NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note
1 — Basis of Presentation and Nature of Operations
The
condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in
the United States of America (“GAAP”) for interim financial statements and with Form 10-Q and Article 10 of Regulation
S-X of the United States Securities and Exchange Commission (the “SEC”). Accordingly, they do not contain all information
and footnotes required by GAAP for annual financial statements. The condensed consolidated financial statements include the accounts
of the Company and its wholly-owned and majority-owned subsidiaries. All intercompany balances and transactions have been eliminated
in consolidation. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial
statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position
of the Company as of March 31, 2021 and the results of operations, changes in stockholders’ equity, and cash flows for the
periods presented. The results of operations for the three ended March 31, 2021 are not necessarily indicative of the operating
results for the full fiscal year for any future period.
These
condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related
notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. 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, 2020, and updated, as necessary, in this Quarterly Report on Form 10-Q.
As
used herein, the terms the “Company,” “Vinco Ventures” “we,” “us,” “our”
and similar refer to Vinco Ventures, Inc. (f/k/a Edison Nation, Inc.), a Nevada corporation incorporated on July 18, 2017 under
the laws of the State of Nevada as Idea Lab X Products, Inc. and also formerly known as Xspand Products Lab, Inc. prior to its
name change on September 12, 2018, and/or its wholly-owned and majority-owned operating subsidiaries. On November 5, 2020, the
Company (the “Parent”) and its wholly owned subsidiary, Vinco Ventures, Inc. (the “Merger Sub”), entered
into an Agreement and Plan of Merger (the “Agreement”). Under the terms of the Agreement, the Merger Sub merged with
and into the Parent and the Parent became the surviving corporation of the Merger (the “Surviving Corporation”). The
name of the Surviving Corporation became Vinco Ventures, Inc. The transaction closed on November 10, 2020.
Vinco
Ventures is a vertically-integrated, end-to-end, consumer product research & development, manufacturing, sales and fulfillment
company. The Company’s proprietary web-enabled platform provides a low risk, high reward platform and process to connect
innovators of new product ideas with potential licensees.
As
of March 31, 2021, Vinco Ventures had six wholly-owned subsidiaries: TBD Safety, LLC (“TBD”), Scalematix, LLC (“Scalematix”),
Ferguson Containers, Inc. (“Fergco”), CBAV1, LLC (“CB1”), Pirasta, LLC (“Pirasta”) and Edison
Nation Holdings, LLC. Vinco Ventures owns 50% of Best Party Concepts, LLC, Ed Roses, LLC and Global Clean Solutions, LLC, all
of which are consolidated as VIE’s with noncontrolling interests. 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.
Liquidity
For the three months ended March 31, 2021,
our operations lost approximately $10,749,009, of which approximately $9,143,000 was non-cash and approximately $705,000
was related to transaction costs and other non-recurring items.
At
March 31, 2021, we had total current assets of approximately $11,238,811 and current liabilities of approximately
$7,144,413 resulting in working capital of approximately $4,094,398, of which $1,263,755 was related party
notes payable. At March 31, 2021, we had total assets of $45,473,359 and total liabilities of $67,428,994 resulting
in stockholders’ deficit of $21,955,635.
The
Company believes it has sufficient cash for at least the next twelve months from the date of issuance of these condensed
financial statements. The ability to continue as a going concern is dependent upon the Company’s ability to attract significant
new sources of capital, attain a reasonable threshold of operating efficiencies and achieve profitable operations from the sale
of its products.
Our
operating needs include the planned costs to operate our business, including amounts required to fund working capital and capital
expenditures. Our future capital requirements and the adequacy of our available funds will depend on many factors, including our
ability to successfully commercialize our products and services, competing technological and market developments, and the need
to enter into collaborations with other companies or acquire other companies or technologies to enhance or complement our product
and service offerings.
Vinco
Ventures, Inc. and Subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note
2 — Summary of Significant Accounting Policies
Principles
of Consolidation
The
consolidated financial statements include the accounts of Edison Nation, Inc. and its wholly-owned and majority owned subsidiaries.
All intercompany balances and transactions have
been eliminated.
Reclassifications
Certain
amounts previously presented in the consolidated financial statements have been reclassified to conform to the current year presentation.
Such reclassifications had no effect on the previously reported net loss, Stockholders’ equity or cash flows.
Use
of Estimates
Preparation
of financial statements in conformity with U.S. 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, the recoverability and useful lives of long-lived
assets, debt conversion features, stock-based compensation, certain assumptions related to the valuation of the reserved shares
and the assets acquired and liabilities assumed related to the Company’s acquisitions. Certain of the Company’s estimates
could be affected by external conditions, including those unique to the Company and general economic conditions. It is reasonably
possible that these external factors could have an effect on the Company’s estimates and could cause actual results to differ
from those estimates.
Discontinued
Operations
A
component of an entity that is disposed of by sale or abandonment is reported as discontinued operations if the transaction represents
a strategic shift that will have a major effect on an entity’s operations and financial results. The results of discontinued
operations are aggregated and presented separately in the Consolidated Statement of Operations. Assets and liabilities of the
discontinued operations are aggregated and reported separately as assets and liabilities of discontinued operations in the Consolidated
Balance Sheet, including the comparative prior year period. The Company’s cash flows are reflected as cash flows from discontinued
operations within the Company’s Consolidated Statements of Cash Flows for each period presented.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents
in the consolidated financial statements.
The
Company has cash on deposit in several financial institutions which, at times, may be in excess of Federal Deposit Insurance Corporation
(“FDIC”) insurance limits. The Company has not experienced losses in such accounts and periodically evaluates the
creditworthiness of its financial institutions. The Company reduces its credit risk by placing its cash and cash equivalents with
major financial institutions. The Company had approximately $5,525,744 of cash and cash equivalents at March 31, 2021
of which none was held in foreign bank accounts not covered by FDIC insurance limits as of March 31, 2021.
Accounts
Receivable
Accounts
receivable are carried at their contractual amounts, less an estimate for uncollectible amounts. Management estimates the allowance
for bad debts based on existing economic conditions, historical experience, the financial conditions of the customers, and the
amount and age of past due accounts. Receivables are considered past due if full payment is not received by the contractual due
date. Past due accounts are generally written off against the allowance for bad debts only after all collection attempts have
been exhausted.
No
customers represented more than 10% of total accounts receivable.
Inventory
Inventory
is recorded at the lower of cost or net realizable value on a first-in, first-out basis. The Company reduces the carrying value
of inventories for those items that are potentially excess, obsolete, or slow moving based on changes in customer demand, technology
developments, or other economic factors.
Short-Term
Investments
Short-term
investments consisted of equity securities. The Company classified its investments as Trading securities. Accordingly, such investments
were reported at fair market value, with the resultant unrealized gains and losses reported as a component of the consolidated
statements of operations. Fair value for Trading securities was determined by reference to quoted market prices.
Property
and Equipment, Net
Property
and equipment are stated at cost, net of accumulated depreciation and amortization, which is recorded commencing at the in-service
date using the straight-line method over the estimated useful lives of the assets, as follows: 3 to 5 years for office equipment,
5 to 7 years for furniture and fixtures, 6 to 10 years for machinery and equipment, 10 to 15 years for building improvements,
5 years for software, 5 years for molds, 5 to 7 years for vehicles and 40 years for buildings.
Equity
Method Investments
We
apply the equity method of accounting to investments when we have significant influence, but not controlling interest in the investee.
Judgment regarding the level of influence over each equity method investment includes considering key factors such as ownership
interest, representation on the board of directors, participation in policy-making decisions and material intercompany transactions.
The Company’s proportionate share of the net income (loss) resulting from these investments will be reported under a line
item captioned equity method investment income in our Consolidated Statements of Operations. The carrying value of our equity
method investments is reported in equity method investments in the Consolidated Balance Sheets. The Company’s equity method
investments are reported at cost and adjusted each period for the Company’s share of the investee’s income or loss
and dividend paid, if any. The Company classifies distributions received from equity-method investments using the cumulative earnings
approach on the Consolidated Statements of Cash Flows. The Company assesses investments for impairment whenever events or changes
in circumstances indicate that the carrying value of an investment may not be recoverable. The Company did not record any impairments
related to its investments in 2021. For the three months ended March 31, 2021, there was no income or loss.
Revenue
Recognition
Generally,
the Company considers all revenues as arising from contracts with customers. Revenue is recognized based on the five-step process
outlined in the Accounting Standards Codification (“ASC”) 606:
Step
1 – Identify the Contract with the Customer – A contract exists when (a) the parties to the contract have approved
the contract and are committed to perform their respective obligations, (b) the entity can identify each party’s rights
regarding the goods or services to be transferred, (c) the entity can identify the payment terms for the goods or services to
be transferred, (d) the contract has commercial substance and it is probable that the entity will collect substantially
all of the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer.
Vinco
Ventures, Inc. and Subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note
2 — Summary of Significant Accounting Policies — (Continued)
Step
2 – Identify Performance Obligations in the Contract – Upon execution of a contract, the Company identifies as performance
obligations each promise to transfer to the customer either (a) goods or services that are distinct, or (b) a series of distinct
goods or services that are substantially the same and have the same pattern of transfer to the customer. To the extent a contract
includes multiple promised goods or services, the Company must apply judgement to determine whether the goods or services are
capable of being distinct within the context of the contract. If these criteria are not met, the goods or services are accounted
for as a combined performance obligation.
Step
3 – Determine the Transaction Price – When (or as) a performance obligation is satisfied, the Company shall recognize
as revenue the amount of the transaction price that is allocated to the performance obligation. The contract terms are used to
determine the transaction price. Generally, all contracts include fixed consideration. If a contract did include variable consideration,
the Company would determine the amount of variable consideration that should be included in the transaction price based on expected
value method. Variable consideration would be included in the transaction price, if in the Company’s judgement, it is probable
that a significant future reversal of cumulative revenue under the contract would not occur.
Step
4 – Allocate the Transaction Price – After the transaction price has been determined, the next step is to allocate
the transaction price to each performance obligation in the contract. If the contract only has one performance obligation, the
entire transaction price will be applied to that obligation. If the contract has multiple performance obligations, the transaction
price is allocated to the performance obligations based on the relative standalone selling price (SSP) at contract inception.
Step
5 – Satisfaction of the Performance Obligations (and Recognize Revenue) – Revenue is recognized when (or as) goods
or services are transferred to a customer. The Company satisfies each of its performance obligations by transferring control of
the promised good or service underlying that performance obligation to the customer. Control is the ability to direct the use
of and obtain substantially all of the remaining benefits from an asset. It includes the ability to prevent other entities from
directing the use of and obtaining the benefits from an asset. Indicators that control has passed to the customer include: a present
obligation to pay; physical possession of the asset; legal title; risks and rewards of ownership; and acceptance of the asset(s).
Performance obligations can be satisfied at a point in time or over time.
Substantially
all of the Company’s revenues continue to be recognized when control of the goods is transferred to the customer, which
is upon shipment of the finished goods to the customer. All sales have fixed pricing and there are currently no material variable
components included in the Company’s revenue. Additionally, the Company will issue credits for defective merchandise, historically
these credits for defective merchandise have not been material. Based on the Company’s analysis of the new revenue standards,
revenue recognition from the sale of finished goods to customers, which represents substantially all of the Company’s revenues,
was not impacted by the adoption of the new revenue standards.
Disaggregation
of Revenue
The
Company’s primary revenue streams include the sale and/or licensing of consumer goods and packaging materials for innovative
products. The Company’s licensing business is not material and has not been separately disaggregated for segment purposes.
The disaggregated Company’s revenues for the three months ended March 31, 2021 and 2020 was as follows:
|
|
For
the Three Months
Ended
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Product
sales
|
|
$
|
2,487,869
|
|
|
$
|
3,626,901
|
|
Licensing
revenues
|
|
|
77,293
|
|
|
|
40,209
|
|
Total
revenues, net
|
|
$
|
2,565,162
|
|
|
$
|
3,667,110
|
|
Vinco
Ventures, Inc. and Subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note
2 — Summary of Significant Accounting Policies — (Continued)
For
the three months ended March 31, 2021 and 2020, the following customer represented more than 10% of total net revenues:
|
|
For
the Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Customer
A
|
|
|
14
|
%
|
|
|
11
|
%
|
*
Customer did not represent greater than 10% of total net revenue.
For
the three months ended March 31, 2021 and 2020, the following geographical regions represented more than 10% of
total net revenues:
|
|
For
the Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
North
America
|
|
|
100
|
%
|
|
|
82
|
%
|
Europe
|
|
|
*
|
%
|
|
|
17
|
%
|
*
Region did not represent greater than 10% of total net revenue.
Fair
Value of Financial Instruments
The
Company measures the fair value of financial assets and liabilities based on the guidance of ASC 820 “Fair Value Measurements
and Disclosures” (“ASC 820”) which defines fair value, establishes a framework for measuring fair value, and
expands disclosures about fair value measurements.
ASC
820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price)
in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants
on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may
be used to measure fair value:
Level
1 — quoted prices in active markets for identical assets or liabilities
Level
2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level
3 — inputs that are unobservable (for example, cash flow modeling inputs based on assumptions)
The
carrying amounts of the Company’s financial instruments, such as cash, accounts receivable and accounts payable, approximate
fair values due to the short-term nature of these instruments. The carrying amount of the Company’s notes payable approximates
fair value because the effective yields on these obligations, which include contractual interest rates, taken together with other
features such as concurrent issuance of warrants, are comparable to rates of returns for instruments of similar credit risk. The
loan held for investment was acquired at fair value, which resulted in a discount.
The
following fair value of financial assets and liabilities and the input level used to determine the fair value at March 31, 2021
is presented below:
|
|
Fair
Value Measurements as of March 31, 2021
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Short-term
investments
|
|
$
|
948,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant
liability
|
|
|
-
|
|
|
|
-
|
|
|
|
58,235,566
|
|
Total
|
|
|
948,000
|
|
|
|
-
|
|
|
|
58,235,566
|
|
The
following table presents a reconciliation of the Company’s liabilities measured at fair value on a recurring basis using
significant unobservable inputs (Level 3) for the three months ended March 31, 2021:
|
|
Warrant
Liability
(Level 3)
|
|
Balance,
December 31, 2020
|
|
$
|
-
|
|
Issuance
of warrants
|
|
|
94,876,535
|
|
Change
in fair value
|
|
|
(36,381,542
|
)
|
Exercise
of warrants
|
|
|
(259,427
|
)
|
Balance,
March 31, 2021
|
|
$
|
58,235,566
|
|
There
were no short-term investments held at March 31, 2020.
U.S.
equity stocks represent investment in stocks of U.S. based companies. The valuation inputs for U.S. equity stocks are based on
the last published price reported on the major stock market on which the securities are traded and are primarily classified as
Level 1. Securities whose valuation inputs are not based on observable market information are classified as Level 3.
Warrant
Accounting
The Company evaluates its financial instruments to determine if such
instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic 815, “Derivatives
and Hedging”.
The
Company classifies a warrant to purchase shares of its common stock as a liability on its consolidated balance sheets as this
warrant is a free-standing financial instrument that may require the Company to transfer consideration upon exercise (Please see Note 11 — Warrant Liability for further information). Each warrant
is initially recorded at fair value on date of grant using the Black-Scholes model and net of issuance costs, and it is 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.
Sequencing
Policy
Under
ASC 815-40-35, the Company follows a sequencing policy whereby, in the event that reclassification of contracts from equity to
assets or liabilities is necessary pursuant to ASC 815 due to the Company’s inability to demonstrate it has sufficient authorized
shares as a result of certain securities with a potentially indeterminable number of shares, shares will be allocated on the basis
of the earliest issuance date of potentially dilutive instruments, with the earliest grants receiving the first allocation of
shares. Pursuant to ASC 815, issuance of securities to the Company’s employees or directors are not subject to the sequencing
policy.
Vinco
Ventures, Inc. and Subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note
2 — Summary of Significant Accounting Policies — (Continued)
Foreign
Currency Translation
The
Company uses the United States dollar as its functional and reporting currency since the majority of the Company’s revenues,
expenses, assets and liabilities are in the United States. Assets and liabilities in foreign currencies are translated using the
exchange rate at the balance sheet date, while revenue and expense accounts are translated at the average exchange rates prevailing
during the year. Equity accounts are translated at historical exchange rates. Gains and losses from foreign currency transactions
and translation for the three months ended March 31, 2021 and 2020 and the cumulative translation gains and losses
as of March 31, 2021 and December 31, 2020 were not material.
Net
Earnings or Loss per Share
Basic
net income (loss) per common share is computed by dividing net loss by the weighted average number of vested common shares outstanding
during the period. Diluted net income per common share is computed by dividing net income by the weighted average number vested
of common shares, plus the net impact of common shares (computed using the treasury stock method), if dilutive, resulting from
the exercise of dilutive securities. In periods when losses are reported, the weighted-average number of common shares outstanding
excludes common stock equivalents because their inclusion would be anti-dilutive.
As
of March 31, 2021 and 2020, the Company excluded the common stock equivalents summarized below, which entitled 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.
|
|
March
31,
|
|
|
March
31,
|
|
|
|
2021
|
|
|
2020
|
|
Selling
Agent Warrants
|
|
|
-
|
|
|
|
160,492
|
|
Placement
Agent Warrants
|
|
|
2,034,346
|
|
|
|
-
|
|
Options
|
|
|
80,000
|
|
|
|
80,000
|
|
Convertible
shares under notes payable
|
|
|
2,647,587
|
|
|
|
285,632
|
|
Warrants
|
|
|
35,068,188
|
|
|
|
-
|
|
Series
B Convertible Stock
|
|
|
764,618
|
|
|
|
-
|
|
Shares
to be issued
|
|
|
1,608,355
|
|
|
|
-
|
|
Total
|
|
$
|
42,203,094
|
|
|
$
|
526,124
|
|
Vinco
Ventures, Inc. and Subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note
2 — Summary of Significant Accounting Policies — (Continued)
Subsequent
Events
The
Company has evaluated subsequent events through the date which the financial statements were issued. Based upon such evaluation,
except for items described in Note 15, the Company did not identify any recognized or non-recognized subsequent events
that would have required adjustment or disclosure in the financial statements.
Segment
Reporting
The
Company uses “the management approach” in determining reportable operating segments. The management approach considers
the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions
and assessing performance as the source for determining the Company’s reportable segments. The Company’s chief operating
decision maker is the Chairman and Chief Executive Officer (“CEO”) of the Company, who reviews operating results to
make decisions about allocating resources and assessing performance for the entire Company. The Company deploys resources on a
consolidated level to all brands of the Company and therefore the Company only identifies one reportable operating segment with
multiple product offerings.
Vinco
Ventures, Inc. and Subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note
3 — Acquisitions and Divestitures
Divestiture
of Subsidiary
On
February 17, 2020, the Company divested its Cloud B, Inc. subsidiary and entered into an Agreement for the Purchase and Sale of
Cloud B, Inc.(the “Purchase Agreement”), with Pearl 33 Holdings, LLC (the “Buyer”), pursuant to which
the Buyer purchased from the Company (and the Company sold and assigned) 80,065 shares of common stock of Cloud B (the “Cloud
B Shares”) for $1.00 and an indemnification agreement as described below, constituting a 72.15% ownership interest in Cloud
B, based on 110,964 shares of Cloud B’s common stock outstanding as of February 17, 2020. In accordance with the agreement,
all of the liabilities of Cloud B were assumed by Pearl 33.
On
February 17, 2020, as part of the sale of Cloud B, Inc., the Company entered into an indemnification agreement with Pearl 33 Holdings,
LLC in connection with the divestiture of Cloud B, Inc., whereby pursuant to such agreement the Company is limited to the issuance
of 150,000 shares of the Company’s common stock to the Buyer for indemnification of claims against Cloud B Inc. In addition,
the Company shall indemnify the Buyer for expenses (including attorneys’ fees and all other costs, expenses and obligations)
in connection with defending any Claim in connection with the Cloud B. The Company has recorded $405,000 related to the fair value
of the 150,000 shares of common stock which will be issued to the Buyer.
The
table below shows the assets and liabilities that the Company was relieved of in the transaction:
|
|
February
17,
2020
|
|
Accounts
payable
|
|
|
4,005,605
|
|
Accrued
Expenses
|
|
|
370,289
|
|
Income
Tax Payable
|
|
|
14,473
|
|
Notes
Payable
|
|
|
900,000
|
|
Non-Controlling
Interest
|
|
|
26,393
|
|
Shares
to be issued to Buyer
|
|
|
(405,000
|
)
|
Gain
on divestiture
|
|
$
|
4,911,760
|
|
Divestiture
of Subsidiary- SRM Entertainment, LTD
On
November 30, 2020, the Company and its wholly owned subsidiary, SRM Entertainment, LTD entered into a Stock Exchange Agreement
with Jupiter Wellness, Inc. (“Jupiter”). Under the terms of the Exchange Agreement, Jupiter agreed to purchase all
outstanding shares of common stock (the “Exchange Shares”) issued by SRM from the Company. As consideration for the
purchase of the Exchange Shares, Jupiter issued the Company 200,000 shares of its restricted common stock, symbol JUPW as listed
on NASDAQ Capital Markets. Please see Note 15 — Discontinued Operations for further information.
Acquisitions
On
September 29, 2020, the Company entered into a Purchase and Sale Agreement (the “Agreement”) with Graphene Holdings,
LLC, Mercury FundingCo, LLC, Ventus Capital, LLC and Jetco Holdings, LLC (together the “Sellers”) to acquire all outstanding
Membership Units (the “Units”) of TBD Safety, LLC (“TBD”). Collectively, the Sellers owned all outstanding
Units of TBD. Under the terms of the Agreement, the Company issued a total of Two Million Two Hundred Ten Thousand Three Hundred
Eighty-Two (2,210,382) shares of the Company’s common stock and a total of Seven Hundred Sixty-Four Thousand Six Hundred
Eighteen (764,618) shares of a newly designated Preferred Stock (the “Preferred”). In addition, the Company and Sellers
entered into a Registration Rights Agreement (the “Registration Rights Agreement”) in favor of the Sellers obligating
the Company to register such common stock and shares of common stock to be issued upon conversion of the Preferred within 120
days after the Closing. The Sellers also had an Earn Out Consideration, which provides that at such time as the assets purchased
in the Agreement achieve cumulative revenue of $10,000,000, the Sellers will earn a total of One Hundred Twenty-Five Thousand
(125,000) shares of common stock. The closing of the transaction occurred on October 16, 2020.
Asset
Acquisition
On
November 10, 2020, the Company, through its wholly owned subsidiary, Honey Badger Media, LLC, entered into a series of transactions to
acquire certain assets and license a platform with Honey Badger Media, LLC, a Delaware limited liability company, for $300,000 and 750,000
shares of common stock. The transaction was treated as an asset purchase and not accounted for as a business combination due to substantially
all of the fair value of gross assets acquired were concentrated to a group of similar identifiable assets which was media licensing
assets. In addition, there was limited inputs, processes and outputs, which did not meet the requirements to be a business. On January
5, 2021, the Company issued 750,000 shares of our common stock in connection with the asset acquisition.
On
March 11, 2020, the Company issued 238,750 shares of our common stock to acquire the assets of HMNRTH, LLC. On July 1, 2020, the
Company made payment in the amount of $70,850 to the principals of HMNRTH, LLC. The transaction was treated as an asset purchase
and not accounted for as a business combination due to the limited inputs, processes and outputs, which did not meet the requirements
to be a business.
On
November 6, 2019, the Company issued 45,000 shares of our common stock to acquire the assets of Uber Mom, LLC for $52,352, which
was the approximate value of Uber Mom, LLC’s inventory.
Note
4 — Variable Interest Entities
The
Company is involved in the formation of various entities considered to be Variable Interest Entities (“VIEs”). The
Company evaluates the consolidation of these entities as required pursuant to ASC Topic 810 relating to the consolidation of VIEs.
These VIEs are primarily partnerships formed to supply consumer goods to through various distribution and retail channels.
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 portion of the economics of these VIEs. The Company is the primary beneficiary of the VIE
entities.
The
following table presents the carrying values of the assets and liabilities of entities that are VIEs and consolidated by the Company
at March 31, 2021:
|
|
March
31, 2021
|
|
|
December
31, 2020
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
15,994
|
|
|
$
|
10,481
|
|
Accounts
receivable, net
|
|
|
113,493
|
|
|
|
94,195
|
|
Inventory
|
|
|
251,918
|
|
|
|
240,158
|
|
Prepaid
expenses and other current assets
|
|
|
-
|
|
|
|
-
|
|
Total
current assets
|
|
|
381,405
|
|
|
|
344,834
|
|
Property
and equipment, net
|
|
|
-
|
|
|
|
-
|
|
Total
assets
|
|
$
|
381,405
|
|
|
$
|
344,834
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and stockholders’ equity
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
174,311
|
|
|
$
|
217,558
|
|
Accrued
expenses and other current liabilities
|
|
|
19,326
|
|
|
|
113,576
|
|
Line
of credit, net of debt issuance costs of $0 and $15,573, respectively
|
|
|
1,133,652
|
|
|
|
1,133,652
|
|
Notes
payable, current
|
|
|
-
|
|
|
|
150,000
|
|
Due
to related party
|
|
|
315,666
|
|
|
|
315,666
|
|
Total
current liabilities
|
|
|
1,642,955
|
|
|
|
1,930,452
|
|
Vinco
Ventures, Inc. and Subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note
4 — Variable Interest Entities — (Continued)
The
following table presents the operations of entities that are VIEs and consolidated by the Company at March 31, 2021:
|
|
For
the Three Months
Ended
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Revenues,
net
|
|
$
|
214,394
|
|
|
$
|
352,523
|
|
Cost
of revenues
|
|
|
84,155
|
|
|
|
204,943
|
|
Gross
profit
|
|
|
130,239
|
|
|
|
147,580
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
100,421
|
|
|
|
450,693
|
|
Operating
income
|
|
|
29,818
|
|
|
|
(303,113
|
)
|
|
|
|
|
|
|
|
|
|
Other
(expense) income:
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(26,250
|
)
|
|
|
-
|
|
Total
other (expense) income
|
|
|
(26,250
|
)
|
|
|
-
|
|
Gain
before income taxes
|
|
|
3,568
|
|
|
|
(303,113
|
)
|
Income
tax expense
|
|
|
-
|
|
|
|
-
|
|
Net
(loss) income
|
|
$
|
3,568
|
|
|
$
|
(303,113
|
)
|
At
March 31, 2021, the Company had one unconsolidated VIE, ZVV Media Partners, LLC (“ZVV”), for which the Company held a variable interest.
As of March 31, 2020, there were no unconsolidated VIEs for which the Company holds a variable interest.
On
May 20, 2020 (the “Effective Date”), the Company entered into an Agreement and
Plan of Share Exchange (the “Share Exchange Agreement”) with PPE Brickell Supplies, LLC, a Florida limited liability
company (“PPE”), and Graphene Holdings, LLC, a Wyoming limited liability company (“Graphene”, and together
with PPE, the “Sellers”), whereby the Company purchased 25 membership units of Global Clean Solutions, LLC, a Nevada
limited liability company (“Global”) from each of PPE and Graphene, for a total of fifty (50) units, representing
fifty percent (50%) of the issued and outstanding units of Global (the “Purchase Units”). The Company issued 250,000
shares of its restricted common stock, $0.001 par value per share (the “Common Stock”) to PPE, and 50,000 shares of
Common Stock to Graphene, in consideration for the Purchase Units. Global Clean Solutions, LLC is a VIE. The fair value of the
shares of $699,000 was treated as a distribution to the noncontrolling interest members.
Pursuant
to the terms of the Share Exchange Agreement, the Sellers may earn additional shares of Common Stock upon Global realizing the
following revenue targets: (i) In the event that Global’s total orders equal or exceed $1,000,000, Graphene shall receive
200,000 shares of Common Stock; (ii) In the event that Global’s total orders equal or exceed $10,000,000, PPE shall receive
100,000 shares of restricted Common Stock; and (iii) In the event that Global’s total orders equal or exceed $25,000,000,
Graphene shall receive 125,000 shares of restricted Common Stock. Additionally, the Company shall be entitled to appoint two managers
to the Board of Managers of Global. The fair value of the shares is expensed over the estimated vesting period and is adjusted
based on the number of shares that vest.
Amended
Limited Liability Company Agreement
On
the Effective Date, the Company entered into an Amended Limited Liability Company Agreement of Global (the “Amended LLC
Agreement”). The Amended LLC Agreement amends the original Limited Liability Company Agreement of Global, dated May 13,
2020. The Amended LLC defines the operating rules of Global and the ownership percentage of each member: Vinco Ventures, Inc.
50%, PPE 25% and Graphene 25%.
Secured
Line of Credit Agreement
On
the Effective Date, the Company (as “Guarantor”) entered into a Secured Line of Credit Agreement (the “Credit
Agreement”) with Global and PPE. Under the terms of the Credit Agreement, PPE is to make available to Global a revolving
credit loan in a principal aggregate amount at any one time not to exceed $2,500,000. Upon each drawdown of funds against the
credit line, Global shall issue a Promissory Note (the “Note”) to PPE. The Note shall accrue interest at 3% per annum
and have a maturity date of six (6) months. In the event of a default, any and all amounts due to PPE by Global, including principal
and accrued but unpaid interest, shall increase by forty (40%) percent and the interest shall increase to five (5%) percent (the
“Default Interest”).
Security
Agreement
On
the Effective Date, the Company (as “Guarantor”) entered into a Security Agreement (the “Security Agreement”)
with Global (as “Borrower”) and PPE as the secured party, whereby the Company placed 1,800,000 shares of Common Stock
(the “Reserve Shares”) in reserve with its transfer agent in the event of default under the Credit Agreement. In the
event of a default that is not cured by the defined cure period, the PPE may liquidate the Reserve Shares until the Global’s
principal, interest and associated expenses are recovered. The number of Reserve Shares may be increased through the issuance
of True-Up shares in the event the original number of Reserve Shares is insufficient.
Vinco
Ventures, Inc. and Subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note
5 — Short-Term Investments
As
of March 31, 2021 and December 31, 2020, short-term investments consisted of the following:
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2021
|
|
|
2020
|
|
Jupiter
Wellness, Inc. (JUPW) (i)
|
|
$
|
1,040,000
|
|
|
$
|
1,040,000
|
|
Unrealized
losses
|
|
|
(92,000
|
)
|
|
|
(22,000
|
)
|
Total
short-term investments
|
|
$
|
948,000
|
|
|
$
|
1,018,000
|
|
|
(i)
|
On
November 30, 2020, the Company and its wholly owned subsidiary, SRM Entertainment, LTD
entered into a Stock Exchange Agreement with Jupiter Wellness, Inc. (“Jupiter”).
Under the terms of the Exchange Agreement, Jupiter purchased all outstanding shares of
common stock (the “Exchange Shares”) issued by SRM from the Company. As consideration
for the purchase of the Exchange Shares, Jupiter issued the Company 200,000 shares of
its restricted common stock, symbol JUPW as listed on NASDAQ Capital Markets. On March
31, 2021, the closing price of JUPW was $5.20 on the Nasdaq.
|
Note
6 — Property and Equipment, net
As
of March 31, 2021 and December 31, 2020, property and equipment consisted of the following:
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2021
|
|
|
2020
|
|
Land
|
|
$
|
79,100
|
|
|
$
|
79,100
|
|
Buildings
– rental property
|
|
|
463,635
|
|
|
|
463,635
|
|
Building
improvements
|
|
|
800,225
|
|
|
|
800,225
|
|
Equipment
and machinery
|
|
|
4,141,145
|
|
|
|
4,122,917
|
|
Furniture
and fixtures
|
|
|
368,137
|
|
|
|
368,137
|
|
Computer
software
|
|
|
-
|
|
|
|
-
|
|
Molds
|
|
|
79,300
|
|
|
|
79,300
|
|
Vehicles
|
|
|
521,962
|
|
|
|
521,962
|
|
|
|
|
6,435,504
|
|
|
|
6,435,276
|
|
Less:
accumulated depreciation
|
|
|
(5,457,287
|
)
|
|
|
(5,424,475
|
)
|
Total
property and equipment, net
|
|
$
|
996,217
|
|
|
$
|
1,010,801
|
|
Depreciation
expense for the three months ended March 31, 2021 and 2020 was $32,812 and $169,141, respectively.
Note
7 — Loan Receivable
As
of March 31, 2021 and December 31, 2020, loan receivable consisted of the following:
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2021
|
|
|
2020
|
|
Loan
to Zash Global Media and Entertainment Corporation (i)
|
|
$
|
5,000,000
|
|
|
$
|
-
|
|
|
(i)
|
On
February 18, 2021, the Company loaned $5,000,000 to ZASH Global Media and Entertainment Corporation (“ZASH”). The interest rate on
the note is 3% per annum. The maturity date of the loan is August 17, 2023. The purpose of the loan is to engage in the acquisition, development and production of consumer facing content and
related activities.
|
|
(ii)
|
On January 20, 2021, the Company entered into an Agreement
to Complete a Plan of Merger (the “Merger Agreement”) with ZASH Global Media and Entertainment Corporation (“ZASH”)
and Vinco Acquisition Corporation, a subsidiary of ours formed for the sole purpose of the merger contemplated by the Merger Agreement
(the Merger Sub”). The Merger Agreement contemplates a reverse triangular merger of Merger Sub with and into ZASH in a transaction
intended to qualify as a tax-free reorganization under Sections 368(a)(l)(A) and 368(a)(2)(E) of the Internal Revenue Code. Under
the terms of the Merger Agreement, the holders of ZASH common stock will receive shares of the Company’s common stock (the
“Merger Shares”) in exchange for all of their issued and outstanding ZASH shares of common stock. ZASH will then become
an indirect wholly owned subsidiary of the Company. The merger will represent a change of control transaction as upon the completion
of the merger, the shareholders of ZASH will own a controlling interest in the Company. The merger and the issuance of the Merger
Shares are subject to adoption and approval by the holders of a majority of the outstanding shares of the Company’s common
stock.
|
|
|
|
|
|
In
connection with the merger, the certificate of incorporation of the Company will be amended
and restated, and the name of the Company will be changed to “ZASH Global Media and
Entertainment Corporation.” The bylaws of the Company will also be amended and restated
to become the equivalent of the bylaws of ZASH immediately prior to the closing under the
Merger Agreement (the “Closing”). At the Closing, certain officers and directors
of the Company immediately prior to the effective time of the merger will resign and the
officers and directors of ZASH immediately prior to the Closing will be appointed as officers
and directors of the Company and the surviving corporation in the merger, in each case until
their respective successors are duly elected or appointed and qualified; provided, however
that the Company shall have the right to appoint two persons to serve as members of the board
of directors of the Company and ZASH will have the right to appoint three persons to serve
as members of the board of directors of the Company.
|
Note
8 — Equity Method Investments
As
of March 31, 2021 and December 31, 2020, the carrying amount of equity method investments consisted of the following:
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2021
|
|
|
2020
|
|
Investment
in ZVV Media Partners, LLC (i)
|
|
$
|
7,000,000
|
|
|
$
|
-
|
|
|
(i)
|
On January 19, 2021, the Company, ZVV Media Partners, LLC (“ZVV”)
and ZASH entered into a Contribution Agreement (the “Agreement”). The Company and ZASH established the newly formed entity,
ZVV, in order to engage in the development and production of consumer facing content and related activities.
|
Note
9 — Goodwill
For
the three months ended March 31, 2021, there was no change in the carrying amount of goodwill.
The Company utilized the simplified test for goodwill impairment. The amount recognized for impairment
is equal to the difference between the carrying value and the asset’s fair value. The valuation methods used in the quantitative
fair value assessment was a discounted cash flow method and required management to make certain assumptions and estimates regarding
certain industry trends and future profitability of our reporting units.
Note
10 — Debt
As
of March 31, 2021 and December 31, 2020, debt consisted of the following:
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2021
|
|
|
2020
|
|
Line
of credit:
|
|
|
|
|
|
|
|
|
Lines
of credit
|
|
$
|
1,133,652
|
|
|
$
|
1,133,652
|
|
Receivable
financing
|
|
|
-
|
|
|
|
367,301
|
|
Debt
issuance costs
|
|
|
|
|
|
|
-
|
|
Total
lines of credit
|
|
|
1,133,652
|
|
|
|
1,500,953
|
|
|
|
|
|
|
|
|
|
|
Senior
convertible notes payable:
|
|
|
|
|
|
|
|
|
Senior
convertible notes payable
|
|
|
11,422,271
|
|
|
|
1,428,161
|
|
Convertible
notes payable
|
|
|
|
|
|
|
591,104
|
|
Debt
issuance costs
|
|
|
(10,000,762
|
)
|
|
|
(280,511
|
)
|
Total
long-term senior convertible notes payable
|
|
|
1,421,509
|
|
|
|
1,738,754
|
|
Less:
current portion of long-term notes payable
|
|
|
1,421,509
|
|
|
|
(577,260
|
)
|
Noncurrent
portion of long-term convertible notes payable
|
|
|
-
|
|
|
|
1,161,494
|
|
|
|
|
|
|
|
|
|
|
Notes
payable:
|
|
|
|
|
|
|
|
|
Notes
payable
|
|
|
891,193
|
|
|
|
1,932,088
|
|
Debt
issuance costs
|
|
|
-
|
|
|
|
(34,997
|
)
|
Total
long-term debt
|
|
|
891,193
|
|
|
|
1,897,091
|
|
Less:
current portion of long-term debt
|
|
|
(437,374
|
)
|
|
|
(1,301,212
|
)
|
Noncurrent
portion of long-term debt
|
|
|
453,819
|
|
|
|
595,879
|
|
|
|
|
|
|
|
|
|
|
Notes
payable – related parties:
|
|
|
|
|
|
|
|
|
Notes
payable
|
|
|
2,167,514
|
|
|
|
2,827,512
|
|
Debt
issuance costs
|
|
|
-
|
|
|
|
(33,833
|
)
|
Total
notes payable – related parties:
|
|
|
2,167,514
|
|
|
|
2,793,679
|
|
Less:
current portion of long-term debt – related parties
|
|
|
(1,263,755
|
)
|
|
|
(1,389,922
|
)
|
Noncurrent
portion of long-term debt – related parties
|
|
$
|
903,759
|
|
|
$
|
1,403,757
|
|
Vinco
Ventures, Inc. and Subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note
10 — Debt — (Continued)
Convertible
Notes Payable
Hudson
Bay Financing- February 2021
On
February 23, 2021 (the “Effective Date”), the Company consummated the closing of a private placement offering (the
“Offering”) whereby pursuant to the Securities Purchase Agreement (the “Purchase Agreement”) entered into
by the Company on February 18, 2021 with one accredited investor (the “Investor”), the Company issued a Senior Convertible
Note for the purchase price of $10,000,000 (the “Note”) and five (5) year warrants (the “Warrant”) to
purchase shares of the Company’s common stock, par value $0.001 per share (“Common Stock”).
The
Note carries an interest rate of 6% per annum compounding monthly and matures on February 23, 2022. The Note contains a voluntary
conversion mechanism whereby the Noteholder may convert at any time after the Issuance Date, in whole or in part, the outstanding
principal and interest under the Note into shares of the Common Stock at a conversion price of $4.847 per share (the “Conversion
Shares”). The Note shall be a senior unsecured obligation of the Company and its subsidiaries. The Note contains customary
events of default (each an “Event of Default”). If an Event of Default occurs, interest under the Note will accrue
at a rate of twelve percent (12%) per annum and the outstanding principal amount of the Note, plus accrued but unpaid interest,
liquidated damages and other amounts owing with respect to the Note will become, at the Note holder’s election, immediately
due and payable in cash. Upon completion of a Change of Control (as defined in the Note), the Note’s holder may require
the Company to purchase any outstanding portion of the Note in cash at a price in accordance with the terms of the Note.
Pursuant
to the Purchase Agreement, the Investor received a Warrant in an amount equal to 900% of the shares of Common Stock initially
issuable to the Investor pursuant to the conversion terms of the Investor’s Note. The Warrant contains an exercise price
of $3.722 per share, subject to adjustments as provided under the terms of the Warrant. In connection with the closing of the
Offering, the Warrant was exercisable for an aggregate of 18,568,188 shares of Common Stock (the “Warrant Shares”).
The
Company also entered into a Registration Rights Agreement with the Investor (the “Registration Rights Agreement”).
The Registration Rights Agreement provides that the Company shall (i) file with the Securities and Exchange Commission (the “Commission”)
a Registration Statement by 30 days following the Closing Date of the Purchase Agreement to register the Conversion Shares
and Warrant Shares (the “Registration Statement”); and (ii) use all commercially reasonable efforts to have the Registration
Statement declared effective by the Commission within 60 days following the Closing Date or at the earliest possible date, or
75 days following the Closing Date if the Registration Statement receives comments from the Commission.
Palladium
Capital Group, LLC. (the “Placement Agent”) acted as placement agent for the Offering. The Placement Agent received
cash compensation of $900,000 (8% of the gross proceeds to the Company plus an additional 1% of the gross proceeds to the Company
for non-accountable expenses). The Placement Agent also received a Warrant granting the Holder the right to purchase 1,650,346
shares of the Company’s common stock at an exercise price of $3.722 with an expiration date of February 23, 2026.
Vinco
Ventures, Inc. and Subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note
10 — Debt — (Continued)
Hudson
Bay Financing- January 2021
On
January 25, 2021 (the “Effective Date”), the Company consummated the closing of a private placement offering (the
“Offering”) whereby pursuant to the Securities Purchase Agreement (the “Purchase Agreement”) entered into by
the Company on January 21, 2021 with Hudson Bay Master Fund, Ltd (the “Investor”), the Company issued a Senior
Convertible Note for the purchase price of $12,000,000 (the “Note”) and a five (5) year warrant (the
“Warrant”) to purchase shares of the Company’s common stock, par value $0.001 per share (“Common
Stock”). The Investor converted $11,000,000 of principal and $39,190 of interest into 5,519,595 of the Company’s common
shares.
The
Note carries an interest rate of 6% per annum and matures on the 12-month anniversary of the Issuance Date (as defined in the
Note). The Note contains a voluntary conversion mechanism whereby the Noteholder may convert at any time after the Issuance Date,
in whole or in part, the outstanding balance of the Note into shares of the Common Stock at a conversion price of $2.00 per share
(the “Conversion Shares”). The Note shall be a senior obligation of the Company and its subsidiaries. The Note contains
customary events of default (each an “Event of Default”). If an Event of Default occurs, interest under the Note will
accrue at a rate of twelve percent (12%) per annum and the outstanding principal amount of the Note, plus accrued but unpaid interest,
liquidated damages and other amounts owing with respect to the Note will become, at the Note holder’s election, immediately
due and payable in cash. Upon completion of a Change of Control (as defined in the Note), the Note’s holder may require
the Company to purchase any outstanding portion of the Note in cash at a price in accordance with the terms of the Note.
Pursuant
to the Purchase Agreement, the Investor received a Warrant in an amount equal to 250% of the shares of Common Stock initially
issuable to each Investor pursuant to the Investor’s Note. The Warrant contains an exercise price of $2.00 per share. In
connection with the closing of the Offering, the Warrant was issued to purchase an aggregate of 15,000,000 shares of Common Stock
(the “Warrant Shares”).
The
Company also entered into a Registration Rights Agreement with the Investor (the “Registration Rights Agreement”).
The Registration Rights Agreement provides that the Company shall (i) file with the Securities and Exchange Commission (the “Commission”)
a Registration Statement by 30 days following the Closing Date to register the Conversion Shares and Warrant Shares (the “Registration
Statement”); and (ii) use all commercially reasonable efforts to have the Registration Statement declared effective by the
Commission within 60 days following the Closing Date or at the earliest possible date, or 75 days following the Closing Date if
the Registration Statement receives comments from the Commission.
Palladium
Capital Group, LLC (the “Placement Agent”) acted as placement agent for the Offering. The Placement Agent received
cash compensation of $1,080,000 (8% of the gross proceeds to the Company plus an additional 1% of the gross proceeds to the Company
for non-accountable expenses). The Placement Agent also received a Warrant dated January 25, 2021 granting the Holder the right
to purchase 480,000 shares of the Company’s common stock at an exercise price of $2.00 with an expiration date of January
25, 2026.
Jefferson
Street Capital Financing
On
July 29, 2020, the Company entered into a Securities Purchase Agreement (the “Agreement”) with Jefferson Street Capital,
LLC (the “Investor”) wherein the Company issued the Investor a Convertible Promissory Note (the “Note”)
in the amount of $224,000 ($24,000 OID). The Note has a term of six (6) months, is due on January 29, 2021 and has a one-time
interest charge of 2%. In addition, the Company issued the Investor 14,266 shares of Common Stock (the “Origination Shares”)
as an origination fee. The transaction closed on July 29, 2020. On January 28, 2021, the Company paid all outstanding principal and interest
in the amount of $260,233.
Vinco
Ventures, Inc. and Subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note
10 — Debt — (Continued)
On
April 7, 2020, the Company entered into a Securities Purchase Agreement (the “Agreement”) with Jefferson Street Capital,
LLC (the “Investor”) wherein the Company issued the Investor a Convertible Promissory Note (the “Note”) in the
amount of $168,000 ($18,000 OID). The Note has a term of six (6) months, is due on October 7, 2020 and has a one-time interest charge
of 2%. In addition, the Company issued the Investor 10,700 shares of Common Stock (the “Origination Shares”) as an origination
fee. The transaction closed on April 9, 2020. On October 7, 2020, the Company and Investor entered
into a Forbearance Agreement (the “Forbearance Agreement”). Under the terms of the Forbearance Agreement, the Company requested
and the Investor agreed to temporarily forebear, until the earlier of (i) December 9, 2020 or (ii) at such time as a default shall occur
under and pursuant to the Purchase Agreement, the Note or the Agreement, from exercising its right to convert amounts due under the Note
into Common Stock of the Company, in exchange for a one time cash payment forbearance fee equal to $12,500 paid upon execution of the
Agreement. On December 23, 2020, the Investor submitted a Notice of Conversion for $45,000 in principal and $750 in fees. On December
29, 2020, the Company issued 41,730 shares to satisfy the conversion obligation. The Investor converted $54,830 of principal into 54,830
of the Company’s common shares. The Note was paid in full on February 1, 2021.
BHP
Capital Financing
On
April 7, 2020, the Company entered into a Securities Purchase Agreement (the “Agreement”) with BHP Capital NY Inc.
(the “Investor”) wherein the Company issued the Investor a Convertible Promissory Note (the “Note”) in
the amount of $168,000 ($18,000 OID). The Note has a term of six (6) months, is due on October 7, 2020 and has a one-time interest
charge of 2%. In addition, the Company issued the Investor 10,700 shares of Common Stock (the “Origination Shares”)
as an origination fee. The transaction closed on April 9, 2020. The note was paid in full on January 29, 2021.
Vinco
Ventures, Inc. and Subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note
10 — Debt — (Continued)
32E
Financing
On
December 4, 2019, the Company agreed to issue and sell to 32 Entertainment LLC (“32E”) a 10% Senior Secured Note (the
“32E Note”), in the principal amount of $250,000. The maturity date of the 32E Note is December 4, 2020. In addition,
the Company issued to 32E 10,000 shares of common stock as an inducement to 32E to purchase the 32E Note. The fees were recorded
as a debt discount and amortized over the term of the note. The $250,000 of proceeds from the 32E Note was used for general working
capital needs of the Company and the repayment of debt related to Horberg Enterprises. On May 19, 2020, the Company entered into an Amendment (the “Amendment”)
to the 32E Note. Under the terms of the Amendment, the Company issued to 32E an Amended Subordinate Secured Note (the “Replacement
Note”) in the principal amount of $200,000 that accrued interest at 16% annually and matured on May 21, 2021. On May 28, 2020, the
Company paid $50,000 toward the principal plus interest in the amount of $6,250 for a total of $56,250. 32E also received 40,000 restricted
stock units and surrendered the warrant issued to it in the December 4, 2019 financing transaction. The note was paid in full on January 28, 2021.
Promissory
Notes
On
January 2, 2020, Ed Roses, LLC (the “Partnership”) entered into a Loan Agreement (the “Agreement”) with
Sook Hyun Lee (the “Lender”). Under the terms of the Agreement, the Lender agreed to lend $150,000 to the Partnership
for general working capital. The Loan is due on April 15, 2020 (the “Maturity Date”) and accrues interest at 15% per
annum. The Agreement shall automatically renew at the Maturity date for successive 90-day periods unless written notice is remitted
by either party. On the Maturity date, the Partnership shall pay the Lender all unpaid principal and interest and a $30,000 commitment
fee. The Lender shall have a collateral interest in the accounts receivable of the Partnership, including but not limited to 7
Eleven receivables. As collateral, Edison Nation, Inc. placed 75,000 shares of common stock in reserve. The note was paid in
full on March 11, 2021.
Vinco
Ventures, Inc. and Subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note
10 — Debt — (Continued)
On
January 10, 2020, the Company entered into a 5% Promissory Note Agreement with Equity Trust Company on behalf of Rawleigh Ralls
(“Ralls”) for an aggregate principal amount of $267,000 (the “Ralls Note”), pursuant to which Ralls purchased
the Ralls Note from the Company for $250,000 and an original issue discount of $17,000, and the Company issued to Ralls a warrant
(the “Ralls Warrant”) to purchase 125,000 shares of the Company’s common stock valued at $86,725 estimated using
the Black-Scholes option-valuation model. The Company paid the Note in full on January 27, 2021.
On
January 15, 2020, the Company entered into a 5% Promissory Note Agreement with Paul J. Solit & Julie B. Solit (“Solits”)
for an aggregate principal amount of $107,000 (the “Solit Note”), pursuant to which the Solits purchased the Solit
Note from the Company for $100,000 and an original issue discount of $7,000, and the Company issued to the Solits a warrant (the
“Solit Warrant”) to purchase 50,000 shares of the Company’s common stock valued at $31,755 estimated using the
Black-Scholes option-valuation model. The Company paid the Note in full on January 27, 2021. The Solit Warrant was exercised on January 22, 2021.
On
January 17, 2020, the Company entered into a 5% Promissory Note Agreement with Richard O’Leary (“O’Leary”)
(“Lender”) for an aggregate principal amount of $53,500 (the “O’Leary Note”), pursuant to which
O’Leary purchased the O’Leary Note from the Company for $50,000 and an original issue discount of $3,500, and the
Company issued to O’Leary a warrant (the “O’Leary Warrant”) to purchase 25,000 shares of the Company’s
common stock valued at $16,797 estimated using the Black-Scholes option-valuation model. The Company paid the Note in full on
January 27, 2021. The O’Leary Warrant was exercised on February 18, 2021.
Vinco
Ventures, Inc. and Subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note
10 — Debt — (Continued)
Paycheck
Protection Program
On
April 15, 2020, the Company entered into a loan agreement (“PPP Loan”) with First Choice Bank under the Paycheck Protection
Program (the “PPP”), which is part of the recently enacted Coronavirus Aid, Relief, and Economic Security Act (“CARES
Act”) administered by the United States Small Business Administration (“SBA”). The Company received proceeds
of $789,852 from the PPP Loan. In accordance with the requirements of the PPP, the Company intends to use proceeds from the PPP
Loan primarily for payroll costs, subject to thresholds, rent and utilities. The PPP Loan has a 1.00% interest rate per annum
and matures on April 15, 2022 and is subject to the terms and conditions applicable to loans administered by the SBA under the
PPP. Under the terms of the PPP, certain amounts of the PPP Loan may be forgiven if they are used for qualifying expenses as described
in the CARES Act. The PPP Loan is included in notes payable on the consolidated balance sheet. Please see Note 16 —
Subsequent Events for further information.
On
May 4, 2020, TBD Safety, LLC, the Company’s wholly owned subsidiary, entered into a loan agreement (“PPP Loan”)
with First Home Bank under the Paycheck Protection Program (the “PPP”), which is part of the recently enacted Coronavirus
Aid, Relief, and Economic Security Act (“CARES Act”) administered by the United States Small Business Administration
(“SBA”). The Company received proceeds of $62,500 from the PPP Loan. In accordance with the requirements of the PPP,
the Company intends to use proceeds from the PPP Loan primarily for payroll costs, subject to thresholds, rent and utilities.
The PPP Loan has a 1.00% interest rate per annum and matures on May 4, 2022 and is subject to the terms and conditions applicable
to loans administered by the SBA under the PPP. Under the terms of the PPP, certain amounts of the PPP Loan may be forgiven if
they are used for qualifying expenses as described in the CARES Act. The PPP Loan is included in notes payable on the consolidated
balance sheet.
Receivables
Financing
On
November 17, 2020, the Company, through its subsidiary, Edison Nation, LLC, entered into an Inventory Management Agreement (the “Agreement”)
with the Forever 8 Fund, LLC (“F8”), an entity which our President holds a 45% ownership interest. Under the terms of the
Agreement, F8 desires to maintain inventory of and sell to the Company certain Products pursuant to the terms and conditions set forth
in the Agreement. As consideration for the inventory management services provided under this Agreement, the Company agrees to pay F8
a fee for each unit of each Product sold on a Platform determined in accordance with the fee schedule set forth in the applicable Product
Schedule (the “Fee Schedule”) based on the Age of Inventory Sold set forth on the Fee Schedule (the “F8 Fees”).
Prior to the signing of the agreement, F8 advanced the Company $239,283 that was utilized to pay for deposits with the the Company’s
factories. This Agreement shall commence on the Effective Date and shall continue in full force and effect until January 31, 2022 (the
“Initial Term”), unless terminated earlier as provided in this Agreement. The balance outstanding at March 31, 2021 is $0.
On
February 21, 2020, the Company entered into a receivables financing arrangement for certain receivables of the Company not to
exceed $1,250,000 at any one time. The agreement allows for borrowings up to 85% of the outstanding receivable based on the credit
quality of the customer. The fee is between 1% and 2% of the total invoices financed.
On
November 12, 2019, the Company entered into a Receivables Purchase Agreement with a financial institution (the “Receivables
Purchase Agreement”), whereby the Company agreed to the sale of $250,000 of receivables for $200,000. The proceeds were
used for general working capital. The note was paid in full on February 1, 2021.
In
April 2019, we entered into a receivables financing arrangement for certain receivables of the Company. The agreement allows for
borrowings up to 80% of the outstanding receivable based on the credit quality of the customer. The fee is between 1% and 2% of
the total invoices financed. The receivables financing arrangement was paid in full and terminated on March 30, 2021.
Line
of Credit
On
the Effective Date, the Company (as “Guarantor”) entered into a Secured Line of Credit Agreement (the “Credit
Agreement”) with Global and PPE. Under the terms of the Credit Agreement, PPE is to make available to Global a revolving
credit loan in a principal aggregate amount at any one time not to exceed $2,500,000. Upon each drawdown of funds against the
credit line, Global shall issue a Promissory Note (the “Note”) to PPE. The Note shall accrue interest at 3% per annum
and have a maturity date of six (6) months. In the event of a default, any and all amounts due to PPE by Global, including principal
and accrued but unpaid interest, shall increase by forty (40%) percent and the interest shall increase to five (5%) percent (the
“Default Interest”). The balance at March 31, 2021 is $1,133,652.
The
scheduled maturities of the debt for the next five years as of March 31, 2021, are as follows:
For
the Years Ended December 31,
|
|
Amount
|
|
2021
(excluding the three months ended March 31, 2021)
|
|
|
2,692,726
|
|
2022
|
|
|
12,487,520
|
|
2023
|
|
|
434,385
|
|
2024
|
|
|
-
|
|
2025
|
|
|
-
|
|
Thereafter
|
|
|
-
|
|
|
|
|
15,614,631
|
|
Less:
debt discount
|
|
|
(10,000,762
|
)
|
|
|
$
|
5,613,869
|
|
For
the three months ended March 31, 2021, interest expense was $12,694,933 of which $76,634 was related party interest
expense. For the three months ended March 31, 2020, interest expense was $723,957 of which $76,634 was related
party interest expense.
Vinco
Ventures, Inc. and Subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note
11 — Warrant Liability
For
the three months ended March 31, 2021, the Company issued warrants to purchase shares of the Company’s common stock related
to multiple private placements. The warrants are as follows:
|
|
Warrant
Shares
|
|
|
Exercise
Price
|
|
Hudson
Bay Warrant; January 25, 2021
|
|
|
15,000,000
|
|
|
$
|
2.000
|
|
Palladium
Capital Warrant; January 25, 2021
|
|
|
480,000
|
|
|
$
|
2.000
|
|
BHP Capital NY Warrant; January 28, 2021
|
|
|
1,500,000
|
|
|
$
|
2.20
|
|
Hudson
Bay Warrant; February 23, 2021
|
|
|
18,568,188
|
|
|
$
|
3.722
|
|
Palladium
Capital Warrant; February 23, 2021
|
|
|
1,650,346
|
|
|
$
|
3.722
|
|
The
warrants are subject to anti-dilution adjustments outlined in the Agreement. The warrants were classified as a liability with
an initial fair value of $96,495,977, of which $75,156,534 was immediately expensed and $19,720,000 was recorded
as a deferred debt discount. In addition, the warrants must be valued every reporting
period and adjusted to market with the increase or decrease being adjusted through earnings. As of March 31, 2021, the fair
value of the warrant liability was $58,235,566.
The
warrants were valued using the Black-Scholes pricing model to calculate the grant-date fair value of the warrants with the following
assumptions:
|
|
Dividend
Yield
|
|
|
Expected
Volatility
|
|
|
Risk-free
Interest Rate
|
|
|
Expected
Life
|
|
Hudson
Bay Warrant; January 25, 2021
|
|
|
0.00
|
%
|
|
|
109.95
|
%
|
|
|
0.13
|
%
|
|
|
2.5
years
|
|
Palladium
Capital Warrant; January 25, 2021
|
|
|
0.00
|
%
|
|
|
109.95
|
%
|
|
|
0.13
|
%
|
|
|
2.5
years
|
|
BHP
Capital NY Warrant; January 28, 2021
|
|
|
0.00
|
%
|
|
|
110.00
|
%
|
|
|
0.12
|
%
|
|
|
2.5
years
|
|
Hudson
Bay Warrant; February 23, 2021
|
|
|
0.00
|
%
|
|
|
110.94
|
%
|
|
|
0.11
|
%
|
|
|
2.5
years
|
|
Palladium
Capital Warrant; February 23, 2021
|
|
|
0.00
|
%
|
|
|
110.94
|
%
|
|
|
0.11
|
%
|
|
|
2.5
years
|
|
The
warrants were valued using the Black-Scholes pricing model to calculate the March 31, 2021 fair value of the warrants with the following
assumptions:
|
|
Dividend
Yield
|
|
|
Expected Volatility
|
|
|
Risk-free Interest Rate
|
|
|
Expected
Life
|
|
Hudson Bay Warrant; January 25, 2021
|
|
|
0.00
|
%
|
|
|
113.79
|
%
|
|
|
0.16
|
%
|
|
|
2.5
years
|
|
Palladium Capital Warrant; January 25, 2021
|
|
|
0.00
|
%
|
|
|
113.79
|
%
|
|
|
0.16
|
%
|
|
|
2.5
years
|
|
BHP Capital NY Warrant; January 28, 2021
|
|
|
0.00
|
%
|
|
|
113.79
|
%
|
|
|
0.16
|
%
|
|
|
2.5
years
|
|
Hudson Bay Warrant; February 23, 2021
|
|
|
0.00
|
%
|
|
|
113.79
|
%
|
|
|
0.16
|
%
|
|
|
2.5
years
|
|
Palladium Capital Warrant; February 23, 2021
|
|
|
0.00
|
%
|
|
|
113.79
|
%
|
|
|
0.16
|
%
|
|
|
2.5
years
|
|
Note
12 — Related Party Transactions
Forever
8 Fund, LLC
On
November 17, 2020, the Company, through its subsidiary, Edison Nation, LLC (the “Vendor”), entered into an Inventory
Management Agreement (the “Agreement”) with the Forever 8 Fund, LLC (“F8”), an entity which our President
holds a 45% ownership interest. Under the terms of the Agreement, F8 desires to maintain inventory of and sell to Vendor certain
Products pursuant to the terms and conditions set forth in the Agreement. As consideration for the inventory management services
provided under this Agreement, Vendor agrees to pay F8 a fee for each unit of each Product sold on a Platform determined in accordance
with the fee schedule set forth in the applicable Product Schedule (the “Fee Schedule”) based on the Age of Inventory
Sold set forth on the Fee Schedule (the “F8 Fees”). Prior to the signing of the agreement, F8 advanced the Vendor
$239,283 that was utilized to pay for deposits with the Vendors factories. This Agreement shall commence on the Effective Date
and shall continue in full force and effect until January 31, 2022 (the “Initial Term”), unless terminated earlier
as provided in this Agreement. The balance outstanding at March 31, 2021 is $155,768.
NL
Penn Capital, LP and SRM Entertainment Group LLC
As
of March 31, 2021 and December 31, 2020, due to related party consists of net amounts due to SRM Entertainment Group LLC (“SRM
LLC”) and NL Penn Capital, LP (“NL Penn”), the majority owner of both, which are owned by Chris Ferguson, our
Chairman and Chief Executive Officer. The amount due to NL Penn was assigned to TXC Services, LLC. The amount due to related parties
is related to the acquisitions of Pirasta, LLC and Best Party Concepts, LLC offset by operating expenses that were paid by SRM
and Edison Nation on behalf of SRM LLC and NL Penn. As of March 31, 2021 and December 31, 2020, the net amount due to related
parties was $15,450 and $32,452, respectively. Such amounts are due currently. NL Penn and affiliated entities may lend additional
capital to Edison Nation pursuant to terms and conditions similar to the current working capital lenders to Edison Nation such
as Franklin Capital. In addition, Edison Nation borrows working capital from Franklin Capital, and Mr. Ferguson is a personal
guarantor on the working capital facility provided to Edison Nation by Franklin Capital.
Note
13— Commitments and Contingencies
Employment
Agreements
On
February 2, 2021, the Company entered into an Employment Agreement (the “Agreement”) with Christopher Ferguson (the “Executive”)
for the role of Chief Executive Officer. The Agreement is effective as of November 12, 2020 (the “Effective Date”) and has
a term of three (3) years (the “Term”) from the Effective Date. Thereafter, the Agreement shall automatically be renewed
and the Term shall be extended for additional consecutive terms of 1 year (each a “Renewal Term”), unless such renewal is
objected to by either the Company or the Executive. The Executive’s initial annual base salary shall be $200,000, less applicable
withholdings (the “Base Salary”) and 120,000 common shares that shall vest in their entirety on issuance. For 2021, the Executive
shall receive a cash bonus in the amount equal to 30% of the annual Base Salary, and an award of 200% shares of the Company’s common
stock, which shall vest in their entirety on issuance (the “Principal Market”), which shall be received by the Executive
no later than the first 30 days of the current fiscal year. The Executive shall be entitled to 150,000 shares of the Company’s
common stock, due immediately upon an increase of 2.5 times the Enterprise Value of the Company on a 5-day closing average from the effectiveness
of the Agreement. As of March 31, 2021, the Enterprise Value has been achieved.
On
February 2, 2021, the Company entered into an Employment Agreement (the “Agreement”) with Brett Vroman (the “Executive”)
for the role of Chief Financial Officer. The Agreement is effective as of November 12, 2020 (the “Effective Date”) and has
a term of three (3) years (the “Term”) from the Effective Date. Thereafter, the Agreement shall automatically be renewed
and the Term shall be extended for additional consecutive terms of 1 year (each a “Renewal Term”), unless such renewal is
objected to by either the Company or the Executive. The Executive’s initial annual base salary shall be $200,000, less applicable
withholdings (the “Base Salary”) and 120,000 common shares that shall vest in their entirety on issuance. For 2021, Executive
shall receive a cash bonus in the amount equal to 30% of the annual Base Salary, and an award of 200% shares of the Company’s common
stock, which shall vest in their entirety on issuance (the “Principal Market”), which shall be received by the Executive
no later than the first 30 days of the current fiscal year. Upon the execution of this agreement, the Executive is entitled to a one-time
past performance bonus for the work completed in fiscal years 2018, 2019 and 2020 of 150,000 shares of the Company’s common stock,
which shall vest in their entirety on issuance. The Executive shall be entitled to 100,000 shares of the Company’s common stock,
due immediately upon an increase of 2.5 times the Enterprise Value of the Company on a 5-day closing average from the effectiveness of
the Agreement. As of March 31, 2021, the Enterprise Value has been achieved.
On
February 2, 2021, the Company entered into an Employment Agreement (the “Agreement”) with Brian Mc Fadden (the “Executive”)
for the role of Chief Strategy Officer. The Agreement is effective as of November 12, 2020 (the “Effective Date”) and has
a term of three (3) years (the “Term”) from the Effective Date. Thereafter, the Agreement shall automatically be renewed
and the Term shall be extended for additional consecutive terms of 1 year (each a “Renewal Term”), unless such renewal is
objected to by either the Company or the Executive. The Executive’s initial annual base salary shall be $200,000, less applicable
withholdings (the “Base Salary”) and 120,000 common shares that shall vest in their entirety on issuance. For 2021, the Executive
shall receive a cash bonus in the amount equal to 30% of the annual Base Salary, and an award of 200% shares of the Company’s common
stock, which shall vest in their entirety on issuance (the “Principal Market”), which shall be received by the Executive
no later than the first 30 days of the current fiscal year. Upon the execution of the Agreement, the Executive is entitled to a one-time
signing bonus of 150,000 shares of the Company’s common stock, which shall vest in their entirety on issuance. The Executive shall
be entitled to 100,000 shares of the Company’s common stock, due immediately upon an increase of 2.5 times the Enterprise Value
of the Company on a 5-day closing average from the effectiveness of the Agreement. As of March 31, 2021, the Enterprise Value has been
achieved.
Operating
Lease
The
Company has entered into non-cancellable operating leases for office, warehouse, and distribution facilities, with original lease
periods expiring through 2022. In addition to minimum rent, certain of the leases require payment of real estate taxes, insurance,
common area maintenance charges, and other executory costs. Differences between rent expense and rent paid are recognized as adjustments
to operating lease right-of-use assets on the consolidated balance sheets.
Total
rent expense for the three months ended March 31, 2021 and 2020 was $26,553 and $146,287, respectively. Rent expense is included
in general and administrative expense on the consolidated statements of operations.
As
of March 31, 2021, the Company had operating lease liabilities of $58,713 and right of use assets for operating leases of $128,871.
During the three months ended March 31, 2021 and 2020, operating cash outflows relating to operating lease liabilities was $23,723
and $74,776, respectively, and the expense for right of use assets for operating leases was $24,163 and $77,823, respectively.
As of March 31, 2021, the Company’s operating leases had a weighted-average remaining term of 1.6 years and weighted-average
discount rate of 4.5%. Excluded from the measurement of operating lease liabilities and operating lease right-of-use assets were
certain office, warehouse and distribution contracts that qualify for the short-term lease recognition exception.
Vinco
Ventures, Inc. and Subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note
13— Commitments and Contingencies — (Continued)
Rental
Income
Fergco
leases a portion of the building located in Washington, New Jersey that it owns under a month to month lease. Total rental income
related to the leased space for both the three months ended March 31, 2021 and 2020 was $25,704 and $25,704, respectively,
and is included in other income on the consolidated statements of operations.
Legal
Contingencies
The
Company is involved in claims and litigation in the ordinary course of business, some of which seek monetary damages, including
claims for punitive damages, which are not covered by insurance. For certain pending matters, accruals have not been established
because such matters have not progressed sufficiently through discovery, and/or development of important factual information and
legal information is insufficient to enable the Company to estimate a range of possible loss, if any. An adverse determination
in one or more of these pending matters could have an adverse effect on the Company’s consolidated financial position, results
of operations or cash flows.
We
are, and may in the future become, subject to various legal proceedings and claims that arise in or outside the ordinary course
of business.
Oceanside
Traders, LLC v. Cloud b, Inc. and Vinco Ventures, Inc. f/k/a Edison Nation, Inc.
On
April 14, 2020, Oceanside Traders, LLC filed a complaint against Cloud B, Inc. and Vinco Ventures, Inc. with the Superior Court
of Ocean County, State of New Jersey, alleging breach of contract and other claims resulting in total damages in the amount of
$440,383, consisting of $141,007 for failure to pay plaintiff for goods sold, for $138,180 for overpayments and $161,196 for lost
profits. On November 9, 2020, Plaintiff filed an amended complaint, adding other defendants, alleging breach of contract, breach
of covenant of good faith and fair dealing, quasi-contract/unjust enrichment, conversion, fraud, negligent misrepresentation,
fraudulent transfer, and piercing the corporate veil. On December 4, 2020, Vinco Ventures, Inc. filed its amended answer. On December
28, 2020, the other defendants filed a motion to dismiss on jurisdictional grounds which is currently pending before the court.
On February 24, 2021, the Company entered into a Settlement Agreement and General Release of All Claims (the “Settlement
Agreement”) with Edison Nation, LLC, Pearl 33 Holdings, LLC and Christopher Ferguson (collectively, the “Settling
Defendants”) and Oceanside Traders, LLC (the “Plaintiff”). Under the terms of the Settlement Agreement, the
Settling Defendants agreed to pay the Plaintiff the sum of $150,000 within one business day of execution of the Settlement Agreement.
In exchange, the Plaintiff agreed to dismiss the Amended Complaint in its entirety and with prejudice against the Settling Defendants.
The Company made payment in the amount of $150,000 on February 25, 2021.
Rosenberg
Fortuna & Laitman, LLP and Mark Principe v. Safe TV, LLC
On
March 13, 2019, Rosenberg Fortuna & Laitman, LLP and Mark Principe filed a complaint against Safe TV Shop, LLC with the Supreme
Court of the State of New York, County of Nassau alleging a breach of indemnification arising out of the use of a certain packaging
material. On February 12, 2020, the parties entered a Stipulation and Settlement and Consent Agreement for a Consent Judgment
in the amount of $50,000. Safe TV, LLC has no assets and there have been no operations by Safe TV, LLC since the date of acquisition
by Vinco Ventures, Inc. On April 5, 2021, the Company, through Safe TV Shop, LLC, entered into a Settlement Agreement and Release
of Claims (the “Settlement”). Under the terms of the Settlement, the Company is to make payment in the amount of $25,000
on or before April 9, 2021. The Company made payment in the amount of $25,000 on April 8, 2021.
Gerald
Whitt, et al. v. Vinco Ventures, CBAV1, LLC, et al.
On
October 27, 2020, Gerald Whitt, et al, the minority shareholders of Cloud b Inc. (“Whitt Plaintiffs”) filed a civil
complaint in the Superior Court of the State of California against Vinco Ventures, Inc., CBAV1, LLC and other parties, alleging
fraudulent concealment, breach of fiduciary duty, breach of contract, breach of confidence, intentional misrepresentation, negligent
misrepresentation, unfair business practices and civil conspiracy (the “Whitt Complaint”). The Whitt Plaintiffs
seek “in excess of $8,000,000” in damages. Defendants’ position is that the Whitt Complaint is frivolous and
the filing of same was an abuse of process. Defendants have not been served with the Whitt Complaint.
Vinco
Ventures, Inc., et al. v. Milam Knecht & Warner, LLP, Michael D. Milam, Gerald Whitt, Alexander Whitt, et al.
On
December 31, 2020, Vinco Ventures, Inc., and other parties, filed a complaint against the Whitt Plaintiffs, and other parties,
with the United States District Court for Eastern District of Pennsylvania, alleging intentional misrepresentation, negligent
misrepresentation, negligence, conspiracy, unfair business practices, abuse of process, civil extortion, trade libel and defamation.
Defendants entered their appearances, Plaintiffs filed an amended complaint and Defendants filed motions to dismiss the complaint,
which are currently pending before the Court.
Vinco
Ventures, Inc. and Subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note
14 — Stockholders’ Equity
Common
Stock
The
Company is authorized to issue 250,000,000 shares of common stock. As of March 31, 2021 and December 31, 2020, there were 25,685,981
and 14,471,403 shares of common stock issued and outstanding, respectively.
On
January 29, 2021 (the “Effective Date”), the Company consummated the closing of a private placement offering of $3,300,000
whereby pursuant to the Securities Purchase Agreement entered into by the Company on January 28, 2021 with BHP Capital NY Inc (the “Investor”),
the Company issued 1,500,000 shares of restricted common stock and a five (5) year warrant to purchase shares of the Company’s
common stock.
During
the three months ended March 31, 2021, warrant shares of 880,798 were exercised and the Company received net proceeds of $1,690,604.
Preferred
Stock
On
February 2, 2021, the Company filed an Amendment to the Certificate of Designation (the “Amendment”) for the Company’s
Series B Convertible Preferred Stock (“Preferred Stock”). Under the Amendment, each share of Preferred Stock
shall entitle the holder thereof to vote on all matters voted on by the holders of Common Stock, voting together as a single class
with other shares entitled to vote at all meetings of the stockholders of the Corporation. With respect to any such vote, each
share of Preferred Stock shall entitle the holder thereof to cast the number of votes equal to the number of whole shares of Common
Stock into which such shares of Preferred Stock are then convertible (the “Conversion Shares”). Such right may be
exercised at any annual meeting or special meeting, or pursuant to any written consent of stockholders.
On
October 16, 2020, the Company filed a Certificate of Designation (the “Designation”) with the Secretary of State of
Nevada, which designates 1,000,000 shares of the Company’s preferred stock, par value $0.001 per share, as Series B Convertible
Preferred Stock (“Series B”). Pursuant to the terms of the Designation, holders of the Series B shall be entitled
to dividends, a liquidation preference and shall have conversion rights. Each share of Series B shall be convertible into 1 share
of Common Stock, on or after the twelve-month anniversary of the Original Issue Date at the option of the Holder thereof,
for a total not to exceed 1,000,000 shares of Common Stock. The holders of the Series B shall have no voting rights.
On
March 25, 2020, the Company filed a certificate of amendment to the Company’s articles of incorporation with the Secretary
of State of the State of Nevada in order to: (i) increase the number of shares of the Company’s authorized preferred stock,
par value $0.001 per share, from 0 shares to 30,000,000 shares of preferred stock; (ii) clarify the application of the forum selection
clause in the Company’s amended and restated articles of incorporation, specifically that such clause does not apply to
federal causes of actions arising under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended
(the “Exchange Act”); and (iii) include affirmative changes to correspond to the Company’s First Amended and
Restated Bylaws, confirming that the Company’s shareholders may vote by written consent.
The
Company is authorized to issue 30,000,000 shares of preferred stock. As of March 31, 2021 and December 31, 2020, there were 764,618
and 764,618 shares of Series B Preferred Stock issued and outstanding, respectively.
Stock-Based
Compensation
On
September 6, 2018, the Company’s board of directors approved an amendment and restatement of the Company’s omnibus
incentive plan solely to reflect the Company’s name change to Edison Nation, Inc. Thus, the Edison Nation, Inc. Omnibus
Incentive Plan (the “Plan”) which remains effective as of February 9, 2018, provides for the issuance of up to 1,764,705
(287,659 remaining as of March 31, 2021) 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 Plan can be in the form of
stock options, restricted stock units, performance awards and restricted stock that are made to employees, directors and service
providers. Awards are subject to forfeiture until vesting conditions have been satisfied under the terms of the award. The exercise
price of stock options is equal to the fair market value of the underlying Company common stock on the date of grant.
The
following table summarizes stock option awards outstanding at March 31, 2021:
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Remaining
Contractual
Life
in
Years
|
|
|
Aggregate
Intrinsic
Value
|
|
Balance,
December 31, 2020
|
|
|
80,000
|
|
|
$
|
7.01
|
|
|
|
3.2
|
|
|
|
-
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance,
March 31, 2021
|
|
|
80,000
|
|
|
$
|
7.01
|
|
|
|
2.9
|
|
|
|
-
|
|
Exercisable,
March 31, 2021
|
|
|
80,000
|
|
|
$
|
7.01
|
|
|
|
2.9
|
|
|
|
-
|
|
As
of March 31, 2021, there were no unvested options to purchase shares of the Company’s common stock and there was no unrecognized
equity-based compensation expense that the Company expected to recognize over a remaining weighted-average period.
Other
Stock Awards
The
Company issued 1,262,872 shares of common stock to employees for services valued at $3,292,190 for the three months ended March
31, 2021.
The
Company issued 943,000 shares of common stock to vendors for services valued at $2,036,335 for the three months ended March 31,
2021.
From
time to time, the Company grants shares of common stock to consultants and non-employee vendors for services performed. The awards
are valued at the market value of the underlying common stock at the date of grant and vest based on the terms of the contract
which is usually upon grant.
Vinco
Ventures, Inc. and Subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note
15 — Discontinued Operations
Discontinued
operations are accounted for in accordance with the provisions of Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification (“ASC”) Section 360-10-35 Property, Plant and Equipment. In accordance with FASB ASC Section
360-10-35, the net assets of discontinued operations are recorded on our consolidated balance sheets at carrying value. The results
of operations of discontinued operations are segregated from continuing operations and reported separately as discontinued operations
in our consolidated statements of loss and comprehensive loss.
On
March 12, 2021, the bankruptcy court approved the sale of the CBAV1, LLC Assets to BTL Diffusion SARL, the winning bidder, at
the auction held on March 10, 2021 and March 11, 2021 for a total sum of $3,000,000, which includes a cash payment at closing
in the amount of $2,650,000, less certain closing costs and credits, and additional royalty payments in the amount of $150,000
on April 15, 2022 and in the amount of $200,000 on April 15, 2023 (“CBAV1-BTL Transaction”).
A
first closing of the CBAV1-BTL Transaction occurred on April 16, 2021, with the transfer of assets and release of funds completed
on April 21, 2021 (“Final Closing”). Contemporaneously with the Final Closing, a certain license agreement
between CBAV1 and Edison Nation, LLC (“Edison Nation”) terminated and any remaining operational assets of Edison
Nation were transferred to BTL.
On
November 30, 2020, the Company (the “Seller”) and its wholly owned subsidiary, SRM Entertainment, LTD (“SRM”)
entered into a Stock Exchange Agreement (the “Exchange Agreement”) with Jupiter Wellness, Inc. (“Jupiter”)(the
“Buyer”). Under the terms of the Exchange Agreement, the Buyer agreed to purchase all outstanding shares of common
stock (the “Exchange Shares”) issued by SRM from the Seller. As consideration for the purchase of the Exchange Shares,
the Buyer agreed to exchange 200,000 shares of its restricted common stock (the “Consideration Shares”), symbol JUPW
as listed on NASDAQ Capital Markets. The Company made the decision to divest the amusement park business due to the slow re-openings
of amusement parks around the world and the investment that would have been needed to remain open and the investment required
to relaunch as the amusement parks begin to get back to full capacity.
The
following table presents the carrying values of the assets and liabilities of our discontinued operations at March 31, 2021 and
December 31, 2020, respectively:
|
|
March
31, 2021
|
|
|
December
31, 2020
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
$
|
413,962
|
|
|
$
|
220,964
|
|
Inventory
|
|
|
779,918
|
|
|
|
559,737
|
|
Prepaid
expenses and other current assets
|
|
|
160,666
|
|
|
|
261,980
|
|
Total
current assets
|
|
|
1,354,546
|
|
|
|
1,042,680
|
|
Total
assets
|
|
$
|
1,354,546
|
|
|
$
|
1,042,680
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and stockholders’ equity
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
589,363
|
|
|
$
|
487,454
|
|
Total
current liabilities
|
|
$
|
589,363
|
|
|
$
|
487,454
|
|
The
following table presents the summary results of operations of our discontinued operations for the three months ended March 31,
2021 and 2020, respectively:
|
|
For
the Three Months
Ended
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Revenues,
net
|
|
$
|
697,883
|
|
|
$
|
1,713,764
|
|
Cost
of revenues
|
|
|
490,195
|
|
|
|
1,054,693
|
|
Gross
profit
|
|
|
207,688
|
|
|
|
659,071
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
286,602
|
|
|
|
903,764
|
|
Operating
income
|
|
|
78,914
|
|
|
|
(244,693
|
)
|
|
|
|
|
|
|
|
|
|
Other
(expense) income:
|
|
|
|
|
|
|
|
|
Gain
on divestiture
|
|
|
-
|
|
|
|
4,911,760
|
|
Total
other (expense) income
|
|
|
-
|
|
|
|
4,911,760
|
|
(Loss)
income before income taxes
|
|
|
78,914
|
|
|
|
4,667,067
|
|
Income
tax expense
|
|
|
-
|
|
|
|
-
|
|
Net
(loss) income
|
|
$
|
78,914
|
|
|
$
|
4,667,067
|
|
Note
16 — Subsequent Events
On
April 5, 2021, the Company, through Safe TV Shop, LLC, entered into a Settlement Agreement and Release of Claims (the “Settlement”).
Under the terms of the Settlement, the Company is to make payment in the amount of $25,000 on or before April 9, 2021. The Company
made the payment on April 8, 2021.
On
April 7, 2021, the Company issued 150,000 shares of common stock valued at $382,500 for consulting services as per the Consulting
Agreements entered into on March 31, 2021.
On
April 7, 2021, the Company issued 525,541 shares of common stock valued at $924,952 to an employee as per the terms of an employment
agreement.
On
April 7, 2021, the Company issued 475,451 shares of common stock valued at $836,794 to an employee as per the terms of an employment
agreement.
On
April 7, 2021, the Company issued 597,273 shares of common stock valued at $1,051,200 to an employee as per the terms of an employment
agreement.
On
April 17, 2021, Vinco Ventures, Inc. (“Vinco”) and EVNT Platform, LLC, a wholly owned subsidiary of Vinco (“the
Company” or “Buyer”), entered into (and closed on) a certain Asset Contribution Agreement (“Asset Contribution
Agreement”) with Emmersive Entertainment, Inc. (“Emmersive” or “Seller”), 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 1,000,000 preferred membership units (“Preferred
Units”) in the Company to Emmersive and/or its shareholders (“Preferred Members”) pursuant to a First Amended
and Restated Operating Agreement for the Company dated as of April 17, 2021(“Amended Operating Agreement”). Certain
put rights are associated with Preferred Units, which if exercised by the Preferred Members, obligates Vinco to purchase the Preferred
Units in exchange for 1,000,000 shares of Vinco Venture’s common stock (“Put Rights”). In addition, the Preferred
Members have the opportunity to earn up to 4,000,000 Conditional Preferred Units if certain conditions are satisfied for each
of the four earn out targets (“Earn-Out Targets”). The Earn-Out Targets are described below:
Earn-Out
Target 1: In the event that the Company (1) develops a minimally viable product for the NFT Technology to validate the utility
of the product/platform with features to attract and transact with customers and (2) is successful on-boarding a minimum of 10
approved influential celebrities on or before December 31, 2021, the Company shall issue to Emmersive and/or Emmersive’s
Shareholders, 1,000,000 Conditional Preferred Units, with Put Rights.
Earn-Out
Target 2: In the event that the Company generates a minimum of $7,000,000 in annualized booked revenues inclusive of revenues
generated from the celebrities onboarded by the Company (collectively “Attributed Revenue”) in any three-calendar-month
period ending on or before March 31, 2022 (i.e. more than $1,750,000 in Attributed Revenue in a period of three consecutive calendar
months), the Company shall issue to Emmersive and/or Emmersive’s Shareholders 1,000,000 Conditional Preferred Units, with
the Put Rights.
Earn-Out
Target 3: In the event that the Company generates a minimum of $28,000,000 in annualized Attributed Revenues in any three-calendar-month
period ending on or before December 31, 2022 (i.e. more than $7,000,000 in Attributed Revenue in a period of three consecutive
calendar months), the Company shall issue to Emmersive and/or Emmersive’s Shareholders 1,000,000 Conditional Preferred Units,
with Put Rights.
Earn
Out Target 4: In the event that the Company generates a minimum of $62,000,000 in annualized Attributed Revenues in any three-calendar-month
period ending on or before December 31, 2023 (i.e. more than $15,500,000 in Attributed Revenue in a period of three consecutive
calendar months), the Company shall issue to Emmersive and/or Emmersive’s Shareholders 1,000,000 Conditional Preferred Units,
with Put Rights.
On
April 17, 2021, the transactions under both the Asset Contribution Agreement and Amended Operating Agreement closed.
On
April 15, 2020, the Company entered into a loan agreement (“PPP Loan”) with First Choice Bank under the Paycheck Protection
Program (the “PPP”), which is part of the recently enacted Coronavirus Aid, Relief, and Economic Security Act administered
by the United States Small Business Administration. The Company received proceeds of $789,852 from the PPP Loan. On May 4, 2021,
the Company’s PPP loan was forgiven.
On
April 16, 2021, a dry closing of the CBAV1-BTL Transaction occurred with the transfer of assets and release of funds completed
on April 21, 2021 (“Final Closing”). Contemporaneously with the Final Closing, a certain license agreement
between CBAV1 and Edison Nation, LLC (“Edison Nation”) terminated and any remaining operational assets of Edison
Nation were transferred to BTL.
On
May 18, 2021, the Company issued 501,250 shares of common stock to a noteholder in satisfaction of $1,000,000 principal and $2,500
in accrued interest.
On May 24, 2021, the Company entered into a warrant
exercise agreement (the “Agreement”) with Hudson Bay Master Fund Ltd. (“Hudson Bay”) who agreed to exercise a
portion of the January Warrants and the Company agreed to issue additional warrants, to purchase shares of Common Stock at a per-share
exercise price equal to $3.20 (the “Incentive Warrants”, all pursuant to the terms and conditions set forth in the Agreement.
At the Closing (as defined in Section 2(b) of the Agreement), the Parties shall execute and deliver a registration rights agreement (the
“Registration Rights Agreement”), pursuant to which the Company will agree to register the shares of Common Stock underlying
the Incentive Warrants. Subject to the terms of Agreement, (i) Hudson Bay shall pay to the Company an amount equal to the exercise price
in effect as of the date of such exercise multiplied by 2,870,000 shares (as adjusted for any share split or similar transaction after
the date hereof) (the “Exercised Warrant Shares”) and (ii) the Company shall issue and deliver Incentive Warrants to Hudson
Bay to initially purchase an aggregate number of shares equal to the number of Exercised Warrant Shares, which number of shares shall
be subject to adjustment upon the exercise of further shares pursuant to the January Warrants.