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.
TABLE
OF CONTENTS
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.
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.
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:
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Our
ability to manage our expansion, growth and operating
expenses; |
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Our
ability to protect our brands and reputation; |
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Our
ability to repay our debts; |
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Our
ability to rely on third-party suppliers outside of the United
States; |
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Our
ability to evaluate and measure our business, prospects and
performance metrics; |
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Our
ability to compete and succeed in a highly competitive and evolving
industry; |
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Our
ability to respond and adapt to changes in technology and customer
behavior; |
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Risks
in connection with completed or potential acquisitions,
dispositions and other strategic growth opportunities and
initiatives; |
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Risks
related to the anticipated timing of the closing of any potential
acquisitions; |
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Risks
related to the integration with regards to potential or completed
acquisitions; |
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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 |
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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.
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.
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:
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Terminating a significant portion of our employees; and
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Implementing 20% salary reductions across our executive team and
other members of upper-level management; and
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Executing reductions in operating expenses, planned inventory
levels and non-product development capital expenditures;
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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:
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The
significant growth of ecommerce (14% compound annual growth rate,
estimated to reach $4.9 trillion by 2021 (eMarketer
2018)); |
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The
increasing velocity of “brick and mortar” retail closures, now
surpassing Great Recession levels (Cushman & Wakefield/Moody’s
Analytics 2018); |
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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; |
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The
marriage of media-based entertainment and consumer
goods; |
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The
rapid adoption of crowdsourcing to expedite successful new product
launches; and |
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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.
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:
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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; |
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the
loss of key personnel or the inability of replacements to quickly
and successfully perform in their new roles could adversely affect
our business; |
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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; |
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we
may require additional financing to sustain or grow our
operations; |
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if we
fail to manage our growth, our business and operating results could
be harmed; |
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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; |
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an
inability to develop and introduce products in a timely and
cost-effective manner may damage our business; |
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our
success will depend on the reliability and performance of
third-party distributors, manufacturers, and suppliers; |
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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 |
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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.
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.
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.
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%.
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.
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.
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.
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.
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:
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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”); |
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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; |
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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 |
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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:
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last
day of the fiscal year in which we have $1.07 billion or more in
annual revenues; |
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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); |
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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.
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. |
(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. |
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.
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.
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.
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.
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; |
|
|
● |
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 |
|
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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.
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.
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.
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.
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:
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delays
or difficulties in reopening of theme parks and water parks in the
United States, Asia and Europe; |
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the
uncertainty that our contractors, suppliers, and other
business partners may be prevented from conducting business
activities for an unknown period of time; |
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the
impact of social distancing on theme parks; |
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delays
in receiving approval from local regulatory authorities to initiate
our planned clinical trials; |
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the
undetermined costs to theme parks in reopening to remain within
local, state and federal guidelines that may ultimately effect our
sales; |
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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; |
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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 |
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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:
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our
actual or projected operating results, financial condition, cash
flows, and liquidity, or changes in business strategy or
prospects; |
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equity
issuances by us, or share resales by our shareholders, or the
perception that such issuances or resales may occur; |
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loss
of a major funding source; |
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actual
or anticipated accounting problems; |
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publication
of research reports about us, or the industries in which we
operate; |
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changes
in market valuations of similar companies; |
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adverse
market reaction to any indebtedness we incur in the
future; |
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the
announcement of our entrance into a business combination or
acquisition of a second company that has a material effect on
us; |
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speculation
in the press or investment community; |
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price
and volume fluctuations in the overall stock market from time to
time; |
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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; |
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changes
in law, regulatory policies or tax guidelines, or interpretations
thereof; |
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any
shortfall in revenue or net income or any increase in losses from
levels expected by investors or securities analysts; |
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operating
performance of companies comparable to us; |
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short-selling
pressure with respect to shares of our shares
generally; |
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uncertainty
surrounding the strength of the United States economic recovery;
and |
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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:
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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; |
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reduced
disclosure about our executive compensation
arrangements; |
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no
non-binding advisory votes on executive compensation or golden
parachute arrangements; and |
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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.
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.
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.
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.
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.
|
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.
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.”
|
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.
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.
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.
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.
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 |
|
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 |
|
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 |
|
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 |
|