Acquisitions and Divestitures
|9 Months Ended|
Sep. 30, 2022
|Business Combination and Asset Acquisition [Abstract]|
|Acquisitions and Divestitures||
Note 3 — Acquisitions and Divestitures
Acquisitions AdRizer, LLC
On February 11, 2022, the Company acquired all of the outstanding equity interests of AdRizer and cancelled all outstanding performance units under AdRizer’s phantom equity plan (“Performance Units”) pursuant to that certain Unit Purchase Agreement among the Company, AdRizer, the members of AdRizer and the holders of Performance Units of AdRizer (collectively, the “Seller Members”), and Innovative Assets LLC, in its capacity as the sellers’ representative (the “Unit Purchase Agreement”), resulting in AdRizer becoming a wholly-owned subsidiary of the Company. The purchase price paid and payable consists of (i) $38 million in cash paid at closing, of which $10 million was deposited in an escrow account to secure the Seller Members’ indemnification obligations under the Unit Purchase Agreement, subject to customary post-closing adjustments for working capital and other items, and (ii) up to million shares of the Company’s common stock to be issued on January 1, 2024, determined by dividing $50 million by the volume weighted average price of the Company’s common stock reported by Bloomberg LP for the 20 trading days preceding such date, subject to a floor price of $ and maximum price of $ per share (the “Purchase Price Equity”). The Company estimated the fair value of the Purchase Price Equity to be issued was $23,250,000.
If a Company change of control transaction occurs on or prior to January 1, 2024, the issuance of the Purchase Price Equity may be accelerated to allow each Seller Member to participate in such transaction on the same terms as other common stockholders of the Company (the “Acceleration”), provided that, to the extent that the consideration to be paid to the common stockholders of the Company in such transaction does not consist entirely of cash or free-trading securities listed on a national stock exchange, (i) each Seller Member may elect the Acceleration except with respect to Purchase Price Equity issuable in respect of the Performance Units, and (b) if any Seller Member has not elected the Acceleration, to the extent permitted and with respect to the Performance Units, the Company shall (i) pay each such applicable Seller Member a cash amount equal to 50% of such Seller’s Member’s pro rata portion of the Purchase Price Equity (the “Forfeited Purchase Price Equity”) and (ii) issue such Seller Member’s pro rata portion of the Purchase Price Equity less the Forfeited Purchase Price Equity.
Upon the closing of the acquisition, AdRizer entered into a new employment agreement with its chief executive officer, Kenneth Bond. Certain Seller Members including those who are employees, officers, directors or managers of AdRizer and their affiliates also agreed to be bound by three-year post-closing non-competition and non-solicitation restrictive covenants pursuant to the Unit Purchase Agreement.
The Company has accounted for the AdRizer acquisition as a business combination under the acquisition method of accounting. The Company has classified the Purchase Price Equity as a deferred acquisition liability.
The purchase price allocation presented below is preliminary given the recent closing of the AdRizer acquisition. We are in the process of evaluating additional information necessary to finalize the valuation of assets acquired and liabilities assumed as of the acquisition date including, but not limited to, post-closing adjustments to the working capital acquired and identification and valuation of developed technology and intangible assets acquired which include customer relationships and trade name, and the fair value of AdRizer’s investment in Mind Tank, LLC, of which we own 50% as a result of our ownership of AdRizer.
The fair value in AdRizer, and AdRizer’s investment in Mind Tank, used several methodologies to arrive at the current estimate. To value assets, fixed assets were reported at NBV which approximates fair value. The fair value of the intangible assets employed the following methodologies: customer relationships (Distributor method); developed technology (Multi- period Excess Earnings Method); trade name (Relief-from-Royalty); and the existing workforce was also valued (Replacement Cost method) but is included in Goodwill for reporting purposes. The estimated useful life of the various intangibles was based on the cash flow estimated for the particular asset. Qualitative factors regarding the valuation included expected synergies between businesses and integration of the technology.
The following purchase price allocation is preliminary and details management’s estimate and allocation of the purchase price and fair value of the asset acquired and liabilities assumed at the time of closing.
Summary of Business Combination Acquired Assets and Liabilities Purchase Price
Statement of Cash Flow reconciliation:
Schedule of Cash Flow Reconciliation
During the nine months ended September 30, 2022, the Company made a provisional estimate and adjustment for amortization of the preliminary intangible assets including customer list, developed technology, and trade name. The Company has estimated a -year useful life and recorded amortization expense of approximately $3,066,665 during the nine months ended September 30, 2022. The final fair value determination could result in material adjustments to the values presented in the preliminary purchase price allocation, including the fair value of Mind Tank, LLC, intangible assets, goodwill and the related tax impact of such adjustments. We expect to finalize the purchase price allocation within the measurement period.
The Company recognized $8,216,000 of acquisition related costs, including $6,750,000 paid to ZASH for the assignment of ZASH’s rights under a letter of intent to acquire AdRizer (See Note 13- Related Party Transactions) that were expensed during the nine months ended September 30, 2022. These costs are included in the consolidated statement of operations in the line item entitled “Selling, General and Administrative”.
The activity of AdRizer is included in the Company’s consolidated financial statements from the acquisition date to September 30, 2022. The amounts of revenue and earnings of AdRizer from the acquisition date of February 11, 2022 to September 30, 2022 are as follows:
Schedule of Business Combination Revenue and Earnings
The following represents the pro forma consolidated statement of operations as if AdRizer had been included in the consolidated results of operations of the Company for the nine-month period ended September 30, 2022 and 2021. The pro forma financial information is for illustrative purposes only, does not include the pro forma adjustments that would be required under Regulation S-X for pro forma financial information, is not necessarily indicative of the financial position or results of operations that would have been realized if the acquisition had been completed on the dates indicated, does not reflect synergies that might have been achieved, nor is it indicative of future operating results or financial position. The pro forma information is based upon currently available information and does not reflect any additional depreciation or amortization that would have been charged assuming fair value adjustments to developed technology and other intangible assets, together with the consequential tax effects, which have not yet been finalized.
PZAJ Holdings, LLC
On May 12, 2022, the Company entered into an agreement with PZAJ Holdings, LLC (“PZAJ”) to Convert Promissory Note to Capital Contributions (“5/12/2022 Conversion Agreement”). Under the 5/12/2022 Conversion Agreement, the Company was to be admitted as a PZAJ Member with 51% ownership subject to the terms of the agreement.
Because condition(s) precedent to the Company’s admission to PZAJ as a member and to the May 12, 2022 Agreement to Convert Promissory Note to Capital Contributions failed to occur, the Company did not record a membership interest in PZAJ. The notes receivable due from PZAJ will continue to be reported by the Company. Because the intent is to be admitted as a member in exchange for the cancellation of the notes receivable, the Company will not establish a reserve against the loans that are included in the conversion agreement as the fair value of the membership interest approximates the fair value of the loans receivable.
During the nine months ended September 30, 2022, the Company held eight loans for investment with PZAJ, a related party, totaling $6,580,000. Seven of the notes accrue interest at 2% with a one-year repayment term and are repaid through 50% of net revenues, as defined, of the related productions. The most recent note, entered into on July 7, 2022 for a principal amount of $840,000 accrues interest at 2% with a two-year repayment term.
The notes are principally funding film or TV production assets, all of which are still in production. As of September 30, 2022, $3,150,000 of the loans have matured, and not been repaid to the Company. During the three months ended September 30, 2022, the Company performed an analysis of the likelihood of repayment related to the PZAJ loans. The Company determined that, due to the current financial state of PZAJ, repayment in cash is unlikely. The Company determined it is probable that the first seven notes with principal balances totaling $5,740,000 will be settled for membership interests in PZAJ pursuant to the May 12, 2022 Agreement to Convert Promissory Note to Capital Contributions with PZAJ. The final note, with principal of $840,000 was not contemplated in the membership interest for loan cancellation agreement and as such, as of September 30, 2022, the company recorded a reserve for the full amount of the loan.
Love is Blurred, LLC
On June 21, 2022, ZASH and the Company entered into a Love is Blurred LLC Membership Interest Assignment Agreement (“LIB Membership Interest Agreement”). Pursuant to the LIB Membership Interest Agreement, ZASH sold 100% of its membership interest in Love Is Blurred (“LIB”) to the Company. Consideration to ZASH for the acquired asset was the reduction of outstanding principle by $1,048,750 and outstanding interest by $201,250 (totaling $1,250,000) on a loan between the Company and ZASH. The acquisition closed on June 21, 2022. The fair value of the asset was determined to be $531,279, and a loss on the Love is Blurred LLC acquisition of $718,721 was recognized.
The LIB LLC assets consist principally of a single film production asset. Because LIB LLC is not a business, the acquisition has been accounted for as an asset.
Emmersive Entertainment Asset Contribution
On April 17, 2021, Vinco and EVNT entered into (and closed on) a certain Asset Contribution Agreement (“Asset Contribution Agreement”) with Emmersive Entertainment, Inc. (“Emmersive”), pursuant to which Emmersive contributed/transferred to the Company the assets used for Emmersive’s business, which include digital assets, software and certain physical assets (the “Contributed Assets”) in consideration for, among other things, the Company assuming certain obligations of Emmersive, hiring certain employees, and issuing 1,000,000 preferred membership units (“Preferred Units”) in the Company to Emmersive and/or its shareholders (“Preferred Members”) pursuant to a First Amended and Restated Operating Agreement for the Company dated as of April 17, 2021(“Amended Operating Agreement”). Certain put rights are associated with Preferred Units, which if exercised by the Preferred Members, obligates Vinco to purchase the Preferred Units in exchange for shares of Vinco Venture’s common stock (“Put Rights”). In addition, the Preferred Members have the opportunity to earn up to 4,000,000 Conditional Preferred Units if certain conditions are satisfied for each of the four earn out targets (“Earn-Out Targets”).
On April 17, 2021, the transactions under both the Asset Contribution Agreement and Amended Operating Agreement closed. The Preferred Units and Conditional Preferred Units were valued at $2,100,000 and $5,300,000, respectively, and recorded as an intangible asset. On October 19, 2021, the Preferred Unit Holders were issued shares of common stock of Vinco in exchange for the Preferred Units.
The following table summarizes the aggregate purchase price consideration paid for the acquisition of the asset:
Summary of the Aggregate Purchase Price Consideration Paid
On February 25, 2022, Emmersive, certain former shareholders of Emmersive (collectively, the “Emmersive Parties”), the Company and EVNT entered into a Termination and Release Agreement, terminating certain transaction documents dated April 17, 2021, in connection with which the Emmersive Parties and our subsidiary Cryptyde, Inc (“Cryptyde”) also entered into a Milestone Agreement for the earnout shares to be earned and any remaining consideration to be paid by Cryptyde with an effective date of both the agreements upon the spin- off of Cryptyde being declared effective by the SEC (the “Effective Date”). Upon the Effective Date, the agreements released the Company of the obligation to deliver the additional earn-out shares provided under the Asset Contribution Agreement. The Cryptyde spin-off occurred on June 29, 2022, and therefore the Company is no longer liable for any contingent consideration to Emmersive.
In addition, with the sale of Cryptyde, there was a change in how the Company planned to utilize the EVNT platform from its acquisition. Management made the determination that it was no longer interested in continuing to operate and profit from E-NFT. The developed technology intangible asset for the EVNT platform of $6,607,989 (net of amortization) was fully impaired at September 30, 2022. (See Note 10 – Intangible Assets and Goodwill)
Spin-Off of Cryptyde, Inc.
On November 8, 2021, Cryptyde initially filed, and on January 25, 2022, March 18, 2022 and May 13, 2022 amended, a Form 10 registration statement with the SEC (the “Form 10”) in connection with our planned spin-off of 100% of the outstanding shares of common stock of Cryptyde to our shareholders, subject to certain conditions as described in the registration statement, including the effectiveness of the registration statement, receipt of an opinion of counsel to the effect that, among other things, the spin-off and related transactions should qualify as tax-free for United States federal income tax purposes under Sections 368(a)(1)(D) and 355 of the Internal Revenue Code, and Nasdaq having approved the listing of Cryptyde’s common stock. Cryptyde, along with our subsidiaries CW Machines LLC and Ferguson Containers (the “Cryptyde Businesses”), held our packaging, Bitcoin mining services, and Web3 (decentralized internet) products businesses.
On May 16, 2022, the Form 10 was declared effective. The Record Date for the spin-off was May 18, 2022. Effective June 29, 2022, Cryptyde separated from the Company and the distribution of its common stock was completed. Upon completion of the spin-off, Cryptyde became an independent, publicly traded company (NasdaqCM: TYDE). The distribution was made in the amount of one share of Cryptyde common stock for every ten shares of our common stock owned by our stockholders at the close of business on the Record Date.
Also, in connection with the spinoff, we entered into definitive agreements with Cryptyde that, among other things, set forth the terms and conditions of the separation and distribution. The agreements set forth the principles and actions taken or to be taken in connection with the separation and the distribution and provide a framework for our relationship with Cryptyde from and after the separation and the distribution. The agreements include a Separation and Distribution Agreement and a Tax Matters Agreement.
On January 26, 2022, Cryptyde entered into a Securities Purchase Agreement with an accredited investor for the issuance of a (i) 1,500,000 shares of Cryptyde Common Stock, and (ii) a warrant to purchase up to 1,500,000 shares of Cryptyde Common Stock with an exercise price of $8.00 per share of Cryptyde Common Stock. In addition, Cryptyde issued a warrant to the placement agent to purchase up to 240,000 shares of Cryptyde Common Stock with an initial exercise price of $8.00 per share of Cryptyde Common Stock. The transaction closed on May 20, 2022.
On June 29, 2022, . On the Distribution Date, each holder of Vinco common stock received one share of Cryptyde common stock for every ten shares of Vinco common stock held at the close of business on the Record Date.
The results of our Cryptyde businesses have been reflected as discontinued operations in the current year period through the date of the spinoff and in the prior year period.
Details of assets and liabilities related to the spin-off of Cryptyde are as follows:
Schedule of Divestitures Balance Sheets
The following cash flow supplementary information summarizes the distribution:
Details of earnings (loss) from discontinued operations included in our condensed consolidated statements of operations are as follows:
During the time Cryptyde was under management of the Company, cash advances were made to Cryptyde for management fees, working capital, and financing needs, as well as other operating expenses that were paid for on behalf of Cryptyde. As of September 30, 2022, amounts due from Cryptyde, net of allowance for losses of $2,025,039, total $4,725,091. The Company established the allowance for loss after a review of Cryptyde’s financial health and likelihood to repay. Due to concerns about Cryptyde’s liquidity, the Company determined it necessary to establish a reserve for 30% of the asset balance.
Write-off of Best Party Concepts, LLC and Global Clean Solutions, LLC
The Company wrote-off its investment in Best Party Concepts, LLC and Global Clean Solutions, LLC as of June 30, 2022 due to insignificant activity and a decision to not pursue business in the foreseeable future. The write-off attributed to Best Party Concepts equaled $314,319 and the write-off attributed to Global Clean Solutions was $608,482.
No definition available.
The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef