NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note
1 — Basis of Presentation and Nature of Operations
The
condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United
States of America (“GAAP”) for interim financial statements and with Form 10-Q and Article 10 of Regulation S-X of the United
States Securities and Exchange Commission (the “SEC”). Accordingly, they do not contain all information and footnotes required
by GAAP for annual financial statements. The condensed consolidated financial statements include the accounts of the Company and its
wholly-owned and majority-owned subsidiaries and consolidated variable interest entities. All intercompany balances and transactions
have been eliminated in consolidation. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated
financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position
of the Company as of March 31, 2022 and the results of operations, changes in stockholders’ equity, and cash flows for the periods
presented. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the operating results
for the full fiscal year for any future period.
These
condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes
thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. The Company’s accounting
policies are described in the Notes to Consolidated Financial Statements in its Annual Report on Form 10-K for the year ended December
31, 2021, and updated, as necessary, in this Quarterly Report.
As
used herein, the terms the “Company,” “Vinco Ventures”, “Vinco” “we,” “us,”
“our” and similar terms refer to Vinco Ventures, Inc., a Nevada corporation incorporated on July 18, 2017 and when
appropriate, its wholly-owned and majority-owned operating subsidiaries and consolidated variable interest entities. The Company was
formerly known as Edison Nation Inc., Xspand Products Lab, Inc. and Idea Lab Products, Inc. prior to its name change
to “Vinco Ventures, Inc” on November 10, 2020.
Vinco
Ventures is focused on digital media, advertising and content technologies.
As
of March 31, 2022, Vinco Ventures wholly-owned subsidiaries included: AdRizer, LLC (“AdRizer”), Cryptyde, Inc.
(“Cryptyde”), Cryptyde Shared Services, LLC, TBD Safety, LLC, Vinco Ventures Shared Services LLC, Ferguson Containers, Inc.
(“Ferguson”), CBAV1, LLC, Pirasta, LLC (“Pirasta”), Honey Badger Media LLC (“Honey Badger”), EVNT
Platform LLC dba Emmersive Entertainment (“EVNT”), BlockHiro, LLC and Edison Nation Holdings, LLC. Edison Nation Holdings,
LLC is the single member of Edison Nation, LLC and Everyday Edisons, LLC. Edison Nation, LLC is the single member of Safe TV Shop, LLC.
Vinco Ventures owns a 50%
voting membership interest and a 25%
economic interest after return of unreturned capital contributions
in ZVV Media Partners, LLC (“ZVV”), 50%
of Best Party Concepts, LLC and 75%
of Global Clean Solutions, LLC, all of which are consolidated as variable interest entities (“VIEs”) with noncontrolling
interests. ZVV owns 80%
of the outstanding equity interests in Lomotif Private Limited (“Lomotif”). Lomotif owns 100%
of Lomotif, Inc. Vinco Ventures owns a 51%
voting membership interest in CW Machines, LLC (“CW Machines”), which is consolidated under the voting interest method.
Liquidity
For
the three months ended March 31, 2022, our operations lost $378,400,000
of which $354,687,000
of expenses were non-cash and approximately
$8,200,000
was related to transaction costs for our acquisition of
AdRizer which closed in February 2022. The Company expects that its ability to generate advertising revenue from the use of
its digital media, advertising and content assets will eventually offset its cash expense requirements, and that it has
the financial resources to continue to invest in its growth initiatives in the near term, despite the fact that such expenses
may be greater than the revenue generated by such assets in the near term.
As
of March 31, 2022, we had total current assets
of $182,425,000 and
current liabilities of $42,115,000
resulting in working capital of $142,093,000
to meet our near term operating cash
requirements. As of March 31, 2022, we had total assets of $500,679,000
and total liabilities of $541,707,000,
of which $429,167,000
was related to our warrant liabilities,
resulting in a stockholders’ deficit of $41,029,000.
Our
principal sources of capital are our cash and cash equivalents, and cash generated from the sale of our securities. Our principal
uses of capital are operating expenses, including amounts required to fund working capital and capital expenditures, acquisition costs,
loans and capital contributions to our subsidiaries and consolidated variable interest entities. We currently anticipate that our
available funds and cash flow from financing activities will be sufficient to meet our operational cash needs and fund our planned acquisitions
and investments for at least the next twelve months from the issuance of the financial statements.
Note
2 — Summary of Significant Accounting Policies
Principles
of Consolidation
The
consolidated financial statements include the accounts of Vinco Ventures, Inc. and its wholly-owned subsidiaries, majority owned
subsidiaries and consolidated variable interest entities. All intercompany balances and transactions have been eliminated.
Use
of Estimates
Preparation
of financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses, together with amounts disclosed in the related notes to the financial
statements.
The
Company’s significant estimates used in these financial statements include, but are not limited to, accounts receivable reserves,
the valuation allowance related to the Company’s deferred tax assets, the recoverability and useful lives of long-lived assets,
debt conversion features, stock-based compensation, certain assumptions related to the valuation of the reserved shares and the assets
acquired and liabilities assumed related to the Company’s acquisitions. Certain of the Company’s estimates could be affected
by external conditions, including those unique to the Company and general economic conditions. It is reasonably possible that these external
factors could have an effect on the Company’s estimates and could cause actual results to differ from those estimates.
Significant
Accounting Policies
Significant
accounting policies are disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
There have been no changes in such policies or the application of such policies during the three months ended March 31, 2022 except
as follows with regard to revenue recognition in connection with AdRizer:
Revenue Recognition
Generally, the Company considers all revenues
as arising from contracts with customers. Revenue is recognized based on the five-step process outlined in the Accounting Standards Codification
(“ASC”) 606:
Step 1 – Identify the Contract with the
Customer – A contract exists when (a) the parties to the contract have approved the contract and are committed to perform their
respective obligations, (b) the entity can identify each party’s rights regarding the goods or services to be transferred, (c)
the entity can identify the payment terms for the goods or services to be transferred, (d) the contract has commercial substance and
it is probable that the entity will collect substantially all of the consideration to which it will be entitled in exchange for the goods
or services that will be transferred to the customer.
Step 2 – Identify Performance Obligations
in the Contract – Upon execution of a contract, the Company identifies as performance obligations each promise to transfer to the
customer either (a) goods or services that are distinct, or (b) a series of distinct goods or services that are substantially the same
and have the same pattern of transfer to the customer. To the extent a contract includes multiple promised goods or services, the Company
must apply judgment to determine whether the goods or services are capable of being distinct within the context of the contract. If
these criteria are not met, the goods or services are accounted for as a combined performance obligation.
Step 3 – Determine the Transaction Price
– When (or as) a performance obligation is satisfied, the Company shall recognize as revenue the amount of the transaction price
that is allocated to the performance obligation. The contract terms are used to determine the transaction price. Generally, all contracts
include fixed consideration. If a contract did include variable consideration, the Company would determine the amount of variable consideration
that should be included in the transaction price based on expected value method. Variable consideration would be included in the transaction
price, if in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract
would not occur.
Step 4 – Allocate the Transaction Price
– After the transaction price has been determined, the next step is to allocate the transaction price to each performance obligation
in the contract. If the contract only has one performance obligation, the entire transaction price will be applied to that obligation.
If the contract has multiple performance obligations, the transaction price is allocated to the performance obligations based on the
relative standalone selling price (SSP) at contract inception.
Step 5 – Satisfaction of the Performance
Obligations (and Recognize Revenue) – Revenue is recognized when (or as) goods or services are transferred to a customer. The Company
satisfies each of its performance obligations by transferring control of the promised good or service underlying that performance obligation
to the customer. Control is the ability to direct the use of and obtain substantially all of the remaining benefits from an asset. It
includes the ability to prevent other entities from directing the use of and obtaining the benefits from an asset. Indicators that control
has passed to the customer include: a present obligation to pay; physical possession of the asset; legal title; risks and rewards of
ownership; and acceptance of the asset(s). Performance obligations can be satisfied at a point in time or over time.
Product
The Company’s product revenues are
recognized when control of the goods are transferred to the customer, which is upon shipment of the finished goods to the customer. All
sales have fixed pricing and there are currently no material variable components included in the Company’s revenue. Additionally,
the Company will issue credits for defective merchandise, historically these credits for defective merchandise have not been material.
Based on the Company’s analysis of the revenue standards, revenue recognition from the sale of finished goods to customers, which
represents the majority of the Company’s revenues, was not impacted by the adoption of the new revenue standards
Digital media advertising and
licensing
The Company’s digital media advertising
revenues are generated primarily from the posting of original digital content through third-party online platforms which are then
delivered to users of the online platform across the customer’s digital advertising platform and becomes monetizable to the
Company, which the Company concludes is its performance obligation. The Company recognizes revenue when control of the services are
transferred to customers and the transaction price is determined by the third-party online platform. Revenue from the digital media
platform is primarily recognized based on impressions delivered to customers. An “impression” is delivered when an
advertisement appears on pages viewed by users. Licensing revenues are derived from the sale of a licensee’s products that
incorporates the Company’s intellectual property. Royalty revenues are recognized during the quarter in which the Company
receives a report from the licensee detailing the shipment of products that incorporate the Company’s intellectual property,
which receipt is in the quarter following the licensee’s sale of such products to its customers. Royalties are calculated as a
percentage of the revenues received by the Company’s licensees on sales of products incorporating the Company’s
intellectual property. For AdRizer, FASB ASC 606 requires an entity to determine whether it is a principal (recognizes revenue at
the gross amount) or an agent (recognizes revenue at the net amount) for each promised good or service. Based on the FASB guidance,
the Company has determined that AdRizer is the principal for each promised good or service, thus, revenue is recognized at the gross
amount of the transactions. Revenue from traffic sales and traffic management services are generally recognized at the end of each
month when the performance obligation is satisfied.
Note
3 — Acquisitions and Divestitures
Acquisitions
AdRizer,
LLC
On
February 11, 2022, the Company acquired all of the outstanding equity interests of AdRizer and cancelled all outstanding performance
units under AdRizer’s phantom equity plan (“Performance Units”) pursuant to that certain Unit Purchase Agreement among
the Company, AdRizer, the members of AdRizer and the holders of Performance Units of AdRizer (collectively, the “Seller Members”),
and Innovative Assets LLC, in its capacity as the sellers’ representative (the “Unit Purchase Agreement”), resulting
in AdRizer becoming a wholly-owned subsidiary of the Company. The purchase price paid and payable consists of (i) $38
million in cash paid at closing, of which $10
million was deposited in an escrow account to
secure the Seller Members’ indemnification obligations under the Unit Purchase Agreement, subject to customary post-closing adjustments
for working capital and other items, and (ii) up to 10
million shares of the Company’s common
stock to be issued on January 1, 2024, determined by dividing $50
million by the volume weighted average price
of the Company’s common stock reported by Bloomberg LP for the 20 trading days preceding such date, subject to a floor price of
$5.00
and maximum price of $8.00
per share (the “Purchase Price Equity”).
The Company estimated the fair value of the Purchase Price Equity to be issued was $23,250,000.
If
a Company change of control transaction occurs on or prior to January 1, 2024, the issuance of the Purchase Price Equity may be accelerated
to allow each Seller Member to participate in such transaction on the same terms as other common stockholders of the Company (the “Acceleration”),
provided that, to the extent that the consideration to be paid to the common stockholders of the Company in such transaction does not
consist entirely of cash or free-trading securities listed on a national stock exchange, (i) each Seller Member may elect the Acceleration
except with respect to Purchase Price Equity issuable in respect of the Performance Units, and (b) if any Seller Member has not elected
the Acceleration, to the extent permitted and with respect to the Performance Units, the Company shall (i) pay each such applicable Seller
Member a cash amount equal to 50% of such Seller’s Member’s pro rata portion of the Purchase Price Equity (the “Forfeited
Purchase Price Equity”) and (ii) issue such Seller Member’s pro rata portion of the Purchase Price Equity less the Forfeited
Purchase Price Equity.
Upon
the closing of the acquisition, AdRizer entered into a new employment agreement with its chief executive officer, Kenneth Bond. Certain
Seller Members including those who are employees, officers, directors or managers of AdRizer and their affiliates also agreed to be bound
by three-year post-closing non-competition and non-solicitation restrictive covenants pursuant to the Unit Purchase Agreement.
The
Company has accounted for the AdRizer acquisition as a business combination under the acquisition method of accounting. The Company
has classified the Purchase Price Equity as a deferred acquisition liability.
The
purchase price allocation presented below is preliminary given the recent closing of the AdRizer acquisition. We are in
the process of evaluating additional information necessary to finalize the valuation of assets acquired and liabilities assumed as of
the acquisition date including, but not limited to, post-closing adjustments to the working capital acquired and identification and valuation
of developed technology and intangible assets acquired, fair value of AdRizer’s investment in Mind Tank, LLC, as well as
the fair value of the equity consideration transferred. The final fair value determination could result in material adjustments to the
values presented in the preliminary purchase price allocation, including other intangible assets, goodwill and the related tax impact
of such adjustments. We expect to finalize the purchase price allocation within the measurement period.
Summary
of Business combination Acquired Assets and Liabilities Purchase Price
| |
AdRizer | |
Cash paid | |
$ | 37,936,323
| |
Fair value of deferred acquisition price | |
| 23,250,000 | |
Purchase consideration | |
$ | 61,186,323 | |
| |
AdRizer | |
Cash and cash equivalents | |
$ | 3,085,747 | |
Accounts receivable | |
| 5,564,539 | |
Other current assets | |
| 822,311 | |
Property and equipment | |
| 191,654 | |
Intangible assets, including goodwill | |
| 58,864,751 | |
Total assets acquired | |
| 68,529,002 | |
| |
| | |
Accounts payable and accrued expenses | |
| 7,342,678 | |
Total liabilities assumed | |
| 7,342,678 | |
| |
$ | 61,186,323 | |
The
Company recognized $8,216,000
of acquisition related costs, including $6,750,000
paid to ZASH for the assignment of ZASH’s rights under a letter of intent to acquire AdRizer (See Note 13- Related Party Transactions)
that were expensed during the three months ended March 31, 2022. These costs are included in the consolidated statement of operations
in the line item entitled “Selling, General and Administrative”.
The
activity of AdRizer is included in the Company’s consolidated financial statements from the acquisition date to March 31,
2022. The amounts of revenue and earnings of AdRizer from the acquisition date of February 11, 2022 to March 31, 2022 are
as follows:
Schedule
of Business Combination Revenue and Earnings
| |
| | |
Revenue | |
$ | 7,653,085 | |
Net income | |
| 147,618 | |
The
following represents the pro forma consolidated statement of operations as if AdRizer had been included in the consolidated results
of operations of the Company for the three month period ended March 31, 2022 and 2021. The pro forma financial information is for illustrative
purposes only, does not include the pro forma adjustments that would be required under Regulation S-X for pro forma financial information,
is not necessarily indicative of the financial position or results of operations that would have been realized if the acquisition had
been completed on the dates indicated, does not reflect synergies that might have been achieved, nor is it indicative of future
operating results or financial position. The pro forma information is based upon currently available information and does not
reflect any additional depreciation or amortization that would have been charged assuming fair value adjustments to developed technology
and other intangible assets, together with the consequential tax effects, which have not yet been finalized.
Asset
Acquisitions
Emmersive
Entertainment Asset Contribution
On
April 17, 2021, Vinco and EVNT entered into (and closed on) a certain Asset Contribution Agreement (“Asset Contribution Agreement”)
with Emmersive Entertainment, Inc. (“Emmersive”), pursuant to which Emmersive contributed/transferred to the Company the
assets used for Emmersive’s business, which include digital assets, software and certain physical assets (the “Contributed
Assets”) in consideration for, among other things, the Company assuming certain obligations of Emmersive, hiring certain employees,
and issuing 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. The Earn-out arrangement with the former sellers of Emmersive as described
below provides extensions whereby the former sellers of Emmersive would still be eligible for the Earn-out Target 2.
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. The Preferred Units
and Conditional Preferred Units were valued at $2,100,00
and $5,300,000,
respectively, and recorded as an intangible asset. On October 19, 2021, the Preferred Unit Holders were issued 1,000,000
shares of common stock of Vinco in
exchange for the Preferred Units.
The
following table summarizes the aggregate purchase price consideration paid for the acquisition of the asset:
Summary of the Aggregate Purchase Price Consideration Paid
| |
April 17, 2021 | |
| |
| |
Fair value of shares reserved for future issuance and earn out shares | |
$ | 7,400,000 | |
Fair value of assumed notes payable | |
| 151,987 | |
Total | |
| 7,551,987 | |
On
February 25, 2022, Emmersive, certain former shareholders of Emmersive (collectively, the “Emmersive Parties”), the
Company and EVNT entered into a Termination and Release Agreement, terminating certain transaction documents dated April 17, 2021,
in connection with which the Emmersive Parties and Cryptyde also entered into a Milestone Agreement for the earnout shares to
be earned and any remaining consideration to be paid by Cryptyde with an effective date of both the agreements upon the spin-off
of Cryptyde being declared effective by the SEC (the “Effective Date”). Upon the Effective Date,
the agreements will release the Company of the obligation to deliver the additional 4,000,000
earn-out
shares provided under the Asset Contribution Agreement. The contingent consideration to be paid by Cryptyde upon the successful
completion of the spin-off are described below:
Earned
Shares: Issuance of 300,000
registered
shares of common stock of Cryptyde (“Cryptyde Shares”) within 30 days after the effectiveness of our first registration
statement following the spin-off.
Milestone
1: In
the event that Cryptyde generates a minimum of $5,500,000 in annualized booked revenues from the operation of the Musician &
Artist Platform (“Attributed Revenue”) ending eight (8) months following the Effective Date (“Tranche 1 Milestone Date”),
the Emmersive Parties shall receive 100,000 restricted Cryptyde Shares (“Tranche One”) within 30 after the Tranche 1 Milestone
Date. In the event that Cryptyde does not satisfy this milestone for any reason by the Tranche 1 Milestone Date, the Emmersive
Parties shall have no rights to the additional Cryptyde Shares.
Milestone
2: After
the Effective Date, in the event Cryptyde generates a minimum of $26,500,000 in annualized Attributed Revenues in any three-calendar
month period ending on or before September 30, 2023, from the Musician & Artist Platform, the Emmersive Parties shall receive an
additional 100,000 restricted Cryptyde Shares (“Tranche Two”). In the event Milestone Two is achieved, then Milestone One
shall also be deemed to have been achieved. In the event that Cryptyde does not satisfy Milestone Two for any reason by September
30, 2023, the Emmersive Parties shall have no rights to Tranche Two.
Milestone
3: After
the Effective Date in the event that Cryptyde generates a minimum of $60,000,000 in annualized Attributed Revenues in any three-calendar-month
period ending on or before September 30, 2024, from the Musician & Artist Platform, Emmersive Parties shall receive an additional
100,000 restricted Cryptyde Shares (“Tranche Three”). In the event Milestone Three is achieved, then Milestones One and Two
shall also be deemed to have been achieved. In the event that Cryptyde does not satisfy Milestone Three for any reason by September
30, 2024, time being of the essence, the Emmersive Parties shall have no rights to Tranche Three. In the event that Cryptyde satisfies
Milestone Three in the time prescribed they shall have the right to receive an additional 100,000 restricted shares of Cryptyde Shares
(“Bonus Tranche”). In the event that Cryptyde does not satisfy Milestone Three for any reason, the Emmersive Parties
shall have no rights to the Bonus Tranche.
Divestitures
CBAV1,
LLC Divestiture
On
March 12, 2021, the bankruptcy court approved the sale of CBAV1, LLC’ assets used for its business of selling children’s
products to BTL Diffusion SARL, the winning bidder, at the auction held on March 10, 2021 and March 11, 2021 for a total sum
of $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. Contemporaneously with the closing on April 21, 2021, a certain license agreement between CBAV1 and Edison Nation,
LLC terminated and any remaining operational assets of Edison Nation were transferred to BTL.
The
table below shows the assets that the Company transferred to BTL and the components of the loss on discontinued operations:
Schedule of Loss on Income Operations of Discontinued Operations
| |
April
21, 2021 | |
Cash received from buyer | |
| 2,529,565 | |
| |
| | |
Accounts receivable | |
| (293,005 | ) |
Inventory | |
| (665,522 | ) |
Prepaid expenses | |
| (160,666 | ) |
Intangible assets | |
| (5,540,952 | ) |
Loss on divestiture | |
| 4,130,580 | |
Operating loss of discontinued operations | |
| 178,200 | |
Bankruptcy costs | |
| 803,320 | |
Loss on discontinued operations | |
| 5,112,100 | |
Expected
Spin-Off of Cryptyde, Inc.
On
November 8, 2021, our subsidiary Cryptyde initially filed, and on January 25, 2022, March 18, 2022 and May 13, 2022 amended, a Form 10
registration statement with the SEC (the “Form 10”) in connection with our planned spin-off of Cryptyde, subject to certain
conditions as described in the registration statement, including the effectiveness of the registration statement, receipt of an opinion
of counsel to the effect that, among other things, the spin-off and related transactions should qualify as tax-free for United States
federal income tax purposes under Sections 368(a)(1)(D) and 355 of the Internal Revenue Code, and Nasdaq having approved the listing
of Cryptyde’s common stock. Cryptyde holds our packaging, Bitcoin mining services, and Web3 (decentralized internet) products businesses.
On
May 16, 2022, the Form 10 was declared effective. The record date for the spin-off is May 18, 2022 and the distribution date is scheduled
for May 27, 2022. Upon completion of the spin-off, Cryptyde would become an independent, publicly traded company.
Note
4 — Variable Interest Entities
The
Company is involved in the formation of various entities considered to be Variable Interest Entities (“VIEs”). The Company
evaluates the consolidation of these entities as required pursuant to ASC Topic 810 relating to the consolidation of VIEs.
The
Company’s determination of whether it is the primary beneficiary of VIE is based in part on an assessment of whether or not the
Company and its related parties are exposed to the majority of the risks and rewards of the entity. Typically, the Company is entitled
to substantially all or a portion of the economics of these VIEs. The Company is the primary beneficiary of the VIE entities.
The assets of the VIEs can be used to settle obligations of the consolidated entities.
Conversely, liabilities recognized as a result of consolidating these VIEs do not represent additional claims on the Company’s
general assets.
The
following table presents the carrying values of the assets and liabilities of entities that are VIEs and consolidated by the Company
as of March 31, 2022 and December 31, 2021:
Carrying Values of Assets and Liabilities of Variable Interest Entities
| |
|
March 31, 2022 | | |
|
December 31, 2021
| |
| |
March 31, 2022 | | |
December 31, 2021
| |
| |
| | |
| |
Assets | |
| | | |
| | |
Current assets: | |
| | | |
| | |
Cash and cash equivalents | |
$ | 6,183,563 | | |
$ | 1,856,017 | |
Prepaid expenses and other current assets | |
| 1,824,684 | | |
| 2,388,893 | |
Other Investments | |
| 109,765,000 | | |
| - | |
Due from Related Party | |
| 11,400,584 | | |
| 15,997,803 | |
Loan Interest Receivable | |
| 366,355 | | |
| - | |
Total current assets | |
| 129,540,186 | | |
| 20,242,713 | |
Loan Held-for-Investment | |
| 3,100,000 | | |
| 3,100,000 | |
Loan Held-for-Investment, related parties | |
| 18,000,000 | | |
| 11,500,000 | |
Property and Equipment, net | |
| 189,028 | | |
| 147,519 | |
Intangible assets, net | |
| 27,047,962 | | |
| 28,150,048 | |
Goodwill | |
| 116,188,021 | | |
| 116,188,021 | |
Cost Method Investments | |
| 1,500,000 | | |
| 1,000,000 | |
Total assets | |
$ | 295,565,197 | | |
$ | 180,328,301 | |
| |
| | | |
| | |
Liabilities and stockholders’ equity | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable | |
$ | 575,420 | | |
$ | 686,674 | |
Accrued expenses and other current liabilities | |
| 1,597,397 | | |
| 1,672,492 | |
Total current liabilities | |
| 2,172,817 | | |
| 2,359,166 | |
Intercompany | |
| 44,681,303 | | |
| - | |
Notes Payable | |
| 4,563,879 | | |
| 2,650,000 | |
Total liabilities | |
$ | 58,091,392 | | |
$ | 5,324,832 | |
The
following table presents the operations of entities that are VIEs and consolidated by the Company as of March 31, 2022 and 2021:
| |
| | | |
| | |
| |
For the Three Months Ended March 31, | |
| |
2022 | | |
2021 | |
Revenues, net | |
$ | - | | |
$ | 214,394 | |
Cost of revenues | |
| - | | |
| 84,155 | |
Gross profit | |
| - | | |
| 130,239 | |
| |
| | | |
| | |
Operating expenses: | |
| | | |
| | |
Selling, general and administrative | |
| 10,971,969 | | |
| 100,421 | |
Operating (loss) income | |
| (10,971,969 | ) | |
| 29,818 | |
| |
| | | |
| | |
Other (expense) income: | |
| | | |
| | |
Interest expense | |
| (2,212 | ) | |
| 26,250 | |
Other income | |
| 88,569 | | |
| | |
Total other (expense) income | |
| (86,357 | ) | |
| 56,068 | |
Income tax expense | |
| - | | |
| - | |
Net loss | |
$ | (10,885,612 | ) | |
$ | 56,068 | |
As
of March 31, 2022, the Company had no unconsolidated
VIEs. The Company has consolidated both ZVV and Lomotif, for which the Company has determined it holds a variable interest.
ZVV
Media Partners, LLC and Lomotif Private Limited
On
January 19, 2021, Vinco Ventures, ZASH and ZVV entered into a Contribution Agreement pursuant to which each of Vinco Ventures and Zash
contributed to ZVV certain media and entertainment assets in order for ZVV to engage in the development and production of consumer facing
content and related activities.
On
or around February 23, 2021, ZASH entered into a Securities Purchase Agreement (the “Lomotif SPA”) with Lomotif and certain
shareholders of Lomotif (the “Lomotif Selling Shareholders”) to acquire a controlling interest in Lomotif.
On
July 19, 2021, ZASH, Lomotif, the Lomotif Selling Shareholders and ZVV entered into a Deed of Variation and Supplement whereby, among
other things, ZASH novated all of its rights and obligations under the Lomotif SPA to ZVV and ZVV assumed all of ZASH’s rights
and obligations under the Lomotif SPA.
On
July 22, 2021, ZASH and Vinco
Ventures entered into a Second Amended and Restated Limited Liability Company Agreement of ZVV, pursuant to which (i) ZASH and Vinco
Ventures each acquired a 50% voting membership interest in ZVV; and (ii) ZASH acquired a 75% economic interest in ZVV after return
of unreturned capital contributions and Vinco Ventures acquired a 25% economic interest in ZVV after return of unreturned capital contributions.
On
July 25, 2021, ZVV completed the acquisition of an 80% equity ownership interest in Lomotif for a total purchase price of $109,765,000
Note
5 — Short-Term Investments
As
of March 31, 2022 and December 31, 2021, short-term investments consisted of the following:
Schedule of Short-Term Investments
| |
March 31, 2022 | | |
December 31, 2021 | |
Jupiter Wellness, Inc. (JUPW) | |
$ | 1,040,000 | | |
$ | 1,040,000 | |
Unrealized losses | |
| (820,000 | ) | |
| (862,000 | ) |
Total short-term investments | |
$ | 220,000 | | |
$ | 178,000 | |
Note
6 — Property and Equipment, net
As
of March 31, 2022 and December 31, 2021, property and equipment consisted of the following:
Schedule of Property and Equipment
| |
March 31, 2022 | | |
December 31, 2021 | |
Buildings – rental property | |
$ | - | | |
$ | - | |
Building improvements | |
| 800,746 | | |
| 800,746 | |
Equipment and machinery | |
| 4,821,194 | | |
| 4,779,685 | |
Furniture and fixtures | |
| 473,459 | | |
| 388,637 | |
Computer software | |
| 501,340 | | |
| 147,792 | |
Molds | |
| 79,300 | | |
| 79,300 | |
Vehicles | |
| 533,867 | | |
| 533,867 | |
Leasehold Improvements | |
| 415,864 | | |
| - | |
Property, plant and equipment, gross | |
| 7,625,770 | | |
| 6,730,027 | |
Less: accumulated depreciation | |
| (5,840,544 | ) | |
| (5,353,276 | ) |
Total property and equipment, net | |
$ | 1,785,226 | | |
$ | 1,376,751 | |
Depreciation
expense for the three months ended March 31, 2022 and 2021 was $74,139 and $32,812, respectively.
Note
7 —— Loans held for investment
As
of March 31, 2022 and December 31, 2021, loans held-for-investment consisted of the following:
Summary
of Loans Held for Investment
| |
March 31, 2022 | | |
December 31, 2021 | |
Loans held-for-investment: | |
| | | |
| | |
PZAJ Holdings, LLC (i) | |
$ | 4,600,000 | | |
$ | 3,950,000 | |
Carlin Haynes, LLC (ii) | |
$ | 750,000 | | |
$ | 250,000 | |
Total loans held-for-investment | |
$ | 5,350,000 | | |
$ | 4,200,000 | |
(i) |
PZAJ
Holdings, LLC (“PZAJ”) is an entertainment content development company engaged in the acquisition, financing, development,
production, and distribution of films and television projects. As of March 31, 2022, the Company has loaned $4,600,000
to PZAJ pursuant to multiple
promissory notes (collectively, the “PZAJ Notes”) to co-develop certain film and television projects including
but not limited to Preach, Camp Hideout, Camp Radio and Thrillusionist. The co-developed projects are intended to be licensed or
sold to various media companies or streamed on Lomotif. |
(i) |
PZAJ
Holdings, LLC (“PZAJ”) is an entertainment content development company engaged in the acquisition, financing,
development, production, and distribution of films and television projects. As of March 31, 2022, the Company has loaned
$4,600,000 to
PZAJ pursuant to multiple promissory notes (collectively, the “PZAJ Notes”) to co-develop certain film and
television projects including but not limited to Preach, Camp Hideout, Camp Radio and Thrillusionist. The co-developed projects are
intended to be licensed or sold to various media companies or streamed on Lomotif. The interest rate on the notes is 2%
per annum. The loans are due at various times in 2022. The purpose of the loans is to engage in the acquisition, development and
production of consumer facing content and related activities. The loans are nonrecourse loans and will be repaid with earned
revenues for each project. As of March 12, 2022, PZAJ, its existing members and the Company entered into a Limited Liability Company Agreement
of PZAJ, pursuant to which the loans extended by Vinco or on its behalf to PZAJ in the aggregate amount of $5,590,000 was converted into
a capital contribution of Vinco into PZAJ and Vinco was admitted into PZAJ as a member owning a 51% membership interest. |
|
|
|
The
interest rate on the notes is 2%
per annum. The loans are due at various times in 2022. The purpose of the loans is to engage in the acquisition, development and production
of consumer facing content and related activities. The loans are nonrecourse loans and will be repaid with earned revenues for each project.
As of March 12, 2022, PZAJ, its existing members and the Company entered into a Limited Liability Company Agreement
of PZAJ, pursuant to which the loans extended by Vinco or on its behalf to PZAJ in the aggregate amount of $5,590,000 was converted into
a capital contribution of Vinco into PZAJ and Vinco was admitted into PZAJ as a member owning a 51% membership interest. |
|
|
(ii) |
On
August 5, 2021, the Company loaned $250,000
to Carlin Haynes, LLC,
dba TMX. The interest rate on the note is 6%
per annum. The maturity date of the loan is August
5, 2023. The purpose of
the loan is to engage in the creation and distribution of digital media content. In the event that Carlin Haynes, LLC issues and
sells units of preferred equity securities to one or more investors in an arm’s length transaction or series
of related transactions with the principal purpose of raising capital that results in aggregate gross proceeds to Carlin Haynes,
LLC of at least $1,000,000,
excluding the amount represented by the conversion of any simple agreement for future equity or outstanding indebtedness, including
all or a portion of the note issued to the Company (the “TMX Note”), in accordance with their respective terms
and the TMX Note has not been paid in full, then the outstanding principal balance of the TMX Note and all accrued
and unpaid interest thereon shall automatically convert in whole without any further action by the Company into the number of limited
liability company membership units/interests of Carlin Haynes LLC equal to the outstanding principal balance of the TMX
Note and all accrued and unpaid interest due on the TMX Note on the date of conversion, divided by 80% of the price per
unit paid by the investors to purchase the new securities in the qualified financing. |
As
of March 31, 2022 and December 31, 2021, loans held-for-investment – related parties consisted of the following:
Summary
of Related Parties Loans Held for Investment
| |
March 31, 2022 | | |
December 31, 2021 | |
Loans held-for-investment – related parties: | |
| | | |
| | |
Zash Global Media and Entertainment Corporation (iii) | |
| 15,000,000 | | |
| 15,000,000 | |
Magnifi U (iv) | |
| 1,500,000 | | |
| 1,500,000 | |
Wattum Management (v) | |
| 4,000,000 | | |
| 4,000,000 | |
Total loans held-for-investment – related parties | |
$ | 20,500,000 | | |
$ | 20,500,000 | |
(iii) |
ZASH
Global Media and Entertainment Corporation is a media and entertainment company involved
in the development of consumer facing content.
As
of March 31, 2022, the Company has loaned $15,000,000
to ZASH under multiple financings. The interest
rate on the notes is 6%
per annum. The
loans are due in 2023. The purpose of the
loans is to engage in the acquisition, development and production of consumer facing content and related activities.
In
the event that ZASH issues and sells preferred equity securities to one or more investors in an arm’s length
transaction or series of related transactions with the principal purpose of raising capital that results in aggregate gross proceeds
to ZASH of at least $1,000,000,
excluding the amount represented by the conversion of any simple agreement for future equity or outstanding indebtedness, including all
or a portion of the notes issued to the Company (the “ZASH Notes”), in accordance with their respective terms
and the ZASH Notes have not been paid in full, then the outstanding principal balance of the ZASH Notes and all
accrued and unpaid interest thereon shall automatically convert in whole without any further action by the Company into the number
of preferred equity securities of ZASH equal to the outstanding principal balance of the ZASH Notes and all
accrued and unpaid interest due on the ZASH Notes on the date of conversion, divided by 80% of the price per share paid by the investors
to purchase the new securities in the qualified financing. |
|
|
(iv) |
On
October 12, 2021, the Company loaned $1,500,000 to Magnifi U. The interest rate on the note is 3% per annum. The maturity date of
the loan is October 12, 2023. The purpose of the loan is to engage in the creation and distribution of digital media content. |
|
|
(v) |
On
October 14, 2021, the Company loaned $4,000,000 to Wattum Management, Inc. The interest rate on the note is 5% per annum. The maturity
date of the loan is October 12, 2026. The purpose of the loan is to engage in the sale of crypto mining equipment. |
Note 8 —Cost-method
investments
As of March
31, 2022 and December 31, 2021, cost method investments consisted of the following:
Schedule of Cost Method Investments
| |
March 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
Hyperreal Digital, Inc. | |
$ | 1,000,000 | | |
$ | 1,000,000 | |
Total cost-method investments | |
$ | 1,000,000 | | |
$ | 1,000,000 | |
Note
9 — Fair Value of Financial Instruments
The
Company measures the fair value of financial assets and liabilities based on the guidance of ASC 820 “Fair Value Measurements and
Disclosures” (“ASC 820”) which defines fair value, establishes a framework for measuring fair value, and expands disclosures
about fair value measurements.
ASC
820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement
date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:
Level
1 — quoted prices in active markets for identical assets or liabilities
Level
2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level
3 — inputs that are unobservable (for example, cash flow modeling inputs based on assumptions)
The
carrying amounts of the Company’s financial instruments, such as cash, accounts receivable and accounts payable, approximate fair
values due to the short-term nature of these instruments. The carrying amount of the Company’s notes payable approximates fair
value because the effective yields on these obligations, which include contractual interest rates, taken together with other features
such as concurrent issuance of warrants, are comparable to rates of returns for instruments of similar credit risk.
The
following fair value of financial assets and liabilities and the input level used to determine the fair value as of March 31,
2022 and December 31, 2021 is presented below:
Schedule of Fair Value of Financial Assets and Liabilities
| |
Fair Value Measurements as of March 31, 2022 | |
| |
Level 1 | | |
Level 2 | | |
Level 3 | |
| |
| | |
| | |
| |
Assets: | |
| | | |
| | | |
| | |
Short-term investments | |
$ | 210,000 | | |
$ | - | | |
$ | - | |
| |
| | | |
| | | |
| | |
Liabilities: | |
| | | |
| | | |
| | |
Warrant liability | |
| - | | |
| - | | |
| 429,023,674 | |
Total | |
| 210,000 | | |
| - | | |
| 429,023,674 | |
| |
Fair Value Measurements as of December 31, 2021 | |
| |
Level 1 | | |
Level 2 | | |
Level 3 | |
| |
| | |
| | |
| |
Assets: | |
| | | |
| | | |
| | |
Short-term investments | |
$ | 178,000 | | |
$ | - | | |
$ | - | |
| |
| | | |
| | | |
| | |
Liabilities: | |
| | | |
| | | |
| | |
Warrant liability | |
| - | | |
| - | | |
| 198,566,170 | |
Total | |
| 178,000 | | |
| - | | |
| 198,566,170 | |
The
following table presents a reconciliation of the Company’s liabilities measured at fair value on a recurring basis using significant
unobservable inputs (Level 3) for the three months ended March 31, 2022 and 2021, respectively:
Schedule of Reconciliation of Liabilities Measured at Fair Value
| |
Warrant Liability | |
| |
| |
Balance, January 1, 2022 | |
$ | 198,566,170 | |
Issuance of warrants | |
| 243,681,478 | |
Change in fair value of warrants | |
| 86,948,858 | |
Exercise of warrants | |
| (100,029,444 | ) |
Balance, March 31, 2022 | |
$ | 429,167,462 | |
| |
Warrant Liability | |
| |
| |
Balance, January 1, 2021 | |
$ | - | |
Issuance of warrants | |
| 77,083,044 | |
Change in fair value of warrants | |
| (18,627,843 | ) |
Exercise of warrants | |
| (219,636 | ) |
Balance, March 31, 2021 | |
$ | 58,235,565 | |
Note
10 — Intangible assets, net
As
of March 31, 2022, intangible assets consisted of the following:
Schedule
of Intangible Assets
| |
| |
Remaining
Weighted | | |
| | |
| | |
| |
| |
Estimated Useful | |
Average
Useful | | |
Gross Carrying | | |
Accumulated | | |
Net Carrying | |
| |
Life | |
Life | | |
Amount | | |
Amortization | | |
Amount | |
Finite lived intangible assets: | |
| |
| | | |
| | | |
| | | |
| | |
Customer relationships | |
15 years | |
| 11.4 years | | |
$ | 670,000 | | |
$ | 160,056 | | |
$ | 509,944 | |
Developed technology | |
7-10 years | |
| 6.8 years | | |
| 37,251,987 | | |
| 4,707,579 | | |
| 32,544,408 | |
Membership network | |
7 years | |
| 3.4 years | | |
| 1,740,000 | | |
| 890,714 | | |
| 849,286 | |
Digital media platform | |
7 years | |
| 5.6 years | | |
| 1,552,500 | | |
| 304,955 | | |
| 1,247,545 | |
Influencer network | |
5 years | |
| 4.8 years | | |
| 2,756,000 | | |
| 137,800 | | |
| 2,618,200 | |
Total finite lived intangible assets | |
| |
| | | |
$ | 43,970,487 | | |
$ | 6,201,104 | | |
$ | 37,769,383 | |
| |
| |
| | | |
| | | |
| | | |
| | |
Indefinite lived intangible assets: | |
| |
| | | |
| | | |
| | | |
| | |
Trademarks and tradenames | |
Indefinite | |
| | | |
$ | 1,240,000 | | |
$ | - | | |
$ | 1,240,000 | |
Total indefinite lived intangible assets | |
| |
| | | |
$ | 1,240,000 | | |
$ | - | | |
$ | 1,240,000 | |
Total intangible assets | |
| |
| | | |
$ | 45,210,487 | | |
$ | 6,201,104 | | |
$ | 39,009,383 | |
As
of December 31, 2021, intangible assets consisted of the following:
| |
| |
Remaining Weighted | | |
| | |
| | |
| |
| |
Estimated Useful | |
Average
Useful | | |
Gross Carrying | | |
Accumulated | | |
Net Carrying | |
| |
Life | |
Life | | |
Amount | | |
Amortization | | |
Amount | |
Finite lived intangible assets: | |
| |
| | | |
| | | |
| | | |
| | |
Customer relationships | |
15 years | |
| 11.7 years | | |
$ | 670,000 | | |
$ | 148,889 | | |
$ | 521,111 | |
Developed technology | |
7-10 years | |
| 7.0 years | | |
| 37,251,987 | | |
| 3,458,065 | | |
| 33,793,922 | |
Membership network | |
7 years | |
| 3.7 years | | |
| 1,740,000 | | |
| 828,571 | | |
| 911,429 | |
Digital media platform | |
7 years | |
| 5.9 years | | |
| 1,552,500 | | |
| 249,509 | | |
| 1,302,991 | |
Influencer network | |
5 years | |
| 5.0 years | | |
| 2,756,000 | | |
| - | | |
| 2,756,000 | |
Total finite lived intangible assets | |
| |
| | | |
$ | 43,970,487 | | |
$ | 4,685,034 | | |
$ | 39,285,453 | |
| |
| |
| | | |
| | | |
| | | |
| | |
Indefinite lived intangible assets: | |
| |
| | | |
| | | |
| | | |
| | |
Trademarks and tradenames | |
Indefinite | |
| | | |
$ | 1,240,000 | | |
$ | - | | |
$ | 1,240,000 | |
Total indefinite lived intangible assets | |
| |
| | | |
$ | 1,240,000 | | |
$ | - | | |
$ | 1,240,000 | |
Total intangible assets | |
| |
| | | |
$ | 45,210,487 | | |
$ | 4,685,034 | | |
$ | 40,525,453 | |
Amortization
expense for the three months ended March 31, 2022 and 2021 was $1,516,070 and $412,730, respectively.
The
estimated future amortization of intangibles subject to amortization as of March 31, 2022 was as follows:
Schedule
of Intangible Assets Future Amortization Expenses
For the Years Ended December 31, | |
Amount | |
2022 (excludes amortization through March 31, 2022) | |
$ | 4,548,210 | |
2023 | |
| 6,064,280 | |
2024 | |
| 6,064,280 | |
2025 | |
| 5,852,851 | |
2026 | |
| 5,429,994 | |
Thereafter | |
| 9,809,769 | |
Total | |
$ | 37,769,383 | |
Note
11 — Debt
As
of March, 31, 2022 and December 31, 2021, debt consisted of the following:
Schedule
of Long-term Debt
| |
March 31, 2022 | |
|
December 31, 2021 | |
| |
|
| |
|
|
| |
| |
|
- | |
|
|
27,644 | |
Notes payable – related parties | |
|
235,107 | |
|
|
235,107 | |
Convertible notes payable | |
|
112,990,000 | |
|
|
113,000,000 | |
Convertible notes payable of Lomotif Private Limited | |
|
- | |
|
|
150,000 | |
Convertible notes payable of Lomotif Private Limited – related parties | |
|
2,500,000 | |
|
|
2,500,000 | |
Long term debt, gross | |
|
| |
|
|
| |
Debt issuance costs | |
|
(48,834,475 | ) |
|
|
(68,925,172 | ) |
Total debt | |
|
66,890,632 | |
|
|
46,987,579 | |
Convertible
Notes Payable – Related Parties
ZASH
– February and March 2021
On
February 23, 2021, Lomotif Private Limited obtained a loan in the amount of $1,500,000 from ZASH pursuant to a loan agreement
with ZASH with a maturity date on February
22, 2028 and an annual interest rate of 2%.
Under
the terms of the agreement, the loan is convertible at a 20% discount to a $150 million valuation of Lomotif Private Limited.
On March 30, 2021, Lomotif Private Limited obtained
a loan in the amount of $1,000,000 from ZASH pursuant to a loan agreement with ZASH with a maturity date on March
28, 2028 and an annual interest rate of 2%.
Under
the terms of the loan agreement, the loan is convertible at a 20% discount to a $150 million valuation of Lomotif Private
Limited.
Convertible
Notes Payable
Hudson
Bay Financing – July 2021
On
July 22, 2021 Vinco Ventures consummated a private placement offering (the “July 2021 Offering”) whereby pursuant to the
Securities Purchase Agreement (the “July 2021 Purchase Agreement”) entered into by the Company on July 22, 2021 with Hudson
Bay Master Fund Ltd as investor the Company issued a Senior Secured Convertible Note in the amount of $120,000,000
for the purchase price of $100,000,000
(the “July 2021 Note”) and five (5)
year warrants (the “July 2021 Warrant”) to purchase shares of the common stock of the Company (“Common Stock”).
The Company placed $100,000,000
of cash into a restricted bank account under
a deposit account control agreement as collateral for the July 2021 Note. The Company recorded a deferred discount of $120,000,000
which consisted of the $20,000,000
original issue discount, $9,300,000
of fees paid to placement agents and lawyers,
and $90,700,000
related to the issuance of warrants.
The
July 2021 Note carries no interest unless and until an event of default shall occur and the July 2021 Note matures on July
22, 2022. The July 2021 Note contains a voluntary
conversion mechanism whereby the noteholder may convert at any time after the Initial Convertibility Date (as defined in the
July 2021 Note), in whole or in part, the outstanding principal and interest under the July 2021 Note into shares of Common Stock
of the Company at a conversion price of $4.00
per share. The July 2021 Note is guaranteed by
the Company’s subsidiaries and certain other guarantors and is a senior secured obligation of the Company and its subsidiaries.
The July 2021 Note contains customary events of default. If an event of default occurs, interest under the July 2021 Note will accrue
at a rate of eighteen percent (18%)
per annum and the outstanding principal amount of the July 2021 Note, plus accrued but unpaid interest, liquidated damages and other
amounts owing with respect to the July 2021 Note will become, at the noteholder’s election, immediately due and payable
in cash. Upon completion of a Change of Control (as defined in the July 2021 Note), the July 2021 Note holder may require the Company
to purchase any outstanding portion of the July 2021 Note in cash at a price in accordance with the terms of the July 2021 Note.
Palladium Capital Group,
LLC. acted as placement agent for the July 2021 Offering. The placement agent received $9,000,000 of which $1,000,000 was cash compensation
and $8,000,000 was deferred cash compensation (8% of the gross proceeds to the Company plus an additional 1% of the gross proceeds to
the Company for non-accountable expenses). The Company has paid $4,000,000 of the deferred cash compensation and $4,000,000 remains outstanding
as of March 31, 2022.
Pursuant
to the July 2021 Purchase Agreement, the investor received the July 2021 Warrant. The July 2021 Warrant contained an exercise
price of $2.655
per share, subject to adjustments as provided
under the terms of the July 2021 Warrant. In connection with the closing of the July 2021 Offering, the July 2021 Warrant was issued
for an aggregate of 32,697,548
shares of Common Stock. The conversion features
on the July 2021 Note and the July 2021 Warrant were approved by the Company’s stockholders on October 14, 2021. On
November 9, 2021 the investor converted $7,000,000
of principal under the July 2021 Note
in exchange for 1,750,000
shares of Common Stock.
On
March 9, 2022, the Company, Cryptyde and the noteholder of the July 2021 Note entered into an Amendment Agreement (the
“Amendment Agreement”) whereby the parties agreed to, among other things: (i)
amend certain provisions of the July 2021 Note to (a) convert $10,000
of the principal amount of the July 2021 Note at a conversion price of $0.01
into shares of Common Stock, (b) extend the maturity date under the July Note to July 22, 2023, (c) increase the interest rate on
the July 2021 Note from zero percent (0%) to six percent (6.0%), (d) reduce the maximum cap of the minimum cash in the control
account from $100,000,000
to $80,000,000,
and (e) require the Company to redeem $33,000,000
of the principal of the July 2021 Note, together with accrued and unpaid interest and accrued and unpaid late charges on such
principal and interest, on July 22, 2022; (ii) to extend certain dates relating to (x) the Company’s registration of certain
securities under the Warrant Exercise Agreements dated September 1, 2021, November 11, 2021 and December 20, 2021 to April 30, 2022,
(y) the Company’s filing of a proxy statement to April 30, 2022 and (z) the Company holding a stockholder meeting and
obtaining a stockholder vote to June 4, 2022 or July 4, 2022 in the event that the Company receives comments from the SEC with
respect to the proxy statement; and (iii) to waive any adjustments to convertible securities or options as a result of the Adjusted
Conversion Price (as defined in the Amendment Agreement). The Company accounted for the amendment as a modification
of debt and as a result, extended the amortization of the deferred financing fees of the original note over the remaining term of
the amended agreement. In addition, the Company recorded additional deferred financing fees as a result of the issuance of 1,000,000
shares of common stock with a per share value of $2.18
in conjunction with the amendment.
On April 29, 2022, the Company, Cryptyde and the
Holder entered into a Second Amendment Agreement (the “Second Amendment Agreement”) whereby the parties agreed to amend the
First Amendment Agreement to replace the date of “April 30, 2022” in Section 7(m) of the First Amendment Agreement to “May
6, 2022.”
On May 6, 2022, the Company and the Holder entered into a Third Amendment Agreement (the “Third Amendment
Agreement”) whereby the parties agreed to amend the Second Amendment Agreement to replace the date of “May 6, 2022”
in Section 7(m) of the Second Amendment Agreement to “May 11, 2022.”
The
scheduled maturities of the debt for the next five years as of March 31, 2022, are as follows:
Schedule
of Maturities of Long-term Debt
For the Years Ended December 31, | |
Amount | |
2022 | |
| 33,112,835 | |
2023 | |
| 86,612,272 | |
2024 | |
| - | |
2025 | |
| - | |
2026 | |
| - | |
Long-term Debt, Gross | |
| 115,725,107 | |
Less: debt discount | |
| (48,834,475 | ) |
Long-term
Debt | |
$ | 66,890,632 | |
Note
12 — Warrant Liability
For
the three months ended March 31, 2022, the Company issued warrants to purchase shares of the Company’s common stock related
to the Warrant Exercise Agreement dated December 20, 2021, with a warrant holder, in which the Company agreed to issue 2.25
warrants with an exercise price of $3.265
to the warrant holder for every warrant
the warrant holder exercised from the period commencing December 20, 2021 and ending on February 28, 2022. In conjunction with
this agreement, the warrant holder exercised 36,894,569
warrants in the first three months of 2022 which
generated $111,029,493
in gross proceeds to the Company during the three
months ended March 31, 2022. In conjunction with the agreement, the Company issued 83,012,781
warrants to the holder and 6,641,022
to the placement agent for the agreement. The
warrants have an exercise price of $3.265,
a five
year term, and provide registration rights to
the holder along with other terms that cause the warrants to be accounted for as a liability. The initial fair value of the warrants
issued during the three months ended March 31, 2022 was $243,681,478.
The
Company’s outstanding warrants set forth below were valued using the Monte-Carlo simulation pricing model to calculate
the March 31, 2022 fair value of the warrants with the following assumptions:
Schedule
of Warrant Assumptions
| |
Dividend Yield | | |
Expected
Volatility | | |
Risk-free
Interest Rate | | |
Expected Life |
Hudson Bay Warrant; June 4, 2021 | |
| 0.00 | % | |
| 128.50 | % | |
| 2.43 | % | |
3.2 years |
Hudson Bay Series A Warrant; September 1, 2021 | |
| 0.00 | % | |
| 128.50 | % | |
| 2.43 | % | |
3.0 years |
Palladium Capital Group Series A Warrant; September 1, 2021 | |
| 0.00 | % | |
| 128.50 | % | |
| 2.43 | % | |
3.0 years |
Hudson Bay Warrant; November 10, 2021 | |
| 0.00 | % | |
| 128.50 | % | |
| 2.43 | % | |
3.9 years |
Palladium Capital Warrant; November 10, 2021 | |
| 0.00 | % | |
| 128.50 | % | |
| 2.43 | % | |
3.9 years |
Hudson Bay Warrant; December 20, 2021 | |
| 0.00 | % | |
| 128.50 | % | |
| 2.43 | % | |
3.9 years |
Palladium Capital Warrant; December 20, 2021 | |
| 0.00 | % | |
| 128.50 | % | |
| 2.43 | % | |
3.9 years |
Note
13 — Related Party Transactions
ZASH
Global Media and Entertainment Corporation
As
of March 31, 2022, Lomotif owed ZASH $2,500,000
in original principal amount under two promissory
notes. In addition, ZASH owed the Company $15,000,000
in original principal amount under six promissory
notes. Our Chairman, Roderick Vanderbilt, co-founded ZASH and previously served as the President of ZASH, and has a pre-existing
personal and business relationship with the current controlling shareholder of ZASH and ZVV manager, Theodore Farnsworth. On October
1, 2021, ZASH, ZVV, and AdRizer entered into a letter of intent (as amended, the “LOI”), which contemplated the acquisition
by ZASH or ZVV of all of the outstanding equity interests of AdRizer. On February 11, 2022, the Company, ZASH and ZVV entered into an
Assignment and Assumption Agreement whereby ZASH and ZVV assigned to the Company, and the Company assumed, all of the rights and obligations
of ZASH and ZVV under the LOI, in consideration of a cash payment by the Company to ZASH of $6.75
million upon the closing of the acquisition,
which occurred on February 11, 2022 (See Note 3- Acquisitions and Divestitures)
Magnifi
U, Inc.
On
October 12, 2021, ZVV entered into a promissory note (the “Magnifi U Note”) with Magnifi U, Inc. (“Magnifi U”),
pursuant to which ZVV loaned Magnifi U $1,500,000. The Magnifi U Note bears interest at 3% annually and Magnifi U is obligated to pay
the full amount of principal and interest in one balloon payment on October 12, 2023. Our Chief Executive Officer, President and director
and member of the board of managers of ZVV, Lisa King, is the founder of Magnifi U and serves as its chief executive officer. ZASH has
a 15% ownership interest in Magnifi U resulting from its equity investment of $5,000,000 in Magnifi U. Founded in August 2020, Magnifi
U is a personalized and immersive online education platform whose goal is to help its users develop life skills, nurture strengths and
live with purpose.
Wattum
Management Inc.
On
October 12, 2021, Cryptyde entered into a promissory note (the “Wattum Note”) with Wattum Management, Inc. (“Wattum”),
pursuant to which Cryptyde loaned Wattum $4,000,000.
The Wattum Note bears interest at 5%
annually. Wattum is a 49%
owner of CW Machines.
Note
14— Commitments and Contingencies
Operating
Leases
The
Company has entered into non-cancellable operating leases for office, warehouse, and distribution facilities, with original lease periods
expiring through 2024. In addition to minimum rent, certain of the leases require payment of real estate taxes, insurance, common
area maintenance charges, and other executory costs. Differences between rent expense and rent paid are recognized as adjustments to
operating lease right-of-use assets on the consolidated balance sheets.
Total
rent expense for the three months ended March 31, 2022 and 2021 was $187,500 and $26,553, respectively. Rent expense is included in general
and administrative expense on the consolidated statements of operations. As of March 31, 2022, the Company had operating lease liabilities
of $135,944 and right of use assets for operating leases of $133,310. 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.
Legal
Contingencies
The
Company is involved in claims and litigation in the ordinary course of business, some of which seek monetary damages, including claims
for punitive damages, which are not covered by insurance. For certain pending matters, accruals have not been established because such
matters have not progressed sufficiently through discovery, and/or development of important factual information and legal information
is insufficient to enable the Company to estimate a range of possible loss, if any. An adverse determination in one or more of these
pending matters could have an adverse effect on the Company’s consolidated financial position, results of operations or cash flows.
We
are, and may in the future become, subject to various legal proceedings and claims that arise in or outside the ordinary course of business.
Gerald
Whitt, et al. v. Vinco Ventures, CBAV1, LLC, et al.
On
October 27, 2020, Gerald Whitt, et al, the minority shareholders of Cloud b Inc. (“Whitt Plaintiffs”) filed a civil complaint
in the Superior Court of the State of California against Vinco Ventures, Inc., CBAV1, LLC and other parties, alleging fraudulent concealment,
breach of fiduciary duty, breach of contract, breach of confidence, intentional misrepresentation, negligent misrepresentation, unfair
business practices and civil conspiracy (the “Whitt Complaint”). Defendants have not been served with the Whitt Complaint.
On or about June 4, 2021, CBAV1 entered into a settlement agreement with the trustee for Cloud b, Inc., whereby all derivative claims
on behalf of Cloud B, Inc. in the Whitt Complaint were released as to CBAV1 and its affiliates, shareholders, officers, directors,
employees and other parties. There are a limited number of non-derivative claims against individuals that were not released that are
not expected to have any impact on the Company.
Vinco
Ventures, Inc., et al. v. Milam Knecht & Warner, LLP, Michael D. Milam, Gerald Whitt, Alexander Whitt, et al.
On
December 31, 2020, Vinco Ventures, Inc., and other parties, filed a complaint against the Whitt Plaintiffs, and other parties, with the
United States District Court for Eastern District of Pennsylvania, alleging intentional misrepresentation, negligent misrepresentation,
negligence, conspiracy, unfair business practices, abuse of process, civil extortion, trade libel and defamation. All claims were dismissed
and/or settled except for two (2) claims (unfair business practices and defamation) against Gerald Whitt.
Note
15 — Stockholders’ Equity
Common
Stock
The
Company is authorized to issue 250,000,000 shares of common stock. As of March 31, 2022 and December 31, 2021, there were 188,052,593
and 150,118,024 shares of common stock issued and outstanding, respectively.
During
the three months ended March 31, 2022, warrant shares of 36,894,569 were exercised and the Company received proceeds of $111,029,493.
Preferred
Stock
The
Company does not currently have any shares of preferred stock authorized for issuance
Stock-Based
Compensation
On
September 4, 2021, the Company’s board of directors approved the Vinco Ventures, Inc. 2021 Equity Incentive Plan (the “2021
Plan”). The 2021 Plan provides for the issuance of up to 9,000,000
(3,267,040
remaining as of March 31, 2022) shares
of Common Stock to help align the interests of management and our stockholders and reward our executive officers for improved
Company performance. Stock incentive awards under the 2021 Plan can be in the form of stock options, restricted stock units, performance
awards and restricted stock that are made to employees, directors and service providers. Awards are subject to forfeiture until vesting
conditions have been satisfied under the terms of the award. The exercise price of stock options is equal to the fair market value of
the underlying Common Stock on the date of grant.
The
following table summarizes stock option awards outstanding as of March 31, 2022:
Schedule of Share-based Compensation, Stock Options, Activity
| |
Shares | | |
Weighted Average Exercise Price | | |
Remaining Contractual Life in Years | | |
Aggregate Intrinsic
Value | |
Balance, December 31, 2021 | |
| 80,000 | | |
$ | 7.01 | | |
| 1.7 | | |
| - | |
Granted | |
| - | | |
| - | | |
| - | | |
| - | |
Balance, March 31, 2022 | |
| 80,000 | | |
$ | 7.01 | | |
| 1.4 | | |
| - | |
Exercisable, March 31, 2022 | |
| 80,000 | | |
$ | 7.01 | | |
| 1.4 | | |
| - | |
As
of March 31, 2022, there were no
unvested options to purchase shares of the Common
Stock and there was no
unrecognized equity-based compensation expense
that the Company expected to recognize over a remaining weighted-average period.
Net
Earnings or Loss per Share
Basic
net (loss) income per common share is computed by dividing net (loss) income by the weighted average number of vested common shares outstanding
during the period. Diluted net income per common share is computed by dividing net income by the weighted average number vested of common
shares, plus the net impact of common shares (computed using the treasury stock method), if dilutive, resulting from the exercise of
dilutive securities. In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock
equivalents because their inclusion would be anti-dilutive. As of March 31, 2022 and 2021, the Company excluded the common stock equivalents
summarized below, which entitle the holders thereof to ultimately acquire shares of common stock, from its calculation of earnings per
share, as their effect would have been anti-dilutive.
Schedule of Anti-dilutive Securities Excluded from Computation of Earnings Per Share
| |
As of | |
| |
March 31, 2022 | | |
March 31, 2021 | |
| |
| | |
| |
Shares reserved in exchange for the cancellation of certain non-voting membership interest in EVNT Platform, LLC | |
| 4,000,000 | | |
| - | |
Options | |
| 80,000 | | |
| 80,000 | |
Convertible shares under notes payable | |
| 28,271,954 | | |
| 2,647,587 | |
Series B Convertible Stock | |
| - | | |
| 764,618 | |
Warrants | |
| 160,701,887 | | |
| 37,102,534 | |
Shares to be issued | |
| - | | |
| 1,608,355 | |
Total | |
| 193,053,841 | | |
| 42,203,094 | |
Note
16 —Customer Concentrations
For
the three months ended March 31, 2022 and 2021 the following customers that represented more than 10% of total net revenues:
Schedule
of Revenue from Customers
| |
For the three months ended March 31, | |
| |
2022 | | |
2021 | |
Customer: | |
| | | |
| | |
Customer A | |
| * | | |
| 14 | % |
Customer B | |
| 11 | % | |
| * | |
* |
Did not represent more than 10% of
total net revenues. |
For
the three months ended March 31, 2022 and 2021, the following geographical regions represented more than 10% of total net revenues:
Schedule
of Revenue by Geographical Areas
| |
For the three Months ended March 31, | |
| |
2022 | | |
2021 | |
Region: | |
| | | |
| | |
North America | |
| 100 | % | |
| 76 | % |
Asia-Pacific | |
| 0 | % | |
| 9 | % |
Europe | |
| 0 | % | |
| 15 | % |
Note
17 — Subsequent Events
Exchange
Agreement
On
May 12, the Company entered into an agreement with the holder of the Company’s warrants for the purchase of the Company’s
common stock for $4.527 issued on November 10, 2021 (the “November 2021 Warrants”) and the Company’s warrants for the
purchase of the Company’s common stock for $3.2653 issued on December 20, 2021 (the “December 2021 Warrants”) whereby
the Company and the holder agreed the holder could exchange its warrants for the Company’s common shares. The exchange ratio agreed
to is for each November 2021 Warrant exchanged the holder would receive 0.77 of a share of the Company’s common stock, and for
each December 2021 Warrant exchanged the holder would receive 0.81 of a share of the Company’s common stock. The holder
is entitled to exchange its November 2021 Warrants and its December 2021 Warrants under the agreement from May 19, 2022 until the sixtieth
(60th) day immediately following the date on which the Company’s receives approval from its stockholders for the increase
of its authorized common shares from 250,000,000 to 750,000,000 (the “Shareholder Approval Date”). On May 13, 2022, the
Company filed a preliminary proxy statement for a Special Meeting of Stockholder’s to, among other things, seek the approval from
its stockholders for such proposed increase of its authorized common shares.
Furthermore, pursuant
to the exchange agreement, on or prior to the second business day following the Shareholder Approval Date, the Company shall deliver
to the holder an additional number of shares of Common Stock equal to 7% of the sum of each of the November 2021 Warrants and December
2021 Warrants exchanged by the holder during this period. In addition, the exchange agreement allows the holder for up to 60 days after
the Shareholder Approval Date for (i) each November 2021 Warrant may be exchanged for 42% of a November 2021 Exchanged Warrant Share,
and (ii) each December 2021 Warrants may from time to time be exchanged for 42% of a December 2021 Exchanged Warrant Share.
Pursuant to Section 7(n)
of the Exchange Agreement, until October 9, 2022, the holder agreed to grant, free of charge, to the Company any reasonable and necessary
waivers and extensions solely in connection with the Company’s obligations (i) to file an Initial Registration Statement pursuant
to that certain Registration Rights Agreements between the Company and the holder dated as of November 11, 2021, as amended (the “November
2021 RRA”), and that certain Registration Rights Agreements between the Company and the holder dated as of December 20, 2021, as
amended (the “December 2021 RRA” ), and (ii) to file a definitive proxy statement to approve the transactions contemplated
by the November WEA and December WEA; provided, however, the holder shall retain the right to deliver an Alternate Exercise
Notice (as defined in each of the November Warrant Exercise Agreement and December Warrant Exercise Agreement) to the Company as permitted
pursuant to the terms thereof. The exchange agreement also requires the holder to continue to hold the common shares received under the
exchange for a certain period of time.
On May 19, the holder
exchanged 500,000 November 2021 Warrants for 385,000 shares of the Company’s common stock, and 18,090,123 December 2021 Warrants
for 14,653,000 shares of the Company’s common stock. The Company did not receive any proceeds from the cashless exercises.
Warrant
Exercise Agreements
On May 12, 2022, the
Company entered into warrant exercise agreement with two holders of the Company’s warrants for the purchase of the Company’s
common stock for $9.00
per share issued on September 1, 2022 (the “Series A September 2021 Warrants”) whereby the Company and the
holders agreed to a cashless exercise whereby each holder would receive 0.50
of a share of the Company’s common stock for each Series A September 2021 Warrant that is exercised by the holder.
On May 19, the holders exchanged 15,000,000
Series A September 2021 Warrants for 7,500,000
shares of the Company’s common stock. The Company did not receive any proceeds from the cashless exercise.
The May WEA and the
Exchange Agreement also require the participating holders to continue to hold shares for a certain period of time as set forth in the
May WEA and the Exchange Agreement.
Shareholder Proposals for Increase of Authorized
Common and Preferred Shares
On May 13, 2022, the Company filed a preliminary
proxy statement for a Special Meeting of Stockholders to seek approval of proposals to increase the number of authorized shares of common stock under
the Company’s Amended and Restated Articles of Incorporation from 250,000,000 to 750,000,000 and increase the
number of authorized shares of preferred stock under the Company’s Amended and Restated Articles of Incorporation from 0 to 30,000,000.