424B3 1 form424b3.htm

 

Filed Pursuant to Rule 424(b)(3)

Registration No. 333-252819

 

PROSPECTUS

 

 

Vinco Ventures, Inc.

 

24,480,000 Shares of Common Stock

 

Pursuant to this prospectus, the selling shareholders identified herein (each a “Selling Shareholder” and, collectively, the “Selling Shareholders”) are offering on a resale basis, up to 24,480,000 shares of common stock, par value $0.001 per share (the “common stock”) of Vinco Ventures, Inc. (the “Company,” “Vinco Ventures,” “we,” “our” or “us”). These shares include: (i) 6,000,000 shares of common stock underlying a senior convertible note issued in the Hudson Bay financing, and (ii) 15,000,000 shares of common stock underlying a warrant issued in connection with the Hudson Bay financing, and (iii) 1,500,000 shares of common stock issued in connection with the BHP Securities Purchase Agreement, and (iv) 1,500,000 shares of common stock underlying a warrant issued in connection with the BHP financing, and (v) 480,000 shares of common stock underlying a warrant issued in connection with the placement of the Hudson Bay financing. We are not selling any shares under this prospectus, and we will not receive any proceeds from the sales of shares by the Selling Shareholders. We will, however, receive the exercise price of the Warrants, if and when such Warrants are exercised for cash by the holders of such Warrants.

 

The shares included in this prospectus may be offered and sold directly by the Selling Shareholders in accordance with one or more of the methods described in the “Plan of Distribution,” which begins on page 33 of this prospectus. To the extent the Selling Shareholders decide to sell their shares, we will not control or determine the price at which the shares are sold.

 

Our common stock is listed on The Nasdaq Capital Market under the symbol “BBIG.” On February 16, 2021, the last reported sale price of our common stock was $3.74 per share.

  

This offering will terminate on the earlier of (i) the date when all of the shares have been sold pursuant to this prospectus or Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”), and (ii) the date that all of the securities may be sold pursuant to Rule 144 without volume or manner-of-sale restrictions, unless we terminate it earlier.

 

We are an “emerging growth company” as defined under U.S. federal securities laws and, as such, we have elected to comply with certain reduced public company reporting requirements for this prospectus and future filings. See “Prospectus Summary — Implications of Being an Emerging Growth Company.”

 

Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 18 of this prospectus for a discussion of the risks that you should consider in connection with an investment in our securities.

  

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

The date of this prospectus is February 16, 2021.

 

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TABLE OF CONTENTS

 

   Page
Cautionary Note Regarding Forward-Looking Statements  4
Prospectus Summary  5
Summary of the Offering  16
Risk Factors  18
Use of Proceeds  31
Private Placement of Equity Securities  31
Dividend Policy  32
Determination of Offering Price  32
Market for Common Equity and Related Shareholder Matters  32
Plan of Distribution  33
Selling Shareholders for Whose Accounts We Are Registering Shares  34
Management’s Discussion and Analysis of Financial Condition and Results of Operations  36
Business  46
Management  53
Executive Compensation  59
Certain Relationships and Related Party Transactions  63
Principal Shareholders  64
Description of Capital Stock  66
Legal Matters  68
Experts  68
Where You Can Find Additional Information  68
Incorporation of Certain Information by Reference  68
Index to Consolidated Financial Statements  F-1

 

No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares of common stock offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

 

ABOUT THIS PROSPECTUS

 

This prospectus is part of a registration statement that we filed on behalf of the Selling Shareholders with the United States Securities and Exchange Commission (the “SEC”) to permit the Selling Shareholders to sell the shares described in this prospectus in one or more transactions. The Selling Shareholders and the plan of distribution of the shares being offered by them are described in this prospectus under the headings “Selling Shareholders” and “Plan of Distribution.”

 

You should rely only on the information contained in this document and any free writing prospectus we provide to you. Neither we nor the Selling Shareholders have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We and the Selling Shareholders take no responsibility for and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the common stock offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

 

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Use of Industry and Market Data

 

This prospectus includes market and industry data that we have obtained from third-party sources, including industry publications, as well as industry data prepared by our management on the basis of its knowledge of and experience in the industries in which we operate (including our management’s estimates and assumptions relating to such industries based on that knowledge). Management has developed its knowledge of such industries through its experience and participation in these industries. While our management believes the third-party sources referred to in this prospectus are reliable, neither we nor our management have independently verified any of the data from such sources referred to in this prospectus or ascertained the underlying economic assumptions relied upon by such sources. Furthermore, internally prepared and third-party market prospective information, in particular, are estimates only and there will usually be differences between the prospective and actual results, because events and circumstances frequently do not occur as expected, and those differences may be material. Also, references in this prospectus to any publications, reports, surveys or articles prepared by third parties should not be construed as depicting the complete findings of the entire publication, report, survey or article. The information in any such publication, report, survey or article is not incorporated by reference in this prospectus.

 

Trademarks, Trade Names and Service Marks

 

“Vinco Ventures” and other trademarks or service marks of Vinco Ventures, Inc. appearing in this prospectus are the property of Vinco Ventures, Inc. The other trademarks, trade names and service marks appearing in this prospectus are the property of their respective owners. Solely for convenience, the trademarks and trade names in this prospectus are referred to without the ® and ™ symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements relate to future events including, without limitation, the terms, timing and closing of our proposed acquisitions or our future financial performance. We have attempted to identify forward-looking statements by using terminology such as “anticipates,” “believes,” “expects,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predict,” “should,” “will,” or the negative of these terms or other comparable terminology. These statements are only predictions; uncertainties and other factors may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels or activity, performance, or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Our expectations are as of the date this prospectus is filed, and we do not intend to update any of the forward-looking statements after the date this prospectus is filed to confirm these statements to actual results, unless required by law.

 

You should not place undue reliance on forward looking statements. The cautionary statements set forth in this prospectus identify important factors which you should consider in evaluating our forward-looking statements. These factors include, among other things:

 

  Our ability to effectively execute our business plan;

 

  Our ability to manage our expansion, growth and operating expenses;
     
  Our ability to protect our brands and reputation;
     
  Our ability to repay our debts;
     
  Our ability to rely on third-party suppliers outside of the United States;
     
  Our ability to evaluate and measure our business, prospects and performance metrics;
     
  Our ability to compete and succeed in a highly competitive and evolving industry;
     
  Our ability to respond and adapt to changes in technology and customer behavior;
     
  Risks in connection with completed or potential acquisitions, dispositions and other strategic growth opportunities and initiatives;
     
  Risks related to the anticipated timing of the closing of any potential acquisitions;
     
  Risks related to the integration with regards to potential or completed acquisitions;
     
  Various risks related to health epidemics, pandemics and similar outbreaks, such as the coronavirus disease 2019 (“COVID-19”) pandemic, which may have material adverse effects on our business, financial position, results of operations and/or cash flows; and
     
  Our ability to take advantage of opportunities under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, and the potential impact of the CARES Act on our business, results of operations, financial condition or liquidity.

 

This prospectus also contains estimates and other statistical data made by independent parties and by us relating to market size and growth and other industry data. This data involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. We have not independently verified the statistical and other industry data generated by independent parties and contained in this prospectus and, accordingly, we cannot guarantee their accuracy or completeness, though we do generally believe the data to be reliable. In addition, projections, assumptions, and estimates of our future performance and the future performance of the industries in which we operate are necessarily subject to a high degree of uncertainty and risk due to a variety of factors. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including, but not limited to, the possibility that we may fail to preserve our expertise in consumer product development; that existing and potential distribution partners may opt to work with, or favor the products of, competitors if our competitors offer more favorable products or pricing terms; that we may be unable to maintain or grow sources of revenue; that we may be unable maintain profitability; that we may be unable to attract and retain key personnel; or that we may not be able to effectively manage, or to increase, our relationships with customers; and that we may have unexpected increases in costs and expenses. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.

 

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PROSPECTUS SUMMARY

 

This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider before deciding to invest in our common stock. You should read the entire prospectus carefully, including the “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our combined financial statements and the related notes thereto that are included elsewhere in this prospectus, before making an investment decision.

 

Unless the context requires otherwise, “Vinco Ventures,” the “Company,” “we,” “us,” and “our,” refer to Vinco Ventures, Inc. and its subsidiaries.

 

Overview

 

Our Company was incorporated on July 18, 2017 in the State of Nevada under the name of Idea Lab X Products, Inc, On September 12, 2017, we filed an Amendment to our Articles of Incorporation changing the name to Xspand Products Lab, Inc., and then on September 7, 2018 we filed an Amendment to our Articles of Incorporation changing the name to Edison Nation, Inc. On November 5, 2020, the Company (the “Parent”) and its wholly owned subsidiary, Vinco Ventures, Inc. (the “Merger Sub”), entered into an Agreement and Plan of Merger (the “Agreement”). Under the terms of the Agreement, the Merger Sub merged with and into the Parent and the Parent became the surviving corporation of the Merger (the “Surviving Corporation”). The name of the Surviving Corporation became Vinco Ventures, Inc. The transaction closed on November 10, 2020.

 

Vinco Ventures seeks to be involved with every step of the consumer product life cycle- from ideation, to research and development, manufacturing, sales, packaging and fulfillment. The Company also seeks to raise awareness of the Vinco Ventures brand name as a diversified consumer products business through a number of media channels.

 

The first stage of development for any consumer product is the impetus to turn an idea into a salable commodity. Considered to be the “go-to” resource for independent innovators with great consumer product invention ideas, Vinco Ventures maintains a consumer-facing online presence whereby innovators can submit ideas for consideration by us. If an idea is successfully chosen, Vinco Ventures will apply its proprietary, web-enabled new product development (“NPD”) and commercialization platform that can take a product from idea through e-commerce final sale in a matter of months versus a year or more for capital intensive and inefficient new product development protocols traditionally used by legacy manufacturers serving “big box” retailers. Vinco Ventures presently engages with over 180,000 registered online innovators and entrepreneurs interested in accessing the Company’s NPD platform to bring innovative, new products to market focusing on high-interest, high-velocity consumer categories. The Company generates revenue from its web presence by charging a fee for each idea submission, and also through subscription-based plans for innovators that wish to submit high volumes of ideas.

 

Since its inception, Vinco Ventures has received over 200,000 idea submissions, with products selling in excess of $250 million at retail through the management of over 300 client product campaigns with distribution across diverse channels including e-commerce, mass merchandisers, specialty product chains, entertainment venues, national drug chains, and tele-shopping. These clients include many of the largest manufacturers and retailers in the world including Amazon, Bed Bath and Beyond, HSN, Rite Aid, P&G, and Black & Decker. The Company generates revenue from licensing agreements with such manufacturers and retailers, which such agreements are entered into when innovators submit their ideas through Vinco Ventures’ web portal. Occasionally, the Company also generates revenue from innovators that wish to use the Company’s product development resources, but license or distribute products themselves.

 

Vinco Ventures has 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 include Cloud B, Pirasta, Uber Mom, Best Party Concepts, Lily and Grey, Sol and Salud, Trillion Trees, Eco Quest, Smarter Specs, Barkley Lane, and Ngenious Fun. Additionally, the Company offers a partnership model for entrepreneurs and businesses that are seeking to elevate their existing brands. Recent partnerships for Vinco 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 item that enhance the brands overall image and consumer adoption,

 

In addition to developing products for its EN Brands, the Company develops and manufactures products for well-known brands in the entertainment and theme park industry. For over 20 years, the Company has developed, manufactured and supplied the entertainment and amusement park industry with exclusive products that are often only available to consumers inside venues such as Disney Parks and Resorts, Disney Stores, Universal Resorts, Sea World, Sesame Place, Busch Gardens, Merlin Entertainment, and Madison Square Garden. For the customers listed above, the Company has developed products for core brands such as Harry Potter, Frozen, Marvel, and Star Wars.

 

Once most consumer products are ideated, developed, manufactured, and possibly even licensed, they must be packaged and distributed. Therefore, we lease a packaging and logistics center in Alpha, New Jersey. The Company generates revenue from the sale of custom packaging for many of the products that have run through our NPD or in-house product development process. The Company also sells packaging products to a number of other entities that are not related to the Company’s product development process, including pharmaceutical and e-commerce companies. When packaging of products is complete, we typically ship products using our own trucks rather than relying on a common carrier. For packaging products, the Company does not have long-term agreements with customers, and instead manufactures and sells its packaging products subject to purchase orders from its customers.

 

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Once a product is ready for distribution, consumer awareness must be raised in order to the sell the product. Accordingly, the Company has begun to pursue a three-prong media strategy. First, the Company is seeking to re-release episodes of the ‘Everyday Edisons’ television program, while simultaneously seeking a distribution partner for forthcoming episodes. The Company intends to generate revenue from the Everyday Edisons brand by entering into a contract with a broadcast network or online streaming service. Second, the Company is developing a proprietary e-learning platform. The Company intends to generate revenue from the e-learning platform through the sale of subscription-based plans. Third, the Company is seeking to expand its web presence by acquiring or creating other innovator-facing internet media properties. The Company intends to generate revenue from such internet media through the display of paid advertisements on its properties.

 

COVID-19

 

COVID-19 has caused and continues to cause significant loss of life and disruption to the global economy, including the curtailment of activities by businesses and consumers in much of the world as governments and others seek to limit the spread of the disease, and through business and transportation shutdowns and restrictions on people’s movement and congregation.

 

As a result of the pandemic, we have experienced, and continue to experience, weakened demand for our traditional products. Many of our customers have been unable to sell our products in their stores and theme parks due to government-mandated closures and have deferred or significantly reduced orders for our products. We expect these trends to continue until such closures are significantly curtailed or lifted. In addition, the pandemic has reduced foot traffic in the stores where our products are sold that remain open, and the global economic impact of the pandemic has temporarily reduced consumer demand for our products as they focus on purchasing essential goods.

 

In the United States and Asia, many of our key accounts remain closed or are operating at significantly reduced volumes. As a result, we have made the strategic decision to expand our operations through our Edison Nation Medical (“Ed Med”) division. Through Ed Med, the Company wholesales Personal Protective Equipment (“PPE”) products through an online portal for hospitals, government agencies and distributors.

 

Given these factors, the Company anticipates that the greatest impact from the COVID-19 pandemic in fiscal 2020 occurred in the first quarter of 2020 which resulted in a significant net sales decline as compared to the first quarter of 2019. The Company was able to recover in the second quarter and third quarter of 2020 related to sales of personal protective equipment and a rebound of some of our legacy product business.

 

In addition, some of our suppliers and the manufacturers of certain products were adversely impacted by COVID-19. As a result, we faced delays or difficulty sourcing products, which negatively affected our business and financial results. Even if we are able to find alternate sources for such products, they may cost more and cause delays in our supply chain, which could adversely impact our profitability and financial condition.

 

We have taken actions to protect our employees in response to the pandemic, including closing our corporate offices and requiring our office employees to work from home. At our distribution centers, certain practices are in effect to safeguard workers, including a staggered work schedule, and we are continuing to monitor direction from local and national governments carefully. Additionally, our two retail locations have been closed until further notice.

 

As a result of the impact of COVID-19 on our financial results, and the anticipated future impact of the pandemic, we have implemented cost control measures and cash management actions, including:

 

● Terminating a significant portion of our employees; and

 

● Implementing 20% salary reductions across our executive team and other members of upper-level management; and

 

● Executing reductions in operating expenses, planned inventory levels and non-product development capital expenditures; and

 

● Proactively managing working capital, including reducing incoming inventory to align with anticipated sales.

 

Market Strategy

 

The process for developing and launching consumer products has changed significantly in recent years. Previously, Fortune 500 and other companies maintained multimillion-dollar research and development divisions to develop and launch products to be sold primarily on retail shelves and supported by large television and print advertising investment. The emergence of e-commerce giants, including Amazon.com, has caused retail shelf space to no longer be a requirement to launch a new product. Crowdfunding sites like Kickstarter enable solo entrepreneurs to inexpensively produce an advertising video and quickly introduce a new product to many millions of potential customers, and to quickly gain those customers for a low cost of acquisition relative to the cost and time required in prior years as expensive advertising investment is no longer required to gain market awareness. For example, according to Statista.com, crowdfunded sales of products will exceed $18.9 billion in 2021. The consumer shift away from brick and mortar retailers toward e-commerce has resulted in the bankruptcy or downsizing of many iconic retailers which sold toys, including Toys R Us, Sears, Kmart, and K-B Toys, with the resultant loss in shelf space and available locations helping to drive our market opportunity. By utilizing the opportunities to market products over the internet, rather than through traditional, commercial channels, we believe we can reach a much broader market for our brands and products.

 

Leveraging Evolving Market Opportunities for Growth

 

The Company believes that its anticipated growth will be driven by five macroeconomic factors:

 

The significant growth of ecommerce (14% compound annual growth rate, estimated to reach $4.9 trillion by 2021 (eMarketer 2018));
The increasing velocity of “brick and mortar” retail closures, now surpassing Great Recession levels (Cushman & Wakefield/Moody’s Analytics 2018);
Product innovation and immediate delivery gratification driving consumer desire for next-generation products with distinctive sets of features and benefits without a reliance on brand awareness and familiarity;
The marriage of media-based entertainment and consumer goods;
The rapid adoption of crowdsourcing to expedite successful new product launches; and
The opportunity to market products over the internet and television, rather than through traditional, commercial channels, to reach a much broader, higher qualified target market for brands, and products.

 

In addition, we intend to acquire more small brands that have achieved approximately $1 million in retail sales over the trailing twelve-month period with a track record of generating free cash flow. By leveraging our expertise in helping companies launch thousands of new products and our ability to create unique, customized packaging, we will seek to elevate the value of these acquired brands by improving each part of their launch process, based on our own marketing methodologies.

 

We believe our acquisition strategy will allow us to acquire small brands using a combination of shares of our common stock, cash and other consideration, such as earn-outs. We intend to use our acquisition strategy in order to acquire up to ten or more small brands per year for the next three years. In situations where we deem that a brand is not a “fit” for acquisition or partnership, we may provide the brand with certain manufacturing or consulting services that will assist the brand to achieve its goals.

 

One example of a brand that we have recently acquired is Cloud B, Inc. (“Cloud B”), a leading manufacturer of products and accessories that help parents and children sleep better. Cloud B distributes its products nationally and in over 100 countries worldwide.

 

Founded in 2002 and acquired by Vinco Ventures in October 2018, Cloud B’s highly regarded, award-winning products are developed in consultation with an advisory board of pediatricians and specialists. Cloud B recently won the Toy of the Year award from The Toy Association. Cloud B’s best-known products are Twilight Turtle™ and Sleep Sheep™.

 

Cloud B’s products can be purchased online (through its own e-commerce site and other online retailers), in specialty boutiques, gift stores, and worldwide at major retailers including Barnes & Noble, Bloomingdale’s, Dillard’s, Nordstrom, Von Maur, Harrods, and Fnac in France.

 

Immediate synergies include expanding Vinco Ventures’ West Coast footprint by leveraging Cloud B’s sizable distribution, sales and fulfillment operations. The initial focus for Cloud B has been to optimize existing product performance while helping to develop new product lines leveraging the Vinco Ventures NPD platform. In addition, Cloud B is leveraging Vinco Ventures’ Hong Kong-based manufacturer sourcing and management capabilities, as well as the Company’s marketing and packaging resources.

 

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Summary of Risk Factors

 

Our business is subject to numerous risks and uncertainties, including those in the section captioned “Risk Factors” beginning on page 18 and elsewhere in this prospectus. These risks include, but are not limited to, the following:

 

our limited operating history and may not be able to operate our business successfully or generate sufficient revenue to make or sustain distributions to our shareholders;

 

the loss of key personnel or the inability of replacements to quickly and successfully perform in their new roles could adversely affect our business;

 

our financial statements may be materially affected if our estimates prove to be inaccurate as a result of our limited experience in making critical accounting estimates;

 

we may require additional financing to sustain or grow our operations;

 

if we fail to manage our growth, our business and operating results could be harmed;

 

our growth strategy includes pursuing opportunistic acquisitions of additional brands, and we may not find suitable acquisition candidates or successfully operate or integrate any brands that we may acquire;

 

an inability to develop and introduce products in a timely and cost-effective manner may damage our business;

 

our success will depend on the reliability and performance of third-party distributors, manufacturers, and suppliers;

 

we have debt financing arrangements, which could have a material adverse effect on our financial health and our ability to obtain financing in the future and may impair our ability to react quickly to changes in our business; and
   
 Various risks related to health epidemics, pandemics and similar outbreaks, such as the coronavirus disease 2019 (“COVID-19”) pandemic, which may have material adverse effects on our business. Due to the continued uncertainties and the fluid impacts of COVID-19, expectations could be affected by heightened effects from the pandemic.

 

Recent Developments

 

Hudson Bay Financing

 

On January 25, 2021 (the “Effective Date”), the Company consummated the closing of a private placement offering (the “Offering”) whereby pursuant to the Securities Purchase Agreement (the “Purchase Agreement”) entered into by the Company on January 21, 2021 with Hudson Bay Master Fund, Ltd (the “Investor”), the Company issued a Senior Convertible Note for the purchase price of $12,000,000 (the “Note”) and a five (5) year warrant (the “Warrant”) to purchase shares of the Company’s common stock, par value $0.001 per share (“Common Stock”).

 

The Note carries an interest rate of 6% per annum and matures on the 12-month anniversary of the Issuance Date (as defined in the Note). The Note contains a voluntary conversion mechanism whereby the Noteholder may convert at any time after the Issuance Date, in whole or in part, the outstanding balance of the Note into shares of the Common Stock at a conversion price of $2.00 per share (the “Conversion Shares”). The Note shall be a senior obligation of the Company and its subsidiaries. The Note contains customary events of default (each an “Event of Default”). If an Event of Default occurs, interest under the Note will accrue at a rate of twelve percent (12%) per annum and the outstanding principal amount of the Note, plus accrued but unpaid interest, liquidated damages and other amounts owing with respect to the Note will become, at the Note holder’s election, immediately due and payable in cash. Upon completion of a Change of Control (as defined in the Note), the Note’s holder may require the Company to purchase any outstanding portion of the Note in cash at a price in accordance with the terms of the Note.

 

Pursuant to the Purchase Agreement, the Investor received a Warrant in an amount equal to 250% of the shares of Common Stock initially issuable to each Investor pursuant to the Investor’s Note. The Warrant contains an exercise price of $2.00 per share. In connection with the closing of the Offering, the Warrant was issued to purchase an aggregate of 15,000,000 shares of Common Stock (the “Warrant Shares”).

 

The Company also entered into a Registration Rights Agreement with the Investor (the “Registration Rights Agreement”). The Registration Rights Agreement provides that the Company shall (i) file with the Securities and Exchange Commission (the “Commission”) a Registration Statement by 30 days following the Closing Date to register the Conversion Shares and Warrant Shares (the “Registration Statement”); and (ii) use all commercially reasonable efforts to have the Registration Statement declared effective by the Commission within 60 days following the Closing Date or at the earliest possible date, or 75 days following the Closing Date if the Registration Statement receives comments from the Commission.

 

Palladium Capital Group, LLC (the “Placement Agent”) acted as placement agent for the Offering. The Placement Agent received cash compensation of $1,080,000 (8% of the gross proceeds to the Company plus an additional 1% of the gross proceeds to the Company for non-accountable expenses). The Placement Agent also received a Warrant in an amount equal to 8% of the shares of Common Stock initially issuable to each Investor pursuant to the Investor’s Note.

 

BHP Financing

 

On January 28, 2021 (the “Effective Date”), the Company consummated the closing of a private placement offering (the “Offering”) whereby pursuant to the Securities Purchase Agreement (the “SPA”) entered into by the Company on January 28, 2021 with BHP Capital NY Inc (the “Investor”), the Company issued 1,500,000 shares of restricted common stock and a five (5) year warrant (the “Warrant”) to purchase shares of the Company’s common stock, par value $0.001 per share (“Common Stock”).

 

Pursuant to the SPA, the Investor received a Warrant in an amount equal to 100% of the shares of Common Stock issued to the Investor under the SPA. The Warrant contains an exercise price of $2.20 per share. In connection with the closing of the Offering, the Warrant was issued to purchase an aggregate of 1,500,000 shares of Common Stock (the “Warrant Shares”).

 

The Company also entered into a Registration Rights Agreement with the Investor (the “Registration Rights Agreement”). The Registration Rights Agreement provides that the Company shall (i) file with the Securities and Exchange Commission (the “Commission”) a Registration Statement by 30 days following the Closing Date to register the Conversion Shares and Warrant Shares (the “Registration Statement”); and (ii) use all commercially reasonable efforts to have the Registration Statement declared effective by the Commission within 60 days following the Closing Date or at the earliest possible date, or 75 days following the Closing Date if the Registration Statement receives comments from the Commission.

 

Agreement to Complete a Merger with Zash Global Media and Entertainment Corporation

 

On January 20, 2021, the Company, and its newly formed wholly owned subsidiary, Vinco Acquisition Corporation (the “Merger Sub”), entered into an Agreement to Complete a Plan of Merger (the “Agreement to Complete”) with ZASH Global Media and Entertainment Corporation (“ZASH”).

 

The Agreement contemplates a reverse triangular merger of Merger Sub with and into ZASH in a transaction intended to qualify as a tax-free reorganization under Sections 368(a)(l)(A) and 368(a)(2)(E) of the Code. Under the terms of the Agreement to Complete, ZASH’s holders of common stock, par value $0.001, shall receive shares of Common Stock of the Company in exchange for all issued and outstanding ZASH shares of common stock. ZASH will then become an indirect wholly-owned subsidiary of the Company. The Company will engage a third-party valuation firm to perform a valuation of ZASH and to issue a Transaction Fairness Opinion. The valuation report is expected before the end of February and will set the resulting post-closing ownership ratio. Upon completion of the closing, ZASH will be the controlling entity.

 

The certificate of incorporation of the Company will be amended and restated at and as of the Effective Time, in substantial conformance with the certificate of incorporation of ZASH immediately prior to the closing, and the name of the Company will be changed to “ZASH Global Media and Entertainment Corporation.” The bylaws of the Company will be amended and restated at and as of the Closing to become the equivalent of the bylaws of ZASH immediately prior to the closing. At the closing, certain officers and directors of the Company and the Merger Sub immediately prior to the Effective Time shall resign and the officers and directors of ZASH immediately prior to the closing will be appointed as officers and directors of the Company and the surviving corporation, in each case until their respective successors are duly elected or appointed and qualified; provided, however that the Company shall have the right to appoint two (2) person to serve as a member of the Board of Directors of the surviving corporation and ZASH shall have the right to appoint three (3) persons to serve as members of the Board of Directors of the surviving company.

 

Contribution Agreement with Zash Global Media and Entertainment Corporation

 

On January 19, 2021, Vinco Ventures, Inc. (“Vinco Ventures”), ZVV Media Partners, LLC (the “Company”) and Zash Global Media and Entertainment Corporation (“ZASH”) entered into a Contribution Agreement (the “Agreement”). Vinco Ventures and ZASH desire to establish the newly formed Company in order to engage in the development and production of consumer facing content and related activities.

 

Under the terms of the Agreement, Vinco Ventures and ZASH shall contribute certain assets (the “Contributed Assets”) to the Company. At Closing, Vinco Ventures and ZASH shall enter into a limited liability operating agreement of the Company and a content distribution agreement with American Syndication Media Corporation (“ASMC”). The Company shall not assume any liabilities of either Vinco Ventures or ZASH except those liabilities arising in or specifically relating to periods, events or occurrences happening with respect to the Contributed Assets on or after the Closing Date. In consideration of the Contributed Assets, the Company shall issue to Vinco Ventures and ZASH 5,000 Units. The transaction closed on January 19, 2021.

 

Stock Exchange Agreement for Sale of SRM Entertainment, LTD

 

On November 30, 2020, the Company (the “Seller”) and its wholly owned subsidiary, SRM Entertainment, LTD (“SRM”) entered into a Stock Exchange Agreement (the “Exchange Agreement”) with Jupiter Wellness, Inc. (“Jupiter”)(the “Buyer”). Under the terms of the Exchange Agreement, the Buyer agreed to purchase all outstanding shares of common stock (the “Exchange Shares”) issued by SRM from the Seller. As consideration for the purchase of the Exchange Shares, the Buyer agreed to exchange 200,000 shares of its restricted common stock (the “Consideration Shares”), symbol JUPW as listed on NASDAQ Capital Markets.

 

Upon closing, Jupiter delivered 150,000 of the Consideration Shares and held 50,000 of the Consideration Shares in escrow (“Escrow Shares”). Jupiter shall release the Escrow Shares upon SRM generating $200,000 in cash receipts and revenue prior to January 15, 2021. As of the date of the Registration Statement, the Company has received all Exchange Shares.

 

As a performance based incentive, the Buyer shall pay to the Seller two percent (2%) of gross sales of Jupiter’s private label sun care products if such gross sales are in excess of twelve million dollars ($12,000,000) earned during the 2021 calendar year.

 

At Closing, the Company (as “Stockholder”) and Jupiter entered into a Leak Out Agreement, whereby the Company was limited in the sales of the Consideration Shares upon the following terms: (i) As such time as the Stockholder is able to resell the Consideration Shares in accordance with the provisions of Rule 144 of the Securities Act (the “Expiration of the Holding Period”), the Stockholder agrees to limit the resales of such Shares in the public market as follows:

 

  a. No shares in any one day more than ten percent (10%) of the average of the daily trading volume on all trading markets on which the Consideration Shares are then quoted or listed for the five trading days preceding the sale of the Consideration Shares, and;
     
  b. Any permitted resales by the Stockholder shall be at the then current bid price of the Common Stock.

 

Edison Nation Holdings, LLC Transaction

 

On September 4, 2018, the Company completed the acquisition of all of the voting membership interest of Edison Nation Holdings, LLC (“EN”) for a total purchase price of $11,776,696 comprised of (i) $700,000 in cash to Edison Nation ($550,000 of which was subsequently used to purchase the membership interests of Access Innovation, LLC, which membership interests were then distributed to the Members), and $250,000 in cash used to pay off a portion of the indebtedness owed by EN to holders of certain senior convertible debt), (ii) the assumption of the remaining balance of EN’s senior convertible debt through the issuance of new 4%, 5-year senior convertible notes (the “New Convertible Notes”), in the aggregate principal and interest amount of $1,428,161 (which amount was previously disclosed in the Company’s Current Report on Form 8-K filed with the SEC on September 6, 2018 as $1,436,159 due to final adjustments for principal and accrued interest), which are convertible into 285,632 shares of the Company’s common stock, at the option of the holder of the New Convertible Notes, (iii) the reservation of 990,000 shares of the Company’s common stock that may be issued in exchange for the redemption of certain non-voting membership interests of EN, and (iv) the issuance of 557,084 shares of the Company’s common stock in satisfaction of the indebtedness represented by promissory notes payable by EN with a total principal balance of $4,127,602. On August 19, 2020, the Company issued the 990,000 shares of common stock to the members of EN, resulting in the Company owning 100% of EN.

 

 7 
   

 

Letter of Intent for Sale of Assets of CBAV1, LLC

 

On October 30, 2020, the Company received a letter of intent from a prospective purchaser dated October 22, 2020 setting forth the terms of an offer to purchase Cloud b assets from CBAV1, LLC (“CBAV1”), the Company’s wholly owned subsidiary (the “LOI”). The Cloud b assets include but are not limited to intellectual property, know how, brand names, trade names, patents, models, internet websites, domains, social network assets, production facilities, including the molds of all products, and inventory (“Cloud b Assets”).

 

By way of background, the Cloud b Assets were pledged as collateral (“Collateral”) to secure a promissory note from East West Bank dated in or around May 25, 2011, along with amendments and modifications to the loan agreement (“Secured Note”). On June 4, 2018, CBAV1 acquired the Secured Note in accordance with the Cloud B Assignment of Loan and Security Agreement from East West Bank. On October 30, 2018, pursuant to the Stock Purchase Agreement, the Company became the beneficial owner of 72.16% of Cloud b, Inc.’s shares of common stock. CBAV1 provided Notification of Disposition of Collateral (pursuant to its notice of default dated August 7, 2018 to Cloud b, Inc.) and scheduled a Public Sale of the Collateral to the highest qualified bidder for February 11, 2019 (“Public Sale”). CBAV1 submitted the highest bid for the Collateral at the Public Sale and inured to the benefit of the Cloud b Assets. On February 17, 2020, the Company entered into the Agreement for The Purchase and Sale of Common Stock of Cloud b, Inc. and pursuant therewith, sold its ownership interest in Cloud b, Inc. to the buyer.

 

To effectuate the sale of the Cloud b assets to the prospective purchaser, the Company has determined that it is in the best interests of the company and its shareholders for CBAV1 and the prospective buyer to utilize the jurisdiction and protections of the bankruptcy court to effectuate the sale of the Cloud b Assets free and clear of any obligations.

 

The current assets of CBAV1 were estimated to be in excess of $2,000,000 and the current liabilities were estimated to be less than $100,000.

 

By utilizing the jurisdiction of the bankruptcy court, the Cloud b Assets can be transferred to the prospective purchaser free and clear of liens and obligations. Any unsecured creditors or minority shareholders of Cloud b, Inc. will have the opportunity to assert any claims or actions within the sale proceeding under the jurisdiction of the bankruptcy court.

 

Cloud B, Inc. Transaction

 

On October 29, 2018, the Company entered into a Stock Purchase Agreement with a majority of the shareholders (the “Cloud B Sellers”) of Cloud B, Inc., a California corporation (“Cloud B”). Pursuant to the terms of such Stock Purchase Agreement, the Company purchased 72.15% of the outstanding capital stock of Cloud B in exchange for 489,293 shares of restricted common stock of the Company. In addition, the Company entered into an Earn Out Agreement with the Cloud B Sellers, whereby, beginning in 2019, the Company will pay the Cloud B Sellers an annual amount equal to 8% multiplied by the incremental gross sales of Cloud B over its 2018 gross sales level. The Earn Out Agreement expires on December 31, 2021. CBAV1, LLC, a wholly-owned subsidiary of Edison Nation, Inc., owns the senior secured position on the promissory note to Cloud B, Inc. in the amount of $2,270,000. In February 2019, CBAV1, LLC, pursuant to an Article 9 foreclosure action, perfected its secured UCC interest in all the assets of Cloud B, Inc. to partially satisfy the outstanding balance on the note and thereby making any payments of such Cloud B trade payables and notes unlikely in the future.

 

On February 17, 2020, the Company divested its Cloud B, Inc. subsidiary and entered into an Agreement for the Purchase and Sale of Cloud B, Inc.(the “Purchase Agreement”), with Pearl 33 Holdings, LLC (the “Buyer”), pursuant to which the Buyer purchased from the Company (and the Company sold and assigned) 80,065 shares of common stock of Cloud B (the “Cloud B Shares”) for $1.00, constituting a 72.15% ownership interest in Cloud B, based on 110,964 shares of Cloud B’s common stock outstanding as of February 17, 2020. In accordance with the agreement, all of the liabilities of Cloud B were assumed by Pearl 33.

 

On February 17, 2020, the Company entered into an indemnification agreement with Pearl 33 Holdings, LLC in connection with the divestiture of Cloud B, Inc., whereby pursuant to such agreement the Company is limited to the issuance of 150,000 shares of the Company’s common stock to the Buyer for indemnification of claims against Cloud B Inc. Please see Note 3 — Acquisitions and Divestitures within the Company’s financial statements for the nine months ended September 30, 2020 for further information.

 

Impairment

 

For the year end December 31, 2029, the Company recorded an impairment charge of $4,443,000 related to our annual impairment assessment. The impairment was a result of decreased profitability as compared to anticipated profitability in our businesses acquired in 2018. The Company utilized the simplified test for goodwill impairment. The amount recognized for impairment is equal to the difference between the carrying value and the asset’s fair value. The valuation methods used in the quantitative fair value assessment was a discounted cash flow method and required management to make certain assumptions and estimates regarding certain industry trends and future profitability of our reporting units.

 

Non-Employee Director Compensation

 

On September 26, 2018, the Compensation Committee of the board of directors approved the terms of compensation to be paid to non-employee directors for fiscal year 2018. Compensation for non-employee directors includes an annual retainer of $15,000, an annual committee meeting fee of $5,000, if such director chairs a committee of the board of directors, and an award of options to purchase 20,000 shares of the Company’s common stock (the “Options”). The restricted stock underlying such Options were to vest one year after the grant date. However, the Options were never granted.

 

Accordingly, on November 15, 2019, in lieu of granting the Options, the Company granted the board of directors restricted stock units of 20,000 shares which vested immediately. In addition, on November 15, 2019, the Company granted each non-employee director restricted stock units of 30,000 shares, which vested on January 1, 2020.

 

Acquisition of Pirasta, LLC

 

On December 31, 2018, the Company completed the acquisition of all of the voting membership interest of Pirasta, LLC from NL Penn Capital, LP in exchange for the satisfaction of $470,000 due from related party. NL Penn Capital, LP is owned by Christopher B. Ferguson, our Chairman and Chief Executive Officer. Accordingly, the consolidated financial statements of the Company reflect the accounting of the combined acquired subsidiary at historical carrying values, except that equity reflects a distribution for the excess of consideration paid over the net carrying amount of assets.

 

Acquisition of Best Party Concepts, LLC

 

On December 31, 2018, the Company completed the acquisition of 50% of the voting membership interest of Best Party Concepts, LLC from NL Penn Capital, LP in exchange for the satisfaction of $500,000 due from related party. NL Penn Capital, LP is owned by Christopher B. Ferguson, our Chairman and Chief Executive Officer. Accordingly, the consolidated financial statements of the Company reflect the accounting of the combined acquired subsidiary at historical carrying values, except that equity reflects a distribution for the excess of consideration paid over the net carrying amount of assets.

 

FirstFire Securities Purchase Agreement

 

On March 6, 2019, the Company entered into a securities purchase agreement (the “FirstFire SPA”) with an accredited investor (the “Investor”) pursuant to which the Investor purchased a 2% unsecured, senior convertible promissory note (the “FirstFire Note”) from the Company. The Company issued 15,000 shares of its common stock to the Investor as additional consideration for the purchase of the FirstFire Note. Under the terms of the FirstFire SPA, the Investor had piggyback registration rights in the event the Company files a Form S-1 or Form S-3 within six months from March 6, 2019, as well as a pro rata right of first refusal in respect of participation in any debt or equity financings undertaken by the Company during the 18 months following March 6, 2019. The Company was also subject to certain customary negative covenants under the FirstFire SPA, including but not limited to, the requirement to maintain its corporate existence and assets subject to certain exceptions, and to not to make any offers or sales of any security under circumstances that would have the effect of establishing rights or otherwise benefitting other investors in a manner more favorable in any material respect than those rights and benefits established in favor of the Investor under the terms of the FirstFire SPA and the FirstFire Note. The maturity date of the Note was six months from March 6, 2019. All principal amounts and the interest thereon were convertible into shares common stock only in the event that an Event of Default occurred (as such term was defined in the FirstFire Note).

 

On June 17, 2019, the Company entered into that certain Settlement and Release Agreement with the Investor (the “Settlement Agreement”) whereby the Company and the Investor agreed to terminate the FirstFire SPA, FirstFire Note, and all other documents entered into in connection therewith. Pursuant to the terms of the Settlement Agreement, the Company paid $566,000 and issued 15,000 shares of restricted common stock to the Investor (the “Settlement Amount”). Upon receipt of the Settlement Amount, the Investor and the Company have agreed to terminate the FirstFire SPA, FirstFire Note, and all other documents entered into in connection therewith, and to release, waive, and forever discharge the other party from, including, but not limited to, any claim, right, or legal action, whether past, current, or future, which may arise directly or indirectly out of such documents.

 

 8 
   

 

Tiburon Loan Agreement

 

On June 14, 2019, the Company entered into that certain Loan Agreement (the “Loan Agreement”) with Tiburon Opportunity Fund (the “Lender”), dated June 14, 2019 (the “Loan”). Pursuant to the terms of the Loan Agreement, the Lender agreed to loan the Company $250,000. The Loan bore interest at the rate of 1.5% per month through the term of the Loan. Additionally, the Loan Agreement provided that the Company would pay the Lender the entire unpaid principal and all accrued interest upon thirty days’ notice to the Company, but in any event, the notice shall not be sooner than August 11, 2019. The Loan proceeds were used to fund general working capital needs of the Company. If the Company defaulted on the performance of any obligation under the Loan Agreement, the Lender would have declared the principal amount of the Loan owing under the Loan Agreement at the time of default to be immediately due and payable. Furthermore, the Loan Agreement granted the Lender a collateral interest in certain accounts receivable of SRM Entertainment Ltd. (“SRM”), a subsidiary of the Company. The outstanding principal and interest on the note were repaid on December 27, 2019.

 

On January 2, 2020, the Company entered into that certain Loan Agreement (the “Second Loan Agreement”) with Tiburon Opportunity Fund (the “Lender”), dated January 2, 2020 (the “Second Loan”). Pursuant to the terms of the Second Loan Agreement, the Lender agreed to loan the Company $400,000. The Second Loan bears interest at the rate of 1.5% per month through the term of the Second Loan. Additionally, the Second Loan Agreement provides that the Company shall pay the Lender the entire unpaid principal and all accrued interest upon thirty days’ notice to the Company, but in any event, the notice shall not be sooner than June 1, 2020. The Second Loan proceeds are being used to fund general working capital needs of the Company. If the Company defaults on the performance of any obligation under the Second Loan Agreement, the Lender may declare the principal amount of the Second Loan owing under the Second Loan Agreement at the time of default to be immediately due and payable. Furthermore, the Second Loan Agreement grants the Lender a collateral interest in certain accounts receivable of SRM. On April 24, 2020, the Company and Lender entered into a Debt Conversion Agreement whereby the Lender was given the right and elected to exercise that right to convert principal and interest of $424,000 of funds loaned to the Company into shares of the Company’s common stock. The fair value of the Company’s common stock was $2.08 on the date of conversion and the conversion price was $2.00 per share for a total of 212,000 shares of restricted common stock issued by the Company.

 

Labrys Securities Purchase Agreement

 

On August 26, 2019, the Company entered into a securities purchase agreement (the “Labrys SPA”) with Labrys Fund, LP (“Labrys”) pursuant to which Labrys purchased a 12% Convertible Promissory Note (the “Labrys Note”) from the Company. Unless there is a specific Event of Default (as such term is defined in the Labrys Note) or the Labrys Note remains unpaid by the Maturity Date, then Labrys shall not have the ability to convert the principal and interest under the Labrys Notes into shares of common stock. The per share conversion price into which the principal amount and interest under the Labrys Note may be converted is equal to the lesser of (i) 80% multiplied by the lowest Trade Price (as such term is defined in the Labrys Note) of our common stock during the 20 consecutive trading days ending on the latest complete trading day prior to the date of issuance of the Labrys Note, and (ii) 80% multiplied by the lowest Market Price (as such term is defined in the Labrys Note) of our common stock during the 20 trading day period ending on the latest complete trading day prior to the Conversion Date (as such term is defined in the Labrys Note).

 

Pursuant to the Labrys SPA, the Company agreed to issue and sell to Labrys the Note, in the principal amount of $560,000, with an original issue discount in the amount of $60,000. The Labrys Note is due and payable February 26, 2020 (the “Maturity Date”). Additionally, the Company issued 181,005 shares of common stock to Labrys as a commitment fee, of which 153,005 shares of common stock must be returned to the Company in the event the Labrys Note is fully paid and satisfied prior to the Maturity Date. The proceeds from the Labrys Note were used for general working capital and to fund new product launches.

 

The Company is also subject to certain customary negative covenants under the Labrys SPA, including but not limited to, the requirement to maintain its corporate existence and assets subject to certain exceptions, and to not to make any offers or sales of any security under circumstances that would have the effect of establishing rights or otherwise benefitting other investors in a manner more favorable in any material respect than those rights and benefits established in favor of the Investor under the terms of the Labrys SPA and the Labrys Notes. The Company agreed at all times to have authorized and reserved two times the number of shares of common stock that are issuable upon full conversion of the Labrys Note. Initially, the Company instructed its transfer agent to reserve 700,000 shares of common stock in the name of Labrys for issuance upon conversion.

 

On January 24, 2020, the Company repaid the Labrys Note in full. Upon repayment of the Labrys Note, Labrys returned to the Company for cancellation the 153,005 shares of Common Stock that had been originally issued to as a portion of the commitment fee paid in connection with the Labrys Note and allowed the Company to cancel the reservation of the 875,000 shares of Common Stock that had been reserved pursuant to the Labrys SPA and Labrys Note. 

 

32E Financing

 

On December 4, 2019, the Company agreed to issue and sell to 32 Entertainment LLC (“32E”) a 10% Senior Secured Note (the “32E Note”), in the principal amount of $250,000. The maturity date of the 32E Note is December 4, 2020. In addition, the Company issued to 32E 10,000 shares of common stock as an inducement to 32E to purchase the 32E Note. The $250,000 of proceeds from the 32E Note was used for general working capital needs of the Company and the repayment of debt related to Horberg Enterprises.

 

Pursuant to the terms of the 32E Note, on December 4, 2019, the Company also issued 32E a Common Stock Purchase Warrant (the “32E Warrant”) to purchase 50,000 shares of common stock at an exercise price of $1.50 per share. The 32E Warrant expires on December 4, 2024. The 32E Warrant contains price protection provisions, as well as a provision allowing 32E to purchase the number of shares that 32E could have acquired if it held the number of shares of common stock acquirable upon complete exercise of the 32E Warrant, in the event that the Company grants, issues or sells common stock, common stock equivalents, rights to purchase common stock, warrants, securities or other property pro rate to holders of any class of the Company’s securities. If there is no effective registration statement registering the resale of the shares of common stock underlying the 32E Warrant, then the 32E Warrant may be exercised cashlessly, based on a cashless exercise formula. The 32E Warrant also contains a conversion limitation provision, which prohibits 32E from exercising the 32E Warrant in an amount that would result in the beneficial ownership of greater than 4.9% of the total issued and outstanding shares of common stock, provided that (i) such exercise limitation may be waived by 32E with 61 days prior notice, and (ii) 32E cannot waive the exercise limitation if conversion of the 32E Warrant would result in 32E having beneficial ownership of greater than 9.9% of the total issued and outstanding shares of common stock.

 

In connection with the sale of the 32E Note, also on December 4, 2019, the Company entered into a registration rights agreement whereby the Company agreed to register the 10,000 shares of common stock issued to 32E as an inducement on a registration statement on Form S-1 with the SEC. The Company was required to have such registration statement declared effective by the SEC within 90 calendar days (or 180 calendar days in the event of a “full review” by the SEC) following the earlier of 30 days from December 4, 2019 or the filing date of the registration statement on Form S-1, which such registration statement has not been filed or timely declared effective. If the registration statement is not filed or declared effective within the timeframe set forth in the registration rights agreement, the Company was supposed to be obligated to pay to 32E a monthly amount equal to 1% of the total subscription amount paid by 32E until such failure is cured. The Company has not made any such payment 32E. The registration rights agreement also contains mutual indemnifications by the Company and each investor, which the Company believes are customary for transactions of this type.

 

On May 19, 2020, the Company entered into an Amendment (the “Amendment”) to the 32E Note. Under the terms of the Amendment, the Company issued to 32E an Amended Subordinate Secured Note (the “Replacement Note”) in the principal amount of $200,000 that accrues interest at 16% annually and matures on May 21, 2021. On May 28, 2020, the Company paid $50,000 toward the principal plus interest in the amount of $6,250 for a total of $56,250. 32E shall also receive 40,000 restricted stock units and surrender the warrant issued to it in the December 4, 2019 financing transaction. The Company accounted for the Amendment as a modification.

 

 9 
   

 

PIPE Financing

 

On October 2, 2019, the Company entered into a Share Purchase Agreement (the “PIPE Purchase Agreement”) with certain accredited investors for the private placement of 1,050,000 shares of the Company’s common stock at a purchase price of $2.00 per share (the “PIPE Financing”). In a series of four closings, the Company sold a total of 1,175,000 shares of common stock at a purchase price of $2.00 per share (the “PIPE Shares”), for an aggregate amount sold in the PIPE Financing of $2,350,000. The PIPE Purchase Agreement contains certain closing conditions relating to the sale of securities, representations and warranties by the Company and the applicable investors, as well as covenants of the Company and the investors (including indemnifications from the Company in the event of breaches of its representations and warranties), all of which the Company believes are customary for transactions of this type of transaction. The PIPE Purchase Agreement contains a prohibition on equity sales by the Company, which prohibition was violated by the Greentree Financing (defined below). As of August 27, 2020, none of the investors in the PIPE Financing have taken adverse action as a result of such prohibition.

 

In connection with the sale, the Company entered into a registration rights agreement whereby the Company agreed to register all PIPE Shares and file this registration statement on a Form S-1 with the SEC. The Company was required to have such registration statement declared effective by the SEC within 90 calendar days (or 120 calendar days in the event of a “full review” by the SEC) following the applicable closing date of the PIPE Financing, which such registration statement has not been timely declared effective. If the registration statement is not filed or declared effective within the timeframe set forth in the registration rights agreement, the Company was supposed to be obligated to pay the investors in the PIPE Financing an amount equal to 1% of the total purchase price of the common stock per month (up to a maximum of 8% in the aggregate) until such failure is cured. The Company has not made any such payment to the investors in the PIPE Financing. As of August 27, 2020, none of the investors in the PIPE Financing, have taken adverse action as a result of this delay. The registration rights agreement also contains mutual indemnifications by the Company and each investor, which the Company believes are customary for transactions of this type.

  

Furthermore, the Company issued warrants to the placement agent in the PIPE Financing of a value equal to six percent (6%) of the aggregate number of PIPE Shares, whereby the exercise price is 125% of the price at which the shares were issued in such offering. For additional information regarding the PIPE Financing, see “Private Placement of Securities” on page 31.

 

Acquisition of HMNRTH, LLC Assets

 

On March 11, 2020, the Company and its wholly owned subsidiary, Scalematix, LLC (together the “Buyer”), entered into an Asset Purchase Agreement (the “Agreement”) with HMNRTH, LLC (the “Seller”) and TCBM Holdings, LLC (the “Owner”) (together Seller and Owner the “Selling Parties”) for the purchase of certain assets in the health wellness industry and related consumer products industry. Under the terms of the Agreement, Buyer is to remit $70,850 via wire transfer at Closing and shall issue to a representative of the Selling Parties Two Hundred Thirty-Eight Thousand Seven Hundred and Fifty (238,750) shares of restricted common stock. The shares were issued on March 16, 2020 and valued at $477,500.

 

In addition, the Selling Parties shall have the right to additional earn out compensation based upon the following metrics: (i) at such time as the purchased assets achieve cumulative revenue of $2,500,000, the Selling Parties shall earn One Hundred Twenty-Five Thousand (125,000) shares of common stock; and (ii) at such time as the purchased assets achieve cumulative revenue of $5,000,000, the Selling Parties shall earn One Hundred Twenty-Five Thousand (125,000) shares of common stock. The transaction closed on March 11, 2020.

 

Global Clean Solutions Agreement and Plan of Share Exchange

 

On May 20, 2020 (the “Effective Date”), Edison Nation, Inc. (the “Company”) entered into an Agreement and Plan of Share Exchange (the “Share Exchange Agreement”) with PPE Brickell Supplies, LLC, a Florida limited liability company (“PPE”), and Graphene Holdings, LLC, a Wyoming limited liability company (“Graphene”, and together with PPE, the “Sellers”), whereby the Company purchased 25 membership units of Global Clean Supplies, LLC, a Nevada limited liability company (“Global”) from each of PPE and Graphene, for a total of fifty (50) units, representing fifty percent (50%) of the issued and outstanding units of Global (the “Purchase Units”). The Company issued 250,000 shares of its restricted common stock, $0.001 par value per share (the “Common Stock”) to PPE, and 50,000 shares of Common Stock to Graphene, in consideration for the Purchase Units.

 

Pursuant to the terms of the Share Exchange Agreement, the Sellers may earn additional shares of Common Stock upon Global realizing the following revenue targets: (i) In the event that Global’s total orders equal or exceed $1,000,000, Graphene shall receive 200,000 shares of Common Stock; (ii) In the event that Global’s total orders equal or exceed $10,000,000, PPE shall receive 100,000 shares of restricted Common Stock; and (iii) In the event that Global’s total orders equal or exceed $25,000,000, Graphene shall receive 125,000 shares of restricted Common Stock. Additionally, the Company shall be entitled to appoint two managers to the Board of Managers of Global.

 

Amended Limited Liability Company Agreement

 

On the Effective Date, the Company entered into an Amended Limited Liability Company Agreement of Global (the “Amended LLC Agreement”). The Amended LLC Agreement amends the original Limited Liability Company Agreement of Global, dated May 13, 2020. The Amended LLC Agreement defines the operating rules of Global and the ownership percentage of each member: Edison Nation, Inc. 50%, PPE 25% and Graphene 25%.

 

 10 
   

 

Secured Line of Credit Agreement

 

On the Effective Date, the Company (as “Guarantor”) entered into a Secured Line of Credit Agreement (the “Credit Agreement”) with Global and PPE. Under the terms of the Credit Agreement, PPE is to make available to Global a revolving credit loan in a principal aggregate amount at any one time not to exceed $2,500,000. Upon each drawdown of funds against the credit line, Global shall issue a Promissory Note (the “Note”) to PPE. The Note shall accrue interest at 3% per annum and have a maturity date of six (6) months. In the event of a default, any and all amounts due to PPE by Global, including principal and accrued but unpaid interest, shall increase by forty (40%) percent and the interest shall increase to five (5%) percent (the “Default Interest”).

 

Security Agreement

 

On the Effective Date, the Company (as “Guarantor”) entered into a Security Agreement (the “Security Agreement”) with Global (as “Borrower”) and PPE (as “Secured Party”), whereby the Company placed 1,800,000 shares of Common Stock (the “Reserve Shares”) in reserve with its transfer agent in the event of default under the Credit Agreement. In the event of a default that is not cured by the defined cure period, the PPE may liquidate the Reserve Shares until the Global’s principal, interest and associated expenses are recovered. The number of Reserve Shares may be increased through the issuance of True-Up shares in the event the original number of Reserve Shares is insufficient.

 

Acquisition of TBD Safety, LLC

 

On September 29, 2020, the Company (as “Purchaser”) entered into a Purchase and Sale Agreement (the “Agreement”) with Graphene Holdings, LLC, Mercury FundingCo, LLC, Ventus Capital, LLC and Jetco Holdings, LLC (together the “Sellers”) to acquire all outstanding Membership Units (the “Units”) of TBD Safety, LLC (“TBD”). Collectively, the Sellers own all outstanding Units of TBD. Under the terms of the Agreement, the Company is to issue a total of Two Million Two Hundred Ten Thousand Three Hundred Eighty-Two (2,210,382) shares of the Company’s common stock and a total of Seven Hundred Sixty-Four Thousand Six Hundred Eighteen (764,618) shares of a newly designated Preferred Stock (the “Preferred”). In addition, the Company and Sellers shall enter into a Registration Rights Agreement (the “Registration Rights Agreement”) in favor of the Sellers obligating the Company to register such Common Stock and shares of Common Stock to be issued upon conversion of the Preferred within 120 days after the Closing. The Sellers shall have an Earn Out Consideration - At such time as the Assets purchased in the Agreement achieve cumulative revenue of $10,000,000, the Sellers shall earn a total of One Hundred Twenty-Five Thousand (125,000) shares of Common Stock. The Closing of the transaction occurred on October 16, 2020.

 

Edison Nation Medical Operations

 

Edison Nation Holdings, LLC formed Edison Nation Medical (“EN Medical”) in May of 2012. It was a partnership between Edison Nation and Carolinas Healthcare Systems (now called Atrium). Atrium is the 2nd largest healthcare system in the US. Carolina Health (Atrium) wanted a way to aggregate and commercialize the healthcare related innovations that were coming from their physicians, nurses, and patients, and Edison Nation offered a platform to provide that function.

 

EN Medical built out a separate platform, leveraging the Edison Nation model to look for ideas that improved patient care and lowered costs. Over the past three years, EN Medical collected some great ideas, but the market shifted and EN found that the licensing model was very difficult as big medical device companies wanted to acquire companies with sales versus just buying IP and prototypes. In 2019, certain less complex devices such as Ezy Dose were licensed to third parties by the Company. Additionally, EN Medical has continued to explore opportunities in the health and wellness space for products that do not require FDA approval. Examples of product lines in the health wellness space that are currently being evaluated include an organic skin care line, essential oils, supplements for breast feeding, and an all-natural nutritional supplement.

 

Based upon the emergence of COVID 19 and the increased demand for certain medical supplies, hand sanitizers and personal protective equipment, Edison Nation made the strategic decision to have EN Medical develop an online portal granting hospitals, government agencies and distributors access to its catalog of medical supplies and hand sanitizers. EN Medical’s website is located at www.edisonnationmedical.com. For purposes of this business description, the activities of EN Medical are inclusive of Global Clean Solutions (“Global”) as well.

 

EN Medical is focused primarily on its proprietary brand of hand sanitizer, Purple Mountain Clean, that is being produced and sold by the operating subsidiary, Global. The Purple Mountain Clean Brand is 100% USA Made and is offered in both gel and liquid formulas. The Purple Mountain Clean sanitizer is produced with 70% Ethyl Alcohol and is FDA certified. EN Medical offers a variety of sizes and pumps for Purple Mountain Clean and recently initiated the production of sanitizer stands that can be customized with a customer’s logo or other promotional artwork. The launching of our EN Medical’s brand of sanitizer did delay certain shipments for the second quarter in 2020 as EN Medical needed to develop EN Medical’s specific formulas and packaging for Purple Mountain Clean.

 

As a secondary focus, EN Medical offers medical supplies and personal protective equipment to government agencies, counties, municipalities and business customers, Since March 2020, EN Medical has established a network of more than thirty suppliers located both domestically and abroad. EN Medical primarily utilizes approximately six core suppliers and has flexibility with its terms based on the specific terms and conditions of the respective purchase orders for the respective end customers. The product lines that have received the highest amount of interest from customers include but are not limited to face coverings, gloves, medical grade gowns, and wipes.

 

The competitive landscape for sanitizer and personal protective equipment is frequently changing. Recently the FDA announced the recall of numerous hand sanitizer brands. Additionally, many suppliers of personal protective equipment have failed to complete deliveries and failed to meet order specifications for the specific products. EN Medical has benefited from successfully fulfilling orders for government agencies and large business customers that have provided referrals on behalf of EN Medical which has assisted the Company in winning other business opportunities. Due to the high demand for items related to the pandemic, pricing of products can change relatively quickly and customer expectations for delivery times are often aggressive. EN Medical works diligently with its core suppliers to meet these challenges and satisfy all customer requirements in a timely fashion.

 

EN Medical verifies all FDA certificates of the Company’s suppliers and all compliance documents for our manufacturers and importers. For certain product lines, EN Medical may consider applying for its own FDA certifications, and the Company closely monitors the updates with respect to the regulation of personal protective equipment and hand sanitizers.

 

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Other Financing Notes

 

On January 10, 2020, the Company entered into a 5% Promissory Note Agreement with Equity Trust Company on behalf of Rawleigh Ralls (“Ralls”)(“Ralls Financing”) for an aggregate principal amount of $267,000 (the “Ralls Note”), pursuant to which Ralls purchased the Ralls Note from the Company for $250,000 and an original issue discount of $17,000, and the Company issued to Ralls a warrant (the “Ralls Warrant”) to purchase 125,000 shares of the Company’s common stock valued at $86,725 estimated using the Black-Scholes option-valuation model. The proceeds from the Ralls Note will be used for general working capital needs of the Company. The Company will also issue 33,000 incentive shares to Ralls valued at $79,860 based on the closing stock price on January 10, 2020. The fair value of the warrants and incentive shares have been recorded as debt discount. The maturity date of the Ralls Note is July 10, 2020. On July 14, 2020, the Company entered into an Amendment to Note Agreement and Common Stock Purchase Warrant (the “Amendment”) with Equity Trust Company, a Custodian FBO: Rawleigh H. Ralls IRA. Under the terms of the Amendment, the parties amended the terms of the January 10, 2020 Note Agreement (the “Agreement”) and Common Stock Purchase Warrant (the “Warrant”) such that; (i) the maturity date of the Agreement was extended to January 10, 2021, (ii) the Original Issuer Discount (“OID”) shall be increased to $34,000, (iii) the Lender shall be issued 33,000 Additional Incentive Shares and (iv) the Company shall prepare and file with the United States Securities and Exchange Commission a registration statement on Form S-1 within 30 days of the Effective Date of the Amendment, that registers a total of 191,000 shares of Common Stock, which such amount of shares is the sum of 125,000 Warrant Shares, the 33,000 Incentive Shares, and 33,000 Additional Incentive Shares. On July 14, 2020, the Company issued the 33,000 Additional Incentive Shares valued at $124,740. On October 12, 2020, Ralls fully exercised the Ralls Warrant. The Company paid all outstanding principal and interest in January 2021. As of the date of this filing, the Ralls Note is paid in full.

 

On January 15, 2020, the Company entered into a 5% Promissory Note Agreement with Paul J. Solit & Julie B. Solit (“Solits”)(“Solit Financing”) for an aggregate principal amount of $107,000 (the “Solit Note”), pursuant to which the Solits purchased the Solit Note from the Company for $100,000 and an original issue discount of $7,000, and the Company issued to the Solits a warrant (the “Solit Warrant”) to purchase 50,000 shares of the Company’s common stock valued at $31,755 estimated using the Black-Scholes option-valuation model. The proceeds from the Solit Note will be used for general working capital needs of the Company. The Company will also issue 13,000 incentive shares to the Solits valued at $30,420 based on the closing stock price on January 15, 2020. The fair value of the warrants and incentive shares have been recorded as debt discount. The maturity date of the Solit Note is July 15, 2020. On July 14, 2020, the Company entered into an Amendment to Note Agreement and Common Stock Purchase Warrant (the “Amendment”) with Paul J. Solit and Julie B. Solit. Under the terms of the Amendment, the parties amended the terms of the January 15, 2020 Note Agreement (the “Agreement”) and Common Stock Purchase Warrant (the “Warrant”) such that; (i) the maturity date of the Agreement was extended to December 15, 2020, (ii) the Original Issuer Discount (“OID”) shall be increased to $14,000 and (iii) the Lender shall be issued 13,000 Additional Incentive Shares. On July 14, 2020, the Company issued the 13,000 Additional Incentive Shares valued at $49,140. The Company made a payment of $25,000 in December 2020 towards the outstanding principal, with the balance of all remaining principal and interest paid in January 2021. As of the date of this filing, this Solit Note is paid in full. On January 22, 2021, the Solits fully exercised the Solit Warrant.

 

On January 17, 2020, the Company entered into a 5% Promissory Note Agreement with Richard O’Leary (“O’Leary”)(“O’Leary Financing”) for an aggregate principal amount of $53,500 (the “O’Leary Note”), pursuant to which O’Leary purchased the O’Leary Note from the Company for $50,000 and an original issue discount of $3,500, and the Company issued to O’Leary a warrant (the “O’Leary Warrant”) to purchase 25,000 shares of the Company’s common stock valued at $16,797 estimated using the Black-Scholes option-valuation model. The proceeds from the O’Leary Note will be used for general working capital needs of the Company. The Company will also issue 6,500 incentive shares to O’Leary valued at $15,535 based on the closing stock price on January 17, 2020. The fair value of the warrants and incentive shares have been recorded as debt discount. The maturity date of the O’Leary Note is July 17, 2020. On July 14, 2020, the Company entered into an Amendment to Note Agreement and Common Stock Purchase Warrant (the “Amendment”) with Richard O’Leary. Under the terms of the Amendment, the parties amended the terms of the January 17, 2020 Note Agreement (the “Agreement”) and Common Stock Purchase Warrant (the “Warrant”) such that; (i) the maturity date of the Agreement was extended to January 17, 2021, (ii) the Original Issuer Discount (“OID”) shall be increased to $7,000, (iii) the Lender shall be issued 6,500 Additional Incentive Shares and (iv) the expiration date of the Warrant shall be extended to June 30, 2021. On July 14, 2020, the Company issued the 6,500 Additional Incentive Shares valued at $24,570. The Company paid all outstanding principal and interest in January 2021. As of the date of this filing, this O’Leary Note is paid in full.

 

On April 7, 2020, the Company entered into a Securities Purchase Agreement (the “Agreement”) with BHP Capital NY Inc. (the “Investor”) wherein the Company issued the Investor a Convertible Promissory Note (the “Note”) in the amount of $168,000 ($18,000 OID). The $150,000 of proceeds from the Note will be used for general working capital purposes The Note has a term of six (6) months, is due on October 7, 2020 and has a one-time interest charge of 2%. In addition, the Company is to issue the Investor 10,700 shares of Common Stock (the “Origination Shares”) as an origination fee. The transaction closed on April 9, 2020. The Investor shall have the right at any time to convert all or any part of the outstanding and unpaid principal, interest, fees, or any other obligation owed pursuant to this Note into fully paid and non-assessable shares of Common Stock at a conversion price equal to $2.05 per share.

 

On April 7, 2020, the Company entered into a Securities Purchase Agreement (the “Agreement”) with Jefferson Street Capital, LLC (the “Investor”) wherein the Company issued the Investor a Convertible Promissory Note (the “Note”) in the amount of $168,000 ($18,000 OID). The $150,000 of proceeds from the Note will be used for general working capital purposes The Note has a term of six (6) months, is due on October 7, 2020 and has a one-time interest charge of 2%. In addition, the Company is to issue the Investor 10,700 shares of Common Stock (the “Origination Shares”) as an origination fee. The transaction closed on April 9, 2020. The Investor shall have the right at any time to convert all or any part of the outstanding and unpaid principal, interest, fees, or any other obligation owed pursuant to this Note into fully paid and non-assessable shares of Common Stock at a conversion price equal to $2.05 per share. On October 7, 2020, the Company and Investor entered into a Forbearance Agreement (the “Forbearance Agreement”). Under the terms of the Forbearance Agreement, the Company requested and the Investor agreed to temporarily forebear, until the earlier of (i) December 9, 2020 or (ii) at such time as a default shall occur under and pursuant to the Purchase Agreement, the Note or the Agreement, from exercising its right to convert amounts due under the Note into Common Stock of the Company, in exchange for a one time cash payment forbearance fee equal to $12,500 paid upon execution of the Agreement. On December 23, 2020, the Investor submitted a Notice of Conversion for $45,000 in principal and $750 in fees. On December 29, 2020, the Company issued 41,730 shares to satisfy the conversion obligation. On January 15, 2021, the Investor submitted a Notice of Conversion for $26,766 in principal and $750 in fees. On January 20, 2021, the Company issued 27,415 shares to satisfy the conversion obligation. As of the date of this filing, the Note is paid in full.

 

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On July 29, 2020, the Company issued Jefferson Street Capital, LLC (the “Investor”) a Convertible Promissory Note (the “Note”) in the amount of $224,000 ($24,000 OID) under the terms of the April 7, 2020 Securities Purchase Agreement entered into by the parties. The $200,000 of proceeds from the Note will be used for general working capital purposes The Note has a term of six (6) months, is due on January 29, 2021 and has a one-time interest charge of 2%. In addition, the Company issued the Investor 14,266 shares of Common Stock (the “Origination Shares”) as an origination fee. The transaction closed on July 31, 2020. With regard to conversion of the Note, the Investor shall not have the right to convert the Note into shares prior to 180 calendar days from the Issue Date. Provided that the Note remains unpaid, the Investor may elect to convert all or any part of the outstanding and unpaid principal, interest, fees, or any other obligation owed pursuant to this Note into fully paid and non-assessable shares of Common Stock at a conversion price equal to $2.05 per share after 180 calendar Days from the Issue Date. On January 28, 2021, the Company paid all outstanding principal and interest in the amount of $260,233. As of the date of this filing, the Note is paid in full.

 

Paycheck Protection Program

 

On April 15, 2020, Edison Nation, Inc. (the “Company”) entered into a loan agreement (“PPP Loan”) with First Choice Bank under the Paycheck Protection Program (the “PPP”), which is part of the recently enacted Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the United States Small Business Administration (“SBA”). The Company received proceeds of $789,852 from the PPP Loan. In accordance with the requirements of the PPP, the Company intends to use proceeds from the PPP Loan primarily for payroll costs, rent and utilities. The PPP Loan has a 1.00% interest rate per annum and matures on April 15, 2022 and is subject to the terms and conditions applicable to loans administered by the SBA under the PPP. Under the terms of the PPP, certain amounts of the PPP Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act.

 

Greentree Financing

 

On January 23, 2020, the Company entered into a financing transaction (the “Greentree Financing”) by executing a loan agreement (the “Greentree Loan Agreement”) with Greentree Financial Group, Inc. (“Greentree”), pursuant to which Greentree purchased a $1,100,000 10% Convertible Promissory Note (the “Greentree Note”) from the Company, and the Company issued to Greentree a warrant (the “Greentree Warrant”) to purchase 550,000 shares of the Company’s common stock. The $1,100,000 in proceeds from the Greentree Note will be used for general working capital needs of the Company and for the repayment of debt. On January 24, 2020, the Company used $588,366 of the proceeds from the Greentree Note to pay off in full the Labrys Note.

 

On January 29, 2020, the Company and the Greentree entered into an Amendment Agreement, amending the Greentree Loan Agreement, the Greentree Note, and the Greentree Warrant to: (i) correct the effective date set forth in the Greentree Loan Agreement, Greentree Note, and Greentree Warrant to January 23, 2020, (ii) clarify the terms of the registration right provision in the Greentree Loan Agreement, and (iii) to ensure that the total number of shares of common stock issued pursuant to the Greentree Loan Agreement, the Greentree Note, and/or the Greentree Warrant, each as amended, does not exceed 17.99% of the Company’s issued and outstanding common stock as of January 23, 2020. The Amendment Agreement also contains a liquated damages provision which requires the Company to pay Greentree an amount in cash equal to $2.50 per share for any amount of shares that Greentree would have received pursuant to the Greentree Loan Agreement, the Greentree Note, and/or the Greentree Warrant, but does not so receive such shares as a result of the 17.99% cap described above.

 

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Greentree Loan Agreement

 

Upon execution of the Greentree Loan Agreement, the Company issued to Greentree 100,000 shares of common stock (the “Greentree Origination Shares”) as an origination fee, plus an additional 60,000 shares of common stock as consideration for advisory services.

 

Pursuant to the Greentree Loan Agreement, the Company agreed to pay certain costs of Greentree, including $15,000 for Greentree’s legal fees and transfer agent fees resulting from conversion of the Note. The Greentree Loan Agreement also contains representations and warranties by the Company and Greentree, which the Company believes are customary for transactions of this type. Furthermore, the Company is subject to certain negative covenants under the Greentree Loan Agreement, which the Company also believes are also customary for transactions of this type.

 

The Greentree Loan Agreement, as amended, also contains a registration rights provision, pursuant to which the Company is required to prepare and file a registration statement with the SEC under the Securities Act of 1933, as amended, registering a total of 1,200,000 shares of common stock issued to Greentree pursuant to the Greentree Loan Agreement, Greentree Note and Greentree Warrant. The Company will be required to have such registration statement filed within 30 days of the effective date of the Greentree Loan Agreement (which, as amended, is January 23, 2020) and declared effective by the SEC within 105 calendar days following the effective date of the Greentree Loan Agreement. If the Company fails to file or have declared effective the registration statement within the timeframe set forth in the Greentree Loan Agreement, or certain other events occur as set forth in the Greentree Loan Agreement, the Company is obligated to pay Greentree an amount of liquidated damages equal to $35,000 per month until such failure is cured. As of the date of this filing, the Company has failed to have its Registration Statement deemed Effective. In addition to the registration rights granted to Greentree, the Greentree Loan Agreement contains a “true up” provision, which requires the Company to issue Greentree additional shares of common stock during the period beginning on the effective date of the registration statement until the 90th day after the effective date of the registration statement, if the average of the 15 lowest daily closing prices of the Company’s common stock is less than $2.00.

 

Greentree Note

 

Pursuant to the Greentree Loan Agreement, the Company agreed to issue and sell to Greentree the Greentree Note, in the principal amount of $1,100,000. The Greentree Note, as amended, is due and payable October 23, 2020, and is convertible at any time at a price of $2.00 per share, subject to certain adjustments to the conversion price set forth in the Greentree Note. The Greentree Note reiterates the registration rights set forth in the Greentree Loan Agreement and the Greentree Warrant. There is no prepayment penalty on the Greentree Note. If the Greentree Note is not prepaid by the 90th day after the effective date of the Registration Statement, the Greentree is required to convert the entire amount of principal and interest outstanding on the Greentree Note at that time, at a price of $2.00 per share, unless an event of default (as such events are described in the Greentree Note) under the Greentree Note has occurred, in which case the Greentree Note would be mandatorily converted at a price equal to 50% of the lowest trading price of the common stock for the last 10 trading days immediately prior to, but not including, the date that the Greentree Note mandatorily converts. The Greentree Note also contains a conversion limitation provision, which prohibits Greentree from converting the Greentree Note in an amount that would result in the beneficial ownership of greater than 4.9% of the total issued and outstanding shares of common stock, provided that (i) such conversion limitation may be waived by Greentree with 61 days prior notice, and (ii) Greentree cannot waive the conversion limitation if conversion of the Greentree Note would result in Greentree having beneficial ownership of greater than 9.9% of the total issued and outstanding shares of common stock. On July 23, 2020, the Company issued 320,000 shares of common stock to Greentree Financial Group, Inc. to satisfy $360,000 principal and $131,889 interest and fees against a note issued on January 23, 2020. On August 4, 2020, the Company issued 370,000 shares of common stock to Greentree Financial Group, Inc.in satisfaction of $740,000 principal against a note issued on January 23, 2020. As of August 27, 2020, the Greentree Note was paid in full.

 

Greentree Warrant

 

Pursuant to the Greentree Loan Agreement, the Company also issued Greentree a warrant to purchase 550,000 shares of common stock at an exercise price of $2.00 per share, subject to certain adjustments to the exercise price set forth in the Greentree Warrant. The Greentree Warrant, as amended, expires on January 23, 2023. If the closing price per share of the common stock reported on the day immediately preceding an exercise of the Greentree Warrant is greater than $2.00 per share, the Greentree Warrant may be exercised cashlessly, based on a cashless exercise formula. The Greentree Warrant reiterates the registration rights set forth in the Greentree Loan Agreement and the Greentree Note. The Greentree Warrant also contains a repurchase provision, which at any time after the Company’s registration statement is effective and the Company’s common stock has traded at a price over $3.00 share for 20 consecutive days, gives the Company a 30-day option to repurchase any unexercised portion of the Greentree Warrant at a price of $1.00 per share. On January 19, 2021, Greentree partially exercised the Greentree Warrant for 200,000 shares of common stock. On January 21, 2021, Greentree exercised the balance of the Greentree warrant.

 

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Corporate Information

 

Our principal executive offices are located at 1 West Broad Street, Suite 1004, Bethlehem, Pennsylvania 18018. Our telephone number is (866) 900-0992. The address of our website is www.vincoventures.com. The inclusion of our website address in this prospectus does not include or incorporate by reference the information on our website into this prospectus.

 

Implications of Being an Emerging Growth Company

 

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). The Company has elected not to use the extended transition period for complying with any new or revised financial accounting standards. For as long as we are an emerging growth company, unlike public companies that are not emerging growth companies under the JOBS Act, we will not be required to:

 

  provide an auditor’s attestation report on management’s assessment of the effectiveness of our system of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002 (the “Sarbanes Oxley Act”);
  provide more than two years of audited financial statements and related management’s discussion and analysis of financial condition and results of operations, prior to the filing of the Emerging Growth Company’s initial Form 10-K;
  provide certain disclosure regarding executive compensation required of larger public companies or hold shareholder advisory votes on the executive compensation required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”); or
  obtain shareholder approval of any golden parachute payments not previously approved.

 

We will cease to be an emerging growth company upon the earliest of the:

 

  last day of the fiscal year in which we have $1.07 billion or more in annual revenues;
  date on which we become a “large accelerated filer” (the fiscal year-end on which the total market value of our common equity securities held by non-affiliates is $700 million or more as of June 30);
  date on which we issue more than $1.0 billion of non-convertible debt over a three-year period; or
  last day of the fiscal year following the fifth anniversary of our initial public offering.

 

In addition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. However, we have not elected to take advantage of such extended transition period for complying with new or revised accounting standards.

 

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SUMMARY OF THE OFFERING

 

This offering involves a total of 24,480,000 shares of our common stock, which includes: (i) 6,000,000 shares of common stock underlying the Hudson Bay Senior Convertible Note, and (ii) 15,000,000 shares of common stock underlying a warrant issued in connection with the Hudson Bay financing, and (iii) 1,500,000 shares of common stock issued in connection with the BHP Securities Purchase Agreement, and (iv) 1,500,000 shares of common stock underlying a warrant issued in connection with the BHP financing, and (v) 480,000 shares of common stock underlying a warrant issued in connection with the placement of the Hudson Bay Senior Convertible Note.

 

Common stock offered by the Selling Shareholders   24,480,000 shares (1)
     
Selling Shareholders   See “Selling Shareholders for Whose Accounts We Are Registering Shares” beginning on page 34.
     
Offering prices   The shares offered by this prospectus may be offered and sold at prevailing market prices or such other prices as the Selling Shareholders may determine.
     
Common stock outstanding before this offering   18,952,514 shares (3)
     
Common stock outstanding after this offering   43,432,514 shares (1)(2)
     
Terms of Offering   The Selling Shareholders will determine when and how they sell the shares offered in this prospectus, as described in “Plan of Distribution” beginning on page 33.
     
Use of proceeds   We are not selling any of the shares of common stock being offered by this prospectus and will receive no proceeds from the sale of the shares by the Selling Shareholders. We will, however, receive the exercise price of the Hudson Bay Warrant, BHP Warrant and the placement agent Warrant, if and when such warrants are exercised for cash by the holders of such warrants. All of the proceeds from the sale of common stock offered by this prospectus will go to the Selling Shareholders at the time they offer and sell such shares. We will bear all costs associated with registering the shares of common stock offered by this prospectus. See “Use of Proceeds.”
     
Risk factors   See “Risk Factors” and the other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our common stock.
     
Market and Trading Symbol   Our shares of common stock are traded on The Nasdaq Capital Market under the symbol “BBIG.”
     
Transfer agent and registrar  

Nevada Agency & Transfer Company

  

(1) Includes the following shares of common stock issuable upon exercise of outstanding warrants:

 

  Includes 15,000,000 shares of common stock underlying a warrant issued in connection with the Hudson Bay financing,
  Includes 1,500,000 shares of common stock underlying a warrant issued in connection with the BHP financing; and
  Includes 480,000 shares of common stock underlying a warrant issued in connection with the placement of the Hudson Bay financing.

 

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(2) The change in the number of shares of common stock outstanding before this offering and after this offering was a result of the following issuances:

 

 

6,000,000 shares of common stock underlying the Hudson Bay Senior Convertible Note;

  15,000,000 shares of common stock underlying a warrant issued in connection with the Hudson Bay financing;
  1,500,000 shares of common stock underlying the BHP Securities Purchase Agreement;
  1,500,000 shares of common stock underlying a warrant issued in connection with the BHP financing; and
 

480,000 shares of common stock underlying a warrant issued in connection with the placement of the Hudson Bay financing.

 

(3) Shares of our common stock that will be outstanding after this offering is based on 18,952,514 shares of common stock outstanding as of February 4, 2021, but excludes:

 

  13,412 shares of common stock reserved for future issuance under the Vinco Ventures, Inc. Omnibus Incentive Plan (the “Plan”);
  1,263,705 shares of common stock reserved for future issuance under the Company’s Amended and Restated Vinco Ventures, Inc. Omnibus Incentive Plan (the “Amended Plan”) registered on Form S-8 on July 15, 2020;
 

80,000 shares issuable under an option granted to one of our executives as of February 4, 2021; and

  285,632 shares of common stock issuable upon conversion of the 4%, 5-year senior convertible notes in connection with the Edison Nation Holdings, LLC acquisition.

 

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RISK FACTORS

 

An investment in our common stock involves a high degree of risk. Investing in shares of our common stock involves risks. Before making a decision to invest in shares of our common stock, you should carefully consider the risks that are described in this section, in our most recent Annual Report on Form 10-K and in the other information that we file from time to time with the SEC that is incorporated by reference in this prospectus. You should also read the sections entitled “Cautionary Note Regarding Forward-Looking Statements” on page 4 of this prospectus. The risks described in the documents incorporated by reference in this prospectus are not the only ones we face. Additional risks not presently known or that we currently deem immaterial could also materially and adversely affect us. You should consult your own financial and legal advisors as to the risks entailed by an investment in shares of our common stock and the suitability of investing in our shares in light of your particular circumstances. If any of the risks contained in or incorporated by reference in this prospectus develop into actual events, our assets, business, cash flows, condition (financial or otherwise), credit quality, financial performance, liquidity, long-term performance goals, prospects, and/or results of operations could be materially and adversely affected, the trading price of our common stock could decline and you may lose all or part of your investment. Some statements in this prospectus, including such statements in the following risk factors, constitute forward-looking statements. See the section entitled “Cautionary Note Regarding Forward-Looking Statements.”

 

Risks Related to Our Company

 

We have a limited operating history and may not be able to operate our business successfully or generate sufficient revenue to make or sustain distributions to our shareholders.

 

We were incorporated on July 18, 2017, and therefore, have a relatively limited operating history. Despite the experience and track record of our management team in the entertainment and packaging industries, historical results are not indicative of, and may be substantially different than, the results we achieve in the future. We cannot assure you that we will be able to operate our business successfully or implement our operating policies and strategies. The results of our operations depend on several factors, including the level and volatility of interest rates, our success in attracting and retaining motivated and qualified personnel, the availability of adequate short and long-term financing, conditions in the financial markets, and general economic conditions. In addition, our future operating results and financial data may vary materially from the historical operating results and financial data as well as the pro forma operating results and financial data because of a number of factors, including costs and expenses associated with being a public company.

 

We have a history of losses and we may never achieve profitability.

 

For the year ended December 31, 2019, our operations lost approximately $13,026,228 of which approximately $8,064,101 was non-cash and approximately $364,320 related to transaction costs and non-recurring items. For the nine months ended September 30, 2020, our operations lost approximately $3,700,000, of which approximately $2,200,000 was non-cash and approximately $366,000 was related to transaction costs and other non-recurring items. At December 31, 2019, we had total current assets of $4,955,365 and current liabilities of $12,973,319 resulting in negative working capital of $8,017,954, of which approximately $4,015,484 related to unsecured trade payables assumed in our Cloud B acquisition. In February 2019, our consolidating subsidiary, CBAV1, LLC, foreclosed on its promissory note it held that was secured by Cloud B, Inc.’s assets making any payments of the Cloud B trade payables unlikely. At December 31, 2019, we had total assets of $23,609,619 and total liabilities of $16,155,187 resulting in stockholders’ equity of $7,454,432. At September 30, 2020, we had total current assets of approximately $8,071,961 and current liabilities of approximately $11,317,275 resulting in negative working capital of approximately $3,245,314, of which $1,166,365 was related party notes payable. At September 30, 2020, we had total assets of $26,021,906 and total liabilities of $15,081,404 resulting in stockholders’ equity of $10,940,502. We may never achieve or sustain profitability.

 

The loss of key personnel or the inability of replacements to quickly and successfully perform in their new roles could adversely affect our business.

 

We depend on the leadership and experience of our relatively small number of key executive management personnel, particularly our Chairman and Chief Executive Officer, Christopher B. Ferguson, our President and Treasurer, Kevin J. Ferguson, and our Chief Financial Officer, Brett Vroman. The loss of the services of any of these key executives or any of our executive management members could have a material adverse effect on our business and prospects, as we may not be able to find suitable individuals to replace such personnel on a timely basis or without incurring increased costs, or at all. Furthermore, if we lose or terminate the services of one or more of our key employees or if one or more of our current or former executives or key employees joins a competitor or otherwise competes with us, it could impair our business and our ability to successfully implement our business plan. Additionally, if we are unable to hire qualified replacements for our executive and other key positions in a timely fashion, our ability to execute our business plan would be harmed. Even if we can quickly hire qualified replacements, we would expect to experience operational disruptions and inefficiencies during any transition. We believe that our future success will depend on our continued ability to attract and retain highly skilled and qualified personnel. There is a high level of competition for experienced, successful personnel in our industry. Our inability to meet our executive staffing requirements in the future could impair our growth and harm our business.

 

Our financial statements may be materially affected if our estimates prove to be inaccurate as a result of our limited experience in making critical accounting estimates.

 

Financial statements prepared in accordance with GAAP require the use of estimates, judgments, and assumptions that affect the reported amounts. Actual results may differ materially from these estimates under different assumptions or conditions. These estimates, judgments, and assumptions are inherently uncertain, and, if they prove to be wrong, then we face the risk that charges to income will be required. In addition, because we have limited to no operating history and limited experience in making these estimates, judgments, and assumptions, the risk of future charges to income may be greater than if we had more experience in these areas. Any such charges could significantly harm our business, financial condition, results of operations, and the price of our securities. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical accounting policies — Use of estimates” for a discussion of the accounting estimates, judgments, and assumptions that we believe are the most critical to an understanding of our business, financial condition, and results of operations.

 

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We may require additional financing to sustain or grow our operations.

 

Our growth will be dependent on our ability to access additional equity and debt capital. Moreover, part of our business strategy may involve the use of debt financing to increase potential revenues. Our inability in the future to obtain additional equity capital or a corporate credit facility on attractive terms, or at all, could adversely impact our ability to execute our business strategy, which could adversely affect our growth prospects and future shareholder returns.

 

If we fail to manage our growth, our business and operating results could be harmed.

 

As we seek to advance our product lines, we will need to expand our development, manufacturing, marketing, and sales capabilities or contract with third parties to provide these capabilities for us. We anticipate that a period of significant expansion will be required to address potential growth and to handle licensing of additional product categories, such as more arts and crafts focused items. This expansion will place a significant strain on our management, operational, and financial resources. To manage the expected growth of our operations and personnel, we must establish appropriate and scalable operational and financial systems, procedures, and controls and establish a qualified finance, administrative, and operations staff. As a public company, we will have to implement internal controls to comply with government-mandated regulations. Our management may be unable to hire, train, retain, motivate, and manage the necessary personnel or to identify, manage, and exploit potential strategic relationships and market opportunities. Our failure to manage growth effectively could have a material and adverse effect on our business, results of operations, and financial condition.

 

Our growth strategy includes pursuing opportunistic acquisitions of additional brands, and we may not find suitable acquisition candidates or successfully operate or integrate any brands that we may acquire.

 

As part of our strategy, we intend to opportunistically acquire new brands and product concepts, just as we acquired Cloud B in October 2018. Although we believe that opportunities for other, future acquisitions may be available from time to time, competition for acquisition candidates may exist or increase in the future. Consequently, there may be fewer acquisition opportunities available to us as well as higher acquisition prices. There can be no assurance that we will be able to identify, acquire, manage, or successfully integrate additional companies, brands, or product concepts without substantial costs, delays, or operational or financial problems. In the event we are able to acquire additional companies, brands, or other product concepts, the integration and operation of such acquisitions in addition to the on-going integration and operation of the Company may place significant demands on our management, which could adversely affect our ability to manage our business. We may be required to obtain additional financing to fund future acquisitions. There can be no assurance that we will be able to obtain additional financing on acceptable terms or at all.

 

We may not realize the anticipated benefits of acquisitions or investments in joint ventures, or those benefits may be delayed or reduced in their realization.

 

Acquisitions and investments have been a component of our growth and the development of our business, and that is likely to continue in the future. Acquisitions can broaden and diversify our brand holdings and product concepts and allow us to build additional capabilities and competencies around our brands. In reviewing potential acquisitions or investments, we target brands, assets or companies that we believe offer attractive products or offerings, the ability for us to leverage our offerings, opportunities to drive our brands, competencies, or other synergies.

 

The combination of two independent businesses is a complex, costly, and time-consuming process that will require significant management attention and resources. The integration process may disrupt the businesses and, if implemented ineffectively, would limit the expected benefits of the acquisition. The failure to meet the challenges involved in integrating businesses and realizing the anticipated benefits could cause an interruption of, or a loss of momentum in, our activities and could adversely affect our results of operations. The overall integration of the businesses may result in material unanticipated problems, expenses, liabilities, competitive responses, loss of customer and other business relationships, and diversion of management’s attention. The difficulties of combining the operations of the companies include, among others:

 

  the diversion of management’s attention to integration matters;
  difficulties in achieving anticipated cost savings, synergies, business opportunities, and growth prospects from the combination;
  difficulties in the integration of operations and systems; and
  conforming standards, controls, procedures, accounting and other policies, business cultures, and compensation structures between the two companies.

 

We cannot be certain that the products and offerings of companies we may acquire, or acquire an interest in, will achieve or maintain popularity with consumers in the future or that any such acquired companies or investments will allow us to more effectively market our products, develop our competencies or to grow our business. In some cases, we expect that the integration of the companies that we may acquire into our operations will create production, marketing and other operating, revenue or cost synergies which will produce greater revenue growth and profitability and, where applicable, cost savings, operating efficiencies and other advantages. However, we cannot be certain that these synergies, efficiencies and cost savings will be realized. Even if achieved, these benefits may be delayed or reduced in their realization. In other cases, we may acquire or invest in companies that we believe have strong and creative management, in which case we may plan to operate them more autonomously rather than fully integrating them into our operations. We cannot be certain that the key talented individuals at these companies would continue to work for us after the acquisition or that they would develop popular and profitable products, entertainment or services in the future. We cannot guarantee that any acquisition or investment we may make will be successful or beneficial, and acquisitions can consume significant amounts of management attention and other resources, which may negatively impact other aspects of our business.

 

 19 
   

  

An inability to develop and introduce products in a timely and cost-effective manner may damage our business.

 

Our sales and profitability depend on our ability to bring products to market and meet customer demands before they begin to lose interest in a given product. There is no guarantee that we will be able to manufacture, source, and ship new or continuing products in a timely manner and on a cost-effective basis to meet constantly changing consumer demands. This risk is heightened by our customers’ increasingly compressed shipping schedules and the seasonality of our business. Moreover, unforeseen delays or difficulties in the development process, significant increases in the planned cost of development, and manufacturing delays or changes in anticipated consumer demand for our products and new brands may cause the introduction date for products to be later than anticipated. They may also reduce or eliminate the profitability of such products or, in some situations, may cause a product or new brand introduction to be discontinued.

 

We have debt financing arrangements, which could have a material adverse effect on our financial health and our ability to obtain financing in the future and may impair our ability to react quickly to changes in our business.

 

Our exposure to debt financing could limit our ability to satisfy our obligations, limit our ability to operate our business, and impair our competitive position. For example, it could:

 

  increase our vulnerability to adverse economic and industry conditions, including interest rate fluctuations, because a portion of our borrowings are at variable rates of interest;

 

  require us to dedicate future cash flows to the repayment of debt, thereby reducing the availability of cash to fund working capital, capital expenditures or other general corporate purposes;

 

  limit our flexibility in planning for, or reacting to, changes in our business and industry; and

 

  limit our ability to obtain additional debt or equity financing due to applicable financial and restrictive covenants contained in our debt agreements.

 

We may also incur additional indebtedness in the future, which could materially increase the impact of these risks on our financial condition and results of operations.

 

In times of tough economic conditions, the Company has experienced significant distributor inventory corrections reflecting de-stocking of the supply chain associated with difficult credit markets. Such distributor de-stocking exacerbated sales volume declines pertaining to weak end user demand and the broader economic recession. The Company’s results may be adversely impacted in future periods by such customer inventory adjustments. Further, the inability to continue to penetrate new channels of distribution may have a negative impact on the Company’s future results.

 

Our ability to repay our debt depends on many factors beyond our control. If we elect to raise equity capital in the future, our current shareholders could be subjected to significant dilution. If we are unable to raise capital in the future, we may seek other avenues to fund the business, including sale/leaseback arrangements or seeking to sell assets of all, or a portion of, our operations.

 

Payments on our debt will depend on our ability to generate cash or secure additional financing in the future. This ability, to an extent, is subject to general economic, financial, competitive, legislative, regulatory, and other factors beyond our control. If our business does not generate sufficient cash flow from operations and sufficient future financing is not available to us, we may not be able to repay our debt, operate our business or fund our other liquidity needs. If we cannot meet or refinance our obligations when they become due, we may be required to attempt to raise capital, reduce expenditures, or take other actions which we may be unable to successfully complete or, even if successful, could have a material adverse effect on us. If such sources of capital are not available or not available on sufficiently favorable terms, we may seek other avenues to fund the business, including sale/leaseback arrangements or seeking to sell assets of all or a portion of our operations. If we decide to raise capital in the equity markets or take other actions, our shareholders could incur significant dilution or diminished valuations, or if we are unable to raise capital, our ability to effectively operate our business could be impaired. In addition, if we are successful in raising capital in the equity markets to repay our indebtedness or for any other purpose in the future, our shareholders could incur significant dilution.

 

 20 
   

 

Our success will depend on the reliability and performance of third-party distributors, manufacturers, and suppliers.

 

We compete with other companies for the production capacity of third-party suppliers for components. Certain of these competing companies have substantially greater financial and other resources than we have, and we may be at a competitive disadvantage in seeking to procure production capacity. Our inability to contract with third-party manufacturers and suppliers to provide a sufficient supply of our products on acceptable terms and on a timely basis could negatively impact our relationships with existing customers and cause us to lose revenue-generating opportunities with potential customers. We also rely on operators and distributors to market and distribute our products. If our operators or distributors are unsuccessful, we may miss revenue-generating opportunities that might otherwise have been recognized.

 

We are dependent on a small number of key suppliers and customers. Changes in our relationships with these parties or changes in the economic environments in which they operate could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

 

Our revenues are concentrated with a small number of customers. We do not have long-term agreements with our customers, and instead develop our products on an item-by-item basis subject to purchase orders from customers. No assurances can be given that our customers will continue to submit purchase orders for new products.

 

To manufacture our products, we purchase components from independent manufacturers, many of whom are located in Asia. An extended interruption in the supply of these products or suitable substitute inventory would disrupt our operations, which could have a material adverse effect on our business, financial condition, and results of operations.

 

For a number of our key inventory components, we rely on two China-based suppliers, Pokar Industrial Ltd., and MJR Corporation. These suppliers have discussed the possibility of entering into a joint venture at an undetermined time in the future, whereby they would consolidate their operations and conduct such operations from a single location. As we are currently transitioning the manufacturing of more of our components to these suppliers, our increased dependence on them could have an adverse effect on our business, financial condition, and operations if the consolidation of their operations results in a diminished capacity to timely produce our components. We cannot estimate with any certainty the length of time that would be required to establish alternative supply relationships, or whether the quantity or quality of materials that could be so obtained would be sufficient. Furthermore, we may incur additional costs in sourcing materials from alternative producers. The disruption of our inventory supply, even in the short term, could have a material adverse effect on our business, financial condition, and results of operations.

 

In the first quarter of 2020, the COVID-19 outbreak caused disruptions in our manufacturing operations, which resulted in delays in the shipment of products to certain of our customers and ultimately, a suspension of our Asian operations in January 2020. A prolonged disruption or any further unforeseen delay in our operations of the manufacturing, delivery and assembly process within any of our production facilities could continue to result in delays in the shipment of products to our customers, increased costs and reduced revenue.

 

Changes in customer preferences, the inability to maintain mutually beneficial relationships with large customers, inventory reductions by customers, and the inability to penetrate new channels of distribution could adversely affect the Company’s business.

 

The Company has certain significant customers. For the period ended September 30, 2020, the Company’s largest customer comprised approximately 9% of net sales. The loss or material reduction of business, the lack of success of sales initiatives, or changes in customer preferences or loyalties for the Company’s products, related to any such significant customer could have a material adverse impact on the Company’s results of operations and cash flows. In addition, the Company’s major customers are volume purchasers, a few of which are much larger than the Company and have strong bargaining power with suppliers. This limits the ability to recover cost increases through higher selling prices. Furthermore, unanticipated inventory adjustments by these customers can have a negative impact on net sales.

 

If customers are dissatisfied with services and switch to competitive services or disconnect for other reasons such as preference for digital technology products or other technology enhancements not then offered, the Company’s attrition rates may increase. In periods of increasing attrition rates, recurring revenue and results of operations may be materially adversely affected. The risk is more pronounced in times of economic uncertainty, as customers may reduce amounts spent on the products and services the Company provides.

 

A significant portion of our business is conducted with customers and suppliers located outside of the United States. Currency, economic, health related, and other risks associated with our international operations in China and Japan could adversely affect our operating results.

 

Our international customers and suppliers are concentrated in China and Japan. Our revenues from international customers, and our inventory costs from international suppliers are exposed to the potentially adverse effects of currency exchange rates, local economic conditions, health related conditions, and other risks associated with doing business in foreign countries. To the extent that our revenues and purchases from international business partners increase in the future, our exposure to changes in foreign economic conditions and currency fluctuations will increase.

 

For example, the imposition of trade sanctions or other regulations upon China by the United States or the European Union, or the loss of “normal trade relations” status with China, could significantly increase our cost of products imported into the United States or Europe and harm our business. In addition, the occurrence of a health-related crisis such as COVID-19, which emerged in China where many of the Company’s suppliers and customers are located. COVID-19 has been expanding within Asia and globally, such that the Company’s operations in Asia have been largely suspended since January 2020. Additionally, the suspension of manufacturing operations by government inspectors in China could result in delays to us in obtaining product and may have a material adverse effect on our ability to import products from China. Furthermore, Japanese economic policies are subject to rapid change and the government of Japan may adopt policies which have the effect of hindering private economic activity and greater economic decentralization. There is no assurance that the government of Japan will not significantly alter its policies from time to time without notice in a manner which reduces or eliminates any benefits from its present policies of economic reform.

 

 21 
   

 

Besides the risks discussed above, our dependence on foreign customers and suppliers also means that we may be affected by changes in the relative value of the U.S. Dollar to foreign currencies, including the Chinese Renminbi and Japanese Yen. Although our receipts from foreign customers and our purchases of foreign products are principally negotiated and paid for in U.S. Dollars, a portion of our business is denominated in other currencies and changes in the applicable currency exchange rates might negatively affect the profitability and business prospects of our customers and vendors. This, in turn, might cause such vendors to demand higher prices, delay shipments, or discontinue selling to us. This also might cause such customers to demand lower prices, delay, or discontinue purchases of our products or demand other changes to the terms of our relationships. These situations could in turn ultimately reduce our revenues or increase our costs, which could have a material adverse effect on our business, financial condition, and results of operations.

 

Our operating results may fluctuate significantly as a result of a variety of factors, many of which are outside of our control, which could cause fluctuations in the price of our securities.

 

We are subject to the following factors that may negatively affect our operating results:

 

  the announcement or introduction of new products by our competitors;

 

  our ability to upgrade and develop our systems and infrastructure to accommodate growth;

 

  our ability to attract and retain key personnel in a timely and cost-effective manner;

 

 22 
   

 

  technical difficulties;

 

  the amount and timing of operating costs and capital expenditures relating to the expansion of our business, operations, and infrastructure;

 

  our ability to identify and enter into relationships with appropriate and qualified third-party providers for necessary development and manufacturing services;

 

  regulation by federal, state, or local governments;

 

  general economic conditions, as well as economic conditions specific to the entertainment, theme park, party items, arts and crafts, and packaging industries;
     
  the announcement of our entrance into a business combination or acquisition of a second company that has a material effect on us; and

 

  Various risks related to health epidemics, pandemics and similar outbreaks, such as the coronavirus disease 2019 (“COVID-19”) pandemic, which may have material adverse effects on our business, financial position, results of operations and/or cash flows.

 

As a result of our lack of any operating history and the nature of the markets in which we compete, it is difficult for us to forecast our revenues or earnings accurately. As a strategic response to changes in the competitive environment, we may from time to time make certain decisions concerning expenditures, pricing, service, or marketing that could have a material and adverse effect on our business, results of operations, and financial condition. Due to the foregoing factors, our quarterly revenues and operating results are difficult to forecast.

 

The Company’s results of operations could be negatively impacted by inflationary or deflationary economic conditions, which could affect the ability to obtain raw materials, component parts, freight, energy, labor, and sourced finished goods in a timely and cost-effective manner.

 

The Company’s products are manufactured using both ferrous and non-ferrous metals including, but not limited to, steel, zinc, copper, brass, aluminum, and nickel. Additionally, the Company uses other commodity-based materials for components and packaging including, but not limited to, plastics, resins, wood, and corrugated products. The Company’s cost base also reflects significant elements for freight, energy, and labor. The Company also sources certain finished goods directly from vendors. If the Company is unable to mitigate any inflationary increases through various customer pricing actions and cost reduction initiatives, its profitability may be adversely affected.

 

Conversely, in the event there is deflation, the Company may experience pressure from its customers to reduce prices, and there can be no assurance that the Company would be able to reduce its cost base (through negotiations with suppliers or other measures) to offset any such price concessions which could adversely impact results of operations and cash flows.

 

Further, as a result of inflationary or deflationary economic conditions, the Company believes it is possible that a limited number of suppliers may either cease operations or require additional financial assistance from the Company in order to fulfill their obligations. In a limited number of circumstances, the magnitude of the Company’s purchases of certain items is of such significance that a change in established supply relationships with suppliers or increase in the costs of purchased raw materials, component parts, or finished goods could result in manufacturing interruptions, delays, inefficiencies, or an inability to market products. Changes in value-added tax rebates, currently available to the Company or to its suppliers, could also increase the costs of the Company’s manufactured products, as well as purchased products and components, and could adversely affect the Company’s results.

 

In addition, many of the Company’s products incorporate battery technology. As other industries begin to adopt similar battery technology for use in their products, the increased demand could place capacity constraints on the Company’s supply chain. In addition, increased demand for battery technology may also increase the costs to the Company for both the battery cells as well as the underlying raw materials. If the Company is unable to mitigate any possible supply constraints or related increased costs, its profitably and financial results could be negatively impacted.

 

Low demand for new products and the inability to develop and introduce new products at favorable margins could adversely impact the Company’s performance and prospects for future growth.

 

The Company’s competitive advantage is due in part to its ability to develop and introduce new products in a timely manner at favorable margins. The uncertainties associated with developing and introducing new products, such as market demand and costs of development and production, may impede the successful development and introduction of new products on a consistent basis. Introduction of new technology may result in higher costs to the Company than that of the technology replaced. That increase in costs, which may continue indefinitely or until increased demand and greater availability in the sources of the new technology drive down its cost, could adversely affect the Company’s results of operations. Market acceptance of the new products introduced in recent years and scheduled for introduction in future years may not meet sales expectations due to various factors, such as the failure to accurately predict market demand, end-user preferences, evolving industry standards, or the emergence of new or disruptive technologies. Moreover, the ultimate success and profitability of the new products may depend on the Company’s ability to resolve technical and technological challenges in a timely and cost-effective manner, and to achieve manufacturing efficiencies. The Company’s investments in productive capacity and commitments to fund advertising and product promotions in connection with these new products could erode profits if those expectations are not met.

 

 23 
   

 

We are increasingly dependent on information technology, and potential cyberattacks, security problems, or other disruption and expanding social media vehicles present new risks.

 

We rely on information technology networks and systems, including the internet, to process, transmit, and store electronic information, and to manage or support a variety of business processes, including financial transactions and records, billing, and operating data. We may purchase some of our information technology from vendors, on whom our systems will depend, and we rely on commercially available systems, software, tools, and monitoring to provide security for processing, transmission, and storage of confidential operator and other customer information. We depend upon the secure transmission of this information over public networks. Our networks and storage applications could be subject to unauthorized access by hackers or others through cyberattacks, which are rapidly evolving and becoming increasingly sophisticated, or by other means, or may be breached due to operator error, malfeasance or other system disruptions. In some cases, it will be difficult to anticipate or immediately detect such incidents and the damage they cause. Any significant breakdown, invasion, destruction, interruption, or leakage of information from our systems could harm our reputation and business.

 

In addition, the use of social media could cause us to suffer brand damage or information leakage. Negative posts or comments about us on any social networking website could damage our or our brands’ reputations. Employees or others might disclose non-public sensitive information relating to our business through external media channels, including through the use of social media. The continuing evolution of social media will present us with new challenges and risks.

 

Changes in laws or regulations governing our operations, changes in the interpretation thereof or newly enacted laws or regulations and any failure by us to comply with these laws or regulations, could require changes to certain of our business practices, negatively impact our operations, cash flow, or financial condition, impose additional costs on us, or otherwise adversely affect our business.

 

We are subject to regulation by laws and regulations at the local, state, and federal levels. These laws and regulations, as well as their interpretation, may change from time to time, and new laws and regulations may be enacted. Accordingly, any change in these laws or regulations, changes in their interpretation, or newly enacted laws or regulations and any failure by us to comply with these laws or regulations, could require changes to certain of our business practices, negatively impact our operations, cash flow or financial condition, impose additional costs on us, or otherwise adversely affect our business.

 

Article XIII of our Amended and Restated Articles of Incorporation designates the courts of the State of Nevada as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our shareholders, and therefore may limit our shareholders’ ability to choose a forum for disputes with us or our directors, officers, employees, or agents.

 

Article XIII of our Amended and Restated Articles of Incorporation provide that, to the fullest extent permitted by law, and unless we consent to the selection of an alternative forum, the courts of the State of Nevada shall be the sole and exclusive forum for (a) any derivative action or proceeding brought on behalf of the Company, (b) any action or proceeding asserting a claim of breach of a fiduciary duty owed by any director or officer of the Company to the Company or the Company’s shareholders, (c) any action or proceeding asserting a claim against the Company arising pursuant to any provision of the Nevada Revised Statutes or the Company’s amended and restated articles of incorporation or Second Amended and Restated Bylaws (as either might be amended from time to time), or (d) any action or proceeding asserting a claim against the Company governed by the internal affairs doctrine.

 

We believe the choice-of-forum provision in our Amended and Restated Articles of Incorporation provide will help provide for the orderly, efficient, and cost-effective resolution of Nevada-law issues affecting us by designating courts located in the State of Nevada (our state of incorporation) as the exclusive forum for cases involving such issues. However, this provision may limit a shareholder’s ability to bring a claim in a judicial forum that it believes to be favorable for disputes with us or our directors, officers, employees, or agents, which may discourage such actions against us and our directors, officers, employees, and agents. While there is no Nevada case law addressing the enforceability of this type of provision, Nevada courts have on prior occasion found persuasive authority in Delaware case law in the absence of Nevada statutory or case law specifically addressing an issue of corporate law. The Court of Chancery of the State of Delaware ruled in June 2013 that choice-of-forum provisions of a type similar to those included in our Amended and Restated Articles of Incorporation provide are not facially invalid under corporate law and constitute valid and enforceable contractual forum selection clauses. However, if a court were to find the choice-of-forum provision in our Amended and Restated Articles of Incorporation provide inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial condition, or results of operations.

 

 24 
   

 

We could face substantial competition, which could reduce our market share and negatively impact our net revenue.

 

There are a number of companies that manufacture and distribute products similar to ours. Many of our anticipated competitors are significantly larger than we are and have considerably greater financial, technical, marketing, and other resources than we do. Some competitors may have a lower cost of funds and access to funding sources that are not available to us. We cannot assure you that the competitive pressures we face will not have a material adverse effect on our business, financial condition, and results of operations.

 

If we fail to protect our intellectual property rights, competitors may be able to use our technology, which could weaken our competitive position, reduce our net revenue, and increase our costs.

 

Our long-term success will depend to some degree on our ability to protect the proprietary technology that we have developed or may develop or acquire in the future. Patent applications can take many years to issue, and we can provide no assurance that any such patents would be issued. If we are denied any or all of these patents, we may not be able to successfully prevent our competitors from imitating our products or using some or all of the processes that are the subject of such patent applications. Such imitation may lead to increased competition within the finite market for products such as ours. Even if our pending patents were to be issued, our intellectual property rights may not be sufficiently comprehensive to prevent our competitors from developing similar competitive products. Although we may aggressively pursue anyone whom we reasonably believe is infringing upon our intellectual property rights, initiating and maintaining suits against third parties that may infringe upon our intellectual property rights will require substantial financial resources, especially given our lack of patent registrations and applications. We may not have the financial resources to bring such suits, and if we do bring such suits, we may not prevail. Regardless of our success in any such actions, we could incur significant expenses in connection with such suits.

 

Third-party claims of infringement against us could adversely affect our ability to market our products and require us to redesign our products or seek licenses from third parties.

 

Especially given that we produce products for licensed properties, we are susceptible to intellectual property lawsuits that could cause us to incur substantial costs, pay substantial damages, or prohibit us from distributing our products. Whether a product infringes a patent involves complex legal and factual issues, the determination of which is often uncertain. In addition, because patent applications can take many years to issue, there may be applications now pending of which we are unaware, which later may result in issued patents that our products may infringe. If any of our products infringe a valid patent, we could be prevented from distributing that product unless and until we can obtain a license or redesign it to avoid infringement. A license may not be available or may require us to pay substantial royalties. We also may not be successful in any attempt to redesign the product to avoid any infringement. Infringement and other intellectual property claims, with or without merit, can be expensive and time-consuming to litigate, and we may not have the financial and human resources to defend ourselves against any infringement suits that may be brought against us.

 

Our brands are important assets of our businesses and violation of our trademark rights by imitators, or the failure of our licensees or vendors to comply with our product quality, manufacturing requirements, marketing standards, and other requirements could negatively impact revenues and brand reputation.

 

Our trademarks have a reputation for quality and value and are important to our success and competitive position. Unauthorized use of our trademark rights may not only erode sales of our products, but may also cause significant damage to our brand name and reputation, interfere with our ability to effectively represent ourselves to our customers, contractors, suppliers, and/or licensees, and increase litigation costs. Similarly, failure by licensees or vendors to adhere to our standards of quality and other contractual requirements could result in loss of revenue, increased litigation, and/or damage to our reputation and business. There can be no assurance that our ongoing efforts to protect our brand and trademark rights and ensure compliance with our licensing and vendor agreements will prevent all violations.

 

Defects in our products could reduce our revenue, increase our costs, burden our engineering, and marketing resources, involve us in litigation and adversely affect us.

 

Our success will depend on our ability to avoid, detect, and correct defects in our products. We may not be able to maintain products that are free from defects. Although we have taken steps to prevent defects, our products could suffer such defects. The occurrence of such defects or malfunctions could result in physical harm to the patrons of our customers and the subsequent termination of agreements, cancellation of orders, product returns, and diversion of our resources. Even if our customers do not suffer financial losses, customers may replace our products if they do not perform according to expectations. Any of these occurrences could also result in the loss of or delay in market acceptance of our products and/or loss of sales. In addition, the occurrence of defects in our products may give rise to claims for lost revenues and related litigation by our customers and may subject us to investigation or other disciplinary action by regulatory authorities that could include suspension or revocation of our ability to do business in certain jurisdictions.

 

 25 
   

 

Low demand for new products and the inability to develop and introduce new products at favorable margins could adversely impact our performance and prospects for future growth.

 

Our competitive advantage is due in part to our ability to develop and introduce new products in a timely manner at favorable margins. The uncertainties associated with developing and introducing new products, such as market demand and costs of development and production, may impede the successful development and introduction of new products on a consistent basis. Introduction of new technology may result in higher costs to us than that of the technology replaced. That increase in costs, which may continue indefinitely or until increased demand and greater availability in the sources of the new technology drive down its cost, could adversely affect our results of operations. Market acceptance of the new products introduced in recent years and scheduled for introduction in future years may not meet sales expectations due to various factors, such as the failure to accurately predict market demand, end-user preferences, evolving industry standards, or the emergence of new or disruptive technologies. Moreover, the ultimate success and profitability of the new products may depend on our ability to resolve technical and technological challenges in a timely and cost-effective manner, and to achieve manufacturing efficiencies. Our investments in productive capacity and commitments to fund advertising and product promotions in connection with these new products could erode profits if those expectations are not met.

 

Our products could be recalled.

 

The Consumer Product Safety Commission or other applicable regulatory bodies may require the recall, repair or replacement of our products if those products are found not to be in compliance with applicable standards or regulations. A recall could increase costs and adversely impact our reputation.

 

Our business operations have been and may continue to be materially and adversely affected by the outbreak of the novel respiratory illness coronavirus (“COVID-19”).

 

On March 11, 2020, the World Health Organization declared the outbreak of the novel respiratory illness COVID-19 a pandemic. The new strain of COVID-19 is considered to be highly contagious and poses a serious public health threat. The outbreak of COVID-19 emerged in China, where many of the Company’s suppliers and customers are located. COVID-19 has been expanding within Asia and globally, such that the Company’s operations in Asia have been largely suspended since January 2020.

 

Any outbreak of such epidemic illness or other adverse public health developments may materially and adversely affect the global economy, our markets and our business. In the first quarter of 2020, the COVID-19 outbreak caused disruptions in our manufacturing operations, which resulted in delays in the shipment of products to certain of our customers and ultimately, a suspension of our Asian operations in January 2020. A prolonged disruption or any further unforeseen delay in our operations of the manufacturing, delivery and assembly process within any of our production facilities could continue to result in delays in the shipment of products to our customers, increased costs and reduced revenue.

 

We cannot foresee whether the outbreak of COVID-19 will be effectively contained, nor can we predict the severity and duration of its impact. If the outbreak of COVID-19 is not effectively and timely controlled, our business operations and financial condition may be materially and adversely affected as a result of the deteriorating market outlook for theme parks and consumer sales, the slowdown in regional and national economic growth, weakened liquidity and financial condition of our customers or other factors that we cannot foresee. Any of these factors and other factors beyond our control could have an adverse effect on the overall business environment, cause uncertainties in the regions where we conduct business, cause our business to suffer in ways that we cannot predict and materially and adversely impact our business, financial condition and results of operations.

 

We face potential business disruptions and related risks resulting from the recent outbreak of the novel coronavirus, which could have a material adverse effect on our business, financial condition and results of operations.

 

In December 2019, a novel strain of coronavirus, or COVID-19, was reported to have surfaced in Wuhan, China. The COVID-19 outbreak has grown into a global pandemic that has impacted Asia, United States, Europe and other countries throughout the world. Financial markets have been experiencing extreme fluctuations that may cause a contraction in available liquidity globally as important segments of the credit markets react to the development. The pandemic may lead to a decline in business and consumer confidence. The global outbreak of COVID-19 continues to rapidly evolve. As a result, businesses have closed and limits have been placed on travel. The extent to which COVID-19 may impact our business, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.

 

 26 
   

 

We are monitoring the potential impact of the COVID-19 outbreak, and if COVID-19 continues to spread globally, including in the United States, we may experience disruptions that could severely impact the development of our product candidates, including:

 

  delays or difficulties in reopening of theme parks and water parks in the United States, Asia and Europe;
     
  the uncertainty that our contractors, suppliers, and other business partners may be prevented from conducting business activities for an unknown period of time;
     
  the impact of social distancing on theme parks;
     
  delays in receiving approval from local regulatory authorities to initiate our planned clinical trials;
     
  the undetermined costs to theme parks in reopening to remain within local, state and federal guidelines that may ultimately effect our sales;
     
  the majority of our retail customers have been unable to sell our products in their stores due to government-mandated closures and have temporarily reduced orders for our products;
     
  the pandemic has reduced foot traffic in the stores where our products are sold that remain open, and the global economic impact of the pandemic has reduced consumer demand for our products generally; and
     
  in the event a communicable illness, such as COVID-19, was contracted at, or that an outbreak of a communicable illness originated within, one of our customer theme parks, they may suffer reputational damage that could adversely affect guest attendance and ticket sales and adversely affect our results.

 

Quarantines, shelter-in-place and similar government orders, or the perception that such orders, shutdowns or other restrictions on the conduct of business operations could occur, related to COVID-19 or other infectious diseases could impact personnel at third-party suppliers in the United States and other countries, or the availability or cost of materials, which would disrupt our supply chain. Any manufacturing supply interruption of materials could adversely affect our ability to conduct ongoing and future research and testing activities.

 

The spread of COVID-19, which has caused a broad impact globally, may materially affect us economically. While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common stock.

 

Risks Associated with an Investment in our Common Stock

 

Our executive officers, directors, and principal shareholders maintain the ability to control substantially all matters submitted to shareholders for approval.

   

As of February 4, 2021, our executive officers, directors, and shareholders who owned more than 5% of our outstanding common stock, in the aggregate, beneficially own 27,304,382 shares of common stock representing approximately 62.87% of our outstanding capital stock. As a result, if these shareholders were to choose to act together, they would be able to control substantially all matters submitted to our shareholders for approval, as well as our management and affairs. For example, these persons, if they choose to act together, would control the election of directors and approval of any merger, consolidation or sale of all or substantially all of our assets. This concentration of voting power could delay or prevent an acquisition of us on terms that other shareholders may desire.

  

The market price of our shares may fluctuate significantly.

 

The capital and credit markets have recently experienced a period of extreme volatility and disruption. The market price and liquidity of the market for shares may be significantly affected by numerous factors, some of which are beyond our control and may not be directly related to our operating performance. Some of the factors that could negatively affect the market price of our shares include:

 

  our actual or projected operating results, financial condition, cash flows, and liquidity, or changes in business strategy or prospects;

 

  equity issuances by us, or share resales by our shareholders, or the perception that such issuances or resales may occur;

 

  loss of a major funding source;

 

  actual or anticipated accounting problems;

 

  publication of research reports about us, or the industries in which we operate;

 

  changes in market valuations of similar companies;

 

  adverse market reaction to any indebtedness we incur in the future;
     
  the announcement of our entrance into a business combination or acquisition of a second company that has a material effect on us;

 

  speculation in the press or investment community;

 

  price and volume fluctuations in the overall stock market from time to time;

 

  general market and economic conditions, trends including inflationary concerns, and the current state of the credit and capital markets;

 

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  significant volatility in the market price and trading volume of securities of companies in our sector, which are not necessarily related to the operating performance of these companies;

 

  changes in law, regulatory policies or tax guidelines, or interpretations thereof;

 

  any shortfall in revenue or net income or any increase in losses from levels expected by investors or securities analysts;

 

  operating performance of companies comparable to us;

 

  short-selling pressure with respect to shares of our shares generally;

 

  uncertainty surrounding the strength of the United States economic recovery; and

 

  concerns regarding the United Kingdom’s exit from the European Union.

 

As noted above, market factors unrelated to our performance could also negatively impact the market price of our shares. One of the factors that investors may consider in deciding whether to buy or sell our shares is our distribution rate as a percentage of our share price relative to market interest rates. If market interest rates increase, prospective investors may demand a higher distribution rate or seek alternative investments paying higher dividends or interest. As a result, interest rate fluctuations and conditions in the capital markets can affect the market value of our shares. For instance, if interest rates rise, it is likely that the market price of our shares will decrease as market rates on interest-bearing securities increase.

 

Shares eligible for future sale may have adverse effects on our share price.

 

Sales of substantial amounts of shares or the perception that such sales could occur may adversely affect the prevailing market price for our shares. We may issue additional shares in subsequent public offerings or private placements to make new investments or for other purposes. We are not required to offer any such shares to existing shareholders on a preemptive basis. Therefore, it may not be possible for existing shareholders to participate in such future share issuances, which may dilute the existing shareholders’ interests in us.

 

If we take advantage of specified reduced disclosure requirements applicable to an “emerging growth company” under the JOBS Act, the information that we provide to shareholders may be different than they might receive from other public companies.

 

As a company with less than $1.07 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” under the JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. The Company has elected not to use the extended transition period for complying with new or revised financial accounting standards but does still have reduced reporting requirements. These provisions include:

 

  only two years of audited financial statements in addition to any required unaudited interim financial statements with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure;

 

  reduced disclosure about our executive compensation arrangements;

 

  no non-binding advisory votes on executive compensation or golden parachute arrangements; and

 

  exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting.

 

We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1.07 billion in annual revenues, we have more than $700 million in market value of our stock held by non-affiliates, or we issue more than $1 billion of non-convertible debt over a three-year period. We may choose to take advantage of some but not all of these reduced burdens. We may elect to take advantage of other reduced reporting requirements in future filings. As a result, the information that we provide to our shareholders may be different than you might receive from other public reporting companies in which you hold equity interests.

 

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If we fail to comply with the rules and regulations under the Sarbanes-Oxley Act, our operating results, our ability to operate our business and investors’ views of us may be harmed.

 

Section 404 of the Sarbanes-Oxley Act requires public companies to conduct an annual review and evaluation of their internal controls and attestations of the effectiveness of internal controls by independent auditors. Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that will need to be evaluated frequently. As of December 31, 2019, the Company’s Principal Executive Officer and Principal Financial and Accounting Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were not effective to provide reasonable assurance that information that it is required to disclose in reports that the Company files with the SEC is recorded, processed, summarized, and reported within the time periods specified by the Exchange Act rules and regulations. Our failure to maintain the effectiveness of our internal controls in accordance with the requirements of the Sarbanes-Oxley Act could have a material adverse effect on our business. We could lose investor confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on the price of our common stock. In addition, our efforts to comply with the rules and regulations under the Sarbanes-Oxley or new or changed laws, regulations, and standards may differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice. Regulatory authorities may investigate transactions disclosed in our “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and if legal proceedings are initiated against us, it may harm our business.

 

We do not anticipate paying any cash dividends on our capital stock in the foreseeable future.

 

We currently intend to retain all of our future earnings to finance the growth and development of our business, and therefore, we do not anticipate paying any cash dividends on our capital stock in the foreseeable future. We believe it is likely that our board of directors will continue to conclude, that it is in the best interests of the Company and its shareholders to retain all earnings (if any) for the development of our business. In addition, the terms of any future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.

 

The rights of the holders of common stock may be impaired by the potential issuance of preferred stock.

 

Pursuant to the Articles of Merger, filed with the Nevada Secretary of State on September 7, 2019, our board of directors has the right, without shareholder approval, to issue preferred stock with voting, dividend, conversion, liquidation, or other rights which could adversely affect the voting power and equity interest of the holders of common stock, which could be issued with the right to more than one vote per share, and could be utilized as a method of discouraging, delaying, or preventing a change of control. The possible negative impact on takeover attempts as a result of the issuance of such preferred stock could also adversely affect the price of our common stock.

 

On October 16, 2020, the Company filed a Certificate of Designation (the “Designation”) with the Secretary of State of Nevada, which designates 1,000,000 shares of the Company’s preferred stock, par value $0.001 per share, as Series B Convertible Preferred Stock (“Series B”). Pursuant to the terms of the Designation, holders of the Series B shall be entitled to dividends, a liquidation preference and shall have conversion rights. Each share of Series B shall be convertible into 1 share of Common Stock, on or after the twelve-month anniversary of the Original Issue Date at the option of the Holder thereof, for a total not to exceed 1,000,000 shares of Common Stock. The holders of the Series B shall have no voting rights.

 

On February 2, 2021, the Company filed an Amendment to the Certificate of Designation (the “Amendment”) for the Company’s Series B Convertible Preferred Stock (“Preferred Stock”). Under the Amendment, each share of Preferred Stock shall entitle the holder thereof to vote on all matters voted on by the holders of Common Stock, voting together as a single class with other shares entitled to vote at all meetings of the stockholders of the Corporation. With respect to any such vote, each share of Preferred Stock shall entitle the holder thereof to cast the number of votes equal to the number of whole shares of Common Stock into which such shares of Preferred Stock are then convertible (the “Conversion Shares”). Such right may be exercised at any annual meeting or special meeting, or pursuant to any written consent of stockholders.

 

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price, and trading volume could decline.

 

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts do not currently, and may never, publish research on us. If no or too few securities or industry analysts commence coverage of us, the trading price for our stock would likely be negatively impacted. In the event securities or industry analysts initiate coverage, if one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.

 

Risk Related to this Offering

 

Future sales of additional shares of our common stock or securities convertible into shares of our common stock may dilute our shareholders’ ownership in us and may adversely affect us or the trading price of our common stock.

 

We are generally not restricted from issuing additional shares of our common stock up to the authorized number of shares set forth in our charter. We may issue additional shares of our common stock or securities convertible into our common stock in the future pursuant to current or future employee stock incentive plans, employee stock grants, or in connection with future acquisitions or financings. We cannot predict the size of any such future issuances or the effect, if any, that any such future issuances will have on the trading price of our common stock. Any such future issuances of shares of our common stock or securities convertible into common stock may have a dilutive effect on the holders of our common stock and could have a material negative effect on the trading price of our common stock.

 

Future sales of shares of our common stock could lower the trading price of our common stock, and any additional capital raised by us through the sale of additional equity or convertible debt securities may dilute our shareholders’ ownership in us and may adversely affect us or the trading price of our common stock.

 

We may issue additional shares of common stock or other securities in primary offerings and the Selling Shareholders may resell shares of our common stock in subsequent secondary offerings. We cannot predict the size of additional issuances or future resales of shares of our common stock or convertible securities, the offering price in any such issuance or resale or the effect, if any, that additional issuances or future resales will have on the trading price of our common stock. Additional issuances and resales of substantial amounts of our common stock or convertible securities, or the perception that such additional issuances or resales could occur, may adversely affect prevailing trading prices for our common stock.

 

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The trading price of our common stock could be volatile.

 

The trading price of our common stock may be volatile and could be subject to wide fluctuations in price in response to various factors, some of which are beyond our control. In addition, if the market for stocks in our industry, or the stock market in general, experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business and operations. If the foregoing occurs, it could cause our stock price to fall and may expose us to lawsuits that, even if unsuccessful, could be costly to defend and a distraction to management, which could materially adversely affect our assets, business, cash flows, condition (financial or otherwise), credit quality, financial performance, liquidity, long-term performance goals, prospects, and results of operations.

 

Because the risk factors referred to above, as well as other risks not mentioned above, could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us, you should not place undue reliance on any such forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict which ones will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. 

 

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USE OF PROCEEDS

 

We are not selling any of the shares of common stock being offered by this prospectus and will receive no proceeds from the sale of the shares by the Selling Shareholders. We will, however, receive the exercise price of the Warrants, if and when such warrants are exercised for cash by the holders of such warrants. All of the proceeds from the sale of common stock offered by this prospectus will go to the Selling Shareholders at the time they offer and sell such shares.

 

We will pay the expenses of registration of the shares of our common stock covered by this prospectus, including legal and accounting fees.

 

PRIVATE PLACEMENT OF EQUITY SECURITIES

 

2021 Hudson Bay Senior Convertible Note

 

In January 2021, the Company sold a total of 6,000,000 shares of common stock at a purchase price of $2.00 per share (the “PIPE Shares”) to an accredited investor (the “Investor). The aggregate amount sold in the private placement (the “PIPE Financing”) was $12,000,000.

 

As discussed further below, the Company issued a warrant to the placement agent of a value equal to eight percent (8%) of the shares of Common Stock initially issuable to the Investor pursuant to the Investor’s Note. The warrant is exercisable at $2.00 per share (100% of the offering price).

 

Registration Rights

 

The Company also entered into a Registration Rights Agreement with the Investor (the “Registration Rights Agreement”). The Registration Rights Agreement provides that the Company shall (i) file with the Securities and Exchange Commission (the “Commission”) a Registration Statement by 30 days following the Closing Date to register the Conversion Shares and Warrant Shares (the “Registration Statement”); and (ii) use all commercially reasonable efforts to have the Registration Statement declared effective by the Commission within 60 days following the Closing Date or at the earliest possible date, or 75 days following the Closing Date if the Registration Statement receives comments from the Commission.

 

Placement Agreement

 

Palladium Capital Group, LLC (the “Placement Agent”) acted as placement agent for the Offering. The Placement Agent received cash compensation of $1,080,000 (8% of the gross proceeds to the Company plus an additional 1% of the gross proceeds to the Company for non-accountable expenses). The Placement Agent also received a Warrant in an amount equal to 8% of the shares of Common Stock initially issuable to each Investor pursuant to the Investor’s Note.

 

2021 BHP Securities Purchase Agreement

 

In January 2021, the Company sold a total of 1,500,000 shares of common stock at a purchase price of $2.20 per share (the “SPA Shares”) to an accredited investor (the “Investor). The aggregate amount sold in the private placement (the “SPA Financing”) was $3,300,000.

 

Registration Rights

 

The Company also entered into a Registration Rights Agreement with the Investor (the “Registration Rights Agreement”). The Registration Rights Agreement provides that the Company shall (i) file with the Securities and Exchange Commission (the “Commission”) a Registration Statement by 30 days following the Closing Date to register the Conversion Shares and Warrant Shares (the “Registration Statement”); and (ii) use all commercially reasonable efforts to have the Registration Statement declared effective by the Commission within 60 days following the Closing Date or at the earliest possible date, or 75 days following the Closing Date if the Registration Statement receives comments from the Commission.

 

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DIVIDEND POLICY

 

We have not historically declared dividends on our common stock, and we do not currently intend to pay dividends on our common stock. The declaration, amount, and payment of any future dividends on shares of our common stock, if any, will be at the sole discretion of our board of directors, out of funds legally available for dividends. As a Nevada corporation, we are not permitted to pay dividends if, after giving effect to such payment, we would not be able to pay our debts as they become due in the usual course of business or our total assets would be less than the sum of our total liabilities plus any amounts needed to satisfy any preferential rights if we were dissolving.

 

Our ability to pay dividends to our shareholders in the future will depend upon our liquidity and capital requirements, as well as our earnings and financial condition, the general economic climate, contractual restrictions, our ability to service any equity or debt obligations senior to our common stock, and other factors deemed relevant by our board of directors.

 

DETERMINATION OF OFFERING PRICE

 

The prices at which the shares of common stock are covered by this prospectus may actually be sold will be determined by the prevailing public market price for shares of our common stock, by negotiations between the Selling Shareholders and buyers of our common stock in private transactions or as otherwise described in “Plan of Distribution.”

 

MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

 

Market Information

 

On May 3, 2018, our common stock began trading on The Nasdaq Capital Market under the symbol of “XSPL”, which was subsequently changed to “EDNT” on September 13, 2018 and ‘BBIG” on November 12, 2020.

 

Holders of Record

 

The Company had approximately 762 holders of record of our common stock as of February 4, 2021.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

Plan Category   Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
    Weighted-average
exercise price of
outstanding options,
warrants and rights
    Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
 
    (a)     (b)     (c)  

Equity compensation plans approved by shareholders (1)(2)(3)

    80,000     $               7.01       1,277,117  

Equity compensation plans not approved by shareholders (1)

    -     $ -       -  
Total     80,000     $ 7.01       1,277,117  

 

(1)

The information presented in this table is as of February 3, 2021.

 

(2)

We originally adopted the Vinco Ventures, Inc. Omnibus Incentive Plan (the “Plan”) in December 2017, which was amended on February 9, 2018, provides for up to 1,764,705 (13,412 remaining as of February 3, 2021) shares of common stock to be issued as stock-based incentives. Stock incentive awards under the Plan can be in the form of stock options, restricted stock units, performance awards, and restricted stock that are made to employees, directors, and service providers. Awards are subject to forfeiture until vesting conditions have been satisfied under the terms of the award. We believe awards to our executive officers help align the interests of management and our shareholders and reward our executive officers for improved Company performance.

   

(3)

On July 15, 2020, the Company filed a Registration Statement on Form S-8 registering 1,764,705 (1,263,705 remaining as of February 3, 2021) shares of common stock to be issued as stock-based incentives under the Company’s Amended and Restated Vinco Ventures, Inc. Omnibus Incentive Plan.

 

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PLAN OF DISTRIBUTION

 

Each Selling Shareholder and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their securities covered hereby on The Nasdaq Capital Market or any other stock exchange, market or trading facility on which the securities are traded or in private transactions. These sales may be at fixed or negotiated prices. The Company will not receive any of the proceeds from the sale by the Selling Shareholders. A Selling Shareholder may use any one or more of the following methods when selling securities:

 

ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

 

block trades in which the broker-dealer will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction;

 

purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

 

an exchange distribution in accordance with the rules of the applicable exchange;

 

privately negotiated transactions;

 

settlement of short sales;

 

in transactions through broker-dealers that agree with the Selling Shareholders to sell a specified number of such securities at a stipulated price per security;

 

through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

 

a combination of any such methods of sale; or

 

any other method permitted pursuant to applicable law.

 

The Selling Shareholders may also sell securities under Rule 144 or any other exemption from registration under the Securities Act, if available, rather than under this prospectus.

 

Broker-dealers engaged by the Selling Shareholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Shareholders (or, if any broker-dealer acts as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA IM-2440.

 

In connection with the sale of the securities or interests therein, the Selling Shareholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the securities in the course of hedging the positions they assume. The Selling Shareholders may also sell securities short and deliver these securities to close out their short positions, or loan or pledge the securities to broker-dealers that in turn may sell these securities. The Selling Shareholders may also enter into option or other transactions with broker-dealers or other financial institutions or create one or more derivative securities which require the delivery to such broker-dealer or other financial institution of securities offered by this prospectus, which securities such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

 

The Selling Shareholders and any broker-dealers or agents that are involved in selling the securities may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each Selling Shareholder has informed the Company that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the securities.

 

The Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the securities. The Company has agreed to indemnify the Selling Shareholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.

 

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We agreed to keep this prospectus effective until the earlier of (i) the date on which the securities may be freely resold by the Selling Shareholders without registration and without regard to any volume or manner-of-sale limitations by reason of Rule 144, without the requirement for the Company to be in compliance with the current public information under Rule 144 under the Securities Act or any other rule of similar effect, or (ii) all of the securities have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect, under circumstances in which any legend borne by such securities relating to restrictions on transferability thereof, under the Securities Act or otherwise, is removed. The resale securities will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

 

Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not simultaneously engage in market making activities with respect to the securities for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling Shareholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of the securities by the Selling Shareholders or any other person. We will make copies of this prospectus available to the Selling Shareholders and have informed them of the need to deliver a copy of this prospectus to each purchaser of the securities at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).

 

SELLING SHAREHOLDERS FOR WHOSE ACCOUNTS WE ARE REGISTERING SHARES

 

This prospectus covers the resale from time to time by the selling shareholders and future shareholders identified in the table below of up to 24,480,000 shares of our common stock, which were issued in various transactions exempt from registration under the Securities Act, as follows:

 

  6,000,000 of the shares registered hereby for resale are common stock underlying the Hudson Bay Senior Convertible Note;
     
  15,000,000 shares of common stock underlying a warrant issued in connection with the Hudson Bay financing;
     
 

1,500,000 of the shares registered hereby for resale are common stock issued in connection with the BHP Securities Purchase Agreement;

     
 

1,500,000 shares of common stock underlying a warrant issued in connection with the BHP financing; and

     
  480,000 shares of common stock underlying a warrant issued in connection with the placement of the Hudson Bay Senior Convertible Promissory Note.

 

The shares to be offered by the Selling Shareholders named in this prospectus are “restricted” securities under applicable federal and state securities laws and are being registered under the Securities Act to give those Selling Shareholders the opportunity to publicly sell these shares, if they elect to do so. The registration of these shares does not require that any of the shares be offered or sold by the Selling Shareholders. We are registering the shares in order to permit the Selling Shareholders to offer the shares for resale from time to time. For additional information regarding these shares, see “Private Placement of Securities” above.

 

This prospectus generally covers the maximum number of shares of Common Stock issuable upon exercise of the Warrants and convertible under the Hudson Bay Note, without regard to any limitations on the exercise of the of the Warrants or conversion of Hudson Bay Note.

 

The table below lists the Selling Shareholders and other information regarding the beneficial ownership of shares of common stock by each of the Selling Shareholders. The first column in the table below lists the name of each Selling Shareholder. The second column lists the number of shares of common stock beneficially owned by each Selling Shareholder, based on its ownership of the shares of common stock, as of February 4, 2021.

 

The fourth column lists the shares of common stock being offered by this prospectus by the Selling Shareholders.

 

In accordance with the terms of a registration rights agreement between the Company and the Selling Shareholders, this prospectus generally covers the resale of all shares of common stock held by the Selling Shareholders. The fourth column assumes the sale of all of the shares offered by the Selling Shareholders pursuant to this prospectus.

 

The Selling Shareholders may sell all, some or none of their shares in this offering. See “Plan of Distribution.”

 

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Stockholder  

Beneficial Ownership Before Offering

(ii)

    Percentage of Common Stock Owned Before Offering (ii)    

Shares of Common Stock Included

in Prospectus

   

Beneficial Ownership After the Offering

(iii)

   

Percentage

of

Common Stock

Owned

After the Offering

(iii)

 

Hudson Bay Master Fund, Ltd (iv)

    21,000,000       48.35 %     21,000,000           0       0.00 %
BHP Capital NY Inc (v)     3,000,000       6.91 %     3,000,000       0       0.00 %

Palladium Capital Group, LLC (vi)

    480,000       1.11 %     480,000       0       0.00 %
TOTAL     24,480,000       56.36 %     24,480,000       0       0.00 %

 

* Less than 1%

 

(i) These columns represent the aggregate maximum number and percentage of shares that the selling stockholders can own at one time (and therefore, offer for resale at any one time).

 

(ii) Based on 18,952,514 shares of common stock outstanding as of February 4, 2021; and including (i) 6,000,000 shares of common stock underlying a Senior Convertible Note issued in the Hudson Bay financing, and (ii) 15,000,000 shares of common stock issuable upon exercise of a warrant issued in connection with the Hudson Bay financing, and (iii) 1,500,000 shares of common stock issued in connection with the BHP Securities Purchase Agreement, and (iv) 1,500,000 shares of common stock issuable upon exercise of a warrant issued in connection with the BHP financing, and (v) 480,000 shares of common stock issuable upon exercise of a warrant issued in connection with the placement of the Hudson Bay financing; but excluding 80,000 shares issuable under an option granted to one of our executives; 1,764,705 (13,412 remaining as of February 3, 2021) shares of our common stock reserved for future issuance under the Company’s Vinco Ventures, Inc. Omnibus Incentive Plan; 1,764,705 (1,263,705 remaining as of February 3, 2021) shares of our common stock reserved for future issuance under the Company’s Amended and Restated Vinco Ventures, Inc. Omnibus Incentive Plan and 285,632 shares of common stock issuable upon conversion of the 4%, 5-year senior convertible notes in connection with the EN acquisition.

 

(iii) Assumes that all securities registered will be sold.

 

(iv) Hudson Bay Capital Management LP, the investment manager of Hudson Bay Master Fund Ltd., has voting and investment power over these securities. Sander Gerber is the managing member of Hudson Bay Capital GP LLC, which is the general partner of Hudson Bay Capital Management LP. Each of Hudson Bay Master Fund Ltd. and Sander Gerber disclaims beneficial ownership over these securities. Includes 6,000,000 shares issuable upon conversion of the Hudson Bay Senior Convertible Note and 15,000,000,000 shares issuable upon exercise of the Hudson Bay warrant.

 

(v) Bryan Pantofel is the President of BHP Capital NY Inc. and has voting and investment power over these securities. Includes 1,500,000 shares issued in connection with the BHP Securities Purchase Agreement and 1,500,000,000 shares issuable upon exercise of the BHP warrant.

 

(vi) Includes 480,000 shares of common stock issuable upon exercise of the placement agent warrant.

 

 35 
   

 

Relationship with Selling Shareholders

 

To our knowledge, none of the Selling Shareholders had any position, office, or other material relationship with us or any of our affiliates within the past three years.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of our financial condition and results of operations for the three and nine months ended September 30, 2020 and 2019 and years ended December 31, 2019 and 2018 should be read in conjunction with the information included under “Business,” “Selected Consolidated Financial Data” and our consolidated financial statements and the accompanying notes included elsewhere in this registration statement. The discussion and analysis below are based on comparisons between our historical financial data for different periods and include certain forward-looking statements about our business, operations and financial performance. These forward-looking statements are subject to risks, uncertainties, assumptions and other factors described in “Risk Factors.” Our actual results may differ materially from those expressed in, or implied by, those forward-looking statements. See “Special Note Regarding Forward-Looking Statements.”

 

Overview

 

Formed in July 2017 under the laws of the State of Nevada, Vinco Ventures, Inc. seeks to be involved with every step of the consumer product life cycle- from ideation, to research and development, manufacturing, sales, packaging and fulfillment. The Company also seeks to raise awareness of the Edison Nation brand name as a diversified consumer products business through a number of media channels.

 

As of September 30, 2020, Vinco Ventures, Inc. had six wholly-owned subsidiaries: S.R.M. Entertainment Limited (“SRM”), Scalematix, LLC (“Scalematix”), Ferguson Containers, Inc. (“Fergco”), CBAV1, LLC (“CB1”), Pirasta, LLC (“Pirasta”) and Edison Nation Holdings, LLC. Vinco Ventures, Inc. owns 50% of Best Party Concepts, LLC and Global Clean Solutions, 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.

 

COVID-19

 

COVID-19 has caused and continues to cause significant loss of life and disruption to the global economy, including the curtailment of activities by businesses and consumers in much of the world as governments and others seek to limit the spread of the disease, and through business and transportation shutdowns and restrictions on people’s movement and congregation.

 

As a result of the pandemic, we have experienced, and continue to experience, weakened demand for our traditional products. Many of our customers have been unable to sell our products in their stores and theme parks due to government-mandated closures and have deferred or significantly reduced orders for our products. We expect these trends to continue until such closures are significantly curtailed or lifted. In addition, the pandemic has reduced foot traffic in the stores where our products are sold that remain open, and the global economic impact of the pandemic has temporarily reduced consumer demand for our products as they focus on purchasing essential goods.

 

In the United States and Asia, many of our key accounts remain closed or are operating at significantly reduced volumes. As a result, we have made the strategic decision to expand our operations through our Edison Nation Medical (“Ed Med”) division. Through Ed Med, the Company wholesales Personal Protective Equipment (“PPE”) products through an online portal for hospitals, government agencies and distributors.

 

Given these factors, the Company anticipates that the greatest impact from the COVID-19 pandemic in fiscal 2020 occurred in the first quarter of 2020 and resulted in a net sales decline as compared to the first quarter of 2019. The Company was able to recover in the second quarter and third quarter of 2020 related to sales of personal protective equipment and a rebound of some of our legacy product business.

 

In addition, certain of our suppliers and the manufacturers of certain of our products were adversely impacted by COVID-19. As a result, we faced delays or difficulty sourcing products, which negatively affected our business and financial results. Even if we are able to find alternate sources for such products, they may cost more and cause delays in our supply chain, which could adversely impact our profitability and financial condition.

 

We have taken actions to protect our employees in response to the pandemic, including closing our corporate offices and requiring our office employees to work from home. At our distribution centers, certain practices are in effect to safeguard workers, including a staggered work schedule, and we are continuing to monitor direction from local and national governments carefully. Additionally, our two retail locations have been closed until further notice.

 

As a result of the impact of COVID-19 on our financial results, and the anticipated future impact of the pandemic, we have implemented cost control measures and cash management actions, including:

 

● Furloughing a significant portion of our employees; and

 

● Implementing 20% salary reductions across our executive team and other members of upper-level management; and

 

● Executing reductions in operating expenses, planned inventory levels and non-product development capital expenditures; and

 

● Proactively managing working capital, including reducing incoming inventory to align with anticipated sales.

 

Critical Accounting Policies and Significant Judgments and Estimates

 

Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements as well as the reported expenses during the reporting periods. The accounting estimates that require our most significant, difficult and subjective judgments have an impact on revenue recognition, the determination of share-based compensation 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.

 

Our significant accounting policies are more fully described in Note 2 to our consolidated financial statements included in our December 31, 2019 annual financial statements and updated as necessary in our condensed consolidated financial statements for the period ended September 30, 2020 and included elsewhere in this prospectus.

 

 36 
   

 

Components of our Results of Operations

 

Revenues

 

We sell consumer products across a variety of categories, including toys, plush, homewares and electronics, to retailers, distributors and manufacturers. We also sell consumer products directly to consumers through e-commerce channels. Our Edison Nation Medical operation sells Personal Protective Equipment (“PPE”) to governmental agencies, medical institutions and to distributors.

 

Cost of Revenues

 

Our cost of revenues includes inventory costs, materials and supplies costs, internal labor costs and related benefits, subcontractor costs, depreciation, overhead and shipping and handling costs. Our Edison Nation Medical operation sells Personal Protective Equipment (“PPE”) to governmental agencies, medical institutions and to distributors.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses consist of selling, marketing, advertising, payroll, administrative, finance and professional expenses.

 

Rental Income

 

We earn rental income from a month-to-month lease on a portion of the building located in Washington, New Jersey that we own.

 

Interest Expense, Net

 

Interest expense includes the cost of our borrowings under our debt arrangements.

 

Results of Operations 

 

Three Months Ended September 30, 2020 versus Three Months Ended September 30, 2019

 

The following table sets forth information comparing the components of net (loss) income for the three months ended September 30, 2020 and 2019:

 

   

Three Months Ended

September 30,

   

Period over

Period Change

 
    2020     2019     $     %  
Revenues, net   $ 4,251,147     $ 3,532,645     $ 718,502       20.34 %
Cost of revenues     2,668,864       2,544,058       124,806       4.91 %
Gross profit     1,582,283       988,587       593,696       60.06 %
                                 
Operating expenses:                                
Selling, general and administrative     3,474,844       3,296,323       178,521       5.42 %
Operating loss     (1,892,561 )     (2,307,736 )     415,175       -17.99 %
                                 
Other (expense) income:                                
Rental income     25,704       25,704       -       0.00 %
Interest expense     (1,004,626 )     (349,172 )     (655,454 )     187.72 %
Total expense     (978,922 )     (323,468 )     (655,454     202.63 %
Loss before income taxes     (2,871,483 )     (2,631,204 )     (240,279 )     9.13 %
Income tax expense     -       -       -       0.00 %
Net loss     (2,871,483 )     (2,631,204 )     (240,279 )     9.13 %
Net loss attributable to noncontrolling interests     (37,439 )     (49,103 )     11,664       -23.75
Net loss attributable to Vinco Ventures, Inc.   $ (2,834,044 )   $ (2,582,101 )   $ (251,943 )     9.76 %

 

Revenue

 

For the three months ended September 30, 2020, revenues increased by $718,502 or 20.34%, as compared to the three months ended September 30, 2019. The increase was primarily attributable to the increases in the Company’s revenue through its Ferguson Containers subsidiary and Cloud B branded products compared to the prior year.

 

Cost of Revenues

 

For the three months ended September 30, 2020, cost of revenues increased by $124,806 or 4.91%, as compared to the three months ended September 30, 2019. The increase was primarily attributable to the increase in total consolidated revenues.

 

Gross Profit

 

For the three months ended September 30, 2020, gross profit increased by $593,696, or 60.06%, as compared to the three months ended September 30, 2019. The increase was primarily a result of the increase in revenues. For the three months ended September 30, 2020, gross profit percentage increased to 37.2%, as compared to 28.0% for the three months ended September 30, 2019. The increase in gross margin was due to the increase in the Ferguson Containers business and fixed costs included in cost of goods sold that did not increase with the revenue increase. In addition, the Company had favorable product mix of goods sold to customers related to increased sales in our higher margin Cloud B branded business.

 

Operating Expenses

 

Selling, general and administrative expenses were $3,474,828 and $3,296,323 for the three months ended September 30, 2020 and 2019, respectively, representing an increase of $178,521, or 5.42%. The largest increases included an increase of stock-based compensation of approximately $1,008,000 and approximately $329,000 selling expense offset by wages and benefits of approximately $318,000, general expense of approximately $244,000, investor relations of approximately $157,000, legal of approximately $155,000, professional fees of approximately $222,000, and travel of approximately $96,000.

 

Rental Income

 

Rental income was $25,704 for both the three months ended September 30, 2020 and 2019.

 

Interest expense

 

Interest expense was $1,004,626 for the three months ended September 30, 2020 versus $349,172 in the previous three months ended September 30, 2019. The increase in interest expense was related to increased borrowings of debt during 2020.

 

Income tax expense

 

There was no income tax expense for the three months ended September 30, 2020 and September 30, 2019.

 

 37 
   

 

Nine Months Ended September 30, 2020 versus Nine Months Ended September 30, 2019

 

The following table sets forth information comparing the components of net (loss) income for the nine months ended September 30, 2020 and 2019:

 

   

Nine Months Ended

September 30,

   

Period over

Period Change

 
    2020     2019     $     %  
Revenues, net   $ 14,798,283     $ 15,239,434     $ (441,151 )     -2.89 %
Cost of revenues     9,977,060       10,413,868       (436,808 )     -4.19 %
Gross profit     4,821,223       4,825,566       (4,343 )     -0.09 %
                                 
Operating expenses:                                
Selling, general and administrative     10,438,487       9,738,107       700,380       7.19 %
Operating loss     (5,617,264 )     (4,912,541 )     (704,723 )     14.35 %
                                 
Other (expense) income:                                
Rental income     77,111       77,111       -       0.00 %
Other income     4,911,760       -       4,911,760       100.00 %
Interest expense     (2,575,737 )     (875,036 )     (1,700,701 )     194.36 %
Total other expense     2,413,134       (797,925 )     3,211,059       -402.43 %
Loss before income taxes     (3,204,130 )     (5,710,466 )     2,506,336       -43.89 %
Income tax expense     -       74,200       (74,200 )     -100.00 %
Net loss     (3,204,130 )     (5,784,666 )     2,580,536       -44.61 %
Net income attributable to noncontrolling interests     (15,198 )     (31,858 )     16,660       -52.29 %
Net loss attributable to Vinco Ventures, Inc.   $ (3,188,932 )   $ (5,752,808 )   $ 2,563,876       -44.57 %

 

Revenue

 

For the nine months ended September 30, 2020, revenues decreased by $441,151 or 2.89%, as compared to the nine months ended September 30, 2019. The decrease was primarily the result of lower revenues from our amusement park business offset by increases in our Edison Medical business.

 

Cost of Revenues

 

For the nine months ended September 30, 2020, cost of revenues decreased by $436,808 or 4.19%, as compared to the nine months ended September 30, 2019. The decrease was primarily attributable to the decrease in total consolidated revenues.

 

Gross Profit

 

For the nine months ended September 30, 2020, gross profit decreased by $4,343, or 0.09%, as compared to the nine months ended September 30, 2019. The decrease was primarily a result of the decrease in revenues. For the nine months ended September 30, 2020, gross profit percentage increased to 32.6%, as compared to 31.7% for the nine months ended September 30, 2019. The increase in gross margin was due to the increase in the Ferguson Containers business and fixed costs included in cost of goods sold that did not increase with the revenue increase.

 

Operating Expenses

 

Selling, general and administrative expenses were $10,438,487 and $9,738,107 for the nine months ended September 30, 2020 and 2019, respectively, representing an increase of $700,380, or 7.19%. The largest increases included an increase of stock-based compensation of approximately $1,900,00 and approximately $900,000 selling expense offset by wages and benefits of approximately $143,000, general expenses of approximately $233,000, investor relations of approximately $209,000, legal of approximately $128,000, professional fees of approximately $950,000 and travel of approximately $214,000.

 

Rental Income

 

Rental income was $77,111 for both the nine months ended September 30, 2020 and 2019.

 

Interest expense

 

Interest expense was $2,575,737, an increase of 194.36%, for the nine months ended September 30, 2020 versus $875,036 in the previous nine months ended September 30, 2019. The increase in interest expense was related to increased borrowings of debt during 2020.

 

Income tax expense

 

Income tax expense was $0 for the nine months ended September 30, 2020, a decrease of $74,200 or 100.0%, compared to $74,200 for the nine months ended September 30, 2019. The decrease was primarily due to the decrease in income from our foreign operations as well as net operating losses for our domestic operations.

 

Results of Operation for the years ended December 31, 2019 versus December 31, 2018

 

The following table sets forth information comparing the components of net loss for the years ended December 31, 2019 and 2018:

 

   Years Ended December 31,   Period over Period Change 
   2019   2018   $   % 
Revenues, net  $19,629,062   $16,502,209   $3,126,853    18.95%
Cost of revenues   12,822,450    11,425,619    1,396,831    12.23%
Gross profit   6,806,612    5,076,590    1,730,022    34.08%
                     
Operating expenses:                    
Selling, general and administrative   15,909,840    9,718,286    6,191,554    63.71%
Impairment   4,443,000    -    4,443,000    100.00%
Gain on change in fair value of earnout liability   (520,000)   -    (520,000)   -100.00%
Total operating expenses   19,832,840    9,718,286    10,114,554    104.08%
Operating (loss) income   (13,026,228)   (4,641,696)   (8,384,532)   180.64%
                     
Other (expense) income:                    
Rental income   102,815    102,815    -    0.00%
Interest expense   (1,298,168)   (501,221)   (796,947)   159.00%
Other income   3,054    -    3,054    100.00%
Total other (expense) income   (1,192,299)   (398,406)   (793,893)   199.27%
(Loss) income before income taxes   (14,218,527)   (5,040,102)   (9,178,425)   182.11%
Income tax (benefit) expense   (19,547)   303,915    323,462    106.43%
Net loss  $(14,198,980)  $(5,344,017)  $(8,854,963)   165.70%
Net loss attributable to noncontrolling interests  $(1,269,274)  $(13,891)  $(1,255,383)   9,037.38%
Net loss attributable to Edison Nation, Inc.  $(12,929,706)  $(5,330,126)  $(7,599,580)   142.58%

 

Revenue

 

For the year ended December 31, 2019, revenues increased by $3,126,853 or 18.95%, as compared to the year ended December 31, 2018. The increase was primarily attributable to new business in connection with our acquisitions in 2018. The increase includes licensing related revenues of approximately $176,000 related to our acquisition of Edison Nation Holdings, LLC and product revenues of approximately $3,578,000 related to our acquisition of Cloud B, Inc.

 

Cost of Revenues

 

For the year ended December 31, 2019, cost of revenues increased by $1,396,831 or 12.23%, as compared to the year ended December 31, 2018. The increase was primarily attributable to the increase in total consolidated revenues. The percentage increase of cost of revenues as compared to the revenue increase was lower due to higher margins on our licensing related revenues and Cloud B branded product revenues.

 

Gross Profit

 

For the year ended December 31, 2019, gross profit increased by $1,730,022, or 34.08%, as compared to the year ended December 31, 2018. The increase was primarily a result of the increase in revenues and increased margins due to sales of Cloud B products with higher product margins.

 

Operating Expenses

 

Selling, general and administrative expenses were $15,909,840 and $9,718,065 for the year ended December 31, 2019 and 2018, respectively, representing an increase of $6,191,554, or 63.71%. The increase was primarily attributable to payroll and related costs of $1,905,342, travel of $219,793, freight and postage of 191,364, depreciation and amortization of 846,925, professional fees of $2,005,757, rent expense of $231,508, computer and internet expenses of 90,269, marketing and advertising of $144,886, insurance of $51,505, selling expense of $885,338 and trade show expense of $100,290. The expense was offset by a decrease in stock-based compensation expense of $1,172,773.

 

Impairment

 

Impairment charges of $4,443,000 relate to an impairment charge related to our annual impairment assessment. The amount recognized for impairment is equal to the difference between the carrying value and the asset’s fair value. The impairment was a result of decreased profitability as compared to anticipated profitability in our businesses acquired in 2018.

 

Gain on Change in Fair Value of Earnout

 

A gain of $520,000 was recognized related to a change in fair value of the earnout liability. The decrease in the earnout is related to decreased revenues as compared to anticipated revenues in our Cloud B business in 2019 and going forward. 

 

Rental Income

 

Rental income was $102,815 for both the years ended December 31, 2019 and 2018.

 

Interest expense

 

Interest expense was $1,298,168 for the year ended December 31, 2019 versus $501,221 in the previous year ended December 31, 2018. The increase in interest expense was related to increased borrowings of debt during 2019.

 

Income tax expense

 

Income tax benefit was $19,547 for the year ended December 31, 2019, an increase of $323,462 or 106.43%, compared to an expense of $303,915 for the year ended December 31, 2018. The change from expense to benefit was primarily due to losses in our foreign operations in fiscal 2019.

 

 38 
   

 

Pro Forma condensed combined financial statements

 

On November 30, 2020, the Company (the “Seller”) and its wholly owned subsidiary, SRM Entertainment, LTD (“SRM”) entered into a Stock Exchange Agreement (the “Exchange Agreement”) with Jupiter Wellness, Inc. (“Jupiter”)(the “Buyer”). Under the terms of the Exchange Agreement, the Buyer agreed to purchase all outstanding shares of common stock (the “Exchange Shares”) issued by SRM from the Seller. The following unaudited pro forma condensed consolidated financial information should be read together with the related notes and the section entitled “Recent Developments” included herein. The unaudited pro forma combined financial statements as of September 30, 2020 and for nine months ended September 30, 2020 and the year ended December 31, 2020 reflects the exchange as if it was effectuated as of January 1, 2019. The unaudited pro forma combines financial statements do not include the effects of the actual sale and related consideration received.

 

VINCO VENTURES, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA COMBINED BALANCE SHEET

September 30, 2020

 

  

Vinco
Ventures, Inc
.

(As previously presented)

   Discontinued Operations  

Vinco
Ventures, Inc.

Proforma

 
             
Assets               
Current Assets:               
Cash and cash equivalents  $384,604   $100,464   $284,140 
Accounts receivable, net   3,145,530    400,092    2,745,438 
Inventory   1,515,351    154,699    1,360,652 
Prepaid expenses and other current assets   1,529,709    29,130    1,500,579 
Income tax receivable   147,889    147,889    - 
Total current assets   6,723,083    832,274    5,890,809 
                
Property and equipment, net   1,012,375    19,299    993,076 
Right of use assets – operating leases, net   505,933    -    505,933 
Goodwill   5,392,123    -    5,392,123 
Intangible assets   10,772,241    -    10,772,241 
Total assets  $24,405,755   $851,573   $23,554,182 
                
Liabilities and Stockholders’ Equity (Deficit)               
Current Liabilities:               
Accounts payable  $3,024,689   $958,235   $2,066,454 
Accrued expenses and other current liabilities   1,620,230    145,760    1,474,470 
Deferred revenues   1,009,838    -    1,009,838 
Current portion of operating lease liabilities   279,719    -    279,719 
Income tax payable   8,151    -    8,151 
Line of credit   1,616,668    -    1,616,668 
Current portion of convertible notes payable, related parties   498,002    -    498,002 
Current portion of notes payable   821,092    -    821,092 
Current portion of notes payable – related parties   1,214,698    -    1,214,698 
Due to related party   22,005    -    22,005 
Total current liabilities   10,115,092    1,103,995    9,011,097 
                
Operating lease liabilities, net of current portion   255,100    -    255,100 
Convertible notes payable – related parties   1,136,495    -    1,136,495 
Notes payable, net of current portion   821,271    -    821,271 
Notes payable – related parties, net of current portion   1,452,815    -    1,452,815 
Total liabilities  $13,780,773   $1,103,995   $12,676,778 
                
Commitments and Contingencies               
                
Stockholders’ Equity (Deficit)               
Preferred stock $0.001 par value, 30,000,000 shares authorized; 0 shares issued and outstanding as of September 30, 2020  $-   $-   $- 
Common stock $0.001 par value, 250,000,000 shares authorized; 3,000,000 shares issued and outstanding as of September 30, 2019   11,893    -    11,893 
Additional paid-in capital / members’ deficit   33,427,702    (252,422)   33,680,124 
Accumulated deficit   (21,684,394)   -    (21,684,394)
Total stockholders’ equity (deficit) attributable to Vinco Ventures, Inc.   11,755,201    (252,422)    12,007,623 
Noncontrolling interests   (1,130,219)   -    (1,130,219)
Total stockholders’ equity (deficit)   10,624,982    (252,422)    10,877,404 
Total liabilities and stockholders’ equity (deficit)  $24,405,755   $851,573   $23,554,182 

  

39

 

 

VINCO VENTURES, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS

For the Nine Months Ended September 30, 2020

 

   Vinco
Ventures, Inc.

(As previously presented)

   Discontinued Operations   Vinco Ventures,
Inc. Proforma
 
             
Revenues, net  $14,798,283   $2,419,401   $12,378,882 
Cost of revenues   9,977,060    1,968,890    8,008,170 
Gross profit   4,821,223    450,511    4,370,712 
                
Operating expenses:               
Selling, general and administrative   10,438,487    333,704    10,104,783 
Total operating expenses   10,438,487    333,704    10,104,783 
Operating loss   (5,617,264)   116,807    (5,734,071)
                
Other (expense) income:               
Rental income   77,111    -    77,111 
Other income   4,911,760    -    4,911,760 
Interest (expense) income   (2,575,737)   1    (2,575,738)
Total other (expense) income   2,413,134    1    2,413,133 
Loss before income taxes   (3,204,130)   116,808    (3,320,938)
Income tax expense   -    -    - 
Combined Net loss  $(3,204,130)  $116,808   $(3,320,938)
Net loss attributable to the noncontrolling interest   (15,198)   -    (15,198)
Net loss attributable to Vinco Ventures, Inc.   (3,188,932)   116,808    (3,305,740)
Combined Net (loss) income per share: - basic and diluted  $(0.29)  $    $(0.30)
Weighted average number of common shares outstanding – basic   10,853,242    -    10,853,242 

 

40

 

 

VINCO VENTURES, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS

For the Year Ended December 31, 2019

 

  

Vinco Ventures, Inc.

(As previously presented)

   Discontinued Operations   Vinco Ventures, Inc. Combined 
             
Revenues, net  $19,629,062   $7,105,630   $12,523,432 
Cost of revenues   12,822,450    5,289,781    7,532,669 
Gross profit   6,806,612    1,815,849    4,990,763 
                
Operating expenses:               
Selling, general and administrative   15,909,840    1,824,645    14,085,195 
Gain on change in fair value of earnout liability   (520,000)   -    (520,000)
Impairment of goodwill   4,443,000    -    4,443,000 
Total operating expenses   19,832,840    1,824,645    18,008,195 
Operating loss   (13,026,228)   (8,796)   (13,017,432)
                
Other (expense) income:               
Rental income   102,815    -    102,815 
Other income   3,054    -    3,054 
Interest (expense) income   (1,298,168)   985    (1,299,153)
Total other (expense) income   (1,192,292)   (7,811)   (1,184,481)
(Loss) income before income taxes   (14,218,527)   (7,811)   (14,210,706)
Income tax expense   (19,547)   -    (19,547)
Combined net (loss) income   (14,198,980)   (7,811)   (14,191,169)
Net loss attributable to the noncontrolling interest   (1,269,274)   -    (1,269,274)
Net loss attributable to Vinco Ventures, Inc.  $(12,929,706)  $(7,811)  $(12,921,895)
Combined net (loss) income per share: - basic and diluted  $(2.36)       $(2.14)
Weighted average number of common shares outstanding – basic   6,026,049    -    6,026,049 

 

41

 

 

Non-GAAP Measures

 

EBITDA and Adjusted EBITDA

 

The Company defines EBITDA as net loss before interest, taxes and depreciation and amortization. The Company defines Adjusted EBITDA as EBITDA, further adjusted to eliminate the impact of certain non-recurring items and other items that we do not consider in our evaluation of our ongoing operating performance from period to period. These items will include stock-based compensation, restructuring and severance costs, transaction costs, acquisition costs, certain other non-recurring charges and gains that the Company does not believe reflects the underlying business performance.

 

For the three and nine months ended September 30, 2020 and 2019, EBITDA and Adjusted EBITDA consisted of the following:

 

    Three Months
Ended September 30,
    Nine Months
Ended September 30,
 
    2020     2019     2020     2019  
Net (loss) income   $ (2,871,483 )   $ (2,631,204 )   $ (3,204,130 )   $ (5,784,666 )
                                 
Interest expense, net     1,004,624       349,172       2,575,735       875,036  
Income tax expense     -       -       -       74,200  
Depreciation and amortization     326,437       318,449       938,843       952,019  
EBITDA     (1,540,422 )     (1,963,583 )     310,448       (3,883,411 )
Stock-based compensation     1,176,595       168,097       2,765,022       876,585  
Restructuring and severance costs     168,074       153,182       599,219       324,164  
Transaction and acquisition costs     -       224,370       82,736       447,908  
Other non-recurring costs     13,109       100,772       53,969       724,137  
Gain on divestiture     -       -       (4,911,760 )     -  
Adjusted EBITDA   $ (182,644 )   $ (1,317,162 )   $ (1,100,366 )   $ (1,510,617 )

 

For the years ended December 31, 2019 and 2018, EBITDA and Adjusted EBITDA consisted of the following:

 

  

For the Years Ended

December 31,

 
   2019   2018 
Net (loss) income  $(14,198,980)  $(5,344,017)
Interest expense, net   1,298,168    501,221 
Income tax (benefit) expense   (19,547)   303,915 
Depreciation and amortization   1,321,186    487,878 
EBITDA   (11,599,173)   (4,050,990)
Stock-based compensation   2,299,915    2,025,994 
Other noncash stock-based charges   -    1,222,172 
Impairment   4,443,000    - 
Restructuring and severance costs   446,114    148,167 
Transaction and acquisition costs   447,908    689,103 
Other non-recurring costs   1,520,777    62,686 
Adjusted EBITDA  $(2,441,459)  $97,132 

 

EBITDA and Adjusted EBITDA is a financial measure that is not calculated in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Management believes that because Adjusted EBITDA excludes (a) certain non-cash expenses (such as depreciation, amortization and stock-based compensation) and (b) expenses that are not reflective of the Company’s core operating results over time (such as restructuring costs, litigation or dispute settlement charges or gains, and transaction-related costs), this measure provides investors with additional useful information to measure the Company’s financial performance, particularly with respect to changes in performance from period to period. The Company’s management uses EBITDA and Adjusted EBITDA (a) as a measure of operating performance, (b) for planning and forecasting in future periods, and (c) in communications with the Company’s board of directors concerning the Company’s financial performance. The Company’s presentation of EBITDA and Adjusted EBITDA are not necessarily comparable to other similarly titled captions of other companies due to different methods of calculation and should not be used by investors as a substitute or alternative to net income or any measure of financial performance calculated and presented in accordance with U.S. GAAP. Instead, management believes EBITDA and Adjusted EBITDA should be used to supplement the Company’s financial measures derived in accordance with U.S. GAAP to provide a more complete understanding of the trends affecting the business.

 

Although Adjusted EBITDA is frequently used by investors and securities analysts in their evaluations of companies, Adjusted EBITDA has limitations as an analytical tool, and investors should not consider it in isolation or as a substitute for, or more meaningful than, amounts determined in accordance with U.S. GAAP. Some of the limitations to using non-GAAP measures as an analytical tool are (a) they do not reflect the Company’s interest income and expense, or the requirements necessary to service interest or principal payments on the Company’s debt, (b) they do not reflect future requirements for capital expenditures or contractual commitments, and (c) although depreciation and amortization charges are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and non-GAAP measures do not reflect any cash requirements for such replacements.

 

42

 

 

Liquidity and Capital Resources

 

Our operating needs include the planned costs to operate our business, including amounts required to fund working capital and capital expenditures. Our future capital requirements and the adequacy of our available funds will depend on many factors, including our ability to successfully commercialize our products and services, competing technological and market developments, and the need to enter into collaborations with other companies or acquire other companies or technologies to enhance or complement our product and service offerings.

 

Cash Flows

 

During the nine months ended September 30, 2020 and 2019, our sources and uses of cash were as follows:

 

Cash Flows from Operating Activities

 

Net cash used in operating activities for the nine months ended September 30, 2020 was $3,311,310, which included a net loss of $3,204,130. The net loss included $1,140,875 of cash used by changes in operating assets and liabilities which was offset by stock-based compensation of $2,765,022 and amortization of debt issuance costs of $2,015,422. Net cash used in operating activities for the nine months ended September 30, 2019 was $2,298,186, which included a net loss of $5,784,666. That net loss included $782,561 of cash provided by changes in operating assets and liabilities, which were offset by stock-based compensation of $876,585, depreciation and amortization of $952,019, amortization of debt issuance costs of $658,126 and amortization of right of use assets of $217,189.

 

Cash Flows from Investing Activities

 

Cash used in investing activities for the nine months ended September 30, 2020 was $193,429 which related to the purchase of property and equipment of $193,429. Cash used in investing activities for the nine months ended September 30, 2019 was $113,612 which related to the purchase of property and equipment.

 

Cash Flows from Financing Activities

 

Cash provided by financing activities for the nine months ended September 30, 2020 was $3,476,624 which related to borrowings under lines of credit, convertible notes payable and notes payable. Cash provided by financing activities for the nine months ended September 30, 2019 was $1,573,370 which related mostly to net cash received borrowings under new debt instruments offset by repayments.

 

Cash Flows

 

During the years ended December 31, 2019 and 2018, our sources and uses of cash were as follows:

 

Cash Flows from Operating Activities

 

Net cash used in operating activities for the year ended December 31, 2019 was $5,03