Risk vs Reward: Warnings as a matter of form

https://www.fnlondon.com/articles/sequoia-rolls-back-china-tech-investments-amid-growing-national-security-concerns-20230224

Always follow the money "Venture capital firm starts screening its China arm’s investments as Washington prepares to limit US capital going to some Chinese tech companies"

The question of risk of investment in BBIG versus the reward of increased pressure to ban TikTok: Is the risk worth the reward.

Having spent some time taking a deeper dive into the recent 10 Q filing. There has been one point that gave me some concern. So, I went back and read the previous filings, It is the issue of continuing as a going concern. That statement...

2022 2nd 10 Q quarter Page 53 Item 1 A. Risk Factors

"There is substantial doubt about our ability to continue as a going concern. We will need substantial additional funding and may be unable to raise capital when needed."

Is a standard notation. The definition of “substantial doubt about an entity’s ability to continue as a going concern” in the ASC master glossary notes that such doubt “exists when conditions and events, considered in the aggregate, indicate that it is probable [(i.e., the future event or events are likely to occur) that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued.”

Let me take the liberty to rephrase this given the prior filing…

2021 10K Page 13 Item 1 A. Risk Factors

Our growth strategy includes pursuing opportunistic acquisitions of promising companies, technologies and other assets, and we may not find suitable acquisition candidates or successfully operate or integrate any business that we may acquire.

Management Thesis - IMO

If the shareholders don’t allow us to sell another 500 million shares we may not be able to acquire additional companies to meet our vision of the B.I.G. Strategy: Buy. Innovate. Grow.

So, let me point out this statement from page 10 of the recent 10 Q

"Management’s plans include evaluating different strategies to obtain required funding for future operations, develop and implement cost reduction initiatives, and pursue revenue generating programs with strategic partners. As these plans have not yet been implemented, management has concluded that substantial doubt about the Company’s ability to continue as a going concern has not been alleviated" Page 10

I believe that this statement is the justification for the labor reduction that Miller initiated this past fall. Look at the rate of SGA expenses for the 2nd quarter $9.26M for the 6-month period, $10.23M for the end quarter an 11% increase in the quarter which would represent a 44% increase if it was not corrected.

Well, Ross and Gabe took care of that “Under this plan, the Company reduced its workforce by 39 employees (approximately 65%). The Company expects that the workforce reduction will decrease its annual operating costs by approximately $4.9 million.”

If this had gone unchecked the SGA would have continued to rise. In all probability, SGA would be $29M annually moving forward.

The next concern is the warrants and debt finance - AKA Mezzanine Debt Funding

Change in fair value of warrants which accounts for the change in share price last year from $3.02 on April 1 to $1.38 close of June 30. The TYDE spinoff resulted in this 54% decrease in the value of the shares.

This form of financing is not as beneficial for Vinco as raising capital by selling shares, but it is common for the Mezzanine funding in growth stocks. For example, Airbnb raised a billion from Google Cap in 2016 and Uber raised $3.5 billion from the Saudi Public Investment fund. The present valuation is $77 billion for Airbnb and $67 billion for Uber.

Debt is a necessity for high-growth companies, these risk factors stated in the 10 Q are a necessity because of the debt financing agreement. The CFO is warning companies providing the financing as a matter of form, using standard verbiage.

Prior Leadership had an opportunity to take on board members who could have caused a liquidation event already if that was their plan, they instead chose Brian Hart has over 25 years of experience in technology, communications, and policy as well as Jesse Law whose experience is in banking and finance, and political/ public policy operations. The gents are not liquidators.

For me, the opportunity is clear the risk of loss does not outway the reward of growth potential, and I am holding this investment for the long term.

NFA

Resources

https://www.bloomberg.com/press-releases/2022-10-04/vinco-ventures-announces-ross-miller-as-ceo-and-settlement-of-litigation

https://dart.deloitte.com/USDART/home/publications/deloitte/accounting-spotlight/going-concern-assessment.

https://www.sec.gov/ix?doc=/Archives/edgar/data/0001717556/000149315223005705/form10-q.htm

https://www.sec.gov/Archives/edgar/data/1717556/000149315222010110/form10-k.htm

https://www.sec.gov/ix?doc=/Archives/edgar/data/0001717556/000149315222032576/form8-k.htm

https://www.investopedia.com/terms/m/mezzaninedebt.asp

https://hbr.org/1987/05/mezzanine-money-for-smaller-businesses