NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF BUSINESS, BASIS OF PRESENTATION, AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business and Basis of Presentation

Lomotif Private Limited (“Lomotif”) was established in Singapore in 2014. Lomotif is a short format video sharing social networking platform that enables users to create, share, and watch short music videos with friends and has a patented technology for mixing and video editing.

Principles of Consolidation

The consolidated financial statements include the accounts of Lomotif Private Limited and Lomotif, Inc. its wholly owned subsidiary (collectively, the “Company”). Lomotif, Inc. operates within the United States of America. All significant intercompany accounts and transactions have been eliminated in consolidation.

Risk and Economic Uncertainties

The outbreak of a novel coronavirus (COVID 19), which the World Health Organization declared in March 2020 to be a pandemic, continues to spread throughout the United States of America and the globe. Many Government officials issued temporary Executive Orders that, among other stipulations, effectively prohibited in person work activities for most industries and businesses, having the effect of suspending or severely curtailing operations. The extent of the ultimate impact of the pandemic on the Company’s operational and financial performance will depend on various developments, including the duration and spread of the outbreak, and its impact on customers, employees, and vendors, all of which cannot be reasonably predicted at this time. While management reasonably expects the COVID 19 outbreak to negatively impact the Company’s financial condition, operating results, and timing and amounts of cash flows, the related financial consequences and duration are highly uncertain.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements, and revenues and expenses during the year. Actual results could differ from those estimates. Significant estimates include but are not limited to the debt conversion features, stock-based compensation and the carrying value of long lived assets.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand and demand deposits. In the normal course of business, the Company maintains deposits in financial institutions.

Grant Income

The Singapore government approved the Job Support Scheme on February 18, 2020 in response to the COVID 19 pandemic. The Company was the recipient of an economic support grant of approximately $125,000 during 2020 as a result of this legislative act.

Lomotif Pte. LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Content Costs

Content costs are mostly related to payments to content providers from whom the Company license video and music to increase engagement on the platform. For licensed video, the cost per title is expensed when the title is accepted and available for viewing if the capitalization criteria are not met. Video content costs that meet the criteria for capitalization were not material to date. For licensed music, the license fees are expensed over the contractual license period.

Software Development Costs

Software development costs, including costs to develop software products or the software component of products to be marketed or sold to external users, are expensed before the software or technology reach technological feasibility, which is typically shortly before the release of such products. Development costs that meet the criteria for capitalization were not material to date.

Advertising Expense

Advertising costs are expensed when incurred and are included in operating expenses on the consolidated statements of operations. The Company incurred advertising expenses of $122,579 for the year ended December 31, 2019. The Company did not incur any such advertising expense for the year ended December 31, 2020.

Property and Equipment and Depreciation

Property and equipment is stated at cost. Major improvements and renewals are capitalized while ordinary maintenance and repairs are expensed. Management reviews these assets for impairment annually, or more frequently, if events or changes in circumstances indicate the related carrying amount may not be recoverable.

Depreciation expense is computed over the estimated useful lives of the assets, using the straight-line method. Estimated useful lives by asset category are summarized as follows:

Prepaid Expenses and Deposits

Prepaid expenses and deposits consist of expenses paid in advance for which the goods and services provide a future economic benefit. These assets are recognized as expenses at the time the goods are received, or the services are performed.

Lomotif Pte. LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Lease Obligations

The Company has operating leases comprised of certain offices and equipment leases. The Company determines if an arrangement is a lease at inception. Most of the leases contain lease and non-lease components. Non lease components include fixed payments for maintenance, utilities, real estate taxes, and management fees. The Company combines fixed lease and non-lease components and account for them as a single lease component. The lease agreements may contain variable costs such as contingent rent escalations, common area maintenance, insurance, real estate taxes or other costs. Such variable lease costs are expensed as incurred on the consolidated statements of operations.

For leases that have greater than 12-month lease terms, right of use assets and lease liabilities are recognized on the consolidated balance sheet at commencement date based on the present value of the remaining fixed lease payments. The Company considers only the payments that are fixed and determinable at the time of commencement.

The estimated lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options. When determining the probability of exercising such options, the Company considers contract based, asset based, and market-based factors.

For leases that do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the time of commencement in determining the present value of lease payments. The incremental borrowing rate is a hypothetical rate based on the understanding of what the Company’s credit rating would be in a similar economic environment.

Operating leases are included in operating lease right of use assets, operating lease obligations, both current and non-current, on the consolidated balance sheets. Finance leases are included in property and equipment, net, and finance lease obligations, both current and non-current, on the consolidated balance sheets.

Functional Currency

In 2020 and 2019, the functional currency of Lomotif is U.S. dollars. (Losses) and gains resulting from foreign exchange transactions were ($27,181) and $5,231 for the years ended December 31, 2020 and 2019, respectively. These gains and losses are recorded in other income, net on the consolidated statements of operations.

Income Taxes

The Company is subject to income taxes in the United States and foreign jurisdictions. Significant judgement is required in determining the provision for income taxes, income tax assets and liabilities, including evaluating uncertainties in the application of accounting principles and complex tax laws.

Deferred income tax assets and liabilities are computed annually for differences between the consolidated financial statement and federal and state income tax bases of assets and liabilities that will result in taxable or deductible amounts in the future, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Deferred income taxes arise from temporary basis differences. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the year plus or minus the change during the year in deferred tax assets and liabilities.

Lomotif Pte. LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Management has analyzed the Company’s income tax filing positions in the foreign, federal, and state jurisdictions where it is required to file income tax returns, for all open tax years in these jurisdictions, to identify potential uncertain tax positions and has concluded that as of December 31, 2020, there are no uncertain income tax positions taken or expected to be taken that would require recognition of a liability or disclosure in the consolidated financial statements. While the Company is subject to routine audits by taxing jurisdictions, there are currently no audits for any tax periods in progress.

Depreciation expense was $30,333 and $14,114 for the years ended December 31, 2020 and 2019, respectively.

Lomotif Pte. LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Components of total lease costs were as follows for the year ended December 31:

The following is a schedule of annual future minimum lease payments required under leases with initial or remaining noncancelable lease terms in excess of one year as of December 31, 2020:

Lomotif Pte. LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. CONVERTIBLE NOTES

The Company has determined the amount associated with the beneficial conversion feature in connection with the notes issued during 2020 to be $462,711. This amount has been recorded as a component of equity during 2020 and the aggregate original issue discount is accreted and charged to interest expense as a financing expense using the effective interest method from the date of issuance until maturity. The original issue discount feature is valued under the intrinsic value method.

Convertible notes consist of the following obligations at December 31, 2020:

.

Lomotif Pte. LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. WARRANTS

In May 2019 the Board of Directors, in association with a licensing agreement entered into by the Company with an effective date of June 19, 2019, approved the issuance of a warrant to purchase up to 50,787 ordinary shares of the Company’s common stock. The warrant is exercisable at a price of $3.1952 per share, with immediate vesting and an exercise period commencing on the effective date of the licensing agreement and ending on the earlier of (i) two years, or (ii) the closing of a qualified financing as defined in the agreement.

The issuance of the warrant was recorded at fair value using the Black-Sholes option-pricing model which resulted in the recording of $241,010 and $140,589 in compensation cost and a corresponding credit to Additional Paid In Capital during the years ended December 31, 2020 and 2019, respectively. The major assumptions used in applying the pricing model are as follows:

As of December 31, 2020 and 2019, the warrant was not exercised for the purchase of any shares.

Lomotif Pte. LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. STOCK BASED COMPENSATION

The Company’s Board of Directors, acting within its authority and in anticipation of an Equity Incentive Plan to be formally adopted in the future, granted options during 2018 and 2020 to two former employees and two external service providers. The options granted to the former employees provided for immediate vesting and no requirement for future services, thus the compensation expense was recognized at fair value on the grant date. The options granted to the external advisors require a 48 month service period, with vesting occurring over that same period, thus the compensation expense is being recognized over the performance period on a straight line basis.

The fair value of each stock option grant is estimated on the date of the grant using the Black-Sholes option-pricing model. Stock based service expense was $138,705 and $49,454 in 2020 and 2019, respectively. All stock based service expense is recorded within operating expenses in the consolidated statements of operations.

The fair value of stock options granted and the weighted average assumptions used to estimate the fair value are as follows (no options granted in 2019) for the year ended December 31, 2020:

Activity related to stock options is as follows for the year ended December 31, 2020:

The weighted average remaining contractual life and aggregate intrinsic value of shares exercisable at December 31, 2020 is 8.03 years and $468,000, respectively. The weighted average remaining contractual life and aggregate intrinsic value of options expected to vest at December 31, 2020 is 8.57 years and $385,000, respectively.

The weighted average remaining contractual life and aggregate intrinsic value of shares exercisable at December 31, 2019 is 8.9 years and $315,000, respectively. The weighted average remaining contractual life and aggregate intrinsic value of options expected to vest at December 31, 2019 is 8.9 years and $322,000, respectively.

As of December 31, 2020, the Company had $216,369 of unrecognized compensation costs related to nonvested stock options, which is expected to be recognized over a 2.55 year period.

Lomotif Pte. LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities consist of the following at December 31:

8. STOCK AND ADDITIONAL PAID IN CAPITAL

Beginning January 2006, the concept of authorized shares was abolished in Singapore. After this adoption, common stock and preferred stock shares issued in Singapore have no par or nominal value. As a result, all issued capital for the Company is recognized as a component of additional paid in capital. The shareholders must approve the underlying shares before the Company issues warrants, options and convertible notes. Additional paid in capital consists of the following components at December 31:

10. PAYCHECK PROTECTION PROGRAM

The Company was a recipient of a Paycheck Protection Program (“PPP”) loan of $65,700 granted by the Small Business Administration under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). Under the program terms, PPP loans are forgiven if the loan proceeds are used to maintain compensation costs, and employee headcount, and other qualifying expenses (mortgage interest, rent, and utilities) incurred following receipt of the loan. The portion of the PPP loan that is not forgiven is subject to a 1% interest rate and is due within 2 years. The Company has elected to treat these proceeds as debt and therefore the Company will recognize a gain on extinguishment of debt when its legally released as primary obligor. In April 2021, the Company received notification from the Small Business Administration that the loan has been formally forgiven and the Company has been released as primary obligor.

Lomotif Pte. LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11. LOSS CONTINGENCIES

The Company may be subject to intellectual property infringement claims or other allegations, in the ordinary course of business, for information or content displayed on, retrieved from, or linked to its platform, or distributed to its users. Certain of these matters may include claims for substantial or indeterminate amounts of damages. With respect to these claims, management evaluates the circumstances on a regular basis and accrues a liability when a loss is both probable to have been incurred and the amount can be reasonably estimated. Management has determined that as of December 31, 2020 and 2019, no such accruals are necessary.

12. OPERATING MATTERS

As of December 31, 2020, the Company is in a net current liability position of $916,692, net liability position and shareholders’ deficit of $2,264,386. The Company also incurred net loss of $4,598,398 and operating cash outflows of $2,840,812 during the year then ended.

Subsequent to December 31, 2020, the Company issued convertible notes to its Acquirer (Note 10) and Parent (Note 10), amounting to $2,500,000 and $2,000,000, respectively. The Company believes, that as a result of this transaction, it currently has sufficient cash and other resources to meet its funding requirements over the next year from the date of issuance of these consolidated financial statements. 

13. SUBSEQUENT EVENTS

In preparing these consolidated financial statements, management has evaluated, for potential recognition or disclosure, significant events or transactions that occurred during the period subsequent to December 31, 2020, the most recent consolidated balance sheet presented herein, through July 30, 2021, the date these consolidated financial statements were available to be issued. No significant such events or transactions were identified, other than the matters noted in Note 9 and below.

In February 2021, the Company became a subsidiary of another entity incorporated in the United States (the “Acquirer”) as the Acquirer obtained 80% controlling interest of the Company. In July 2021, the Acquirer novated its interest in the Company to the Acquirer’s subsidiary (the “Parent”) (the Strategic Sale”).

In July 2021, in connection with the closing of the Strategic Sale, based on the options granted to them prior to 31 December 2020, the founders and certain advisors exercised 65% of their vested options while the ex-employees exercised all their vested options. In July 2021, new options were granted to existing employees and 65% of these options vested and were exercised. As of July 30, 2021, there were unvested options on 225,257 ordinary shares of the Company.

In the same month of July 2021, the warrant holder (Note 4) exercised their warrants for 50,787 ordinary shares of the Company’s common stock. Simultaneously, the Company issued new warrants to the warrant holder for 33,480 ordinary shares in exchange for extension and amendments to the license agreement that the Company previously entered into.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF BUSINESS, BASIS OF PRESENTATION, AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business and Basis of Presentation

Lomotif Private Limited (“Lomotif”) was established in Singapore in 2014. Lomotif is a short format video sharing social networking platform that enables users to create, share, and watch short music videos with friends and has a patented technology for mixing and video editing.

Principles of Consolidation

The consolidated financial statements include the accounts of Lomotif Private Limited and Lomotif, Inc. its wholly owned subsidiary (collectively, the “Company”). Lomotif, Inc. operates within the United States of America. All significant intercompany accounts and transactions have been eliminated in consolidation.

Risk and Economic Uncertainties

The outbreak of a novel coronavirus (COVID 19), which the World Health Organization declared in March 2020 to be a pandemic, continues to spread throughout the United States of America and the globe. Many Government officials issued temporary Executive Orders that, among other stipulations, effectively prohibited in person work activities for most industries and businesses, having the effect of suspending or severely curtailing operations. The extent of the ultimate impact of the pandemic on the Company’s operational and financial performance will depend on various developments, including the duration and spread of the outbreak, and its impact on customers, employees, and vendors, all of which cannot be reasonably predicted at this time. While management reasonably expects the COVID 19 outbreak to negatively impact the Company’s financial condition, operating results, and timing and amounts of cash flows, the related financial consequences and duration are highly uncertain.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements, and revenues and expenses during the year. Actual results could differ from those estimates. Significant estimates include but are not limited to the debt conversion features, stock-based compensation and the carrying value of long-lived assets.

Grant Income

The Singapore government approved the Job Support Scheme on February 18, 2020 in response to the COVID 19 pandemic. The Company was the recipient of an economic support grant of approximately $27,000 during 2021 as a result of this legislative act.

Lomotif Pte. LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Content Costs

Content costs are mostly related to payments to content providers from whom the Company license video and music to increase engagement on the platform. For licensed video, the cost per title is expensed when the title is accepted and available for viewing if the capitalization criteria are not met. Video content costs that meet the criteria for capitalization were not material to date. For licensed music, the license fees are expensed over the contractual license period.

Software Development Costs

Software development costs, including costs to develop software products or the software component of products to be marketed or sold to external users, are expensed before the software or technology reach technological feasibility, which is typically shortly before the release of such products. Development costs that meet the criteria for capitalization were not material to date.

Advertising Expense

Advertising costs are expensed when incurred and are included in operating expenses on the consolidated statements of operations. The Company did not incur advertising expenses for the six months ended June 30, 2020. The Company incurred advertising expenses of $386,465 for the six months ended June 30, 2021.

Functional Currency

In 2021, the functional currency of Lomotif is U.S. dollars. (Losses) and gains resulting from foreign exchange transactions were ($23,354) for the six months ended June 30, 2021. The Company did not have (losses) and gains resulting from foreign exchange transactions in 2020, respectively. These gains and (losses) are recorded in other income, net on the consolidated statements of operations.

Income Taxes

The Company is subject to income taxes in the United States and foreign jurisdictions. Significant judgement is required in determining the provision for income taxes, income tax assets and liabilities, including evaluating uncertainties in the application of accounting principles and complex tax laws.

Deferred income tax assets and liabilities are computed annually for differences between the consolidated financial statement and federal and state income tax bases of assets and liabilities that will result in taxable or deductible amounts in the future, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Deferred income taxes arise from temporary basis differences. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the year plus or minus the change during the year in deferred tax assets and liabilities.

Management has analyzed the Company’s income tax filing positions in the foreign, federal, and state jurisdictions where it is required to file income tax returns, for all open tax years in these jurisdictions, to identify potential uncertain tax positions and has concluded that as of June 30, 2021, there are no uncertain income tax positions taken or expected to be taken that would require recognition of a liability or disclosure in the consolidated financial statements. While the Company is subject to routine audits by taxing jurisdictions, there are currently no audits for any tax periods in progress.

Lomotif Pte. LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2. OPERATING MATTERS

Subsequent to December 31, 2020, the Company issued convertible notes to its Acquirer (Note 10) and Parent (Note 10), amounting to $2,500,000 and $2,000,000, respectively. The Company believes, that as a result of this transaction, it currently has sufficient cash and other resources to meet its funding requirements over the next year from the date of issuance of these consolidated financial statements.

3. SUBSEQUENT EVENTS

In preparing these consolidated financial statements, management has evaluated, for potential recognition or disclosure, significant events or transactions that occurred during the period subsequent to December 31, 2020, the most recent consolidated balance sheet presented herein, through July 30, 2021, the date these consolidated financial statements were available to be issued. No significant such events or transactions were identified, other than the matters noted in Note 9 and below.

In February 2021, the Company became a subsidiary of another entity incorporated in the United States (the “Acquirer”) as the Acquirer obtained 80% controlling interest of the Company. In July 2021, the Acquirer novated its interest in the Company to the Acquirer’s subsidiary (the “Parent”) (the Strategic Sale”).

In July 2021, in connection with the closing of the Strategic Sale, based on the options granted to them prior to 31 December 2020, the founders and certain advisors exercised 65% of their vested options while the ex-employees exercised all their vested options. In July 2021, new options were granted to existing employees and 65% of these options vested and were exercised. As of July 30, 2021, there were unvested options on 225,257 ordinary shares of the Company.

In the same month of July 2021, the warrant holder (Note 4) exercised their warrants for 50,787 ordinary shares of the Company’s common stock. Simultaneously, the Company issued new warrants to the warrant holder for 33,480 ordinary shares in exchange for extension and amendments to the license agreement that the Company previously entered into.

1. BASIS OF PRESENTATION

The unaudited pro forma condensed combined financial statements are based on Vinco Ventures, Inc.’s and Lomotif Pte. LTD’s historical consolidated financial statements as adjusted to give effect to the acquisition of Lomotif Pte. LTD. and the equity and debt issuance necessary to finance the acquisition. The unaudited pro forma combined statements of operations for the six months ended June 30, 2021 and the year ended December 31, 2020 give effect to the Lomotif Pte. LTD. acquisition as if it had occurred on January 1, 2020. The unaudited pro forma combined balance sheet as of June 30, 2021 gives effect to the Lomotif Pte. LTD acquisition as if it had occurred on January 1, 2020.

2. PRELIMINARY PURCHASE PRICE ALLOCATION

Vinco Ventures, Inc. (the “Company”) and ZASH Global Media and Entertainment Corporation (“Zash”), Zash entered into a definitive acquisition agreement (the “Acquisition Agreement”) with Lomotif Private Limited (“Lomotif”), pursuant to which Zash would acquire a majority controlling interest in Lomotif for $100,000,000. On July 19, 2021, the parties to the Acquisition Agreement agreed that a joint venture formed by the Company and Zash, ZVV Media Partners, LLC (“ZVV”), shall be the purchaser of Lomotif. The unwind period contemplated under the Acquisition Agreement expired on July 25, 2021. On July 23, 2021, the Company paid cash of $92,000,000. In addition, the Company entered into a certain side letter to Securities Purchase Agreement with a selling shareholder relating to ZVV Media Partners LLC’s acquisition of 80.00% of the shares in Lomotif Private Limited (the “Side Letter”) whereby the parties agreed that $8,000,000 of the cash consideration payable under the Lomotif SPA to a selling shareholder, a majority shareholder of Lomotif, would be held back pending the satisfaction of certain closing obligations contemplated under the Lomotif SPA, including, but not limited to, the transfer of the legal and beneficial ownership of the selling shareholders 403,466 ordinary shares in the Company (the “Holdback Amount”). The Holdback Amount was evidenced by a Note (as defined in the Side Letter) convertible into 2,750,000 shares of the Company’s common stock and Pledge Agreement (as defined in the Side Letter) as described in the Side Letter and 2,750,000 shares of the Company’s common stock issuable upon the signing of the agreement.

The following table summarizes the preliminary purchase price at the date of acquisition:

The Company believes that this combination will further strengthen its future growth opportunities in the media industry. The Company accounted for this acquisition as a business combination under the acquisition method of accounting. The following table summarizes the preliminary purchase price allocation of fair values of the assets acquired and liabilities assumed at the date of acquisition:

The Company has preliminarily allocated the majority of the purchase price to goodwill and intangibles assets. The Company anticipates the goodwill and intangible assets will be tax deductible.

3. PRO FORMA ADJUSTMENTS

The pro forma adjustments are based on our preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the unaudited pro forma condensed combined financial information:

Adjustments to the pro forma condensed combined balance sheet:

Assets:

Liabilities and Stockholders Equity:

Adjustments to the pro forma condensed combined statements of operations:

Statement of Operations: