include additional material weaknesses such as: (a) the absence of controls designed to validate the completeness and accuracy of underlying data used in the determination of accounting transactions; (b) lack of written documentation of our internal control policies and procedures (c) insufficient segregation of duties within accounting functions and (d) inadequacy of the number of personnel with requisite expertise in the key functional areas of finance and accounting.
In addition, in June 2022, the Company was a victim of an email spoofing attack where the intruder was able to obtain access to the Company’s email system and send emails internally that had fake invoices that were presented and appeared to be approved for payment in accordance with the Company’s standard wire approval process. As a result of this email intrusion, the Company incorrectly wired funds to two vendors in error in the aggregate of $4,010,000. Fortunately, the fraudulent wires were detected quickly, and the Company was able to recover approximately 95% of the fraudulently wire funds.
Remediation Plan to Address Material Weaknesses in Internal Control Over Financial Reporting
Our management is committed to improving its internal controls. Due to the nature of these material weaknesses, it is reasonably possible that misstatements which could be material to the interim consolidated financial statements could occur that would not be prevented or detected during our financial close and reporting process.
Our company plans to take steps to enhance and improve the design of our internal controls over financial reporting. During the period covered by this quarterly report on Form 10-Q, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we plan to develop a comprehensive plan and implement the changes during our fiscal year ending December 31, 2023. The plan will include: (i) appointing additional qualified personnel to address inadequate segregation of duties and ineffective risk management; and (ii) adopting sufficient written policies and procedures for accounting and financial reporting. The remediation efforts set out are largely dependent upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner.
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.
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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, except as otherwise disclosed in our financial statements in Item 1 of Part I of this Quarterly Report, 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
The below risk factors are intended to supplement and not replace, the risk factors set forth in the Company’s Annual Report on 10-K for the year ended December 31, 2021. Please read these risk factors in conjunction with those set forth in the aforementioned 10-K.
The loss of one or more of Vinco’s key personnel, or our failure to attract and retain other highly qualified personnel in the future, could harm our business.
In order to be successful, Vinco must continue to attract, retain and motivate executives and other key employees across the Company. Hiring and retaining qualified executives is critical to our future.
Vinco may be unable to attract and retain highly qualified management and employees, particularly if we do not offer employment terms competitive with the rest of the market. Failure to attract and retain qualified individuals, key leaders, executives and employees, or failure to develop and implement a viable succession plan, could result in inadequate depth of institutional knowledge or skill sets, which could adversely affect Vinco’s business and results of operations.
There is substantial doubt about our ability to continue as a going concern. We will need substantial additional funding and may be unable to raise capital when needed.
There is substantial doubt about our ability to continue as a going concern. If we are unable to raise funding through equity markets as and when needed, our business, financial condition and results of operations will be materially and adversely affected. If we are unable to continue as a going concern, we may have to liquidate our assets, and the values we receive for our assets in liquidation or dissolution could be significantly lower than the values reflected in our financial statements. Our lack of cash resources and our potential inability to continue as a going concern may materially adversely affect the price of our Common Stock and our ability to raise new capital, enter into critical contractual relations with third parties, meet our obligations as they become due and otherwise execute our business strategy.
Additionally, the Company may have the inability to raise additional equity capital due to lack of authorized common stock.
We are not currently in compliance with Nasdaq’s continued listing requirements. If we are unable to comply with Nasdaq’s continued listing requirements, our Common Stock could be delisted, which could affect the price of our Common Stock and liquidity and reduce our ability to raise capital.
On December 1, 2022, Vinco Ventures, Inc. received a notice from the Listing Qualifications Department of The Nasdaq Stock Market, LLC advising the Company that it was not in compliance with Nasdaq’s continued listing requirements under the Nasdaq Listing Rule 5550(a)(2) (the “Rule”) as a result of requiring listed securities to maintain a minimum bid price of $1 per share. Based upon the closing bid price for the last 30 consecutive business days, the Company no longer meets this requirement. However, the Rules also provide the Company a compliance period of 180 calendar days in which to regain compliance.
On January 4, 2023, the Company received a notification from Nasdaq that since it had not held an annual meeting of shareholders within twelve months of the end of the Company’s fiscal year end ended December 31, 2021, it no longer complies with Nasdaq’s Rules for continued listing.
Under the Rules the Company has 45 calendar days to submit a plan to regain compliance and if the plan is accepted, Nasdaq can grant an exception of up to 180 calendar days from the fiscal year end, or until June 29, 2023, to regain compliance. The Company plans to submit a plan which is to hold an annual meeting no later than March 31, 2023.
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We have experienced a delay of stockholder meeting and may receive alternate exercise notices from our investors.
The Company entered into a May Exchange Agreement which requires the Company to hold a stockholder meeting no later than July 4, 2022 under Section 7(q). As previously reported in the Company’s Current Report on Form 8-K filed with the SEC on June 30, 2022, the Company postponed the Special Meeting from July 1, 2022 until July 26, 2022, in order to provide additional time for the Company’s stockholders to consider and vote on the proposals to be acted upon at the Special Meeting.
On July 5, 2022, the Holder submitted Alternate Exercise Notices to the Company with respect to (i) 14,500,000 exercise shares under the November Warrants, and (ii) 67,760,699 exercise shares under the December Warrants, for an aggregate payment equal to $33,886,612 (the “Warrant Payment”). On July 6, 2022, the Company made the Warrant Payment, in cash, to the Holder pursuant to the Alternate Exercise Notices and, as a result, a total of 82,260,699 warrants held by the Holder were canceled.
We may incur liability as a result of content published using our Platform or as a result of claims related to content generated by our developers, creators, and users, including copyright infringement, and legislation regulating content on our Platform may require us to change our Platform or business practices.
Our success relies in part on the ability of Lomotif to drive engagement with content. Content creators generate content they upload to our service, but some creators may upload content that infringes the terms and rights of third parties or violates our terms of use. If we should fail to qualify for statutory or other legal protections that immunize us from monetary damages for intellectual property infringement, the damages could be significant and have a material impact on our business. While we have implemented measures designed to limit our exposure to claims of intellectual property infringement, intellectual property owners may allege that we failed to take appropriate measures to prevent infringing activities on our systems, that we turned a blind eye to infringement, or that we facilitated, induced or contributed to infringement.
A number of entities who are members of the National Music Publishers Association, or NMPA, have threatened litigation against us where they alleged that we engaged in copyright infringement by having used certain musical compositions owned or controlled by them on our Lomotif platform without necessary licenses. We vigorously dispute and have disputed claims of infringement by such publishers but could be subject to additional claims in the future. An adverse judgment against us in any such lawsuit could require us to settle any claims for an undetermined amount which could have a material impact on our business, financial condition, or results of operations.
We may also be required to enter into license agreements with various licensors, including record labels, music publishers, performing rights organizations, and collective management organizations, to obtain licenses that authorize the storage and use of content uploaded by our users. We may not be able to develop technological solutions to comply with these laws on economically reasonable terms and there is no guarantee that we will be able to enter into agreements with all relevant rights holders on terms that we deem reasonable. Compliance may therefore negatively impact our financial prospects.
We are increasingly dependent on information technology, and potential cyberattacks, security problems, or other disruption and expanding social media vehicles present new risks.
We rely on information technology networks and systems, including the internet, to process, transmit, and store electronic information, and to manage or support a variety of business processes, including financial transactions and records, billing, and operating data. We may purchase some of our information technology from vendors, on whom our systems will depend, and we rely on commercially available systems, software, tools, and monitoring to provide security for processing, transmission, and storage of confidential operator and other customer information. We depend upon the secure transmission of this information over public networks. Our networks and storage applications could be subject to unauthorized access by hackers or others through cyberattacks, which are rapidly evolving and becoming increasingly sophisticated, or by other means, or may be breached due to operator error, malfeasance or other system disruptions. In fact, in June 2022, the Company was a victim of an email spoofing attack where the intruder was able to obtain access to the Company’s email system and send emails internally that had fake invoices that were presented and appeared to be approved for payment in accordance with the Company’s standard wire approval process. As a result of this email intrusion, the Company incorrectly wired funds to two vendors in error in the aggregate of $4,010,000. Fortunately, the fraudulent wires were detected quickly, and the Company was able to recover approximately 95% of the fraudulently wired funds. In some cases, it will be difficult to anticipate or immediately detect such incidents and the damage they cause. Any significant breakdown, invasion, destruction, interruption, or leakage of information from our systems could harm our reputation and business.
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Hostile takeover attempt and subsequent litigation.
The Company was engaged in litigation in the third quarter of 2022 due to a hostile takeover attempt by a newly appointed independent director. The disruption to the Company due to a drastic and immediate departure for the Company business plan, which resulted in SEC filings that were substantially inaccurate, along with the subsequent litigation, which ultimately resulted in the departure of the independent board members along with senior management, was a significant risk factor for the Company and will continue to be so moving forward. Further detail will be provided in our periodic report on Form 10-K for the year ended December 31, 2022.
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
ITEM 6. EXHIBITS
| Exhibit | Incorporated By Reference to | Filed | ||||||||
| Number | Description | Form | Exhibit | Filing Date | Herewith | |||||
| 31.1 | Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | * | ||||||||
| 31.2 | Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | * | ||||||||
| 32.1 | Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ** | ||||||||
| 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. |
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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: April 7, 2023
| VINCO VENTURES, INC. | ||
| By: | /s/ Roderick Vanderbilt | |
| Roderick Vanderbilt | ||
| Executive Chairman | ||
| (Principal Executive Officer) | ||
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