NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note
1 — Basis of Presentation and Nature of Operations
Unaudited
Interim Condensed Consolidated Financial Information
The
unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted
in the United States of America (“GAAP”) for interim financial statements and with Form 10-Q and Article 10 of Regulation
S-X of the United States Securities and Exchange Commission (the “SEC”). Accordingly, they do not contain all information
and footnotes required by GAAP for annual financial statements. The condensed consolidated financial statements include the accounts
of the Company and its wholly-owned and majority-owned subsidiaries and consolidated variable interest entities. All intercompany balances
and transactions have been eliminated in consolidation. In the opinion of the Company’s management, the accompanying unaudited
condensed consolidated financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present
the financial position of the Company as of September 30, 2022 and the results of operations, changes in stockholders’ equity,
and cash flows for the periods presented. The interim results are not necessarily indicative of the operating results to be expected
for the fiscal year ending December 31, 2022 or for any other interim period or for any other future year.
The
unaudited condensed consolidated financial statements and related financial information should be read in conjunction with the audited
consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2021 (the “Annual Report”). The Company’s accounting policies are described in the Notes to Consolidated
Financial Statements in its Annual Report on Form 10-K for the year ended December 31, 2021, and updated, as necessary, in this Quarterly
Report.
Description
of the Business
Vinco
Ventures is focused on digital media, advertising and content technologies.
As
of September 30, 2022, Vinco Ventures’ wholly-owned subsidiaries included: AdRizer, Vinco Ventures Shared Services LLC, Honey Badger,
EVNT Platform LLC DBA Emmersive Entertainment (“EVNT”), Love is Blurred LLC and Edison Nation Holdings, LLC. Edison Nation
Holdings, LLC is the single member of Edison Nation, LLC and Everyday Edisons, LLC. Edison Nation, LLC is the single member of Safe TV
Shop, LLC. Vinco Ventures owns a 50% voting membership interest and a 25% economic interest after return of unreturned capital contributions
in ZVV, which are consolidated as Variable Interest Entities (“VIE”) with noncontrolling interests. ZVV owns 80% of the outstanding
equity interests in Lomotif and Lomotif owns 100% of Lomotif, Inc. Vinco Ventures also has an outstanding loan to Magnifi U which is
consolidated as a VIE with a noncontrolling interest.
Going
Concern and Liquidity
These
condensed consolidated financial statements have been prepared assuming that we will continue as a going concern. This basis of accounting
contemplates the recovery of our assets and the satisfaction of our liabilities in the normal course of business.
The
Company has incurred and continues to incur losses from operations as well as negative cash flows from operations. For the nine
months ended September 30, 2022, the Company had a net loss of $410,187,814,
net cash used in operations of $98,770,185
and an accumulated deficit of $1,062,758,966.
On June 30, 2022, the Company postponed its special stockholder meeting from July 1, 2022 to July 26, 2022 which was subsequently
postponed again to August 23, 2022 and then postponed indefinitely. This meeting was to be held to approve various proposals
including amending the Company’s Amended and Restated Articles of Incorporation to increase the number of its authorized
shares of common stock from 250,000,000
to 750,000,000.
The postponement of the meeting triggered an alternative exercise notice clause in the Company’s November and December 2021
warrants, as amended, which allows the holder to put the warrants back to the Company in exchange for cash payments of $0.65
and $0.36
per warrant for the November and December 2021 warrants, respectively (Note 12 – Warrant Liability). The Holder exercised this
provision in July 2022 resulting in a cash payment of $33,886,612
and cancelation of 82,260,699
warrants. Additionally, per the terms of the amended July 2021 convertible note the Company made a cash payment of $33,000,000
against principal and cash interest payment of $115,500
on July 19, 2022. On August 18, 2022, the Company paid an additional $65,000,000
to the note holder, of which $55,000,000
was applied to the principal. These payments along with our cash flows from operations have reduced our cash balance from $20,750,707
at September 30, 2022 to approximately $16,000,000
in restricted cash and $1,700,000
in unrestricted cash at March 31, 2023. At September 30, 2022 we have approximately $12.4
million in accounts payable and accrued expenses, and during the first nine months of 2022, we utilized approximately $11,000,000
in cash per month, after adjusting cash used for debt repayments, cash satisfaction of warrant liabilities following the Alternate
Exercise Notice, and acquired and divested cash in the AdRizer and Cryptyde transactions. Furthermore, due to the postponement of a
special stockholder meeting, the Company’s ability to raise additional cash through issuance of common shares is limited.
These conditions raise substantial doubt about the Company’s ability to continue as a going concern and meet its obligations
for twelve months following the date the condensed consolidated financial statements are issued.
Management’s
plans include evaluating different strategies to obtain required funding for future operations, developing and implementing cost reduction
initiatives, and pursuing revenue generating programs with strategic partners. As these plans have not yet been implemented, management
has concluded that substantial doubt about the Company’s ability to continue as a going concern has not been alleviated.
The
condensed consolidated financial statements do not include any adjustments relating to the recoverability and reclassification of recorded
asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.
Note
2 — Summary of Significant Accounting Policies
Principles
of Consolidation
The
consolidated financial statements include the accounts of Vinco Ventures, Inc. and its wholly-owned subsidiaries, majority owned subsidiaries
and consolidated variable interest entities. All intercompany balances and transactions have been eliminated.
Use
of Estimates
Preparation
of financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses, together with amounts disclosed in the related notes to the financial statements.
The
Company’s significant estimates used in these financial statements include, but are not limited to, accounts receivable
reserves, the valuation allowance related to the Company’s deferred tax assets, impairment valuation estimates, the
recoverability and useful lives of long-lived assets, debt conversion features, fair value of warrant liabilities, stock-based compensation, certain assumptions
related to the valuation of the reserved shares and the assets acquired and liabilities assumed related to the Company’s
acquisitions. Certain of the Company’s estimates could be affected by external conditions, including those unique to the
Company and general economic conditions. It is reasonably possible that these external factors could have an effect on the
Company’s estimates and could cause actual results to differ from those estimates.
Significant
Accounting Policies
Significant
accounting policies are disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. There have
been no changes in such policies or the application of such policies during the nine months ended September 30, 2022. As a result of
the acquisition of Adrizer, the Company added a new revenue stream, Digital Media Advertising and Licensing, to its Revenue Recognition
policy. Additionally, as a result of the Company’s interest in Love is Blurred, the Company has recorded Film and Television Production
assets in accordance with Topic 926. As a result of these changes in the first nine months of 2022, new investments have been recognized.
The details for each of these topics are as follows:
Revenue
Recognition
The
Company considers all revenues as arising from contracts with customers. Revenue is recognized based on the five-step process outlined
in the Accounting Standards Codification (“ASC”) 606 as disclosed in the Company’s Annual Report on Form 10-K. Additional
clarification on the Company’s Digital Media Advertising and Licensing revenue recognition policy is provided below.
Digital
Media Advertising and Licensing
The
Company’s digital media advertising revenues are generated primarily from the posting of original digital content through
third-party online platforms which are then delivered to users of the online platform across the customer’s digital
advertising platform and becomes monetizable to the Company, which the Company concludes is its performance obligation. The Company
purchases traffic (spots on a web page) from third party providers. The Company generates revenue by charging their clients for
traffic that they purchase from third-parties. The Company also charges a client traffic management fee that is based on a
percentage of the amount of traffic purchased by AdRizer for the client. AdRizer built a proprietary software which provides
real-time analytics. Utilizing the Company’s software, the Company’s media buyers create, deploy and manage ad campaigns
to generate profit. Revenue from the digital media platform is primarily recognized based on impressions delivered to customers. An
“impression” is delivered when an advertisement appears on pages viewed by users. For impressions-based digital
advertising, revenues are recognized as impressions are delivered over the term of the arrangement, while revenue from
non-impressions-based digital advertising is recognized over the period that the advertisements are displayed. Such amounts are
recognized net of agency commissions and provisions for estimated sales incentives, including rebates, rate adjustments or
discounts.
Licensing
revenues are derived from the sale of a licensee’s products that incorporates the Company’s intellectual property. Royalty
revenues are recognized during the quarter in which the Company receives a report from the licensee detailing the shipment of products
that incorporate the Company’s intellectual property, which receipt is in the quarter following the licensee’s sale of such
products to its customers. Royalties are calculated as a percentage of the revenues received by the Company’s licensees on sales
of products incorporating the Company’s intellectual property. Total licensing revenues for the nine months ended September 30, 2022 are $96,790.
Identification
of a Customer and Gross Versus Net Revenue Recognition
In
the normal course of business, the Company acts as or uses an intermediary or agent in executing transactions with third parties. When
the intermediary or agent is determined to be the Company’s customer, the Company records revenue based on the amount it expects
to receive from the agent or intermediary based on contractual terms with the customer.
In
other circumstances, the determination of whether revenue should be reported on a gross or net basis is based on an assessment of whether
the Company is acting as the principal or an agent in the transaction. If the Company is acting as a principal in a transaction, the
Company reports revenue on a gross basis. If the Company is acting as an agent in a transaction, the Company reports revenue on a net
basis. The determination of whether the Company is acting as a principal or an agent in a transaction involves judgment and is based
on an evaluation of the terms of the arrangement. The Company serves as the principal in transactions in which it controls the goods
or services prior to being transferred to the ultimate customer.
For
AdRizer, FASB ASC 606 requires an entity to determine whether it is a principal (recognizes revenue at the gross amount) or an agent
(recognizes revenue at the net amount) for each promised good or service. Based on the FASB guidance, the Company has determined that
AdRizer is the principal for each promised good or service, thus, revenue is recognized at the gross amount of the transactions. Revenue
from traffic sales and traffic management services are generally recognized at the end of each month when the performance obligation
is satisfied.
Film
and Television Productions
The
Company accounts for the film and television productions in accordance with Topic 926, Entertainment – Films. Production
costs qualifying for capitalization, are recorded as film and television productions on the consolidated balance sheet and amortized
using forecast methods that match amortization to estimated revenue. Currently all productions are actively under development and, as
such, amortization has not commenced.
Investments
Investments
in equity securities (excluding equity method investments) with readily determinable fair values are accounted for at fair value. For
investments in equity securities without readily determinable fair values, the Company elects the measurement alternative permitted under
GAAP to measure these investments at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly
transactions for an identical or similar investment of the same issuer.
Investments
in which the Company has the ability to exercise significant influence but does not control and is not the primary beneficiary are equity
method investments. Significant influence typically exists if the Company has a 20% to 50% ownership interest in a venture unless persuasive
evidence to the contrary exists. Under this method of accounting, the Company records its proportionate share of the net earnings or
losses of equity method investees and a corresponding increase or decrease to the investment balances. Cash payments to equity method
investees such as additional investments, loans and advances and expenses incurred on behalf of investees as well as payments from equity
method investees such as dividends, distributions and repayments of loans and advances are recorded as adjustments to investment balances.
The Company applies the cumulative earnings approach for determining the cash flow presentation of cash distributions received from equity
method investees. Distributions received are included in the consolidated statements of cash flows as operating activities, unless the
cumulative distributions exceed the Company’s portion of the cumulative equity in the net earnings of the equity method investment,
in which case the excess distributions are deemed to be returns of the investment and are classified as investing activities in the consolidated
statements of cash flows. The Company evaluates its equity method investments for impairment whenever events or changes in circumstances
indicate that the carrying amounts of such investments may not be recoverable.
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 which include customer relationships and trade name, and the fair value of AdRizer’s
investment in Mind Tank, LLC, of which we own 50% as a result of our ownership of AdRizer.
The
fair value in AdRizer, and AdRizer’s investment in Mind Tank, used several methodologies to arrive at the current estimate. To
value assets, fixed assets were reported at NBV which approximates fair value. The fair value of the intangible assets employed the following
methodologies: customer relationships (Distributor method); developed technology (Multi- period Excess Earnings Method); trade name (Relief-from-Royalty);
and the existing workforce was also valued (Replacement Cost method) but is included in Goodwill for reporting purposes. The estimated
useful life of the various intangibles was based on the cash flow estimated for the particular asset. Qualitative factors regarding the
valuation included expected synergies between businesses and integration of the technology.
The
following purchase price allocation is preliminary and details management’s estimate and allocation of the purchase price and fair
value of the asset acquired and liabilities assumed at the time of closing.
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 | |
| 847,273 | |
| Property and equipment | |
| 191,654 | |
| Investment in Mind Tank, LLC | |
| 2,800,000 | |
| Customer relationships | |
| 8,800,000 | |
| Developed technology | |
| 28,000,000 | |
| Trade Name | |
| 2,200,000 | |
| Goodwill | |
| 17,039,788 | |
| Total assets acquired | |
| 68,529,001 | |
| | |
| | |
| Accounts payable and accrued expenses | |
| 7,342,678 | |
| Total liabilities assumed | |
| 7,342,678 | |
| | |
$ | 61,186,323 | |
Statement
of Cash Flow reconciliation:
Schedule
of Cash Flow Reconciliation
| | |
| | |
| Purchase consideration | |
$ | 61,186,323 | |
| Fair value of deferred acquisition price | |
| (23,250,000 | ) |
| Cash and cash equivalents, acquired | |
| (3,085,747 | ) |
| Net cash paid | |
$ | 34,850,576 | |
During
the nine months ended September 30, 2022, the Company made a provisional estimate and adjustment for amortization of the preliminary
intangible assets including customer list, developed technology, and trade name. The Company has estimated a seven-year useful life and
recorded amortization expense of approximately $3,066,665 during the nine months ended September 30, 2022. The final fair value determination
could result in material adjustments to the values presented in the preliminary purchase price allocation, including the fair value of
Mind Tank, LLC, intangible assets, goodwill and the related tax impact of such adjustments. We expect to finalize the purchase price
allocation within the measurement period.
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 nine months ended
September 30, 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 September 30, 2022.
The amounts of revenue and earnings of AdRizer from the acquisition date of February 11, 2022 to September 30, 2022 are as follows:
Schedule of Business Combination Revenue and Earnings
| | |
| | |
| Revenue | |
$ | 23,415,515 | |
| Net income | |
$ | (41,285,001 | ) |
The
following represents the pro forma consolidated statement of operations as if AdRizer had been included in the consolidated results of
operations of the Company for the nine-month period ended September 30, 2022 and 2021. The pro forma financial information is for illustrative
purposes only, does not include the pro forma adjustments that would be required under Regulation S-X for pro forma financial information,
is not necessarily indicative of the financial position or results of operations that would have been realized if the acquisition had
been completed on the dates indicated, does not reflect synergies that might have been achieved, nor is it indicative of future operating
results or financial position. The pro forma information is based upon currently available information and does not reflect any additional
depreciation or amortization that would have been charged assuming fair value adjustments to developed technology and other intangible
assets, together with the consequential tax effects, which have not yet been finalized.
PZAJ
Holdings, LLC
On
May 12, 2022, the Company entered into an agreement with PZAJ Holdings, LLC (“PZAJ”) to Convert Promissory Note to Capital
Contributions (“5/12/2022 Conversion Agreement”). Under the 5/12/2022 Conversion Agreement, the Company was to be admitted
as a PZAJ Member with 51% ownership subject to the terms of the agreement.
Because
condition(s) precedent to the Company’s admission to PZAJ as a member and to the May 12, 2022 Agreement to Convert Promissory Note
to Capital Contributions failed to occur, the Company did not record a membership interest in PZAJ. The notes receivable due from PZAJ
will continue to be reported by the Company. Because the intent is to be admitted as a member in exchange for the cancellation of the
notes receivable, the Company will not establish a reserve against the loans that are included in the conversion agreement as the fair
value of the membership interest approximates the fair value of the loans receivable.
During
the nine months ended September 30, 2022, the Company held eight loans for investment with PZAJ, a related party, totaling $6,580,000.
Seven of the notes accrue interest at 2%
with a one-year
repayment term and are repaid through 50% of net revenues, as defined, of the related productions. The most recent note,
entered into on July 7, 2022 for a principal amount of $840,000
accrues interest at 2%
with a two-year
repayment term.
The
notes are principally funding film or TV production assets, all of which are still in production. As of September 30, 2022, $3,150,000
of the loans have matured, and not been repaid to the Company. During the three months ended September 30, 2022, the Company performed an analysis of the likelihood of repayment related to the PZAJ
loans. The Company determined that, due to the current financial state of PZAJ, repayment in cash is unlikely. The Company determined
it is probable that the first seven notes with principal balances totaling $5,740,000 will be settled for membership interests in PZAJ
pursuant to the May 12, 2022 Agreement to Convert Promissory Note to Capital Contributions with PZAJ. The final note, with principal of
$840,000 was not contemplated in the membership interest for loan cancellation agreement and as such, as of September 30, 2022, the company
recorded a reserve for the full amount of the loan.
Asset
Acquisitions
Love
is Blurred, LLC
On
June 21, 2022, ZASH and the Company entered into a Love is Blurred LLC Membership Interest Assignment Agreement (“LIB Membership
Interest Agreement”). Pursuant to the LIB Membership Interest Agreement, ZASH sold 100% of its membership interest in Love Is Blurred
(“LIB”) to the Company. Consideration to ZASH for the acquired asset was the reduction of outstanding principle by $1,048,750
and outstanding interest by $201,250 (totaling $1,250,000) on a loan between the Company and ZASH. The acquisition closed on June 21,
2022. The fair value of the asset was determined to be $531,279, and a loss on the Love is Blurred LLC acquisition of $718,721 was recognized.
The
LIB LLC assets consist principally of a single film production asset. Because LIB LLC is not a business, the acquisition has been accounted
for as an asset.
Emmersive
Entertainment Asset Contribution
On
April 17, 2021, Vinco and EVNT entered into (and closed on) a certain Asset Contribution Agreement (“Asset Contribution Agreement”)
with Emmersive Entertainment, Inc. (“Emmersive”), pursuant to which Emmersive contributed/transferred to the Company the
assets used for Emmersive’s business, which include digital assets, software and certain physical assets (the “Contributed
Assets”) in consideration for, among other things, the Company assuming certain obligations of Emmersive, hiring certain employees,
and issuing 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”).
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 $2,100,000 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 our subsidiary Cryptyde, Inc (“Cryptyde”) also entered into a Milestone Agreement for
the earnout shares to be earned and any remaining consideration to be paid by Cryptyde with an effective date of both the agreements
upon the spin- off of Cryptyde being declared effective by the SEC (the “Effective Date”). Upon the Effective Date, the agreements
released the Company of the obligation to deliver the additional 4,000,000 earn-out shares provided under the Asset Contribution Agreement.
The Cryptyde spin-off occurred on June 29, 2022, and therefore the Company is no longer liable for any contingent consideration to Emmersive.
In
addition, with the sale of Cryptyde, there was a change in how the Company planned to utilize the EVNT platform from its acquisition.
Management made the determination that it was no longer interested in continuing to operate and profit from E-NFT. The developed technology
intangible asset for the EVNT platform of $6,607,989 (net of amortization) was fully impaired at September 30, 2022. (See Note 10 –
Intangible Assets and Goodwill)
Divestitures
Spin-Off
of Cryptyde, Inc.
On
November 8, 2021, Cryptyde initially filed, and on January 25, 2022, March 18, 2022 and May 13, 2022 amended, a Form 10 registration
statement with the SEC (the “Form 10”) in connection with our planned spin-off of 100% of the outstanding shares of common
stock of Cryptyde to our shareholders, 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, along with our subsidiaries CW Machines LLC
and Ferguson Containers (the “Cryptyde Businesses”), held our packaging, Bitcoin mining services, and Web3 (decentralized
internet) products businesses.
On
May 16, 2022, the Form 10 was declared effective. The Record Date for the spin-off was May 18, 2022. Effective June 29, 2022, Cryptyde
separated from the Company and the distribution of its common stock was completed. Upon completion of the spin-off, Cryptyde became an
independent, publicly traded company (NasdaqCM: TYDE). The distribution was made in the amount of one share of Cryptyde common stock
for every ten shares of our common stock owned by our stockholders at the close of business on the Record Date.
Also,
in connection with the spinoff, we entered into definitive agreements with Cryptyde that, among other things, set forth the terms and
conditions of the separation and distribution. The agreements set forth the principles and actions taken or to be taken in connection
with the separation and the distribution and provide a framework for our relationship with Cryptyde from and after the separation and
the distribution. The agreements include a Separation and Distribution Agreement and a Tax Matters Agreement.
On
January 26, 2022, Cryptyde entered into a Securities Purchase Agreement with an accredited investor for the issuance of a (i) 1,500,000
shares of Cryptyde Common Stock, and (ii) a warrant to purchase up to 1,500,000 shares of Cryptyde Common Stock with an exercise price
of $8.00 per share of Cryptyde Common Stock. In addition, Cryptyde issued a warrant to the placement agent to purchase up to 240,000
shares of Cryptyde Common Stock with an initial exercise price of $8.00 per share of Cryptyde Common Stock. The transaction closed on
May 20, 2022.
On
June 29, 2022, Vinco Ventures, Inc. distributed 100% of the shares of Cryptyde’s common stock held by Vinco to holders of shares
of Vinco common stock, subject to certain conditions. On the Distribution Date, each holder of Vinco common stock received one share
of Cryptyde common stock for every ten shares of Vinco common stock held at the close of business on the Record Date.
The
results of our Cryptyde businesses have been reflected as discontinued operations in the current year period through the date of the
spinoff and in the prior year period.
Details
of assets and liabilities related to the spin-off of Cryptyde are as follows:
Schedule
of Divestitures Balance Sheets
| | |
June
29, 2022 | | |
December
31, 2021 | |
| | |
| | |
| |
| Assets | |
| | | |
| | |
| Current assets: | |
| | | |
| | |
| Cash | |
$ | 9,921,084 | | |
$ | 911,194 | |
| Accounts receivable, net | |
| 1,092,406 | | |
| 867,027 | |
| Inventory | |
| 2,075,089 | | |
| 110,664 | |
| Prepaid expenses and other current assets | |
| 3,247,154 | | |
| 3,359,716 | |
| Total current assets | |
| 16,335,733 | | |
| 5,248,601 | |
| Loan receivable, related party | |
| 3,950,053 | | |
| 4,000,000 | |
| Loan Interest Receivable, related party | |
| 133,187 | | |
| | |
| Fixed assets, net | |
| 1,193,132 | | |
| 1,007,770 | |
| Total Assets | |
$ | 21,612,105 | | |
$ | 10,256,371 | |
| | |
| | | |
| | |
| Liabilities and Stockholders’ Equity | |
| | | |
| | |
| Current liabilities: | |
| | | |
| | |
| Current liabilities | |
$ | 3,178,690 | | |
$ | 7,285,429 | |
| Total Current Liabilities | |
| 3,178,690 | | |
| 7,285,429 | |
| Other liabilities: | |
| | | |
| | |
| Due company (former parent), net | |
$ | 6,750,130 | | |
$ | 27,644 | |
| Other liabilities | |
| 46,775 | | |
| 46,775 | |
| Net assets of spin-off / discontinued operations: | |
| | | |
| | |
| Net assets of spin-off / discontinued operations | |
$ | 11,636,610 | | |
$ | 2,896,522 | |
The
following cash flow supplementary information summarizes the distribution:
| | |
June 29, 2022 | |
| | |
| |
| Cash distributed | |
$ | 9,921,084 | |
| Other assets distributed | |
| 11,691,021 | |
| Liabilities distributed | |
| (9,975,495 | ) |
| | |
| | |
| Net assets distributed | |
$ | 11,636,610 | |
Details
of earnings (loss) from discontinued operations included in our condensed consolidated statements of operations are as follows:
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| | |
For the Three Months
Ended September 30, | | |
For the Nine Months
Ended September 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Revenues, net | |
$ | - | | |
$ | 2,002,982 | | |
$ | 11,103,512 | | |
$ | 5,767,328 | |
| Cost of revenues | |
| - | | |
| 1,432,506 | | |
| 9,466,949 | | |
| 4,119,953 | |
| Gross Profit | |
| - | | |
| 570,476 | | |
| 1,636,563 | | |
| 1,647,375 | |
| | |
| | | |
| | | |
| | | |
| | |
| Operating expenses: | |
| | | |
| | | |
| | | |
| | |
| Selling, general and administrative | |
| - | | |
| 262,717 | | |
| 5,050,186 | | |
| 1,173,191 | |
| Operating Income | |
| - | | |
| 307,759 | | |
| (3,413,623 | ) | |
| 474,184 | |
| | |
| | | |
| | | |
| | | |
| | |
| Other (expense) Income | |
| | | |
| | | |
| | | |
| | |
| Interest income (expense) | |
| - | | |
| (14,509 | ) | |
| 149,311 | | |
| (47,327 | ) |
| Other income (loss) | |
| - | | |
| 567,792 | | |
| 3,400 | | |
| 622,199 | |
| Total other (expense) income | |
| - | | |
| 553,283 | | |
| 152,711 | | |
| 574,872 | |
| Income tax expense | |
| - | | |
| - | | |
| - | | |
| - | |
| Net (Loss) Income | |
$ | - | | |
$ | 861,042 | | |
$ | (3,260,912 | ) | |
$ | 1,049,056 | |
During
the time Cryptyde was under management of the Company, cash advances were made to Cryptyde for management fees, working capital, and
financing needs, as well as other operating expenses that were paid for on behalf of Cryptyde. As of September 30, 2022, amounts due
from Cryptyde, net of allowance for losses of $2,025,039,
total $4,725,091. The Company established the allowance for loss after a review of Cryptyde’s financial health and likelihood to repay. Due to concerns
about Cryptyde’s liquidity, the Company determined it necessary to establish a reserve for 30% of the asset balance.
Write-off
of Best Party Concepts, LLC and Global Clean Solutions, LLC
The
Company wrote-off its investment in Best Party Concepts, LLC and Global Clean Solutions, LLC as of June 30, 2022 due to insignificant
activity and a decision to not pursue business in the foreseeable future. The write-off attributed to Best Party Concepts equaled $314,319
and the write-off attributed to Global Clean Solutions was $608,482.
Note
4 — Variable Interest Entities
The
Company is involved in the formation of various entities considered to be VIEs. The Company evaluates the consolidation of these entities
as required pursuant to ASC Topic 810 relating to the consolidation of VIEs.
The
Company’s determination of whether it is the primary beneficiary of VIE is based in part on an assessment of whether or not the
Company and its related parties are exposed to the majority of the risks and rewards of the entity. Typically, the Company is entitled
to substantially all or a portion of the economics of these VIEs. The Company is the primary beneficiary of the VIE entities. The assets
of the VIEs can be used to settle obligations of the consolidated entities. Conversely, liabilities recognized as a result of consolidating
these VIEs do not represent additional claims on the Company’s general assets.
The
following table presents the carrying values of the assets and liabilities of entities that are VIEs and consolidated by the Company
as of September 30, 2022 and December 31, 2021:
Schedule
of Assets and Liabilities of Variable Interest Entities
| | |
September 30, 2022 | | |
December 31, 2021 | |
| | |
| | |
| |
| Assets | |
| | | |
| | |
| Current assets: | |
| | | |
| | |
| Cash and cash equivalents | |
$ | 1,799,152 | | |
$ | 1,856,017 | |
| Accounts receivable, net | |
| - | | |
| - | |
| Prepaid expenses and other current assets | |
| 1,860,867 | | |
| 2,388,893 | |
| Due from related party, current | |
| - | | |
| 15,997,803 | |
| Loan held-for-investment, related parties, current, net of allowance for loan losses of $7,701,250 and $0, respectively | |
| - | | |
| - | |
| Total current assets | |
| 3,660,019 | | |
| 20,242,713 | |
| Due from related party, non-current, net of allowance for losses of $15,100,584 and $0, respectively | |
| 25,001 | | |
| - | |
| Loan interest receivable, non-current, net of allowance for loan losses of $335,673 and $0, respectively | |
| 38,260 | | |
| - | |
| Loan held-for-investment | |
| 750,000 | | |
| 3,100,000 | |
| Loan held-for-investment, related parties | |
| - | | |
| 11,500,000 | |
| Investment in subsidiary | |
| 110,509,500 | | |
| - | |
| Total other assets | |
| 111,322,761 | | |
| 14,600,000 | |
| Property and equipment, net | |
| 399,798 | | |
| 147,519 | |
| Intangible assets, net | |
| 2,970,427 | | |
| 28,150,048 | |
| Goodwill | |
| 40,124,491 | | |
| 116,188,021 | |
| Cost method Investments | |
| 1,000,000 | | |
| 1,000,000 | |
| Right of use assets, net | |
| 45,000 | | |
| - | |
| Total assets | |
$ | 159,522,496 | | |
$ | 180,328,301 | |
| | |
| | | |
| | |
| Liabilities and stockholders’ equity | |
| | | |
| | |
| Current liabilities: | |
| | | |
| | |
| Accounts payable | |
$ | 1,910,250 | | |
$ | 686,674 | |
| Accrued expenses and other current liabilities | |
| 2,523,283 | | |
| 1,672,492 | |
| Operating lease liabilities | |
| 44,131 | | |
| - | |
| Total current liabilities | |
| 4,477,663 | | |
| 2,359,166 | |
| Intercompany | |
| 65,966,770 | | |
| - | |
| Notes payable | |
| 6,000,000 | | |
| 2,650,000 | |
| Due to related party | |
| - | | |
| 315,666 | |
| Total liabilities | |
$ | 76,444,433 | | |
$ | 5,324,832 | |
The
following table presents the operations of entities that are VIEs and consolidated by the Company as of September 30, 2022 and 2021:
Schedule
of Operations of Variable Interest Entities
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| | |
For the Three Months | | |
For the Nine Months | |
| | |
Ended September 30, | | |
Ended September 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Revenues, net | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 307,339 | |
| Cost of revenues | |
| - | | |
| - | | |
| - | | |
| 93,685 | |
| Gross Profit | |
| - | | |
| - | | |
| - | | |
| 213,654 | |
| | |
| | | |
| | | |
| | | |
| | |
| Operating expenses: | |
| | | |
| | | |
| | | |
| | |
| Selling, general and administrative | |
| 105,639,946 | | |
| 11,761,747 | | |
| 138,747,755 | | |
| 11,866,488 | |
| Operating (Loss) income | |
| (105,639,946 | ) | |
| (11,761,747 | ) | |
| (138,747,755 | ) | |
| (11,652,834 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Other (Expense) Income | |
| | | |
| | | |
| | | |
| | |
| Interest expense | |
| (29,669 | ) | |
| (155,476 | ) | |
| (42,784 | ) | |
| (163,236 | ) |
| Other income | |
| 175,529 | | |
| 98,333 | | |
| 527,493 | | |
| 98,353 | |
| Loan loss expense | |
| (8,036,923 | ) | |
| - | | |
| (8,036,923 | ) | |
| - | |
| Total Other Expense | |
| 7,891,063 | | |
| 57,123 | | |
| 7,552,214 | | |
| 64,883 | |
| Income tax expense | |
| - | | |
| - | | |
| - | | |
| - | |
| Net (Loss) Income | |
$ | (113,531,009 | ) | |
$ | (11,818,870 | ) | |
$ | (146,299,968 | ) | |
$ | (11,717,717 | ) |
As
of September 30, 2022, the Company had no unconsolidated VIEs. The Company has consolidated Magnifi U, ZVV, and Lomotif for which the
Company has determined it holds a variable interest. ZVV currently owns an 80% equity interest in Lomotif, a Singapore-based video-sharing
and live streaming social networking platform that is committed to democratizing video creation and increasing user reach through content
development, live streaming and cross-platform engagement initiatives. Lomotif owns 100% of Lomotif, Inc. Magnifi U is a free, immersive,
online personal and professional development platform that helps people align with their purpose.
Magnifi
U Inc.
On
May 19, 2021, the Audit Committee approved the Company entering into a secured loan to Magnifi U for up to $2.75
million, with $750,000
to be loaned immediately. In addition to the $750,000 loan payment, $1,168,073 related to employee
payroll was paid between December 31, 2021 and September 30, 2022 bringing total cash advances to $1,918,073.
On
October 12, 2021, ZVV Media loaned $1,500,000 to Magnifi U, which is eliminated in consolidation as a VIE. 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 platform creation and distribution of digital media content. Our director,
Vinco employee, 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 an 8% ownership interest in Magnifi U resulting from its equity investment of $2,411,140 in Magnifi U, with an obligation
to fund a total of $5,000,000 for a total of 15% equity.
On
December 30, 2021 the Vinco Ventures, Inc. Board of Directors unanimously approved Vinco Ventures, Inc. to hire all then-current employees
of Magnifi U, as part of the strategic investment in the platform.
As
a result of the Board of Directors approval to hire all then-current employees of Magnifi U, and subsequent onboarding of Magnifi U employees
in January 2022, the Company reconsidered the relationship as prescribed in ASC 810-10-35-4. The Company concluded consolidation was
appropriate.
ZVV
Media Partners, LLC and Lomotif Private Limited
On
January 19, 2021, Vinco Ventures, ZASH and ZVV entered into a Contribution Agreement pursuant to which each of Vinco Ventures and ZASH
contributed to ZVV certain media and entertainment assets in order for ZVV to engage in the development and production of consumer facing
content and related activities.
On
or around February 23, 2021, ZASH entered into a Securities Purchase Agreement (the “Lomotif SPA”) with Lomotif and certain
shareholders of Lomotif (the “Lomotif Selling Shareholders”) to acquire a controlling interest in Lomotif.
On
July 19, 2021, ZASH, Lomotif, the Lomotif Selling Shareholders and ZVV entered into a Deed of Variation and Supplement whereby, among
other things, ZASH novated all of its rights and obligations under the Lomotif SPA to ZVV and ZVV assumed all of ZASH’s rights
and obligations under the Lomotif SPA.
On
July 22, 2021, 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
Investments
in equity securities with readily determinable fair values are carried at fair value, and changes in unrealized gains or losses are reported
in current period earnings. As of September 30, 2022 and December 31, 2021, short-term investments consisted of the following:
Schedule of Short-Term Investments
| | |
September
30, 2022 | | |
December 31, 2021 | |
| Jupiter Wellness, Inc. (JUPW) | |
$ | 1,040,000 | | |
$ | 1,040,000 | |
| Unrealized losses | |
| (884,000 | ) | |
| (862,000 | ) |
| Total short-term investments | |
$ | 156,000 | | |
$ | 178,000 | |
Note
6 — Property and Equipment, net
As
of September 30, 2022 and December 31, 2021, property and equipment consisted of the following:
Schedule of Property and Equipment
| | |
September
30, 2022 | | |
December 31, 2021 | |
| Software | |
$ | 1,197 | | |
$ | 147,792 | |
| Furniture and fixtures | |
| 168,059 | | |
| 20,500 | |
| Computers | |
| 111,348 | | |
| 7,003 | |
| Leasehold improvements | |
| 420,347 | | |
| 18,761 | |
| Equipment | |
| 233,782 | | |
| 203,252 | |
| Construction in progress | |
| 203,350 | | |
| - | |
| Property, plant and equipment,gross | |
| 1,138,082 | | |
| 397,309 | |
| Less: accumulated depreciation | |
| (555,240 | ) | |
| (28,328 | ) |
| Total property and equipment, net | |
$ | 582,842 | | |
$ | 368,981 | |
Depreciation
expense for the three months ended September 30, 2022 and 2021 was $144,388
and $70,689,
respectively. Depreciation expense for the nine months ended September 30, 2022 and 2021 was $260,100
and $136,312,
respectively. During the three months ended September 30, 2022 the Company disposed of fixed assets and the related accumulated depreciation for EVNT
and Lomotif totaling $194,624 and $47,055, respectively resulting in a total loss on disposal of $147,569.
Note
7 — Loans Held for Investment
As
of September 30, 2022 and December 31, 2021, loans held-for-investment consisted of the following:
Summary
of Loans Held for Investment
| | |
| |
December
31, 2021 | |
| Loans held-for-investment: | |
| | | |
| | |
| Carlin
Haynes, LLC (i) | |
$ | 750,000 | | |
$ | 250,000 | |
| Total loans held-for-investment | |
$ | 750,000 | | |
$ | 250,000 | |
| (i) |
On
August 5, 2021, the Company loaned $250,000 to Carlin Haynes, LLC, DBA TMX. On January 18, 2022, the Company loaned an additional
$500,000 to Carlin Haynes, LLC. 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 September 30, 2022, and December 31, 2021, loans held-for-investment – related parties consisted of the following:
Summary
of Related Parties Loans Held for Investment
| | |
September
30, 2022 | | |
December 31, 2021 | |
| Loans held-for-investment – related parties: | |
| | | |
| | |
| PZAJ
Holdings, LLC(ii) | |
$ | 6,580,000 | | |
$ | 3,950,000 | |
| ZASH Global
Media and Entertainment Corporation (iii) | |
| 17,201,250 | | |
| 15,000,000 | |
| Allowance for loan losses – PZAJ Holdings, LLC | |
| (840,000 | ) | |
| - | |
| Allowance for loan losses – Zash Global Media and Entertainment Corporation | |
| (17,201,250 | ) | |
| - | |
| Total Loans Held-For-Investment – Related Parties | |
$ | 5,740,000 | | |
$ | 18,950,000 | |
| (ii) |
PZAJ is an entertainment content development company engaged
in the acquisition, financing, development, production, and distribution of films and television projects. The loans each bear an interest
rate of 2% per annum, with a one-year maturity (see Note 3). |
| |
|
| (iii) |
ZASH
Global Media and Entertainment Corporation is a media and entertainment company involved in the development of consumer facing content. |
| |
|
| |
As of September 30, 2022,
the Company has loaned $19,500,000
to ZASH under multiple financings, $17,201,250
of which is outstanding. The
interest rates on the notes are 3% or 6% per annum. The
loans are due in 2023 and 2028 with $12,701,250
classified as current and $4,500,000
classified as non-current. The purpose of the loans is to engage in the acquisition, development and production of consumer
facing content and related activities. During the three months ended September 30, 2022, the Company recorded an allowance for loan losses of $17,201,250, the total value of
the outstanding loans. The Company recorded the allowance due to the deteriorating financial condition of the counterparty and assessed
the likelihood of ability and intent to repay as remote. |
| |
|
| |
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. |
| |
|
| |
On December 30, 2021 the Vinco Ventures, Inc. Board of Directors
unanimously approved Vinco Ventures, Inc hiring of then-current employees of ZASH. The founding members of ZASH were not hired by Vinco. |
| |
|
| |
As
of September 30, 2022, the Company has loaned $6,580,000 to PZAJ under multiple financings, all of which is outstanding. The interest
rates on the notes are 2% per annum. As of September 30, 2022, $3,150,000 of the loans are past due. As of September 30, 2022, $5,740,000
are classified as current and $840,000 are classified as non-current. The purpose of the loans is the funding film or TV production
assets, all of which are still in production. As of September 30, 2022, the Company recorded an allowance for loan losses of $840,000
due to the deteriorating financial condition of the counterparty. The Company has reason to believe the non-reserved $5,740,000 of
loans outstanding will likely be converted into membership interest in PZAJ, however, the final $840,000 of loans outstanding were
not included in the discussion of conversion for membership interest and therefore have been reserved against. |
Note
8 — Investments
As
of September 30, 2022. And December 31, 2021, our non-current investments consisted of the following:
Schedule
of Noncurrent Investments
| | |
September
30, 2022 | | |
December
31, 2021 | |
| Hyperreal Digital, Inc. | |
$ | 1,000,000 | | |
$ | 1,000,000 | |
| Total Investments | |
$ | 1,000,000 | | |
$ | 1,000,000 | |
This
investment does not have a readily determinable fair value and therefore it is measured at cost less impairment.
Note
9 — Fair Value of Financial Instruments
The
Company measures the fair value of financial assets and liabilities based on the guidance of ASC 820 “Fair Value Measurements and
Disclosures” (“ASC 820”) which defines a fair value, establishes a framework for measuring fair value, and expands
disclosures about fair value measurements.
ASC
820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement
date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:
Level
1 — quoted prices in active markets for identical assets or liabilities
Level
2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level
3 — inputs that are unobservable (for example, cash flow modeling inputs based on assumptions)
The
carrying amounts of the Company’s financial instruments, such as cash, accounts receivable and accounts payable, approximate fair
values due to the short-term nature of these instruments. The carrying amount of the Company’s notes payable approximates fair
value because the effective yields on these obligations, which include contractual interest rates, taken together with other features
such as concurrent issuance of warrants, are comparable to rates of returns for instruments of similar credit risk.
The
following fair value of financial assets and liabilities and the input level used to determine the fair value as of September 30, 2022
and December 31, 2021 is presented below:
Schedule of Fair Value of Financial Assets and Liabilities
| | |
Fair Value Measurements as of September 30, 2022 | |
| | |
Level 1 | | |
Level 2 | | |
Level 3 | |
| | |
| | |
| | |
| |
| Assets: | |
| | | |
| | | |
| | |
| Short-term investments | |
$ | 156,000 | | |
$ | - | | |
$ | 1,000,000 | |
| | |
| | | |
| | | |
| | |
| Liabilities: | |
| | | |
| | | |
| | |
| Warrant liability | |
| - | | |
| - | | |
| 14,031,830 | |
| Purchase consideration | |
| - | | |
| - | | |
| 7,921,876 | |
| Total | |
$ | 156,000 | | |
$ | - | | |
$ | 22,953,706 | |
| | |
Fair Value Measurements as of | |
| | |
December 31, 2021 | |
| | |
Level 1 | | |
Level 2 | | |
Level 3 | |
| Assets: | |
| | |
| | |
| |
| Short-term investments | |
$ | 178,000 | | |
$ | - | | |
$ | 1,000,000 | |
| | |
| | | |
| | | |
| | |
| Liabilities: | |
| | | |
| | | |
| | |
| Warrant Liability | |
| - | | |
| - | | |
| 198,566,170 | |
| Total | |
$ | 178,000 | | |
$ | - | | |
$ | 199,566,170 | |
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 nine months ended September 30, 2022 and 2021, respectively:
Schedule of Reconciliation of Liabilities Measured at Fair Value
| | |
Warrant
Liability | | |
Purchase Consideration | |
| | |
| | |
| |
| Balance, January 1, 2022 | |
$ | 198,566,170 | | |
$ | - | |
| Issuance of warrants | |
| 243,681,478 | | |
| 23,250,000 | |
| Change in fair value of warrants | |
| (166,379,348 | ) | |
| (15,328,124 | ) |
| Warrants settled for cash | |
| (33,886,612 | ) | |
| - | |
| Exercise of warrants | |
| (227,949,858 | ) | |
| - | |
| Balance, September 30, 2022 | |
$ | 14,031,830 | | |
$ | 7,921,876 | |
Note
10 — Intangible Assets and Goodwill
As
of September 30, 2022, intangible assets consisted of the following:
Schedule
of Intangible Assets
| | |
Estimated | |
Remaining Weighted
Average | |
Initial |
|
Current | | |
| | |
Net | |
| | |
Useful | |
Useful | |
Carrying |
|
Period | | |
Accumulated | | |
Carrying | |
| | |
Life | |
Life | |
Amount |
|
Impairment | | |
Amortization | | |
Amount | |
| Finite lived intangible assets: | |
| |
| |
| |
|
|
| | |
| | | |
| | |
| Customer relationships | |
7-15 years | |
5.2 years | |
$ | 7,870,000 |
|
$ |
(670,000 | ) | |
$ | (652,041 | ) | |
$ | 6,547,959 | |
| Developed technology | |
7-10 years | |
0.7 years | |
| 67,451,987 |
|
|
(65,943,869 | ) | |
| (25,002 | ) | |
| 1,483,116 | |
| Membership network | |
7 years | |
0.0 years | |
| 1,740,000 |
|
|
(1,740,000 | ) | |
| - | | |
| - | |
| Digital media platform | |
7 years | |
3.0 years | |
| 1,552,500 |
|
|
- | | |
| (415,847 | ) | |
| 1,136,653 | |
| Influencer network | |
5 years | |
3.1 years | |
| 2,756,000 |
|
|
- | | |
| (413,397 | ) | |
| 2,342,603 | |
| Trademarks and tradenames | |
7 years | |
6.4 years | |
| 1,800,000 |
|
|
- | | |
| (155,867 | ) | |
| 1,644,133 | |
| Total finite lived intangible assets | |
| |
| |
| 83,170,487 |
|
|
(68,353,869 | ) | |
| (1,662,154 | ) | |
| 13,154,464 | |
| | |
| |
| |
| |
|
|
| | |
| | | |
| | |
| 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 | |
| |
| |
$ | 84,410,487 |
|
$ |
(69,593,869 | ) | |
$ | (1,662,154 | ) | |
$ | 13,154,465 | |
As
of December 31, 2021, intangible assets consisted of the following:
| | |
Estimated | |
Remaining Weighted Average | |
Gross | | |
| | |
Net | |
| | |
Useful | |
Useful | |
Carrying | | |
Accumulated | | |
Carrying | |
| | |
Life | |
Life | |
Amount | | |
Amortization | | |
Amount | |
| Finite lived intangible assets: | |
| |
| |
| | | |
| | | |
| | |
| Customer relationships | |
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 | |
Given
the downturn in the Company’s business during the three months ended September 30, 2022, the Company determined that there was
an early impairment indicator which would trigger an impairment test as of September 30, 2022. The Company engaged an independent third
party to perform a quantitative assessment of goodwill and intangible assets related to Lomotif and Adrizer as of September 30, 2022.
The
valuation methods used in the quantitative fair value assessment of the intangible assets used was a multi-period excess earnings method
for developed technology, distributor method for customer relationships and relief from royalty for tradenames. Based on quantitative
testing performed, the Company determined that the fair value based on a discounted cash flow model is less than the carrying value for
developed technology intangible assets related to Lomotif and AdRizer. The Company wrote off $50,511,950 of developed technology net
of $5,179,932 of accumulated amortization.
Further,
based on the quantitative impairment test for customer relationships and tradenames, the Company determined that the sum of undiscounted
cash flows is greater than or equal to the carrying value for customer relationships and trade name and therefore further impairment
testing is not required no impairment and no adjustment to carrying value was deemed necessary.
In
addition to the impairment analysis for Lomotif and Adrizer, during the three months ended September 30, 2022, due to changes in business
strategy, the Company abandoned its consumer products business, Edison Nation, and decided not to utilize E-NFT, a legacy technology
from the EVNT Platform. As a result, the Company no longer expects any future benefit from the related intangible assets and has determined
it necessary to fully impair the related intangible assets. During the three months ended September 30, 2022, the Company recorded the
following write offs; $498,779 net of $171,221 of accumulated amortization for customer relationships for Edison Nation, $1,221,428 net
of $1,478,572 of accumulated amortization for developed technology for Edison Nation, $787,145 net of $952,855 of accumulated amortization
for membership network for Edison Nation, $1,240,000 net of $0 of accumulated amortization for trademarks and tradenames for Edison Nation,
and $6,607,990 net of $943,997 of accumulated amortization for developed technology for E-NFT.
Amortization
expense for the three months ended September 30, 2022 and 2021 was $1,019,176 and $3,861,232, respectively. Amortization expense for
the nine months ended September 30, 2022 and 2021 was $5,703,697 and $4,877,232, respectively.
The
estimated future amortization of intangibles subject to amortization as of September 30, 2022 was as follows:
Schedule
of Intangible Assets Future Amortization Expenses
| | |
Amount | |
| 2022 (excludes amortization through September 30, 2022) | |
$ | 593,245 | |
| 2023 | |
| 2,372,962 | |
| 2024 | |
| 2,322,962 | |
| 2025 | |
| 2,272,962 | |
| 2026 | |
| 2,272,962 | |
| Thereafter | |
| 3,319,372 | |
| Total | |
$ | 13,154,464 | |
The
changes in the carrying amount of goodwill for the period January 1, 2021 through September 30, 2022, consisted of the following:
Schedule of Goodwill
| | |
Amount | |
| Balance, January 1, 2021 | |
$ | 5,983,852 | |
| Impairment | |
| (591,729 | ) |
| Acquisition of Lomotif Private Limited | |
| 116,188,021 | |
| December 31, 2021 | |
| 121,580,144 | |
| Impairment | |
| (92,004,097 | ) |
| Acquisition of AdRizer | |
| 17,039,788 | |
| Balance, September 30, 2022 | |
$ | 46,615,835 | |
The
Company determined that a triggering event under ASC 350-20: Impairment – Goodwill had occurred. The current guidance requires an entity to consider whether an event has occurred or circumstances have changed
that would more likely than not reduce the fair value of a reporting unit.
Due to various management
disputes between existing members of the Board of Directors and members of executive management; the receipt of an Alternate
Exercise Notice (with respect to 67,760,699 December Warrants to receive a cash payment of $0.361 per December Warrant and
with respect to 14,500,000 November Warrants to receive a cash payment of $0.65 per November Warrant), and Amendment to the July 2021 Note, the Company evaluated the value of both Goodwill and its Intangible Assets.
Taken in conjunction with the resulting Going Concern, the Company
abandoned its product businesses. Our consumer products business was led by Edison Nation. Edison Nation had a number of internally
developed brands (“EN Brands”), including Cloud B, Pirasta, Uber Mom, Lily and Grey, Trillion Trees, and
Barkley Lane. The Company impaired the related intangible assets in the third quarter, which included customer relationships, developed
technology, membership network and trademarks of $3,747,349
(net of amortization) and goodwill of $4,938,674
associated with this business. During the nine months ended September 30, 2022 the total goodwill impairment related to Edison Nation is $5,392,123.
In
addition, with the spinoff of Cryptyde, the Company made the determination that it was no longer interested in continuing to operate and profit from E-NFT. The developed technology
intangible asset for the EVNT platform of $6,607,989 (net of amortization) was fully impaired at September 30, 2022.
Further
the Company performed a quantitative impairment test for both the remaining goodwill and intangible assets of the remaining business, Lomotif
and AdRizer, and recorded impairment charges of $76,537,124 and $10,074,850, respectively during the three months ended September 30, 2022.
Note
11 — Debt
As
of September 30, 2022 and December 31, 2021, debt consisted of the following:
Schedule
of Long-term Debt
| | |
September
30, 2022 | | |
December 31, 2021 | |
| | |
| | |
| |
| Notes payable | |
$ | - | | |
$ | 27,644 | |
| Notes payable – related parties | |
| 235,107 | | |
| 235,107 | |
| Convertible notes payable | |
| 19,990,000 | | |
| 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 | |
| Debt issuance costs | |
| (13,349 | ) | |
| (68,925,172 | ) |
| Total Debt | |
$ | 22,711,758 | | |
$ | 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 36,320,456 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, as amended carries interest at 6.0% per annum and is payable quarterly. The July 2021 Note originally matured 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 in accounts payable as of September 30, 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
July 22, 2022, as required by the March 9, 2022 amendment to the July 2021 Note, the Company made a cash payment of $33,115,000, comprised
of $33,000,000 of principal repayment and $115,000 of interest, to the note holder.
On
August 18, 2022, as a result of the Company being in default on its existing senior secured convertible note, the Company was required
to purchase a portion of the outstanding Note. The Company purchased $55,000,000 of the principal amount of the note for $65,000,000
in cash. The Company was permitted to release $70,000,000 of its restricted cash with $65,000,000 for the repurchase of the debt and
$5,000,000 to unrestricted cash. The Company assessed the transaction and concluded the transaction was an in substance extinguishment.
Accordingly, the Company treated the additional $10,000,000 cash paid as a premium to extinguish the $55,000,000 of principal and recorded
it within Loss on extinguishment. As the transaction is being accounted for as an extinguishment, the Company recorded a $27,235,055
non-cash loss on extinguishment related to the full extinguishment of unamortized deferred financing fees. As a result of the Company’s
purchase of a portion of the outstanding Note, the Company is no longer in default.
On
August 19, 2022, the note holder elected to convert $5,000,000 of principal and $46,000 of accrued interest to shares of common stock
at a conversion price of $1.00 per share. The Company paid $450,000 to the placement agent, recorded $5,047 to common stock and the remaining
$4,591,620 to additional paid in capital.
The
scheduled maturities of the debt for the next five years as of September 30, 2022, are as follows:
Schedule
of Maturities of Long-term Debt
| | |
Amount | |
| 2022 | |
$ | 112,835 | |
| 2023 | |
| 20,112,272 | |
| 2024 | |
| - | |
| 2025 | |
| - | |
| 2026 | |
| - | |
| Thereafter | |
| 2,500,000 | |
| Long-term debt, Gross | |
| 22,725,107 | |
| Less: debt discount | |
| (13,349 | ) |
| Long-term
debt | |
$ | 22,711,758 | |
Note
12 — Warrant Liability
For
the nine months ended September 30, 2022, the Company issued warrants to purchase shares of the Company’s common stock related
to the Warrant Exercise Agreement dated December 20, 2021, with a warrant holder, in which the Company agreed to issue 225%
of the number of Exercised Warrant Shares at an exercise price of $3.265
to the warrant holder for every warrant the warrant
holder exercised from the period commencing December 20, 2021 and ending on February 28, 2022. In conjunction with this agreement (“December
2021 Warrants”), the warrant holder exercised 36,984,569
warrants in the first nine months of 2022 which
generated $111,029,493
in gross proceeds to the Company. 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 in accordance with ASC 480 (Liabilities).
The initial fair value of the warrants issued during the nine months ended September 30, 2022 was $243,681,478.
Under
the May 2022 Warrant Exchange Agreement, dated May 12, 2022, the Company entered into an agreement with the holder of the Company’s
July 2021 Notes warrants for the purchase of the Company’s common stock for $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 whereby the Company and the holder agreed the holder could exchange its warrants for the Company’s common shares. The
exchange ratio agreed to is for each November 2021 Warrant exchanged the holder would receive 77% of a share of the Company’s common
stock, and for each December 2021 Warrant exchanged the holder would receive 81% of a share of the Company’s common stock. The
holder is entitled to exchange its November 2021 Warrants and its December 2021 Warrants under the agreement from May 12, 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 the Warrant Exercise Agreement dated May 12, 2022, no shares issued or issuable with respect to the Outstanding Warrants shall in
the aggregate exceed 37,591,713 shares of Common Stock (as adjusted for any stock dividend, stock split, stock combination, reclassification
or similar transaction relating to the Common Stock occurring after May 12, 2022).
On
May 19, 2022, the holder exchanged 500,000 November 2021 Warrants for 385,000 shares of the Company’s common stock, 12,000,000
September 2021 Warrants for 6,000,000 shares and 18,090,123 December 2021 Warrants for 14,653,000 shares of the Company’s common
stock. On May 12, 2022, the holder exchanged 27,840,000 December 2021 Warrants for 22,550,400 shares of the Company’s common stock.
The Company did not receive any proceeds from the cashless exercises.
On
July 5, 2022, the Holder submitted Alternate Exercise Notices to the Company with respect to (i) 14,500,000 exercise shares under the
November Warrants, and (ii) 67,760,699 exercise shares under the December Warrants, for an aggregate payment equal to $33,886,612 (the
“Warrant Payment”). On July 6, 2022, the Company made the Warrant Payment, in cash, to the Holder pursuant to the Alternate
Exercise Notices and, as a result, a total of 82,260,699 warrants held by the Holder were canceled.
Schedule
of Warrant Liability
| | |
| | |
| | |
| | |
For the Three Months ended September 30, 2022 | |
| Series | |
Exercise Price* | | |
Initial Grants | | |
As of June 30, 2022 | | |
Exercises | | |
Remaining | |
| June | |
$ | 3.3000 | | |
| 29,893,175 | | |
| 115,800 | | |
| - | | |
| 115,800 | |
| September A | |
$ | 9.0000 | | |
| 21,600,000 | | |
| 6,600,000 | | |
| - | | |
| 6,600,000 | |
| November | |
$ | 4.5270 | | |
| 16,200,000 | | |
| 15,700,000 | | |
| (14,500,000 | ) | |
| 1,200,000 | |
| December | |
$ | 3.2653 | | |
| 122,786,087 | | |
| 76,855,964 | | |
| (67,760,699 | ) | |
| 9,095,265 | |
| | |
| | | |
| 190,479,262 | | |
| 99,271,764 | | |
| (82,260,699 | ) | |
| 17,011,065 | |
| | |
| | |
| | |
| | |
For the Nine Months ended September 30, 2022 | |
| Series | |
Exercise Price* | | |
Initial Grants | | |
As of Dec 31, 2021 | | |
Exercises | | |
Remaining | |
| June | |
$ | 3.3000 | | |
| 29,893,175 | | |
| 20,386,206 | | |
| (20,270,406 | ) | |
| 115,800 | |
| July | |
$ | 2.6550 | | |
| 35,313,352 | | |
| 16,624,163 | | |
| (16,624,163 | ) | |
| - | |
| September A | |
$ | 9.0000 | | |
| 21,600,000 | | |
| 21,600,000 | | |
| (15,000,000 | ) | |
| 6,600,000 | |
| November | |
$ | 4.5270 | | |
| 16,200,000 | | |
| 16,200,000 | | |
| (15,000,000 | ) | |
| 1,200,000 | |
| December | |
$ | 3.2653 | | |
| 122,786,087 | | |
| 122,786,087 | | |
| (113,690,822 | | |
| 9,095,265 | |
| | |
| | | |
| 225,792,614 | | |
| 197,596,456 | | |
| (180,585,391 | ) | |
| 17,011,065 | |
| * | | - Based
on Exercise Price as of the initial grant; the above disclosure discusses modifications under specific Warrant Exchange Agreements. |
The
Company’s outstanding warrants set forth below were valued using the Monte-Carlo simulation pricing model to calculate the September
30, 2022 fair value of the warrants with the following assumptions:
Schedule
of Warrant Assumptions
| | |
Dividend Yield | | |
Expected Volatility | | |
Risk-free Interest Rate | | |
Expected Life | |
| Hudson Bay Warrant; June 4, 2021 | |
| 0.00 | % | |
| 122.20 | % | |
| 4.14 | % | |
| 2.7 years | |
| Hudson Bay Series A Warrant; September 1, 2021 | |
| 0.00 | % | |
| 124.10 | % | |
| 4.15 | % | |
| 2.5 years | |
| Palladium Capital Group Series A Warrant; September 1, 2021 | |
| 0.00 | % | |
| 124.10 | % | |
| 4.15 | % | |
| 2.5 years | |
| Palladium Capital Warrant; November 10, 2021 | |
| 0.00 | % | |
| 120.40 | % | |
| 4.04 | % | |
| 4.0 years | |
| Palladium Capital Warrant; December 20, 2021 | |
| 0.00 | % | |
| 120.40 | % | |
| 4.04 | % | |
| 4.0 years | |
Note
13 — Related Party Transaction
Schedule
of Related Party Transaction
| | |
Due from Related Parties as of September 30, 2022 | |
| ZASH Global Media | |
| 15,451,062 | |
| Allowance for losses | |
| (15,451,062 | ) |
| Other | |
| 28,857 | |
| Balance, September 30, 2022 | |
$ | 28,857 | |
As
of September 30, 2022, the Company has provided ZASH with cash advances of $15,451,062
for the purpose of funding ZASH Global Media to support the operations of Lomotif, in which the Company has a significant
investment. During the three and nine months ended September 30, 2022 and 2021, the Company examined the financial condition of the counterparty and determined, due to deteriorating financial liquidity, the
likelihood of repayment was remote. The Company established an allowance for losses on
existing related party balances for $15,451,062
and $0,
respectively.
ZASH
Global Media and Entertainment Corporation
As
of September 30, 2022, Lomotif owed ZASH $2,500,000 in original principal amount under two promissory notes. In addition, ZASH owed the
Company $17,201,250 in outstanding principal amount under five promissory notes. Our Executive Chairman, Roderick Vanderbilt, co-founded
ZASH on December 14, 2020, and previously served as the President of ZASH. He resigned from ZASH on January 5, 2021. He 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).
On
June 29, 2022, the Company and ZVV entered into a Secured Promissory Note (the “Note”) in the original principal amount of
$56,955,167 (eliminated in consolidation as a VIE), loaned by the Company to ZVV to support Lomotif and other ZVV business ventures and
projects. Pursuant to the Note, ZVV can borrow up to an aggregate principal amount of $70,000,000 and will use the proceeds from loans
drawn under the Note to support the business of Lomotif and other ZVV business ventures and projects. The Note becomes due and payable
in full by ZVV on June 30, 2024, and carries interest at a rate per annum equal to five percent (5%).
In
connection with the Note, on the Issue Date, the Company and ZVV entered into a Security and Pledge Agreement (the “Security Agreement”).
Pursuant to the Security Agreement and to provide security for ZVV’s repayment of all loans under the Note, ZVV granted, among
other things, a second priority security interest and lien upon all of ZVV’s property to the Company.
Magnifi
U, Inc.
On
October 12, 2021, ZVV entered into a promissory note (the “Magnifi U Note”) with Magnifi U, pursuant to which ZVV loaned
Magnifi U $1,500,000 and is eliminated in consolidation as a VIE.
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
director, Vinco employee, 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 an 8%
ownership interest in Magnifi U resulting from its equity investment of $2,411,140
in Magnifi U, with an obligation to fund a total of $5,000,000
for a total of 15%
equity.
As
of September 30, 2022, Lisa King had one member of her extended family working at Magnifi U with an annual salary in excess of $100,000,
and Ted Farnsworth had one member of his extended family working at Vinco Ventures and/or ZASH with an annual salary in excess of $100,000.
MindTank
LLC
On
June 1, 2020, AdRizer LLC entered into an operating agreement by and among Mind Tank Media LLC and Mind Tank, LLC. The company evaluated
accounting for Mind Tank, LLC in accordance with Topic 810 – Consolidations and concluded while Mind Tank LLC is a variable
interest entity in accordance with ASC 810-10, it was not the primary beneficiary and has used accounting under the equity method prescribed
in ASC 323.
For
the three months ended September 30, 2022, AdRizer LLC recorded operating revenue on sales to Mind Tank, LLC totaling $2,653,672 and
has outstanding accounts receivable with Mind Tank, LLC of $1,700,139.
PZAJ
Holdings LLC
As
of September 30, 2022, Ted Farnsworth held the position of Initial Chairman of the Board of Managers at PZAJ Holdings, LLC.
Brian
Hart
Prior
to appointment as a member of Board of Directors of the Company, Mr. Hart previously provided consulting services to the Company earlier
in 2022 pursuant to which he received $90,000 in compensation pursuant to which he has been paid in full before September 27, 2022. Mr.
Hart is no longer providing consulting services to the Company as of that date.
Note
14— Commitments and Contingencies
AI-Pros
Licensing Agreements
On
July 22, 2022, the Company entered into one of two anticipate software license agreements with its strategic partner, AI-Pros Inc. (“AI-Pros”).
The license provides Vinco the right to use AI-Pros’ tools and technologies, which could allow Vinco to participate in a social
media platform that it believes can significantly enhance its position in the digital advertising markets.
The
Company is in the process of terminating the software licensing agreements with AI-Pros.
Operating
Leases
The
Company has entered into non-cancellable operating leases for office, warehouse, and distribution facilities, with original lease periods
expiring through 2024. In addition to minimum rent, certain leases require payment of real estate taxes, insurance, common area maintenance
charges, and other executory costs. Differences between rent expense and rent paid are recognized as adjustments to operating lease right-of-use
assets on the consolidated balance sheets.
Total
rent expense for the three months ended September 30, 2022 and 2021 was $244,710 and $71,408. Total rent expense for the nine months
ended September 30, 2022 and 2021 was $609,776 and $130,685, respectively. Rent expense is included in general and administrative expense
on the consolidated statements of operations. As of September 30, 2022, the Company had operating lease liabilities of $585,132 and right
of use assets for operating leases of $567,928. 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.
Supplemental
balance sheet information related to leases are as follows:
Schedule
of Operating Lease Liabilities
| | |
September 30, 2022 | |
| Operating leases - ROU assets | |
$ | 567,928 | |
| | |
| | |
| Operating lease liabilities (current) | |
$ | 185,186 | |
| Operating lease liabilities (noncurrent) | |
| 399,947 | |
| Total operating lease liabilities | |
$ | 585,132 | |
Future
minimum lease payments under operating leases as of September 30, 2022, are as follows:
Schedule
of Future Minimum Lease Payments
| | |
Operating Lease | |
| 2022 (Oct-Dec) | |
$ | 55,517 | |
| 2023 | |
| 201,121 | |
| 2024 | |
| 136,050 | |
| 2025 | |
| 120,453 | |
| 2026 | |
| 126,475 | |
| Thereafter | |
| 10,582 | |
| Undiscounted Cash Flows | |
| 650,198 | |
| Less: Implied Interest | |
| (65,065 | ) |
| Total operating lease liabilities | |
$ | 585,132 | |
As
of September 30, 2022, the weighted-average remaining lease term for operating leases is 44.26 months, or 3.69 years.
Legal
Contingencies
On August 5, 2022, Vinco Ventures, Inc. was subject
to a Temporary Restraining Order (“TRO”) filed in the State of Nevada. The TRO outlined various management disputes between
existing members of the Board of Directors and members of executive management. On September 28, 2022, the Company entered into a settlement
agreement (the “Agreement”) with respect to the litigation entitled “Vinco Ventures, Inc. v. Theodore Farnsworth, Lisa
King, Roderick Vanderbilt and Erik Noble” in the Eight Judicial District Court located in Clark County, Nevada. The Agreement set
forth the following, among other things (a) Ross Miller is the interim sole CEO and shall run the Company under the oversight of the Company’s
Board of Directors, with Lisa King and Rod Vanderbilt remaining as directors, (b) John Colucci, former Co-CEO and Phillip Jones, former
CFO, both resigned effective immediately as officers and director (in the case of Colucci) of the Company, (c) Michael Distasio and Elliot
Goldstein resigned effective immediately as Directors of the Company, (e) John Colucci received three month’s severance and Phillip
Jones received four month’s severance, in addition to any accrued and unpaid payroll, (f) The Company shall pay six months’
worth of COBRA payments for Jones, (g) All directors are to be paid all director fees due to the date of severance, (h) Elliot Goldstein
is to be paid $100,000 in lieu to any matters related to his stock options and RSUs, (i) All outgoing directors and officers entered into
three year noncompete agreements with the Company, and (j) All parties entered into mutual releases with the Company.
The
Company is involved in claims and litigation in the ordinary course of business, some of which seek monetary damages, including claims
for punitive damages, which are not covered by insurance. For certain pending matters, accruals have not been established because such
matters have not progressed sufficiently through discovery, and/or development of important factual information and legal information
is insufficient to enable the Company to estimate a range of possible loss, if any. An adverse determination in one or more of these
pending matters could have an adverse effect on the Company’s consolidated financial position, results of operations or cash flows.
The
Company is, and may in the future become, subject to various legal proceedings and claims that arise in or outside the ordinary course
of business.
Note
15 — Stockholders’ Equity
Common
Stock
For
the period ending September 30, 2022, the Company reported it was authorized to issue 250,000,000 shares of common stock. As of September
30, 2022 and December 31, 2021, there were 238,187,660 and 150,118,024 shares of common stock issued and outstanding, respectively.
During
the nine months ended September 30, 2022, warrant shares of 180,585,391 were exercised and the Company received proceeds of $101,036,838.
During the three months ended September 30, 2022, warrant shares of 82,260,699 were settled and the Company did not receive any proceeds.
On
October 14, 2022, the Company filed an amendment to its Articles of Incorporation to reallocate its previously authorized 250
million shares of stock as 245
million shares of Common Stock and 5
million shares of Preferred Stock, which Preferred Stock may be issued upon the subsequent filing with the Nevada Secretary of State
of one or more certificates of designation for series of preferred stock. It subsequently amended the filing to be 249
million shares of Common Stock and 1
million shares of Series A perpetual non-convertible preferred stock of the Company designated as Series A Preferred
Stock.
Preferred
Stock
The
Company is authorized to issue 1,000,000 shares of preferred stock, with the par value to be established upon issuance.
Stock-Based
Compensation
On
September 4, 2021, the Company’s board of directors approved the Vinco Ventures, Inc. 2021 Equity Incentive Plan (the “2021
Plan”). The 2021 Plan provides for the issuance of up to 9,000,000 (3,267,040 remaining as of September 30, 2022) shares of Common
Stock to help align the interests of management and our stockholders and reward our executive officers for improved Company performance.
Stock incentive awards under the 2021 Plan can be in the form of stock options, performance awards and restricted stock that are made
to employees, directors and service providers. Awards are subject to forfeiture until vesting conditions have been satisfied under the
terms of the award. The exercise price of stock options is equal to the fair market value of the underlying Common Stock on the date
of grant.
The
following table summarizes stock option awards outstanding as of September 30, 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 | | |
| 1.4 | | |
| - | |
| Granted | |
| - | | |
$ | - | | |
| - | | |
| - | |
| Forfeited | |
| 80,000 | | |
$ | - | | |
| - | | |
| - | |
| Balance, September 30, 2022 | |
| - | | |
$ | - | | |
| - | | |
| - | |
| Exercisable, September 30, 2022 | |
| - | | |
$ | - | | |
| - | | |
| - | |
As
of September 30, 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.
Lomotif
has a stock option plan for their employees. The 2021 Equity Incentive Plan is intended to help Lomotif to secure and retain qualified
resources. The Plan has 465,827 reserved shares.
Net
Earnings or Loss per Share
Basic
net (loss) income per common share is computed by dividing net (loss) income by the weighted average number of vested common shares outstanding
during the period. Diluted net income per common share is computed by dividing net income by the weighted average number vested of common
shares, plus the net impact of common shares (computed using the treasury stock method), if dilutive, resulting from the exercise of
dilutive securities. In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock
equivalents because their inclusion would be anti-dilutive. As of September 30, 2022 and 2021, the Company excluded the common stock
equivalents summarized below, which entitle the holders thereof to ultimately acquire shares of common stock, from its calculation of
earnings per share, as their effect would have been anti-dilutive. The potential dilution from common stock equivalents is computed using
the treasury stock method based on the average market value of our common stock during the period.
For
the three and nine month period ending September 30, 2022, due to reported net losses of $167,296,644 and $410,563,725, the calculation
of our diluted weighted-average common shares outstanding excludes all common stock equivalents as the effect would be anti-dilutive.
Schedule of Anti-dilutive Securities Excluded from Computation of Earnings Per Share
| | |
September
30, 2022 | | |
December
31, 2021 | |
| | |
As of | |
| | |
September 30, 2022 | | |
December 31, 2021 | |
| | |
| | |
| |
| Shares reserved in exchange for the cancellation of certain non-voting membership interest in EVNT Platform, LLC | |
| - | | |
| 4,000,000 | |
| Options | |
| - | | |
| 80,000 | |
| Convertible shares under notes payable | |
| 20,014,454 | | |
| 28,274,454 | |
| Warrants | |
| 17,011,065 | | |
| 107,942,653 | |
| Total | |
| 37,025,519 | | |
| 140,297,107 | |
Note
16 —Customer Concentrations
For
the nine months ended September 30, 2022 and 2021 the following customers that represented more than 10% of total net revenues:
Schedule
of Revenue from Customers
| | |
For the Nine Months ended September 30, | |
| | |
2022 | | |
2021 | |
| Customer: | |
| | | |
| | |
| Customer A | |
| -* | | |
| 10 | % |
| Customer B | |
| 40 | % | |
| -* | |
| Customer C | |
| 36 | % | |
| -* | |
| Customer D | |
| 19 | % | |
| -* | |
For
the nine months ended September 30, 2022 and 2021, the following geographical regions represented more than 10% of total net revenues:
Schedule
of Revenue by Geographical Areas
| | |
For the Nine Months ended
September 30, | |
| | |
2022 | | |
2021 | |
| Region: | |
| | | |
| | |
| North America | |
| 100 | % | |
| 100 | % |
Note
17 — Subsequent Events
Management
Changes
On
October 26, 2022, the Company entered into an engagement agreement with Ankura Consulting Group for interim CFO services, with Brendan
Bosack, one of its principals, named as Interim CFO of the Company. The agreement calls for services to be rendered at $900 per hour up to
$30,000 per week. The agreement is for an indefinite term and cancellable by either party.
ZASH
Global Media Equity Transaction
On
December 19, 2022, the Vinco Ventures, Inc. entered into a material definitive agreement to complete the purchase of the membership
interests (“Membership Interests”) in ZVV Media Partners from ZASH Global Media. The purchase price shall be (a) 10
shares of Vinco Ventures, Inc.’s Series B Preferred Stock (which shall be convertible into 144
million common shares of ZVV Media Partners, for which issuance will be subject to Nasdaq rules) and for which a Certificate of
Designation was to be filed in the State of Nevada before December 21, 2022 (and will be issued in the near future), was subject to
approval of both ZVV Media Partners and ZASH Global Media and compliance with all Nasdaq and SEC compliance (“Purchase
Equity”), and (b) the deemed satisfaction of all outstanding indebtedness and other obligations owing from ZASH Global Media
to ZVV Media Partners or the ZVV Media Partners , including, without limitation, pursuant to (i) the Promissory Note issued by ZASH
Global Media to ZVV Media Partners dated February 18, 2021 in the original principal amount of $5,000,000,
and (ii) the Secured Promissory Note issued by ZVV Media Partners, LLC, a joint venture of the Company and ZASH Global Media and
Entertainment Corporation, to Vinco Ventures, Inc. dated June 29, 2022 in the original principal amount of $56,955,167.81.
Vinco Ventures, Inc. shall issue the Purchase Equity to ZASH Global Media at the Closing (as defined herein) or such later time as
agreed by the Parties in writing.
Nasdaq
On
August 26, 2022, the Company filed a Current Report on Form 8-K in which it disclosed that it had received notification from The
Nasdaq Stock Market, LLC (“Nasdaq”) that required the Company to submit to Nasdaq,
on or before October 17, 2022, a Plan of Compliance with regard to the filing of its Quarterly Report on Form 10-Q for the period ended
June 30, 2022. The Plan of Compliance was submitted as of October 17, 2022.
As
a result of a delinquency notice received, the Company submitted a plan of compliance to file the second quarter 10-Q and the third quarter
10-Q no later than February 13, 2023. The Company submitted the update to this plan of compliance to Nasdaq confirming the above referenced
timetable. The Company was unable to file Form 10-Q for the periods ending June 30, 2022 and September 30, 2022 by February 13, 2023.
The Company filed Form 10-Q for the period ended June 30, 2022 on February 22, 2023.
On
November 17, 2022, the Company received a notice (the “November Notice”) from Nasdaq advising the Company that it was not
in compliance with Nasdaq’s continued listing requirements under the Nasdaq Listing Rule 5250(c)(1) (“Rule 5250”) as
a result of the Company’s failure to file its Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 (“Form
10-Q”) with the United States SEC in a timely manner, which deadline was November 14, 2022. Rule 5250 requires listed companies
to timely file all required periodic reports with the SEC.
On
December 1, 2022, the Company received a notice (the “December Notice”) from Nasdaq advising the Company that it was not
in compliance with Nasdaq’s continued listing requirements under the Nasdaq Listing Rule 5550(a)(2) (“Rule 5550”) as
a result of requiring listed securities to maintain a minimum bid price of $1 per share. Based upon the closing bid price for the last
30 consecutive business days, the Company no longer meets this requirement. However, Rule 5550 also provides the Company a compliance
period of 180 calendar days in which to regain compliance. If at any time during this 180 day period the closing bid price of the Company’s
security is at least $1 for a minimum of ten consecutive business days, Nasdaq will provide written confirmation of compliance and this
matter will be closed.
On
February 14, 2023, the Company received a Staff Determination letter (the “Letter”) from Nasdaq. The Letter states that on
August 19 and November 17, 2022, the Company was notified that it did not comply with Nasdaq’s filing requirements set forth in
Rule 5250 because it had not filed its Form 10-Q for the period ended June 30, 2022, and its Form 10-Q for the period ended September
30, 2022 (the “Delinquent Filings”). Staff granted the Company an exception until January 31, 2023, to regain compliance
with Rule 5250. Subsequently, on January 26, 2023, the Company requested additional time to file the Delinquent Filings and Staff granted
the Company an exception until February 13, 2023, to regain compliance with the Rule.
Upon
further review, it was determined that the Company did not meet the terms of the exception because it had not filed the Delinquent Filings
by February 13, 2023. The Company appealed the determination to a Hearings Panel (the “Panel”), pursuant to the procedures
set forth in the Nasdaq Listing Rule 5800 Series. A hearing request will stay the suspension of the Company’s securities and the
filing of the Form 25-NSE pending the Panel’s decision. The Company filed a hearing request and remitted the hearing filing fee
on February 16, 2023. The hearing occurred on March 30, 2023 and the Company is awaiting additional instruction from Nasdaq.
Equity
Changes
On
October 14, 2022, the Company filed an amendment to its Articles of Incorporation to reallocate its previously authorized 250 million
shares of stock as 245 million shares of Common Stock and 5 million shares of Preferred Stock, which Preferred Stock may be issued upon
the subsequent filing with the Nevada Secretary of State of one or more certificates of designation for series of preferred stock. It
subsequently amended the filing to be 249 million shares of Common Stock and 1 million shares of Preferred Stock.
Acquisition
of National Enquirer
On
February 6, 2023, the Company entered into a joint venture with ICON Publishing, LLC to acquire for cash the National Enquirer (both
U.S. and U.K. editions), the National Examiner, and Globe under an Asset Purchase Agreement from magazine publisher A360 Media, LLC.
The transaction includes the acquisition of all print and digital assets and owned intellectual property of the National Enquirer, National
Examiner and Globe. The closing of the acquisition is subject to certain consents and customary conditions to closing as described in
the Asset Purchase Agreement.
Subject to the
terms and conditions of the agreement, the aggregate purchase price for the purchased assets (the “Purchase Price”) is up
to $33,700,000 plus certain assumed liabilities of A360 related to the Business. The Purchase Price is paid as follows at the closing
of the transactions contemplated by the Agreement: $33,000,000 in cash, minus the amount of any assumed payroll liability, and minus the
amount of certain deposits made by VVIP to A360 pursuant to the Agreement up to an aggregate amount of $2,000,000; and the amount of certain
printing paper inventory included in the Purchased Assets, calculated as set forth in the Agreement and not to exceed $700,000, in cash
or, at VVIP’s election, by use of a credit granted to VVIP by A360 under the Agreement.
Securities
Purchase Agreement
On
February 5, 2023, the Company has entered into a Securities Purchase Agreement for the sale of a $1,500,000 principal amount convertible
note, a $10,000,000 principal amount convertible note and shares of Series A perpetual non-convertible preferred stock of the Company
designated as Series A Preferred Stock, $0.001 par value. The $10,000,000 proceeds from the sale of the $10,000,000 note shall be held
in a DACA account and is redeemable by the investors when certain conditions are met, and the $1,500,000 note shall be convertible by
the investors pursuant to the term set forth therein. The note shall be convertible into Company common stock at an initial conversion
price of $0.7831, representing 110% of the closing price of the Common Stock on February 3, 2023.
Each
holder of outstanding share of Series A Preferred Stock will have the voting rights to vote together with the class of stockholders of
Common Stock, as a single class, upon any matter submitted to the stockholders of Common Stock for a vote as of a record date established
by the Board of Directors of the Company. For so long as any Series A shares remain issued and outstanding, the holders of each share
shall have the right to vote, in an amount equal to one percent (1%) of the total voting power of then-outstanding shares of Common Stock
of the Company entitled to vote in such class, calculated as provided herein.
The
Company closed the transaction on February 10, 2023.
Exchange
Agreement
On
February 5, 2023, the Company entered into an Exchange Agreement with an accredited investor (the “Holder”) pursuant to which
the Company and the Holder desire: (i) to exchange $250,000 aggregate principal amount of that certain convertible secured Note issued
to the Holder on July 22, 2021 (the “July Note”) for an aggregate of 26,000,000 shares of Common Stock and (ii) to amend
the July Note as set forth herein. On the Initial Closing Date, $105,000 aggregate principal amount of the July Note was exchanged into
10,800,000 shares of Common Stock and on the first (1st) trading day immediately following the date on which the Company amends its Articles
of Incorporation to increase the authorized shares of the Company, $145,000 aggregate principal amount of the July Note shall be exchanged
into 15,200,000 shares of Common Stock.
The
Company and the Holder agreed that Section 2 of the July Note is amended and restated to be non-interest bearing except if there is an
event of default at which time the interest rate shall be 18%, and the minimum cash on deposit in the Control Account shall not be less
than $3,000,000. The conversion price of the July Note was voluntarily and irrevocably reduced to $0.7831.
On
February 10, 2022, the Holder released $4,000,000 from the Control Account to the Company. Up to another $3,000,000 shall be released
over future time periods if certain conditions are met.
