Vinco Ventures (NASDAQ:BBIG) announced on July 23 it had closed the merger with a TikTok-like company called Lomotif. It subsequently raised $100 million in cash. Since BBIG stock has a market cap of just $134.91 million, according to Yahoo! Finance, the cash represents 74.1% of its market value. That could leave the stock significantly undervalued. But there isn’t enough financial clarity to properly value BBIG stock.
The capital raise deal was a convertible note that can convert into 30 million shares at $4.00. In addition, it also issued a warrant for 32.697548 million shares with an exercise price of $4.00. This means that if the stock rises over $4.00, BBIG can raise an additional $130.8 million.
Right now the company has 27.935 million shares outstanding, according to its last 10-Q. So if the stock rises to $4.00 and the warrants and convertibles are exchanged into shares, there would be 90.6325 million shares outstanding with a market value of $362.50 million. The company would also have $230.8 million in cash, before about $10 million in expenses, or $220.8 million. That would still represent 60.9% of its market cap.
However, BBIG stock is languishing around $3.28. This means its market cap, if there are still only 27.935 million shares outstanding, is only $91.6 million. That is about the same as its cash per share (after $10 million in deal expenses). What is up with this?
The Valuation and Its Issues
The problem we have is it is difficult to calculate the exact number of shares outstanding right now. In addition, the company has done many warrant deals and issued many internal shares. So it is very difficult to determine the total dilutive number of shares outstanding.
To make matters even more confusing, the company claims a third-party valuation puts the value of Lomotif at $5 billion. Ted Farnsworth, the chairman and co-founder of ZASH Global Media and Entertainment, which merged with Vinco Ventures, said this to Benzinga on July 26. It was also on the press release for the merger closing.
This is likely based on Lomotif, which will change its name to LoMo soon. It is a short-form video platform, similar to TikTok. It claims to have over 31 million monthly active users (MAUs).
Lack of Clear Disclosure
Another problem is that there is no disclosure of this third-party valuation. So investors are left with an extremely confusing reverse merger deal that has numerable potentially dilutive securities and tranches outstanding.
I have found in the past that companies that clearly announce how many shares are presently outstanding fare better. This is because when a reverse merger closes, along with a capital raise and potentially dilutive warrant issues, investors get confused about where the value of the stock is at present. Companies that understand this and announce where things stand tend to trade closer to their underlying value.
I believe the majority of insider owners of Vinco Ventures probably know this point. They may be more interested in buying shares for themselves or for those that understand the underlying value before it becomes more well known.
Hopefully, more of this will become clearer once the company releases its upcoming 10-Q filing and associated press release. But don’t count on that until August sometime.
Until then, investors can follow the math that I described above. It has $100 million in cash (not including any prior cash). But once the stock rises over $4.00, most of its warrants can be exercised by the owners and the company will receive additional cash. However, the total number of shares that will be outstanding then is not easily determined yet.
Lastly, and more importantly, we don’t know how much revenue LoMo and/or Zash Global Media make. Vinco Ventures has provided zero financial information including their present revenues about their financial prospects going forward.
What to Do With BBIG Stock
The market does not want to provide a huge valuation to a company that may be burning through $100 million a month or a quarter. What LoMo brings to the table in this regard is completely unknown.
I highly suspect that the Farnsworth people will have to raise more capital to keep LoMo running. That is why they did a reverse merger with BBIG stock. Until the company provides more clarity, don’t expect the stock to move significantly higher, even if it is worth $5 billion, according to the company.
In other words, you can’t just say your company is worth $5 billion and provide very little financial information with which to support the statement.
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On the date of publication, Mark Hake did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.
