VINCO VENTURES, INC. You should read the following discussion of our financial condition and results of operations in conjunction with our condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , as filed with theSecurities and Exchange Commission . In addition to our historical condensed consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, as well as in Part I, Item 1A, "Risk Factors" of our Annual Report of Form 10-K for the year endedDecember 31, 2021 . Overview
Vinco Ventures , formerly known asEdison Nation, Inc. ,Xspand Products Lab, Inc. andIdea Lab Products, Inc. , is aNevada corporation incorporated onJuly 18, 2017 . In connection with the acquisition of an 80% equity interest in Lomotif by ZVV, our joint venture with ZASH in 2021, and our recent acquisition of AdRizer, we are transitioning from focusing on innovation, development and commercialization of end-to-end consumer products to innovation, development and commercialization of digital media, advertising and content technologies. We currently operate the platforms and businesses described below through our significant subsidiaries and consolidated variable interest entities:
? Lomotif Social Media Platform
Lomotif and the Lomotif App - ZVV currently owns an 80% equity interest in Lomotif, aSingapore -based video-sharing and live streaming social networking platform that is committed to democratizing video creation and increasing user reach through our content development, live streaming and cross-platform engagement initiatives. The Lomotif app allows its users to create their own music videos by selecting pictures and videos from the camera, mixing them with music and transforming video clips into music videos. Lomotif users can watch videos of other creators on the Lomotif platform and share their videos on the Lomotif platform or on various third-party social media platforms such asTikTok , Instagram, YouTube and Twitch. The Lomotif platform offers LoMoTV, a digital entertainment and lifestyle content network offering original programming. Our strategy includes expanding Lomotif's reach through our live-streaming entertainment initiatives involving social media influencers and leading artists and entertainers. The Lomotif app is available in the Apple and Google stores and is a grassroots social community with dedicated users spanning fromAsia ,South America tothe United States . As of the date of this Quarterly Report, Lomotif has not generated significant revenue and we are developing means to monetize the content creation and streaming capabilities of the Lomotif platform including our plan to leverage the AdRizer technologies to enable advertisers to more effectively engage with the Lomotif platform, content and its users.
? End-to-End Fully Integrated Programmatic Advertising Platform
AdRizer and the Cortex Platform - Our wholly-owned subsidiary AdRizer provides technology solutions to automate the use of artificial intelligence for digital advertising analytics and programmatic media buying through its core platform, Cortex. Cortex provides real-time analytics for marketing spend and revenue optimization and delivers ad-campaign creation, optimalization and monetization at scale. Cortex integrates with various traffic partners, including Google,MSN , Instagram, Facebook, Twitter, and others, and is able to deliver real-time attribution against a wide range of advertiser and publisher metrics such as revenue by source, author, article, and conversion event. AdRizer targets advertisers, advertising agencies, publishers and other advertising technology companies as its audience for the Cortex platform offerings. AdRizer generates revenue from the Cortex platform through two major sources: (1) the traffic acquisition of digital advertising spaces to advertisers from multiple digital advertising technologies, and (2) developing marketing campaigns and strategies for some of the top direct-to-customers ("DTC") companies. We believe that AdRizer's Cortex platform provides small- to medium-sized enterprises with an efficient and effective end-to-end, fully integrated platform that allows its users to control their marketing and branding campaigns in real-time. We also expect to integrate AdRizer's technologies with the Lomotif platform and content and the Honey Badger digital commerce company. 29 ? Streaming Music Non-Fungible Token ("NFT") Platform E-NFT.com - Our wholly-owned subsidiaryEVNT Platform LLC , dbaEmmersive Entertainment ("EVNT") offers a platform for artists and content owners to distribute their intellectual property. EVNT's proprietary streaming process seeks to make NFTs affordable by seeking to reduce mining fees with the goal of enabling fans to engage with content in new ways with EVNT's multi-media delivery system. EVNT generates revenue from the development of custom, digital artwork and digital music that is sold in the form of non-fungible tokens through a third-party marketplace.
?
Honey Badger - Our wholly-owned subsidiaryHoney Badger offers a full-service digital commerce strategies solution focused on brand specific messaging and designing comprehensive digital campaigns from creation to monetization for celebrities and influencers. As a digital commerce company,Honey Badger leverages millions of followers in its network to grow advertiser-based revenue as well asVinco's brands and holdings.Honey Badger generates revenue from providing digital marketing services for brands and influencers.
? New Consumer Product Development and Commercialization Platform
Edison Nation - Led by our wholly-owned subsidiaryEdison Nation, LLC , ('Edison Nation") we provide a platform to match an innovator's intellectual property with vertical consumer product category leaders in a licensing structure whereby the innovator can earn up to 50% of the contracted licensing fee. Product categories include kitchenware, small appliances, toys, pet care, baby products, health & beauty aids, entertainment venue merchandise, and housewares. We also have a number of internally developed brands ("EN Brands") which act as a launchpad for new innovative items that have matriculated through the innovation portal. These EN Brands includeCloud B , Pirasta, Uber Mom, Lily and Grey, Trillion Trees, andBarkley Lane . Additionally, we offer a partnership model for entrepreneurs and businesses that are seeking to elevate their existing brands. Recent partnerships forVinco Ventures include 4Keeps Roses and Mother K. Within the partnership model, the Company seeks to identify new lines of distribution and provide innovation through development of new items that enhance the brand's overall image and consumer adoption. Edison Nation generates revenue primarily from the sale of personal protective equipment, consumer products and licensing of products for intellectual property owners.
? Cryptyde Businesses Expected to be Spun-Off
Cryptyde - Our wholly-owned subsidiaryCrytypde, Inc. plans to offer three initial business lines, Web3 (decentralized internet) products, Bitcoin mining services, and consumer packaging operated byFerguson Containers, Inc ("Ferguson"). Through its Web3 products business line, Cryptyde will seek to acquire and build brands that use decentralized blockchain technologies in a variety of consumer-facing industries, such as music, movies, digital art, ticketing and event services, and gaming. Cryptyde's Bitcoin mining services will aim to make Bitcoin mining accessible to consumers previously priced out of the area. Ferguson manufactures and sells custom packaging for a variety of products and is expected to offer revenue streams for the spun-off business. 30 Corporate Strategy We are transitioning from focusing on innovation, development and commercialization of end-to-end consumer products to innovation, development and commercialization of digital media, advertising and content technologies.Today's consumers have shorter attention spans and are unlikely to commit to lengthy content unless they are convinced of its value. The right piece of short-form content enables brands to rapidly communicate key messages, improving the asset's ability to capture the attention of target audiences. Short-form content is also a ready-made resource for users who consume content on mobile devices. Additionally, video generates a much larger number of shares than long-form content, text or image posts. By investing in Lomotif, our short-form video sharing and social media platform, AdRizer and related growth initiatives, we are aiming to grow into an integrated robust social media, content development and digital advertising company, with millions of users around the world. InFebruary 2022 we acquired AdRizer. We expect to integrate AdRizer's Cortex technologies with the Lomotif platform and content andHoney Badger's services and solutions to optimize revenue generation opportunities. We have also invested in activities to generate content for the Lomotif platform and to expand its user base and engagement such as launching LoMoTV, hosting and live streaming concerts and celebrity events. We expect to further this effort by continuing to invest in acquisitions, joint ventures, and growing our own capacity to create and distribute content. For example, we expect that future joint ventures, licensing, loan financing or other arrangements withZASH and PZAJ Holdings, LLC will generate entertainment content that we plan to distribute through the Lomotif platform, among other distribution channels. In connection with our transition, we are also in the process of spinning off Cryptyde, which holds our packaging, Bitcoin mining services, and Web3 (decentralized internet) products businesses, in an effort to create value
for our stockholders. Recent Developments The following is a description of recent events regarding important developments which we believe are important to an understanding of our business, financial position and results of operations. Acquisition of AdRizer
On
OnFebruary 11, 2022 ,Vinco Ventures , ZASH and ZVV entered into an Assignment and Assumption Agreement, whereby ZASH and ZVV assigned toVinco Ventures , andVinco Ventures assumed, all of the rights and obligations of ZASH and ZVV under the LOI, in consideration of a cash payment byVinco Ventures to ZASH of$6.75 million upon the closing of the acquisition. OnFebruary 11, 2022 ,Vinco Ventures , AdRizer, the members of AdRizer and the holders of performance units (the "Performance Units") of AdRizer under its phantom equity plan (collectively, the "Seller Members"), andInnovative Assets LLC , in its capacity as the sellers' representative, entered into and consummated the transactions contemplated by a definitive Unit Purchase Agreement (the "AdRizer Purchase Agreement"), whereby the Company acquired all of the outstanding equity interests of AdRizer (the "Purchased Interests") from the Seller Members and canceled the Performance Units, resulting in AdRizer becoming a wholly-owned subsidiary of the Company. The purchase price paid and payable to the Seller Members for the Purchased Interests and in consideration of the cancellation of the Performance Units consists of (i)$38 million in cash paid at closing, of which$10 million was deposited in an escrow account to secure the Seller Members' indemnification obligations under the AdRizer Purchase Agreement, subject to customary post-closing adjustments for working capital and other items, and (ii) up to 10 million shares of the Company's common stock to be issued onJanuary 1, 2024 (the "Buyer Share Issuance Date"), determined by dividing$50 million by the volume weighted average price of the Company's common stock reported by Bloomberg LP for the 20 trading days preceding such date, subject to a floor price of$5.00 and maximum price of$8.00 per share (the "Purchase Price Equity"). Pursuant to the AdRizer Purchase Agreement, the Company has agreed to file a resale registration statement on form S-1 or S-3 no later than 90 days prior to the Buyer Share Issuance Date if permitted by theSEC , and otherwise no later than 5 business days after the Buyer Share Issuance Date, to register the resale of the Purchase Price Equity and to use commercially reasonable efforts to cause the registration statement to become effective as soon as practicable after filing. In addition, the Company has agreed to furnish AdRizer with working capital in the amount of$1 million by each 3-month anniversary of the closing date until the Company has furnished AdRizer with a total of$5 million in working capital. Upon the closing of the acquisition, AdRizer entered into a new employment agreement with its chief executive officer,Kenneth Bond . Certain Seller Members including those who are employees, officers, directors or managers of AdRizer and their affiliates also agreed to be bound by three-year post-closing non-competition and non-solicitation restrictive covenants pursuant to the
Purchase Agreement. 31
Expected Spin-Off of Cryptyde, Inc.
OnNovember 8, 2021 , our subsidiary Cryptyde initially filed, and onJanuary 25, 2022 ,March 18, 2022 andMay 13, 2022 amended, a Form 10 registration statement with theSEC (the "Form 10") in connection with our planned spin-off of Cryptyde, subject to certain conditions as described in the registration statement, including the effectiveness of the registration statement, receipt of an opinion of counsel to the effect that, among other things, the spin-off and related transactions should qualify as tax-free forUnited States federal income tax purposes under Sections 368(a)(1)(D) and 355 of the Internal Revenue Code, and Nasdaq having approved the listing of Cryptyde's common stock. Cryptyde holds our packaging, Bitcoin mining services, and Web3 (decentralized internet) products businesses. OnMay 16, 2022 , the Form 10 was declared effective. The record date for the spin-off isMay 18, 2022 and the distribution date is scheduled forMay 27, 2022 . Upon completion of the spin-off, Cryptyde would become an independent, publicly traded company.
Closing of Cryptyde Financing
OnJanuary 26, 2022 , Cryptyde entered into a Securities Purchase Agreement (the "Note Securities Purchase Agreement") with an accredited investor (the "Note Investor") for the issuance and sale of a Senior Convertible Note with an initial principal amount of$33,333,333 at a conversion price of$10.00 per share of Cryptyde's common stock, par value$0.001 (the "Cryptyde Common Stock") and a warrant (the "Warrant") to purchase up to 3,333,333 shares of Common Stock with an initial exercise price of$10.00 per share of Cryptyde Common Stock
(the "Note Private Placement"). Cryptyde and the Note Investor closed on the transactions contemplated by the Note Securities Purchase Agreement onMay 5, 2022 . At the closing, Cryptyde issued to the Note Investor the Warrant to purchase up to 3,333,333 shares of Cryptyde Common Stock with an exercise price of$10.00 per share.
Amendment to the
OnMarch 9, 2022 , the Company, Cryptyde and the noteholder of the Senior Secured Convertible Note issued by the Company onJuly 22, 2021 (the "July 2021 Note) entered into an Amendment Agreement (the "Amendment Agreement") whereby the parties agreed to, among other things: (i) amend certain provisions of theJuly 2021 Note to (a) convert$10,000 of the principal amount of theJuly 2021 Note at a conversion price of$0.01 into shares of the Company's common stock, (b) extend the maturity date under theJuly 2021 Note toJuly 22, 2023 , (c) increase the interest rate on theJuly 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 theJuly 2021 Note, together with accrued and unpaid interest and accrued and unpaid late charges on such principal and interest, onJuly 22, 2022 ; (ii) to extend certain dates relating to (x) the Company's registration of certain securities under the Warrant Exercise Agreements datedSeptember 1, 2021 ,November 11, 2021 andDecember 20, 2021 toApril 30, 2022 , (y) the Company's filing of a proxy statement toApril 30, 2022 and (z) Company holding a stockholder meeting and obtaining a stockholder vote toJune 4, 2022 orJuly 4, 2022 in the event that the Company receives comments from theSEC 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). OnApril 29, 2022 , the Company, Cryptyde and the Holder entered into a Second Amendment Agreement (the "Second Amendment Agreement") whereby the parties agreed to amend the First Amendment Agreement to replace the date of "April 30, 2022 " in Section 7(m) of the First Amendment Agreement to "May 6, 2022 ." OnMay 6, 2022 , the Company and the Holder entered into a Third Amendment Agreement (the "Third Amendment Agreement") whereby the parties agreed to amend the Second Amendment Agreement to replace the date of "May 6, 2022 " in Section 7(m) of the Second Amendment Agreement to "May 11, 2022 ." Warrant Exercise and Issuance For the three months endedMarch 31, 2022 , the Company issued warrants to purchase shares of the Company's common stock related to the Warrant Exercise Agreement datedDecember 20, 2021 , with a warrant holder, in which the Company agreed to issue 2.25 warrants with an exercise price of$3.265 to the warrant holder for every warrant the warrant holder exercised from the period commencingDecember 20, 2021 and ending onFebruary 28, 2022 . In conjunction with this agreement, the warrant holder exercised 36,894,569 warrants in the first three months of 2022 which generated$111,029,493 in gross proceeds to the Company during the three months endedMarch 31, 2022 . In conjunction with the agreement, the Company issued 83,012,781 warrants to the holder and 6,641,022 to the placement agent for the agreement. The warrants have an exercise price of$3.265 , a five year term, and provide registration rights to the holder along with other terms that cause the warrants to qualify for liability treatment. The initial fair value of the warrants issued during the three months endedMarch 31, 2022 was$243,681,478 . 32 Exchange Agreement OnMay 12, 2022 , the Company entered into an agreement with the holder of the Company's warrants for the purchase of the Company's common stock for$4.527 issued onNovember 10, 2021 (the "November 2021 Warrants") and the Company's warrants for the purchase of the Company's common stock for$3.2653 issued onDecember 20, 2021 (the "December 2021 Warrants") whereby the Company and the holder agreed the holder could exchange its warrants for the Company's common shares. The exchange ratio agreed to is for eachNovember 2021 Warrant exchanged the holder would receive 0.77 of a share of the Company's common stock, and for eachDecember 2021 Warrant exchanged the holder would receive 0.81 of a share of the Company's common stock. The holder is entitled to exchange itsNovember 2021 Warrants and itsDecember 2021 Warrants under the agreement fromMay 19, 2022 until the sixtieth (60th) day immediately following the date in which the Company's receives approval from its stockholders for the increase in authorization of common shares from 250,000,000 to 750,000,000 (the "Shareholder Approval Date"). OnMay 13, 2022 , the Company filed a preliminary proxy statement for a Special Meeting of Stockholder's to, among other things, seek the approval from its stockholders for this matter. Furthermore, pursuant to the exchange agreement, on or prior to the second business day following the Shareholder Approval Date, the Company shall deliver to the holder an additional number of shares of Common Stock equal to 7% of the sum of each of theNovember 2021 Warrants andDecember 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) eachNovember 2021 Warrant may be exchanged for 42% of aNovember 2021 Exchanged Warrant Share, and (ii) eachDecember 2021 Warrants may from time to time be exchanged for 42% of aDecember 2021 Exchanged Warrant Share. Pursuant to Section 7(n) of the Exchange Agreement, untilOctober 9, 2022 , the holder agreed to grant, free of charge, to the Company any reasonable and necessary waivers and extensions solely in connection with the Company's obligations (i) to file an Initial Registration Statement pursuant to that certain Registration Rights Agreements between the Company and the holder dated as ofNovember 11, 2021 , as amended (the "November 2021 RRA"), and that certain Registration Rights Agreements between the Company and the holder dated as ofDecember 20, 2021 , as amended (the "December 2021 RRA" ), and (ii) to file a definitive proxy statement to approve the transactions contemplated by the November WEA and December WEA; provided, however, the holder shall retain the right to deliver an Alternate Exercise Notice (as defined in each of the November Warrant Exercise Agreement and December Warrant Exercise Agreement) to the Company as permitted pursuant to the terms thereof. The exchange agreement also requires the holder to continue to hold the common shares received under the exchange for a certain period of time. OnMay 19, 2022 , the holder exchanged 500,000November 2021 Warrants for 385,000 shares of the Company's common stock, and 18,090,123 December 2021 Warrants for 14,653,000 shares of the Company's common stock. The Company did not receive any proceeds from the cashless exercises. Warrant Exercise Agreements OnMay 12, 2022 , the Company entered into warrant exercise agreement with two holders of the Company's warrants for the purchase of the Company's common stock for$9.00 per share issued onSeptember 1, 2022 (the "Series ASeptember 2021 Warrants") whereby the Company and the holders agreed to a cashless exercise whereby each holder would receive 0.50 of a share of the Company's common stock for each Series ASeptember 2021 Warrant that is exercised by the holder. OnMay 19 , the holders exchanged 15,000,000 Series ASeptember 2021 Warrants for 7,500,000 shares of the Company's common stock. The Company did not receive any proceeds from the cashless exercise. The May WEA and the Exchange Agreement also require the participating holders to continue to hold shares for a certain period of time as set forth in the May WEA and the Exchange Agreement.
Shareholder Proposals for Increase of Authorized Common and Preferred Shares
OnMay 13, 2022 , the Company filed a preliminary proxy statement for a Special Meeting of Stockholders for approval of proposals to increase the number of authorized shares of common stock under the Company's Amended and Restated Articles of Incorporation from 250,000,000 to 750,000,000 and increase the number of authorized shares of preferred stock under the Company's Amended and Restated Articles of Incorporation from 0 to 30,000,000. 33 Letter Agreement Pursuant to that certain Warrant Exercise Agreement (as amended, the "September WEA") dated as ofSeptember 1, 2021 between the Company and an accredited investor (the "Holder"), the Company sold warrants to the Holder representing the right to acquire shares of the Company's common stock, par value$0.001 per share (the "Common Stock") at an initial exercise price of$9.00 per share, subject to adjustments as set forth in the September WEA (the "Series ASeptember 2021 Warrants") and (ii) onMay 12, 2022 , the Company and the Holder entered into that certain Warrant Exercise Agreement (the "May WEA") whereby the parties, among other things, adjusted the Holder's exercise price of its Series ASeptember 2021 Warrant and eliminated certain provisions of the Series ASeptember 2021 Warrants as an offer to all of the Series ASeptember 2021 Warrants inducement to fully exercise its Series ASeptember 2021 Warrant on a cashless basis onMay 19, 2022 .
On
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States of America , or GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements as well as the reported expenses during the reporting periods. The accounting estimates that require our most significant, difficult and subjective judgments have an impact on revenue recognition, the determination of share-based compensation and financial instruments. We evaluate our estimates and judgments on an ongoing basis. Actual results may differ materially from these estimates under different assumptions or conditions.
There have been no changes in such policies or the application of such policies
during the three months ended
Revenue Recognition
Generally, the Company considers all revenues as arising from contracts with
customers. Revenue is recognized based on the five-step process outlined in the
Accounting Standards Codification ("ASC") 606:
Step 1 - Identify the Contract with the Customer - A contract exists when (a)
the parties to the contract have approved the contract and are committed to
perform their respective obligations, (b) the entity can identify each party's
rights regarding the goods or services to be transferred, (c) the entity can
identify the payment terms for the goods or services to be transferred, (d) the
contract has commercial substance and it is probable that the entity will
collect substantially all of the consideration to which it will be entitled in
exchange for the goods or services that will be transferred to the customer.
Step 2 - Identify Performance Obligations in the Contract - Upon execution of a
contract, the Company identifies as performance obligations each promise to
transfer to the customer either (a) goods or services that are distinct, or (b)
a series of distinct goods or services that are substantially the same and have
the same pattern of transfer to the customer. To the extent a contract includes
multiple promised goods or services, the Company must apply judgement to
determine whether the goods or services are capable of being distinct within the
context of the contract. If these criteria are not met, the goods or services
are accounted for as a combined performance obligation.
Step 3 - Determine the Transaction Price - When (or as) a performance obligation
is satisfied, the Company shall recognize as revenue the amount of the
transaction price that is allocated to the performance obligation. The contract
terms are used to determine the transaction price. Generally, all contracts
include fixed consideration. If a contract did include variable consideration,
the Company would determine the amount of variable consideration that should be
included in the transaction price based on expected value method. Variable
consideration would be included in the transaction price, if in the Company's
judgement, it is probable that a significant future reversal of cumulative
revenue under the contract would not occur.
Step 4 - Allocate the Transaction Price - After the transaction price has been
determined, the next step is to allocate the transaction price to each
performance obligation in the contract. If the contract only has one performance
obligation, the entire transaction price will be applied to that obligation. If
the contract has multiple performance obligations, the transaction price is
allocated to the performance obligations based on the relative standalone
selling price (SSP) at contract inception.
Step 5 - Satisfaction of the Performance Obligations (and Recognize Revenue) -
Revenue is recognized when (or as) goods or services are transferred to a
customer. The Company satisfies each of its performance obligations by
transferring control of the promised good or service underlying that performance
obligation to the customer. Control is the ability to direct the use of and
obtain substantially all of the remaining benefits from an asset. It includes
the ability to prevent other entities from directing the use of and obtaining
the benefits from an asset. Indicators that control has passed to the customer
include: a present obligation to pay; physical possession of the asset; legal
title; risks and rewards of ownership; and acceptance of the asset(s).
Performance obligations can be satisfied at a point in time or over time.
Product
The Company's product revenues are recognized when control of the goods are transferred to the customer, which is upon shipment of the finished goods to the customer. All sales have fixed pricing and there are currently no material variable components included in the Company's revenue. Additionally, the Company will issue credits for defective merchandise, historically these credits for defective merchandise have not been material. Based on the Company's analysis of the revenue standards, revenue recognition from the sale of finished goods to customers, which represents the majority of the Company's revenues, was not impacted by the adoption of the new revenue standards
Digital media advertising and licensing
The Company's digital media advertising revenues are generated primarily from the posting of original digital content through third-party online platforms which are then delivered to users of the online platform across the customer's digital advertising platform and becomes monetizable to the Company, which the Company concludes is its performance obligation. The Company recognizes revenue when control of the services are transferred to customers and the transaction price is determined by the third-party online platform. Revenue from the digital media platform is primarily recognized based on impressions delivered to customers. An "impression" is delivered when an advertisement appears on pages viewed by users. Licensing revenues are derived from the sale of a licensee's products that incorporates the Company's intellectual property. Royalty revenues are recognized during the quarter in which the Company receives a report from the licensee detailing the shipment of products that incorporate the Company's intellectual property, which receipt is in the quarter following the licensee's sale of such products to its customers. Royalties are calculated as a percentage of the revenues received by the Company's licensees on sales of products incorporating the Company's intellectual property. For AdRizer, FASB ASC 606 requires an entity to determine whether it is a principal (recognizes revenue at the gross amount) or an agent (recognizes revenue at the net amount) for each promised good or service. Based on the FASB guidance, the Company has determined that AdRizer is the principal for each promised good or service, thus, revenue is recognized at the gross amount of the transactions. Revenue from traffic sales and traffic management services are generally recognized at the end of each month when the performance obligation is satisfied. 34 Results of Operations
Three Months Ended
The following tables set forth information comparing the components of net
income (loss) for the three months ended
Results of Operations
Three Months Ended March 31, Period over Period Change
2022 2021 $ %
Revenue
Consumer products $ 3,757,552 $ 2,153,306 $ 1,604,246 74.5 %
Digital advertising and
media revenue 7,726,369 350,566 7,375,803 2104.0 %
Royalty income 50,898 61,290 (10,392 ) -17.0 %
Total revenue, net 11,534,819 2,565,162 8,969,657 349.7 %
Cost of revenues
Packaging products 3,156,993 1,393,063 1,763,930 126.6 %
Digital advertising and
media revenue 7,776,663 260,318 7,516,345 2887.4 %
10,933,656 1,653,381 9,280,275 561.3 %
Gross profit 601,163 911,781 -310,618 -34.1 %
Gross profit % 5.2 % 35.5 % -30.3 % -85.3 %
Revenue
For the three months ended March 31, 2022 , revenues from continuing operations
increased by $8,970,000 or 349.7%, as compared to the three months ended March
31, 2021 . The increase was primarily due to the impact of the Company's
acquisition of AdRizer in February 2022 , which generated $7,653,000 of revenue
for the Company during the first quarter of 2022. AdRizer's revenue consists of
digital advertising sales and services to advertisers. In addition, the increase
in revenues was due to revenue from CW Machines, a 51% owned subsidiary of
Cryptyde. CW Machines generated $1,573,000 in sales of crypto mining equipment
in the first quarter of 2022 that did not exist in the first quarter of 2021.
Cost of Revenues
For the three months endedMarch 31, 2022 , cost of revenues increased by$9,280,000 or 561.36%, as compared to the three months endedMarch 31, 2021 . The increase was primarily due to the costs of traffic acquisition at AdRizer and the costs of crypto mining machines at CW Machines, Each of these cost types did not occur in the first quarter of 2021.
Gross Profit
For the three months endedMarch 31, 2022 , gross profit decreased by$311,000 , or 34.1%, as compared to the three months endedMarch 31, 2021 . The decrease reflected the impact of the Company's new business lines of digital media and advertising from AdRizer, traffic acquisition and content creation costs of which were higher than expected as that business began its operations as a wholly-owned subsidiary of the Company, along with the impact of the Company's sales of crypto mining machines which have a lower margin than the Company's traditional packaging product sales. 35 Operating Expenses
Selling, general and administrative costs
Three Months Ended March 31, Period over Period Change
2022 2021 $ %
Selling, general and
administrative costs
Compensation, benefits and
payroll taxes $ 5,763,122 $ 500,033 $ 5,263,089 1052.5 %
Depreciation and
amortization 1,590,209 424,033 1,166,175 275.0 %
Stock based compensation 1,143,445 8,697,502 (7,554,057 ) -86.9 %
Advertising, marketing and
promotions 4,636,246 269,960 4,366,287 1617.4 %
Legal, professional fees,
and transaction costs 11,764,602 1,414,391 10,350,211 731.8 %
Selling, general and
administrative costs 1,900,483 354,961 1,589,353 447.8 %
Total selling, general and
administrative costs $ 26,798,107 $ 11,660,880 $ 15,137,227 129.28 %
Selling, general and administrative costs ("SGA costs") increased significantly
during the three months ended March 31, 2022 as compared to the three months
ended March 31, 2021 due to a significant expansion of the Company's activities
requiring SGA costs as it continued to transition into a digital media and
entertainment company in 2022. In addition, the increase in SGA costs reflect
the impact of costs associated with the Company's newly acquired subsidiary
AdRizer, which was acquired in February 2022 . Total SGA costs from continuing
operations were $26,798,000 in the first three months of 2022 as compared to
$11,661,000 in the first three months of 2021, an increase of $15,137,000 . The
largest increase was due to the impact of legal, professional fees and
transaction related costs related to the Company's acquisition of AdRizer, its
proposed spin-off of its Cryptyde business, and the costs associated with the
preparation and audit of its annual financial report. The Company's compensation
costs and its marketing and advertising costs have also increased significantly
in the first quarter of 2022 as the Company had added to its payrolls, staff of
Lomotif, and AdRizer as well as its internal staff focused on its digital media
business which did not exist in the first quarter of 2021. These costs increases
were partially offset by a significant decrease in stock-based compensation
costs, which decreased by $7,492,000 in the first quarter of 2022 as compared to
the first quarter of 2021.
Other Income (Expense)
Three Months Ended March 31 , Period over Period Change
2022 2021 $ %
Other income (expense)
Interest expense, net (22,427,461 ) (12,694,933 ) (9,732,528 ) 76.7 %
Loss on issuance of warrants (243,681,478 ) (75,156,534 ) (168,524,944 ) 224.2 %
Change in fair value of
warrant liability (86,948,858 ) 36,381,542 (123,330,400 ) -339.0 %
Other income (expense) 149,594 (44,296 ) 193,890 -437.7 %
Total other income (expense)
36 Interest expense, net Interest expense was approximately$22,427,000 for the three months endedMarch 31, 2022 versus approximately$12,695,000 during the three months endedMarch 31, 2021 . The increase in interest expense was related to the amortization of financing fees of the convertible note issued toHudson Bay Master Fund Ltd. ("Hudson Bay") inJuly 2021 . Loss on issuances of warrants and change in fair value of warrant liability The Company classifies a warrant to purchase shares of its common stock as a liability on its consolidated balance sheets as such warrant is a free-standing financial instrument that may require the Company to transfer consideration upon exercise. Each warrant is initially recorded at fair value on date of grant using the sing the Monte-Carlo simulation pricing model and subsequently re-measured to fair value at each subsequent balance sheet date. Changes in fair value of the warrant are recognized as a component of other income (expense), net in the consolidated statement of operations and comprehensive loss. The Company will continue to adjust the liability for changes in fair value until the earlier of the exercise or expiration of the warrant. During the first three months of 2022, loss on issuances of warrants was$243,681,000 due to the 89,653,803 warrants issued during the period, while the change in fair value of warrant liability for the 160,701,887 warrants outstanding as ofMarch 31, 2022 was an increase of$86,949,000 , for a net other expense of approximately$330,630,000 due to warrants recognized by the Company for the three months endedMarch 31, 2022 . Net Loss Three Months EndedMarch 31 ,
Period over Period Change
2022 2021 $ %
Loss before income taxes $ (379,105,147 ) $ (62,263,320 ) $ (316,841,827 ) 508.79 %
Income tax expense - - -
Net loss (379,105,147 ) (62,263,320 ) (316,841,827 ) 508.79 %
Net (loss) income
attributable to
noncontrolling interests (6,157,190 ) 28,034 (6,185,224 ) -22063.3 %
Net loss attributable to
Vinco Ventures, Inc. from
continuing operations (372,947,957 ) (62,291,354 ) (310,656,603 ) 498.7 %
Net Loss from discontinued
operations - (178,200 ) 178,200 -100.0 %
Net loss attributable to
Vinco Ventures, Inc. $ (372,947,957 ) $ (62,469,554 ) $ (310,478,403 ) 497.90 %
Net loss attributable to Vinco Ventures, per share - - Net loss per share- continuing operations $ (3.05 )$ (3.28 ) $ 0.23 -7.1 % Weighted Average Number of Common Shares Outstanding -basic and diluted 122,176,851 19,055,006 103,121,845 541.2 % 37 Net Loss The Company incurred a net loss of$372,948,000 during the first three months of 2022 as compared to a net loss of$62,470,000 during the first three months of 2021, an increase of$310,478,000 or 497.0%. The significant increase in net loss was primarily triggered by the impact of the Company's requirement to recognize the fair value of warrants that the Company issued and the change in fair values of exercised and outstanding warrants during 2021. The total impact of warrant liability accounting during the three months endedMarch 31, 2022 was a net other expense of$330,630,000 as compared to a net other expense of$38,775,000 in the first three months of 2021. The warrant liability amounts are affected by the fair value of the Company's stock which is the market price of the Company's common stock as traded on the Nasdaq Capital Market. During the first three months of 2022, the Company's stock price ranged from a low of$2.04 and a high of$5.19 per share, which had significant impact on the fair market value of the Company's warrants on their grant and exercise dates. The other expense due to warrant liability constituted 87.4% of the Company's net loss for the three months endedMarch 30, 2022 and 60% of the Company's net loss for the three months endedMarch 30, 2021 . The remaining increase in net loss during the first three months of 2022 was driven by the increased size of the Company due to ZVV's ownership of an 80% equity interest in Lomotif, the Company's acquisition of AdRizer and its transition into a digital media, advertising and content technologies company, which caused the Company to increase its headcount, and its sales and marketing activities during the first three months of 2022. Cash Flows
During the three months ended
Three Months Ended March 31 , Period over Period Change
2022 2021 $ %
Net Cash used by Operating
Activities $ (42,014,284 ) $ (4,140,110 ) $ (38,024,174 ) 918.4 %
Net Cash Used in Investing Activities (35,677,139 ) (12,018,228 )
(23,658,911 ) 196.69 %
Net Cash provided by Financing Activities 100,859,195 21,434,728 79,574,467 371.2 % Net Increase in Cash and Cash Equivalents 23,167,772 5,276,390 17,891,382 339.1 % Cash and Cash Equivalents - Beginning of Year 187,612,176 249,356 187,362,820 75138.7 % Cash and Cash Equivalents - End of Year$ 210,779,948 $ 5,525,746 $ 205,254,202 3714.5 %
Cash Flows from Operating Activities
Net cash used in operating activities from continuing operations for the three months endedMarch 31, 2022 was$42,014,000 , which included a net loss of$379,105,000 that included$355,570,000 of non-cash expense items. The use of cash for operations during the first three months of 2022 reflected the costs incurred by the business, including the costs associated with the operation, marketing and promotion of Lomotif, along with the amount of professional fees incurred by the Company during the period. In additional, the Company paid down approximately$9,009,000 in accrued expenses during the first three months of 2022. Net cash used in operating activities from continuing operations for the three months endedMarch 31, 2021 was$4,140,000 , which included a net loss of$62,263,000 that included$60,253,000 of non-cash expense items. 38
Cash Flows from Investing Activities
Net cash used in investing activities was$35,677,000 during the first three months of 2022, which was primarily due to the net cash paid for the acquisition of AdRizer by the Company inFebruary 2022 .
Cash Flows from Financing Activities
Cash provided by financing activities for the three months endedMarch 31, 2022 totaled$100,859,000 , which related primarily to net proceeds from the exercise of warrants.
Net Increase (Decrease) in Cash and Cash Equivalents
As a result of the cash activities described above, during the three months
ended
Liquidity and Capital Resources
As of March 31, Period over Period Change
2022 2021 $ %
Assets
Cash and cash equivalents $ 130,779,948 $ 87,612,176 $
43,167,772 49.3 %
Restricted cash - 100,000,000 (100,000,000 ) 0.0 %
Other current assets 51,645,168 32,129,291 19,515,877 60.7 %
Total current assets 182,425,115 219,741,467 (37,316,352 ) -17.0 %
Intangible assets, including
goodwill 219,429,315 162,105,597 57,323,718 35.4 %
Other long term assets 98,824,279 23,295,665 75,528,614 324.2 %
318,253,594 185,401,262 132,852,332 71.7 %
Total Assets $ 500,678,709 $ 405,142,729 $ 95,535,980 23.6 %
Liabilities
Accounts payables and accrued
expenses 22,155,028 25,622,271 (3,467,243 ) -13.5 %
Current portion of long-term
debt 19,959,861 44,467,275 (24,507,414 ) -55.1 %
Total current liabilities 42,114,889 70,089,546
(27,974,657 ) -39.9 %
Long -term debt 47,066,715 2,691,551 44,375,164 1648.7 %
Warrant liability 429,167,462 198,566,170 230,601,292 116.1 %Other long term liabilities 23,358,420 70,197,966
(46,839,546 ) -66.7 %
Total Liabilities 541,707,486 271,455,687 228,136,910 84.40 %
39
As discussed above, the Company incurred significant losses during the first
three months of 2022, and has a history of losses since inception. Since 2021, a
significant percentage of its losses has been driven by non-cash expenses items,
especially losses caused by liability accounting for its investor warrants. The
Company used approximately $43 million in cash for operations during the first
three months of 2022. This amount included approximately $8.2 million for
transaction related costs associated with its acquisition of AdRizer in February
2022 , and a $10 million payment of accrued registration rights penalties owed to
Hudson Bay. In addition to these items, the Company used approximately $25
million in its operations during the first three months of 2022. This amount
included significant investments in sales, marketing and promotional activities
which the Company engaged in during the first quarter to drive awareness and
interest in the Lomotif application and Lomotif branded websites, especially for
events livestreamed on the Lomotif platform. During the first quarter, the
Company live streamed and promoted the Shaq Fun House event in January and the
Okeechobee Music Festival in February. These expenses were intended to create
traffic and interactions with the Lomotif digital properties with the goal of
generating advertising revenue opportunities utilizing the capabilities of
AdRizer, which the Company expects will reduce its operating cash needs during
the rest of 2022, although there is no guarantee that the Company will
successfully do so. If additional advertising revenues are not generated as
quickly, or in sufficient amount, the Company will need to utilize its
unrestricted cash on hand to fund its operations. As of March 31, 2022 , the
Company had $130,780,612 of unrestricted cash on hand.
Furthermore, the Company may determine it is in the best interests of the
Company to pursue additional investments, acquisitions, or funding of marketing
and promotional efforts as the Company expands its presence and capabilities
within the digital media marketplace. To do so, the Company may require
additional cash resources that the Company could generate through the sale of
common stock, the exercise of outstanding warrants, and the issuance of
convertible debt, each of which the Company has utilized to raise capital since
2021. The Company believes that it will continue to have access to debt or
equity financing, if needed, to pursue additional investments and acquisitions,
though there is no assurance that such financing will be available on terms
acceptable to the Company, if at all, and any equity-linked financing
opportunities will be limited by the Company's current authorized shares of
capital stock available for issuance if the Company's stockholders do not
approve the proposed increases in its authorized capital stock at its next
scheduled meeting of stockholders. If the Company is unable to raise additional
capital if needed, the Company believes it can implement steps to conserve its
unrestricted cash on hand and address any going concern issues, including but
not limited to the following steps:
? Reduce headcount,
? Reduce marketing, promotional and content development and production
activities,
? Sell assets or subsidiaries.
Off-Balance Sheet Arrangements
We did not have, during the periods presented, and we do not currently have, any relationships with any organizations or financial partnerships, such as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
40
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