VINCO VENTURES, INC. You should read the following discussion of our financial condition and results of operations in conjunction with our condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , as filed with theSecurities and Exchange Commission . In addition to our historical condensed consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, as well as in Part I, Item 1A, "Risk Factors" of our Annual Report on Form 10-K for the year endedDecember 31, 2021 . Overview
Vinco Ventures , formerly known asEdison Nation, Inc. ,Xspand Products Lab, Inc. andIdea Lab Products, Inc. , is aNevada corporation incorporated onJuly 18, 2017 . In connection with the acquisition of an 80% equity interest in Lomotif by ZVV, our joint venture with ZASH in 2021, our recent acquisition of AdRizer which includes 50% of Mind Tank, our investments into entertainment and motion picture company PZAJ, and our strategic investments in the TMX and Magnifi U platforms, we are transitioning from focusing on innovation, development and commercialization of end-to-end consumer products to the creation of a content-centric ecosystem with an emphasis on innovation, content development and commercialization of print and digital media, advertising, and distribution platforms. Additionally, with a focus on profitability, future mergers and acquisitions will be considered if they enhance the full ecosystem, provide more exclusive content, and create uniqueexperiences for our active users. We currently operate the platforms and businesses described below through our significant subsidiaries and consolidated variable interest entities: ? Lomotif Social Media Platform
Lomotif and the Lomotif App - ZVV currently owns an 80% equity interest in Lomotif, aSingapore -based video-sharing and live streaming social networking platform that is committed to democratizing video creation and increasing user reach through content development, live streaming and cross-platform engagement initiatives. The Lomotif app allows its users to create their own music videos by selecting pictures and videos from the camera, mixing them with music and transforming video clips into music videos. Lomotif users can watch videos of other creators on the Lomotif platform and share their videos on the Lomotif platform or on various third-party social media platforms such asTikTok , Instagram, YouTube and Twitch. The Lomotif platform offers LoMoTV, a digital entertainment and lifestyle content network offering original programming. Our strategy includes expanding Lomotif's reach through our live-streaming entertainment initiatives involving social media influencers and leading artists and entertainers. 33 The Lomotif app is available in the Apple andAsia ,South America , andthe United States . As of the date of this Quarterly Report, Lomotif has not generated significant revenue and we are developing means to monetize the content creation and streaming capabilities of the Lomotif platform including our plan to leverage the AdRizer technologies to enable advertisers to more effectively engage with the Lomotif platform, content and its users.
As of
? Overall drop in MAU, DAU and creations is in part due to an update requirement
by the Apple Appstore. The update has limited Lomotif's music library. This
muted much of the content.
? Moderation of explicit content.
? New Apple privacy features limit apps abilities to track users, which in turn
may limit recommendations and ad revenue.
? With a focus on bugs and fixes and to integrate advertising placement in the
app and on the website, Lomotif did not introduce a steady stream of new
features, thus potentially impacting creation and retention metrics.
? Some user acquisition tests did not yield the desired conversion rates from
views to active users.
As ofSeptember 30,2022 , there has been an upward trend in the impressions and reach across the Lomotif website ecosystem. This cross-platform strategy was implemented in order to test various types of content, promotions and advertising, and intended to mitigate the decline in advertising and revenue opportunities. Lomotif measures active users on the platform, as well as users on the Lomotif website, Lomotif promotional sites, views of live events, and views of original Lomotif content shared on other social sites. Key metrics include active users on platform, users on Lomotif sites, site visits, content views, reach and impressions. AdRizer is anticipated to generate advertising revenue through ad placements in the Lomotif app and on Lomotif websites based on traffic, views, and impressions. ? End-to-End Fully Integrated Programmatic Advertising Platform AdRizer and the Cortex Platform - Our wholly-owned subsidiary AdRizer provides technology solutions to automate the use of artificial intelligence for digital advertising analytics and programmatic media buying through its core platform, Cortex. Cortex provides real-time analytics for marketing spend and revenue optimization and delivers ad- campaign creation, optimization and monetization at scale. Cortex integrates with various traffic partners, includingMSN , Instagram, Facebook, Twitter, and others, and is able to deliver real-time attribution against a wide range of advertiser and publisher metrics such as revenue by source, author, article, and conversion event. AdRizer targets advertisers, advertising agencies, publishers and other advertising technology companies as its audience for the Cortex platform offerings. AdRizer generates revenue from the Cortex platform through two major sources: (1) the traffic acquisition of digital advertising spaces to advertisers from multiple digital advertising technologies, and (2) the development of marketing campaigns and strategies for some of the top direct-to-customers ("DTC") companies. We believe that AdRizer's Cortex platform provides small- to medium-sized enterprises with an efficient and effective end-to-end, fully integrated platform that allows its users to control their marketing and branding campaigns in real-time. We also expect to integrate AdRizer's technologies with the Lomotif platform and content as well as the Honey Badger digital commerce company. ?Full-Service Digital Commerce Company Honey Badger - Our wholly-owned subsidiaryHoney Badger offers a full-service digital commerce strategies solution focused on brand specific messaging and designing comprehensive digital campaigns, from creation to monetization, for celebrities and influencers. As a digital commerce company,Honey Badger leverages influencer relationships and followers in their network to grow advertiser-based revenue as well asVinco's brands and holdings.Honey Badger generates revenue from providing digital marketing services for brands and
influencers. 34 Corporate Strategy We are transitioning from focusing on innovation, development and commercialization of end-to-end consumer products to the creation of a content-centric ecosystem with an emphasis on innovation, content development and commercialization of print and digital media, advertising, and distribution platforms. Additionally, with a focus on profitability, future mergers and acquisitions will be considered if they enhance the full ecosystem, provide more exclusive content, and create unique experiences for our active users. The right content enables brands to rapidly communicate key messages, improving the asset's ability to capture the attention of target audiences. Video and digital content is also a ready-made resource for users who consume content on mobile devices. Additionally, video generates a much larger number of shares than long-form content, text, or image posts. By investing in Lomotif, our short-form video sharing and social media platform, AdRizer and MindTank, related growth initiatives and investments such as PZAJ, TMX and Magnifi U, we are aiming to grow into an integrated robust social media, content development and digital advertising company, with millions of users around the world. InFebruary 2022 we acquired AdRizer. We continue to integrate AdRizer's Cortex technologies with the Lomotif platform and content to optimize revenue generation opportunities. We have also invested in activities to generate content for the Lomotif platform and to expand its user base and engagement such as launching LoMoTV and hosting and live streaming concerts and celebrity events. We expect to further this effort by continuing to invest in acquisitions, joint ventures, and growing our own capacity to create and distribute content. For example, we expect that future joint ventures, licensing, loan financing or other arrangements withZASH and PZAJ Holdings, LLC will generate entertainment content that we plan to distribute through the Lomotif platform, among other distribution channels.
In connection with our transition, we have completed the process of spinning off Cryptyde.
Recent Developments The following is a description of recent events regarding developments which we believe are important to an understanding of our business, financial position and results of operations. Acquisition of AdRizer OnOctober 1, 2021 , ZVV and ZASH and AdRizer entered into a Letter of Intent (as amended, "LOI") for ZASH or ZVV to acquire all the outstanding equity interests of AdRizer. OnFebruary 11, 2022 ,Vinco Ventures , ZASH and ZVV entered into an Assignment and Assumption Agreement, whereby ZASH and ZVV assigned toVinco Ventures , andVinco Ventures assumed, all of the rights and obligations of ZASH and ZVV under the LOI, in consideration of a cash payment byVinco Ventures to ZASH of$6.75 million upon the closing of the acquisition. OnFebruary 11, 2022 ,Vinco Ventures , AdRizer, the members of AdRizer and the holders of performance units ("Performance Units") of AdRizer under its phantom equity plan (collectively, "Seller Members"), andInnovative Assets LLC , in its capacity as the sellers' representative, entered into and consummated the transactions contemplated by a definitive Unit Purchase Agreement ("AdRizer Purchase Agreement"), whereby the Company acquired all of the outstanding equity interests of AdRizer ("Purchased Interests") from the Seller Members and canceled the Performance Units, resulting in AdRizer becoming a wholly-owned subsidiary of the Company. The purchase price paid and payable to the Seller Members for the Purchased Interests and in consideration of the cancellation of the Performance Units consists of (i)$38 million in cash paid at closing, of which$10 million was deposited in an escrow account to secure the Seller Members' indemnification obligations under the AdRizer Purchase Agreement, subject to customary post-closing adjustments for working capital and other items, and (ii) up to 10 million shares of the Company's common stock to be issued onJanuary 1, 2024 ("Buyer Share Issuance Date"), determined by dividing$50 million by the volume weighted average price of the Company's common stock reported by Bloomberg LP for the 20 trading days preceding such date, subject to a floor price of$5.00 and maximum price of$8.00 per share ("Purchase Price Equity"). Pursuant to the AdRizer Purchase Agreement, the Company has agreed to file a resale registration statement on form S-1 or S-3 no later than 90 days prior to the Buyer Share Issuance Date if permitted by theSEC , and otherwise no later than 5 business days after the Buyer Share Issuance Date, to register the resale of the Purchase Price Equity and to use commercially reasonable efforts to cause the registration statement to become effective as soon as practicable after filing. In addition, the Company has agreed to furnish AdRizer with working capital in the amount of$1 million by each 3-month anniversary of the closing date until the Company has furnished AdRizer with a total of$5 million in working capital. 35
Upon the closing of the acquisition, AdRizer entered into a new employment agreement with its chief executive officer,Kenneth Bond . Certain Seller Members including those who are employees, officers, directors or managers of AdRizer and their affiliates also agreed to be bound by three-year post-closing non-competition and non-solicitation restrictive covenants pursuant to the
Purchase Agreement. Spin-Off of Cryptyde, Inc. OnNovember 8, 2021 , our subsidiary Cryptyde initially filed, and onJanuary 25, 2022 ,March 18, 2022 andMay 13, 2022 amended, a Form 10 registration statement with theSEC ("Form 10") in connection with our planned spin-off of Cryptyde, subject to certain conditions as described in the registration statement, including the effectiveness of the registration statement, receipt of an opinion of counsel to the effect that, among other things, the spin-off and related transactions should qualify as tax-free forUnited States federal income tax purposes under Sections 368(a)(1)(D) and 355 of the Internal Revenue Code, and Nasdaq having approved the listing of Cryptyde's common stock. Cryptyde holds our packaging, Bitcoin mining services, and Web3 (decentralized internet) products businesses. OnMay 16, 2022 , the Form 10 was declared effective. The record date for the spin-off wasMay 18, 2022 . EffectiveJune 29, 2022 , Cryptyde separated from the Company and the distribution of its common stock was completed. Upon completion of the spin-off, Cryptyde became an independent, publicly traded company (NasdaqCM: TYDE). The distribution was made in the amount of one share of Cryptyde common stock for every ten shares of our common stock owned by our stockholders at the close of business on the Record Date. Also, in connection with the spinoff, we entered into definitive agreements with Cryptyde that, among other things, set forth the terms and conditions of the separation and distribution. The agreements set forth the principles and actions taken or to be taken in connection with the separation and the distribution and provide a framework for our relationship with Cryptyde from and after the separation and the distribution. The agreements include a Separation and Distribution Agreement and a Tax Matters Agreement.
The results of our Cryptyde businesses have been reflected as discontinued operations in the current year period through the date of the spinoff and in the prior year period.
Closing of Cryptyde Financing
OnJanuary 26, 2022 , Cryptyde entered into a Securities Purchase Agreement ("Note Securities Purchase Agreement") with an accredited investor ("Note Investor") for the issuance of a (i) 1,500,000 shares of Cryptyde Common Stock, and (ii) a warrant to purchase up to 1,500,000 shares of Cryptyde Common Stock with an exercise price of$8.00 per share of Cryptyde Common Stock. In addition, Cryptyde issued a warrant to the placement agent to purchase up to 240,000 shares of Cryptyde Common Stock with an initial exercise price of$8.00 per share of Cryptyde Common Stock. The transaction closed onMay 20, 2022 . The consideration paid to Cryptyde was$12,000,000 and was reflected as an increase in noncontrolling interest of the Company's consolidated financial statements. OnJune 29, 2022 ,Vinco Ventures, Inc. distributed 100% of the shares of Cryptyde's common stock held byVinco to holders of shares ofVinco common stock, subject to certain conditions. On the Distribution Date, each holder ofVinco common stock received one share of Cryptyde common stock for every ten shares ofVinco common stock held at the close of business on the Record Date. Love isBlurred, LLC
The purpose of Love isBlurred, LLC ("LIB LLC ") was to produce audiovisual content for ZASH's business. Consistent with this purpose, theLIB LLC held the rights to "Love Is Blurred," a TV reality show in production to be distributed via cable television syndication while also streaming exclusively on Lomotif. No related revenue streams to date as the production is still in development.
The purchase price was$1,250,000 by which the Company paid ZASH the$1,250,000 purchase price by reducing the outstanding balance on a loan between the Company and ZASH. The acquisition closed onJune 21, 2022 .
Amendment to the
OnMarch 9, 2022 , the Company, Cryptyde and the noteholder of theJuly 2021 Note entered into an Amendment Agreement (the "Amendment Agreement") whereby the parties agreed to, among other things: (i) amend certain provisions of theJuly 2021 Note to (a) convert$10,000 of the principal amount of theJuly 2021 Note at a conversion price of$0.01 into shares of Common Stock, (b) extend the maturity date under the July Note toJuly 22, 2023 , (c) increase the interest rate on theJuly 2021 Note from zero percent (0%) to six percent (6.0%), (d) reduce the maximum cap of the minimum cash in the control account from$100,000,000 to$80,000,000 , and (e) require the Company to redeem$33,000,000 of the principal of theJuly 2021 Note, together with accrued and unpaid interest and accrued and unpaid late charges on such principal and interest, onJuly 22, 2022 ; (ii) to extend certain dates relating to (x) the Company's registration of certain securities under the Warrant Exercise Agreements datedSeptember 1, 2021 ,November 11, 2021 andDecember 20, 2021 toApril 30, 2022 , (y) the Company's filing of a proxy statement toApril 30, 2022 and (z) the Company holding a stockholder meeting and obtaining a stockholder vote toJune 4, 2022 orJuly 4, 2022 in the event that the Company receives comments from theSEC with respect to the proxy statement; and (iii) to waive any adjustments to convertible securities or options as a result of the Adjusted Conversion Price (as defined in the Amendment Agreement). 36 OnApril 29, 2022 , the Company, Cryptyde and the Holder entered into a Second Amendment Agreement ("Second Amendment Agreement") whereby the parties agreed to amend the First Amendment Agreement to replace the date of "April 30, 2022 " in Section 7(m) of the First Amendment Agreement to "May 6, 2022 ." OnMay 6, 2022 , the Company and the Holder entered into a Third Amendment Agreement ("Third Amendment Agreement") whereby the parties agreed to amend the Second Amendment Agreement to replace the date of "May 6, 2022 " in Section 7(m) of the Second Amendment Agreement to "May 11, 2022 ." Warrant Exercise and Issuance For the nine months endedSeptember 30, 2022 , the Company issued warrants to purchase shares of the Company's common stock related to the Warrant Exercise Agreement datedDecember 20, 2021 , with a warrant holder, in which the Company agreed to issue 225% of the number of Exercised Warrant Shares at an exercise price of$3.265 to the warrant holder for every warrant the warrant holder exercised from the period commencingDecember 20, 2021 and ending onFebruary 28, 2022 . In conjunction with this agreement, the warrant holder exercised 36,894,569 warrants in the first nine months of 2022 which generated$111,029,493 in gross proceeds to the Company during the nine months endedSeptember 30, 2022 . In conjunction with the agreement, the Company issued 83,012,781 warrants to the holder and 6,641,022 to the placement agent for the agreement. The warrants have an exercise price of$3.265 , a five year term, and provide registration rights to the holder along with other terms that cause the warrants to qualify for liability treatment. The initial fair value of the warrants issued during the nine months endedSeptember 30, 2022 was$243,681,478 . (see Note 12 - Warrant Liability) Exchange Agreement OnMay 12, 2022 , the Company entered into an agreement with the holder of the Company's warrants for the purchase of the Company's common stock for$4.527 issued onNovember 10, 2021 ("November 2021 Warrants") and the Company's warrants for the purchase of the Company's common stock for$3.2653 issued onDecember 20, 2021 ("December 2021 Warrants") whereby the Company and the holder agreed the holder could exchange its warrants for the Company's common shares. The exchange ratio agreed to is for eachNovember 2021 Warrant exchanged the holder would receive 77% of a share of the Company's common stock, and for eachDecember 2021 Warrant exchanged the holder would receive 81% of a share of the Company's common stock. The holder is entitled to exchange itsNovember 2021 Warrants and itsDecember 2021 Warrants under the agreement fromMay 19, 2022 until the sixtieth (60th) day immediately following the date in which the Company's receives approval from its stockholders for the increase in authorization of common shares from 250,000,000 to 750,000,000 ("Shareholder Approval Date"). OnMay 13, 2022 , the Company filed a preliminary proxy statement for a Special Meeting of Stockholder's to, among other things, seek the approval from its stockholders for this matter. Furthermore, pursuant to the exchange agreement, on or prior to the second business day following the Shareholder Approval Date, the Company shall deliver to the holder an additional number of shares of Common Stock equal to 7% of the sum of each of theNovember 2021 Warrants andDecember 2021 Warrants exchanged by the holder during this period. In addition, the exchange agreement allows the holder for up to 60 days after the Shareholder Approval Date for (i) eachNovember 2021 Warrant may be exchanged for 42% of aNovember 2021 Exchanged Warrant Share, and (ii) eachDecember 2021 Warrants may from time to time be exchanged for 42% of aDecember 2021 Exchanged Warrant Share. Pursuant to Section 7(n) of the Exchange Agreement, untilOctober 9, 2022 , the holder agreed to grant, free of charge, to the Company any reasonable and necessary waivers and extensions solely in connection with the Company's obligations (i) to file an Initial Registration Statement pursuant to that certain Registration Rights Agreements between the Company and the holder dated as ofNovember 11, 2021 , as amended ("November 2021 RRA"), and that certain Registration Rights Agreements between the Company and the holder dated as ofDecember 20, 2021 , as amended ("December 2021 RRA" ), and (ii) to file a definitive proxy statement to approve the transactions contemplated by the November WEA and December WEA; provided, however, the holder shall retain the right to deliver an Alternate Exercise Notice (as defined in each of the November Warrant Exercise Agreement and December Warrant Exercise Agreement) to the Company as permitted pursuant to the terms thereof. The exchange agreement also requires the holder to continue to hold the common shares received under the exchange for a certain period of time. 37
OnMay 19 , the holder exchanged 500,000November 2021 Warrants for 385,000 shares of the Company's common stock, 12,000,000September 2021 Warrants for 6,000,000 shares and 18,090,123 December 2021 Warrants for 14,653,000 shares of the Company's common stock. On May 126, 2022, the holder exchanged 27,840,000December 2021 Warrants for 22,550,400 shares of the Company's common stock. The Company did not receive any proceeds from the cashless exercises. Warrant Exercise Agreements OnMay 12, 2022 , the Company entered into warrant exercise agreement with two holders of the Company's warrants for the purchase of the Company's common stock for$9.00 per share issued onSeptember 1, 2022 ("Series ASeptember 2021 Warrants") whereby the Company and the holders agreed to a cashless exercise whereby each holder would receive 0.50 of a share of the Company's common stock for each Series ASeptember 2021 Warrant that is exercised by the holder. OnMay 19, 2022 the holders exchanged 15,000,000 Series ASeptember 2021 Warrants for 7,500,000 shares of the Company's common stock. The Company did not receive any proceeds from the cashless exercise. The May WEA and the Exchange Agreement also require the participating holders to continue to hold shares for a certain period of time as set forth in the May WEA and the Exchange Agreement.
Shareholder Proposals for Increase of Authorized Common and Preferred Shares
OnMay 13, 2022 , the Company filed a preliminary proxy statement for a Special Meeting of Stockholders for approval of proposals to increase the number of authorized shares of common stock under the Company's Amended and Restated Articles of Incorporation from 250,000,000 to 750,000,000 and increase the number of authorized shares of preferred stock under the Company's Amended and Restated Articles of Incorporation from 0 to 30,000,000. Letter Agreement
Pursuant to that certain Warrant Exercise Agreement (as amended, "September WEA") dated as ofSeptember 1, 2021 between the Company and an accredited investor ("Holder"), the Company sold warrants to the Holder representing the right to acquire shares of the Company's common stock, par value$0.001 per share ("Common Stock") at an initial exercise price of$9.00 per share, subject to adjustments as set forth in the September WEA ("Series ASeptember 2021 Warrants") and (ii) onMay 12, 2022 , the Company and the Holder entered into that certain Warrant Exercise Agreement ("May WEA") whereby the parties, among other things, adjusted the Holder's exercise price of its Series ASeptember 2021 Warrant and eliminated certain provisions of the Series ASeptember 2021 Warrants as an offer to all of the Series ASeptember 2021 Warrants inducement to fully exercise its Series ASeptember 2021 Warrant on a cashless basis onMay 19, 2022 . OnMay 18, 2022 , the Company and the holder entered into that certain Letter Agreement ("Letter Agreement") whereby the parties further amended the Series A September A Warrants to require that that Company only needs to maintain the Required Reserve Amount (as defined in the Series A September Warrants) on and after the Shareholder Approval Date (as defined in the May WEA). 38
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States of America , or GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements as well as the reported expenses during the reporting periods. The accounting estimates that require our most significant, difficult and subjective judgments have an impact on revenue recognition, the determination of share-based compensation, financial instruments, liabilities associated with the Company's outstanding warrants, business combinations, impairment valuation, and asset acquisitions. We evaluate our estimates and judgments on an ongoing basis. Actual results may differ materially from these estimates under different assumptions or conditions.
There have been no changes in such policies or the application of such policies
during the nine months ended
Significant Accounting Policies
Significant accounting policies are disclosed in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021 . There have been no changes in such policies or the application of such policies during the nine months endedSeptember 30, 2022 . As a result of the acquisition of Adrizer, the Company added a new revenue stream,Digital Media Advertising and Licensing, to its Revenue Recognition policy. Additionally, as a result of the Company's interest in Love is Blurred, the Company has recorded Film and Television Production assets in accordance with Topic 926. As a result of these changes in the first nine months of 2022, new Investments have been recognized. The details for each of these topics are as follows: Revenue Recognition The Company considers all revenues as arising from contracts with customers. Revenue is recognized based on the five-step process outlined in the Accounting Standards Codification ("ASC") 606 as disclosed in the Company's Annual Report on Form 10-K. Additional clarification on the Company'sDigital Media Advertising and Licensing revenue recognition policy is provided below.
The Company's digital media advertising revenues are generated primarily from the posting of original digital content through third-party online platforms which are then delivered to users of the online platform across the customer's digital advertising platform and becomes monetizable to the Company, which the Company concludes is its performance obligation. The Company recognizes revenue when control of the services are transferred to customers and the transaction price is determined by the third-party online platform. Revenue from the digital media platform is primarily recognized based on impressions delivered to customers. An "impression" is delivered when an advertisement appears on pages viewed by users. For impressions-based digital advertising, revenues are recognized as impressions are delivered over the term of the arrangement, while revenue from non-impressions-based digital advertising is recognized over the period that the advertisements are displayed. Such amounts are recognized net of agency commissions and provisions for estimated sales incentives, including rebates, rate adjustments or discounts. Licensing revenues are derived from the sale of a licensee's products that incorporates the Company's intellectual property. Royalty revenues are recognized during the quarter in which the Company receives a report from the licensee detailing the shipment of products that incorporate the Company's intellectual property, which receipt is in the quarter following the licensee's sale of such products to its customers. Royalties are calculated as a percentage of the revenues received by the Company's licensees on sales of products incorporating the Company's intellectual property. 39
Identification of a Customer and Gross versus Net Revenue Recognition
In the normal course of business, the Company acts as or uses an intermediary or agent in executing transactions with third parties. When the intermediary or agent is determined to be the Company's customer, the Company records revenue based on the amount it expects to receive from the agent or intermediary. In other circumstances, the determination of whether revenue should be reported on a gross or net basis is based on an assessment of whether the Company is acting as the principal or an agent in the transaction. If the Company is acting as a principal in a transaction, the Company reports revenue on a gross basis. If the Company is acting as an agent in a transaction, the Company reports revenue on a net basis. The determination of whether the Company is acting as a principal or an agent in a transaction involves judgment and is based on an evaluation of the terms of the arrangement. The Company serves as the principal in transactions in which it controls the goods or services prior to being transferred to the ultimate customer. For AdRizer, FASB ASC 606 requires an entity to determine whether it is a principal (recognizes revenue at the gross amount) or an agent (recognizes revenue at the net amount) for each promised good or service. Based on the FASB guidance, the Company has determined that AdRizer is the principal for each promised good or service, thus, revenue is recognized at the gross amount of the transactions. Revenue from traffic sales and traffic management services are generally recognized at the end of each month when the performance obligation is satisfied.
The Company accounts for the film and television productions in accordance with Topic 926, Entertainment - Films. Production costs qualifying for capitalization, are recorded as film and television productions on the consolidated balance sheet and amortized using forecast methods that match amortization to estimated revenue. Currently all productions are actively under development and, as such, amortization has not commenced. Investments
Investments in equity securities (excluding equity method investments) with readily determinable fair values are accounted for at fair value. For investments in equity securities without readily determinable fair values, the Company elects the measurement alternative permitted under GAAP to measure these investments at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. Investments in which the Company has the ability to exercise significant influence but does not control and is not the primary beneficiary are equity method investments. Significant influence typically exists if the Company has a 20% to 50% ownership interest in a venture unless persuasive evidence to the contrary exists. Under this method of accounting, the Company records its proportionate share of the net earnings or losses of equity method investees and a corresponding increase or decrease to the investment balances. Cash payments to equity method investees such as additional investments, loans and advances and expenses incurred on behalf of investees as well as payments from equity method investees such as dividends, distributions and repayments of loans and advances are recorded as adjustments to investment balances. The Company applies the cumulative earnings approach for determining the cash flow presentation of cash distributions received from equity method investees. Distributions received are included in the consolidated statements of cash flows as operating activities, unless the cumulative distributions exceed the Company's portion of the cumulative equity in the net earnings of the equity method investment, in which case the excess distributions are deemed to be returns of the investment and are classified as investing activities in the consolidated statements of cash flows. The Company evaluates its equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may not be recoverable. 40 Results of Operations
Three Months Ended
The following tables set forth information comparing the components of net
income (loss) for the three months ended
For the Three Months Period over
Ended September 30, Period Change
2022 2021 $ %
Revenues
Total revenue, net $ 5,563,392 $ 229,004 $ 5,334,388 2329.39 %
Cost of revenues Total costs of revenue 6,799,103 99,334 6,699,769 6744.69 % Gross profit (1,235,711 ) 129,670
(1,365,381 ) -1052.97 %
Operating expenses: Selling, general and administrative 19,470,629 25,606,702 (6,136,073 ) -23.96 % Impairment Expense 152,417,936 - 152,417,936 -
Total Operating Expenses 171,888,564 25,606,702 146,281,862 571.26 % Operating loss
(173,124,275 ) (25,477,032 ) (147,647,243 ) 579.53 %
Other income (expense): Interest income (expense) (4,311,410 ) (26,997,803 ) 22,686,393 -84.03 % Loss on issuance of warrants - (206,948,147 ) 206,948,147 -100.00 % Loss on inventory write down - -
- -
Loss on investments - - - -
Change in fair value of
warrant liability 80,269,169 (287,117,556 ) 367,386,725 -127.96 %
Change in fair value of
contingent purchase price
related to Adrizer, LLC
acquisition 3,158,124 - 3,158,124 -
Loan loss expense (36,422,210 ) - (36,422,210 ) -
Loss on debt extinguishment (37,235,055 ) - (37,235,055 ) -
Other (loss) income (73,220 ) (515,647 ) 442,427 -85.80 %
Total other income (expense) 5,385,398 (521,579,153 ) 526,964,551 -101.03 %
(Loss) income before income
taxes (167,738,877 ) (547,056,185 ) 379,317,308 -69.34 %
Income tax expense - - - -
Net (loss) income $ (167,738,877 ) $ (547,056,185 ) $ 379,317,308 -69.34 %
Net (loss) income
attributable to
noncontrolling interests $ (68,756,763 ) $ (3,885,333 ) $ (64,871,430 ) 1669.65 %
Net (loss) income
attributable to Vinco
Ventures, Inc. from
continuing operations $ (98,982,114 ) $ (543,170,852 ) $ 444,188,738 -81.78 %
Net income (loss) from
discontinued operations - 707,722 (707,722 ) -100.00 %
Net (loss) income attributable to Vinco Ventures, Inc.$ (98,982,114 ) $ (542,463,130 ) $ 443,481,016 -81.75 % 41 Revenue For the three months endedSeptember 30, 2022 , revenues from continuing operations increased by$5,334,388 or 2329.39%, as compared to the three months endedSeptember 30, 2021 . The increase was due to the impact of the Company's acquisition of AdRizer inFebruary 2022 , which generated$5,485,360 of revenue for the Company during the third quarter of 2022. AdRizer's revenue consists of digital advertising sales and services to advertisers. Cost of Revenues For the three months endedSeptember 30, 2022 , cost of revenues from continuing operations increased by$6,699,769 or 6744.69%, as compared to the three months endedSeptember 30, 2021 . The increase was due to the costs of traffic acquisition and content creation at AdRizer. Gross Profit For the three months endedSeptember 30, 2022 , gross profit decreased by$1,365,381 , or 1052.97%, as compared to the three months endedSeptember 30, 2021 . The decrease reflected the impact of the Company's new business lines of digital media and advertising from AdRizer, traffic acquisition and content creation costs of which were higher than expected as that business recently began its operations as a wholly-owned subsidiary of the Company. Operating Expenses
Selling, general and administrative costs
For the Three Months
Ended September 30, Period over Period Change
Selling, general and
administrative costs 2022 2021 $ %
Compensation, benefits and
payroll taxes $ 5,311,460 $ 2,427,069 $ 2,884,391 118.8 %
Depreciation and
amortization 983,597 3,959,315 (2,975,718 ) -75.2 %
Stock based compensation 1,040,883 6,813,000 (5,772,117 ) -84.7 %
Advertising, marketing and
promotions 825,459 4,302,891 (3,477,432 ) -80.8 %
Legal, professional fees,
and transaction costs 5,315,691 5,841,474 (525,783 ) -9.0 %
Selling, general and
administrative costs 5,993,539 2,262,953 3,730,586 164.9 %
Total selling, general and
administrative costs $ 19,470,629 $ 25,606,702 $ (6,136,073 ) -24.0 %
Selling, general and administrative costs ("SGA costs") were $19,470,629 in the
three months ending September 30, 2022 as compared to $25,606,702 in the three
months ending September 30, 2021 , a decrease of $6,136,073 . This decrease was
due to a significant decrease in the Company's depreciation and amortization
expense related to the impairment of intangible assets during the three months
ended September 30, 2022 . Additionally, the decrease in the Company's stock
price resulted in a decrease in stock based compensation expense.
Other Income (Expense)
For the Three Months
Ended September 30 , Period over Period Change
2022 2021 $ %
Other income (expense):
Interest expense $ (4,311,410 ) $ (26,997,803 ) $ 22,686,393 -84.0 %
Loss on issuance of warrants - (206,948,147 ) 206,948,147 -100.0 %
Loss on inventory write down - -
- -
Loss on dissolution of
investment - - - -
Change in fair value of
warrant liability 80,269,169 (287,117,556 ) 367,386,725 -128.0 %
Change in fair value of
contingent purchase price
related to Adrizer, LLC
acquisition 3,158,124 - 3,158,124 -
Loan loss expense (36,422,210 ) - (36,422,210 )
Loss on debt extinguishment (37,235,055 ) - (37,235,055 ) -
Other loss (73,220 ) (515,647 ) 442,427 -85.8 %
Total other income (expense)
42
Loss on issuances of warrants and Change in fair value of warrant liability The Company classifies a warrant to purchase shares of its common stock as a liability on its consolidated balance sheets as such warrant is a free-standing financial instrument that may require the Company to transfer consideration upon exercise. Each warrant is initially recorded at fair value on date of grant using the Monte-Carlo simulation pricing model and subsequently re-measured to fair value at each subsequent balance sheet date. Changes in fair value of the warrant are recognized as a component of other income (expense), net in the consolidated statement of operations and comprehensive loss. The Company will continue to adjust the liability for changes in fair value until the earlier of the exercise or expiration of the warrant.
For the three months ended
OnJuly 6, 2022 , the Company made a payment, in cash, of$33,886,612 to the Holder of its convertible debt pursuant to an Alternate Exercise Notice of the warrants. As a result, a total of 82,260,699 warrants held by the Holder were settled. The cash payment effectively extinguished a significant portion of the outstanding warrants with the Holder. The accounting for this transaction follows ASC 815-40-40-2, Derecognition. As the warrants were previously classified as liabilities and were settled in cash, gains or losses realized on the settlement are included in the income statement. The Company had valuations of the warrants done at bothJune 30, 2022 andJuly 6, 2022 (the payment date). The fair value is determined at settlement and any gain or loss not recognized in prior period as recognized in earnings. The impact of the alternate exercise cash payment resulted in a non-cash gain on the settlement of the warrants totaling$61,471,799 booked to change in fair value of the warrants. OnAugust 18, 2022 , as a result of the Company being in default of its existing senior secured convertible note, the Company was required to purchase a portion of the outstanding Note. The Company purchased$55,000,000 of the principal amount of the note for$65,000,000 in cash. The Company was permitted to release$70,000,000 of its restricted cash with$65,000,000 for the repurchase of the debt and$5,000,000 to unrestricted cash. The Company assessed whether this transaction met the criteria for a troubled debt restructuring and concluded the transaction was an extinguishment. Accordingly, the Company treated the additional$10,000,000 cash paid as a premium to extinguish the$55,000,000 of principal. Similar to a prepayment premium, this additional cost is included in loss on extinguishment in the period along with the$27,235,055 of previously deferred non-cash financing fees. As such, the entire$37,235,055 was recorded as a loss during Q3 2022. Net Loss For the Three Months Ended September 30, Period over Period Change 2022 2021 $ % Loss before income taxes (167,738,877 ) (547,056,185 ) 379,317,308 -69.3 % Income tax expense - - - - Net loss (167,738,877 ) (547,056,185 ) 379,317,308 -69.3 % Net loss attributable to noncontrolling interests (68,756,763 ) (3,885,333 ) (64,871,430 ) 1669.6 % Net loss attributable toVinco Ventures, Inc. from continuing operations (98,982,114 ) (543,170,852 ) 444,188,738 -81.8 % Net income from discontinued operations - 707,722 (707,722 ) -100.0 % Net loss attributable to Vinco Ventures, Inc. (98,982,114 ) (542,463,130 ) 443,481,016 -81.8 % Net (loss) income per share - Basic and Diluted Net loss per share - Continuing operations (0.68 ) (7.65 ) 6.97 -91.1 % Net loss per share - Noncontrolling interests (0.28 ) (0.05 ) (0.23 ) 416.2 % Net loss per share - Vinco Ventures, Inc. (0.40 ) (7.60 ) 7.19 -94.7 % Net loss per share - Discontinued operations - 0.01 (0.01 ) -100 % Net loss per share (0.40 ) (7.59 ) 7.18 -94.7 % Weighted Average Number of Common Shares Outstanding - Basic and Diluted 245,170,631 71,516,431 173,654,200 242.8 % 43 For the three months endedSeptember 30, 2022 , the Company had net loss from continuing operations of$98,982,114 as compared to a net loss of$543,170,852 during the three months endedSeptember 30, 2021 , a decrease of$444,188,738 or 81.8%. The change in net loss was primarily triggered by the impact of the Company's requirement to recognize the fair value of warrants that the Company issued and the change in fair values of exercised and outstanding warrants during the third quarter of 2021. During 2021, the Company experienced a wide range of prices from a low of$1.24 and high of$10.82 per share, which can have a significant impact on the fair market value of the Company's warrants and equity compensation instruments of their grant dates, vesting dates and exercise dates. The remaining increase in net loss during 2021 was driven by the increased size of the Company due to ZVV's acquisition of an 80% equity interest in Lomotif (onJuly 25, 2021 ) and its transition into a media and entertainment Company, which caused the Company to increase its headcount, its sales and marketing activities, and its legal and professional fees incurred in connection with its acquisitions, contracts and proposed spin-off activities. For the three months endedSeptember 30, 2022 , the Company had a net loss attributable to noncontrolling interests of$68,756,763 as compared to a net loss attributable to noncontrolling interests of$3,885,333 during the three months endedSeptember 30, 2021 , an increase of$64,871,430 or 1669.6%. The change in net loss attributable to noncontrolling interests was primarily triggered by the losses incurred from Lomotif, ZVV, and Magnifi U during the third quarter of 2022.
Nine Months Ended
The following tables set forth information comparing the components of net
income (loss) for the nine months ended
For the Nine Months Period over
Ended September 30, Period Change
2022 2021 $ %
Revenues
Total revenue, net $ 23,705,959 $ 1,721,631 $ 21,984,328 1276.95 %
Cost of revenues Total costs of revenue 25,522,133 786,457 24,735,676 3145.20 % Gross profit (1,816,175 ) 935,174
(2,751,349 ) -294.21 %
Operating expenses: Selling, general and administrative 75,058,655 42,298,760 32,759,895 77.45 % Impairment Expense 152,871,385 - 152,871,385 0.00 %
Total Operating Expenses 227,930,040 42,298,760 185,631,280 438.86 % Operating loss
(229,746,215 ) (41,363,586 ) (188,382,629 ) 455.43 %
Other income (expense): Interest expense (42,946,190 ) (42,375,399 ) (570,791 ) 1.35 % Loss on issuance of warrants (243,681,478 ) (415,803,862 ) 172,122,384 -41.40 % Loss on inventory write down (365,001 ) - (365,001 ) - Loss on investments (1,641,521 ) - (1,641,521 ) - Change in fair value of warrant liability 166,379,348 (287,891,003 ) 454,270,351 -157.79 % Change in fair value of contingent purchase price related toAdrizer, LLC acquisition 15,328,124 - 15,328,124 - Loan loss expense (36,422,210 ) - (36,422,210 ) - Loss on debt extinguishment (37,235,055 ) - (37,235,055 ) - Other loss 142,385 (939,292 ) 1,081,677 -115.16 % Total other expense (180,441,599 ) (747,009,556 ) 566,567,957 -75.84 % Loss before income taxes (410,187,814 ) (788,373,142 ) 378,185,328 -47.97 % Income tax expense - - - - Net loss$ (410,187,814 ) $ (788,373,142 ) $ 378,185,328 -47.97 % Net loss attributable to noncontrolling interests$ (87,446,819 ) $ (3,834,756 ) $ (83,612,063 ) 2180.38 % Net loss attributable toVinco Ventures, Inc. from continuing operations$ (322,740,995 ) $ (784,538,386 ) $ 461,797,391 -58.86 % Net loss from discontinued operations (3,260,912 ) (4,063,044 )
802,132 -19.74 %
Net loss attributable to Vinco Ventures, Inc. (326,001,907 ) (788,601,430 ) 462,599,523 -58.64 % 44 Revenue For the nine months endedSeptember 30, 2022 , revenues from continuing operations increased by$21,984,328 or 1276.9%, as compared to the nine months endedSeptember 30, 2021 . The increase was due to the impact of the Company's acquisition of AdRizer inFebruary 2022 , which generated$23,705,959 of revenue for the Company from the date of acquisition throughSeptember 30, 2022 . Cost of Revenues For the nine months endedSeptember 30, 2022 , cost of revenues from continuing operations increased by$24,735,676 or 3145.2%, as compared to the nine months endedSeptember 30, 2021 . The increase was due to the costs of traffic acquisition and content creation at AdRizer. Cost of revenues of the Company's Cryptyde subsidiary of approximately$9,466,949 were excluded from these amounts since the Company spun-off its ownership in Cryptyde onJune 29, 2022 . Gross Profit For the nine months endedSeptember 30, 2022 , gross profit decreased by$2,751,349 , or 294.2%, as compared to the nine months endedSeptember 30, 2021 . The decrease reflected the impact of the Company's new business lines of digital media and advertising from AdRizer, traffic acquisition and content creation costs of which were higher than expected as that business recently began its operations as a wholly-owned subsidiary of the Company. Operating Expenses
Selling, general and administrative costs
Nine Months Ended September 30, Period over Period Change
2022 2021 $ %
Selling, general and
administrative costs
Compensation, benefits and
payroll taxes $ 15,891,952 $ 4,009,909 11,882,043 296.3 %
Depreciation and
amortization 5,908,829 4,975,315 933,514 18.8 %
Stock based compensation 3,225,210 16,816,769 (13,591,559 ) -80.8 %
Advertising, marketing and
promotions 16,794,546 4,754,984 12,039,562 253.2 %
Legal, professional fees,
and transaction costs 21,369,581 8,607,766 12,761,815 148.3 %
Selling, general and
administrative costs 11,868,538 3,134,017 8,734,521 278.7 %
Total selling, general and
administrative costs $ 75,058,655 $ 42,298,760 32,759,895 77.4 %
SGA costs from continuing operations increased significantly during the nine
months ended September 30, 2022 as compared to the nine months ended September
30, 2021 due to a significant expansion of the Company's activities requiring
SGA costs, professional fees, and advertising as it transitioned into a digital
media and entertainment company in 2022. In addition, the increase in SGA costs
reflect the impact of costs associated with the Company's newly acquired
subsidiary AdRizer, which was acquired in February 2022 .
Total SGA costs from continuing operations were $75,058,655 in the nine months
ending September 30, 2022 as compared to $42,298,760 in the nine months ending
September 30, 2021 , an increase of $32,759,895 . A large portion of the year to
date increase was due to the increase in advertising, marketing and promotions
cost during the second quarter of 2022, which included the costs the Company
spent on its promotions and live-streaming of the Electronic Daisy Carnival
music event in Las Vegas in May. In addition, the Company saw large increases in
legal and professional fees and compensation costs in 2022 as compared to the
2021 periods, as the overall size and scope of the business has increased
significantly since 2021, primarily due to the additions of Lomotif and AdRizer
since the 2021 periods.
45
Other Income (Expense)
For the Nine Months
Ended September 30, Period over Period Change
2022 2021 $ %
Other income (expense):
Interest expense $ (42,946,190 ) $ (42,375,399 ) $ (570,791 ) 1.3 %
Loss on issuance of warrants (243,681,478 ) (415,803,862 ) 172,122,384
-41.4 %
Loss on inventory write down (365,001 ) - (365,001 ) -
Loss on dissolution of
investment (1,641,521 ) - (1,641,521 ) -
Change in fair value of
warrant liability 166,379,348 (287,891,003 ) 454,270,351 -157.8 %
Change in fair value of
contingent purchase price
related to Adrizer, LLC
acquisition 15,328,124 - 15,328,124 -
Loan loss expense (36,422,210 ) - (36,422,210 ) -Loss on debt extinguishment (37,235,055 ) - (37,235,055 ) - Other income (loss) 142,385 (939,292 )
1,081,677 -115.2 %
Total other income (expense)
-75.8 %
Loss on issuances of warrants and change in fair value of warrant liability
For the nine months ended September 30, 2022 , loss on issuances of warrants was
$243,681,478 , due to 89,653,803 warrants issued during the first quarter of
2022, while the aggregated change in fair value of warrant liability was an
increase of $166,379,348 , for a net other expense of $77,302,130 due to warrants
recognized by the Company for the nine months ended September 30, 2022 . The
primary change in fair value of the warrant liability is driven by the decline
in the Company's stock price.
Additionally, on July 6, 2022 , the Company made a payment, in cash, to the
Holder of its convertible debt pursuant to an Alternate Exercise Notice of the
warrants. As a result, a total of 82,260,699 warrants held by the Holder were
settled. The cash payment effectively extinguished a significant portion of the
outstanding warrants with the Holder. The accounting for this transaction
follows ASC 815-40-40-2, Derecognition. As the warrants were previously
classified as liabilities and were settled in cash, gains or losses realized on
the settlement are included in the income statement. The Company had valuations
of the warrants done at both June 30, 2022 and July 6, 2022 (the payment date).
The fair value is determined at settlement and any gain or loss not recognized
in prior period as recognized in earnings. The impact of the alternate exercise
cash payment resulted in a non-cash gain on the settlement of the warrants
totaling $61,471,799 booked to change in fair value of warrants.
Loss on debt extinguishment
On August 18, 2022 , as a result of the Company being in default of its existing
senior secured convertible note, the Company was required to purchase a portion
of the outstanding Note. The Company purchased $55,000,000 of the principal
amount of the note for $65,000,000 in cash. The Company was permitted to release
$70,000,000 of its restricted cash with $65,000,000 for the repurchase of the
debt and $5,000,000 to unrestricted cash.
The Company assessed whether this transaction met the criteria for a troubled
debt restructuring and concluded the transaction was an extinguishment.
Accordingly, the Company treated the additional $10,000,000 cash paid as a
premium to extinguish the $55,000,000 of principal. In line with extinguishment
accounting, the Company amortized the remaining unamortized deferred financing
fees related to the Note and recorded a $27,235,055 non-cash loss on
extinguishment. As such, the entire $37,235,055 was recorded as a loss during Q3
2022.
46
Net Loss
For the Nine Months
Ended September 30, Period over Period Change
2022 2021 $ %
Loss before income taxes (410,187,814 ) (788,373,142 ) 378,185,328 -48.0 %
Income tax expense - - -
Net loss (410,187,814 ) (788,373,142 ) 378,185,328 -48.0 %
Net loss attributable to
noncontrolling interests (87,446,819 ) (3,834,756 ) (83,612,063 ) 2180.4 %
Net loss attributable to
Vinco Ventures, Inc. from
continuing operations (322,740,995 ) (784,538,386 ) 461,797,391 -58.9 %
Net loss from discontinued
operations (3,260,912 ) (4,063,044 ) 802,132 -19.7 %
Net loss attributable to
Vinco Ventures, Inc. (326,001,907 ) (788,601,430 ) 462,599,523 -58.7 %
Net loss per share - Basic
and Diluted
Net loss per share-
Continuing operations (1.91 ) (18.63 ) 16.72 -89.7 %
Net loss per share-
Noncontrolling interests (0.41 ) (0.09 ) (0.32 ) 350.2 %
Net loss per share - Vinco
Ventures, Inc. (1.51 ) (18.54 ) 17.03 -91.9 %
Net loss per share -
Discontinued operations (0.02 ) (0.10 ) 0.08 -84.2 %
Net loss per share (1.52 ) (18.63 ) 17.11 -91.8 %
Weighted Average Number of
Common Shares Outstanding -
Basic and Diluted 214,411,979 42,326,468 172,085,511 406.6 %
For the nine months ended September 30, 2022 , the Company had a net loss from
continuing operations of $322,740,995 as compared to a net loss of $784,538,386
during the nine months ended September 30, 2021 , a decrease of $461,797,391 or
58.9%. The change in net loss was primarily triggered by the impact of the
Company's requirement to recognize the fair value of warrants that the Company
issued and the change in fair values of exercised and outstanding warrants
during the third quarter of 2021. During 2021, the Company experienced a wide
range of prices from a low of $1.24 and high of $10.82 per share, which can have
a significant impact on the fair market value of the Company's warrants and
equity compensation instruments of their grant dates, vesting dates and exercise
dates. The remaining increase in net loss during 2021 was driven by the
increased size of the Company due to ZVV's acquisition of an 80% equity interest
in Lomotif (on July 25, 2021 ) and its transition into a media and entertainment
Company, which caused the Company to increase its headcount, its sales and
marketing activities, and its legal and professional fees incurred in connection
with its acquisitions, contracts and proposed spin-off activities.
For the nine months ended September 30, 2022 , the Company had a net loss
attributable to noncontrolling interests of $87,446,819 as compared to a net
loss of $3,834,756 attributable to noncontrolling interests during the nine
months ended September 30, 2021 . The change in net loss attributable to
noncontrolling interests was primarily triggered by the losses incurred from
Lomotif, ZVV, and Magnifi U during the third quarter of 2022.
Cash Flows
During the nine months ended September 30, 2022 and 2021, our sources and uses
of cash were as follows:
Nine Months Ended September 30, Period over Period Change
2022 2021 $ %
Net Cash used in Operating
Activities $ (98,770,185 ) $ (21,796,639 ) $ (76,973,546 ) 353.1 %
Net Cash used in Investing
Activities (39,707,939 ) (108,662,799 ) 68,954,860 -63.5 %
Net Cash provided by
Financing Activities (18,947,502 ) 280,147,631 (299,095,133 ) -106.8 %
Net increase (decrease) in
Cash and Cash Equivalents (157,425,626 ) 149,688,193 (307,113,819 ) -205.2 %
Cash, Cash Equivalents, and
Restricted Cash - Beginning
of Period 187,612,176 249,356 187,362,820 75138.7 %
Cash, Cash Equivalents, and
Restricted Cash - End of
Period $ 30,186,550 $ 149,937,549 $ (119,750,999 ) -79.9 %
47
Cash Flows from Operating Activities
Net cash used in operating activities from continuing operations for the nine months endedSeptember 30, 2022 was$98,770,185 , including a net loss of$410,187,814 of which$311,246,487 were non-cash expense items. The use of cash for operations during the first nine months of 2022 reflected the costs incurred by the business, including the costs associated with the operation, marketing and promotion of Lomotif, along with the amount of professional fees incurred by the Company during the period. In addition, the Company paid approximately$17,685,424 of net working capital outflows for prepayments and payments of accounts payables, accrued expenses and other liabilities during the first nine months of 2022. Net cash used in operating activities from continuing operations for the nine months endedSeptember 30, 2021 was$21,796,639 , which included a net loss of$788,373,142 that included$153,325,944 of non-cash expense items.
Cash Flows from Investing Activities
Net cash used in investing activities was$39,707,939 during the first nine months of 2022, which was primarily due to the net cash paid for the acquisition of AdRizer by the Company in February offset by allowances for loan losses established during the three months endedSeptember 30, 2022 . Net cash used in investing activities from continuing operations for the nine months endedSeptember 30, 2021 was$108,662,799 primarily related to the net cash paid for the acquisition of Lomotif by the Company inJuly 2021 .
Cash Flows from Financing Activities
Net cash used in financing activities for the nine months endedSeptember 30, 2022 totaled$18,947,502 , which related to payments under convertible notes of$88,000,000 and payments for the retirement of warrants of$33,886,612 offset by net proceeds from the exercise of warrants totaling$101,036,838 . Net cash provided by financing activities from continuing operations for the nine months endedSeptember 30, 2021 was$280,147,631 which related to proceeds from the exercise of warrants of$167,961,099 and borrowings under convertible notes payable totaling$120,501,538 .
Net Increase (Decrease) in Cash and Cash Equivalents
As a result of the cash activities described above, during the nine months endedSeptember 30, 2022 , the Company's cash decreased by$157,425,626 and as ofSeptember 30, 2022 , the Company had$30,186,550 in cash and cash equivalents which included$10,000,000 held in a restricted cash account. 48
Liquidity and Capital Resources
This should be read together with the Going Concern and Liquidity section under Note 1 - Basis of Presentation and Nature of Operations.
Period over
As of September 30, Period Change
2022 2021 $ %
Assets
Cash and cash equivalents $ 20,186,550 $ 49,937,549 $ (29,750,999 ) -59.6 %
Restricted cash - 100,000,000 (100,000,000 ) -100.0 %
Other current assets 14,177,620 24,978,527 (10,800,907 ) -43.2 %
Total current assets 34,364,169 174,916,076 (140,551,907 ) -80.4 %
Intangible assets, including
goodwill 59,770,229 160,945,913 (101,175,614 ) -62.9 %
Other long term assets 23,074,594 1,052,695 22,021,899 2092.0 %
Total non-current assets 82,844,893 161,998,608 (79,153,715 ) -48.9 %
Total Assets $ 117,209,063 $ 336,914,684 $ (219,705,621 ) -65.2 %
Liabilities
Accounts payables and
accrued expenses 12,413,424 8,627,574 3,785,850 43.9 %
Current portion of long-term
debt and warrant liability 20,102,835 28,609,677 (8,506,842 ) -29.7 %
Other current liabilities 185,186 190,695 (5,509 ) -2.9 %
Total current liabilities 32,701,445 37,427,946 (4,726,501 ) -12.6 %
Long -term debt 2,608,923 2,873,244 (264,321 ) -9.2 %
Warrant liability 14,031,830 468,612,700 (454,580,870 ) -97.0 %
Other long term liabilities 8,383,468 - 8,383,468 -
Total Liabilities 57,725,665 508,913,890 (451,188,225 ) -88.7 %
As discussed above, the Company incurred significant losses during the first
nine months of 2022, and has a history of losses since inception. Since 2021, a
significant percentage of its losses has been driven by non-cash expenses items,
especially losses caused by liability accounting for its investor warrants. The
Company used $98,770,185 in cash for operations during the first nine months of
2022. This amount included $8,216,000 for transaction related costs associated
with its acquisition of AdRizer in February 2022 , and a $10,000,000 payment of
accrued registration rights penalties owed to Hudson Bay . This amount also
included significant investments in sales, marketing and promotional activities
which the Company engaged in during the first quarter to drive awareness and
interest in the Lomotif application and Lomotif branded websites, especially for
events livestreamed on the Lomotif platform. During the first nine months of the
year, the Company live streamed and promoted the Shaq Fun House event in
January, the Okeechobee Music Festival in February, and the Electronic Daisy
Carnival ("EDC") in May. These expenses were intended to create traffic and
interactions with the Lomotif digital properties with the goal of generating
advertising revenue opportunities utilizing the capabilities of AdRizer. To
date, these efforts have not led to any meaningful revenue and there is no
guarantee that the Company will successfully do so. If additional advertising
revenues are not generated quickly, or in sufficient amount, the Company will
need to utilize its unrestricted cash on hand to fund its operations.
As a result of the Company's repayments to Hudson Bay and a lack of issuable
stock, it has been unable to raise significant proceeds with which to increase
its liquidity.
49
The Company may determine it is in the best interests of the Company to pursue
additional investments, acquisitions, or funding of marketing and promotional
efforts as the Company expands its presence and capabilities within the digital
media marketplace. To do so, the Company may require additional cash resources
that the Company could generate through the sale of common stock, the exercise
of outstanding warrants, and the issuance of convertible debt, each of which the
Company has utilized to raise capital since 2021. As of the date of this report,
the Company's ability to raise additional capital is restricted by its lack of
available, authorized but not outstanding common shares. The Company is
currently seeking authorization from its shareholders to increase the number of
shares it is authorized to issue under its Articles of Incorporation, but has
not received the requisite vote needed to pass the proposal. Therefore, as
discussed in Note 1 to the Company's financial statements attached herein, these
conditions raise substantial doubt about the Company's ability to continue as a
going concern and meet its obligations through twelve months following the date
the condensed consolidated financial statements are issued. As a result, until
the Company is able to raise additional capital, the Company has begun implement
steps to conserve its unrestricted cash on hand and address any going concern
issues, including but not limited to the following steps:
? Reduce headcount,
? Reduce marketing, promotional and content development and production
activities,
? Evaluate the sales of assets or subsidiaries.
Off-Balance Sheet Arrangements
We did not have, during the periods presented, and we do not currently have, any relationships with any organizations or financial partnerships, such as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
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