Registration Statement No. 333-236401

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

Amendment No. 3

to

FORM S-1
REGISTRATION STATEMENT UNDER THE

SECURITIES ACT OF 1933

 

EDISON NATION, INC.
(Exact name of registrant as specified in its charter)

 

Nevada  3944  82-2199200
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

 

Edison Nation, Inc.
1 West Broad Street, Suite 1004

Bethlehem, Pennsylvania 18018

(866) 536-0943

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

Christopher B. Ferguson

Chief Executive Officer

Edison Nation, Inc.
1 West Broad Street, Suite 1004

Bethlehem, Pennsylvania 18018

(866) 536-0943

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

Copies to:

 

Joseph Lucosky, Esq. 

Lucosky Brookman LLP

111 Broadway, Suite 807

New York, NY 10006

(212) 332-8160

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: [X]

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [  ] Accelerated filer [  ]
   
Non-accelerated filer [X] Smaller reporting company [X]
   
  Emerging growth company [X]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. [X]

 

CALCULATION OF REGISTRATION FEE

 

Title of Each Class of Securities To Be Registered 

Amount to
be
Registered

(1)

   Proposed
Maximum
Offering
Price Per
Security
(2)
  

Proposed
Maximum
Aggregate
Offering
Price

(2)

  

Amount of
Registration
Fee

(3)(4)

 
Common Stock, $0.001 par value per share, underlying Selling Agent Warrants issued in connection with the Company’s Initial Public Offering   65,626    2.61    171,284    22.23 
Common Stock, $0.001 par value per share, underlying Placement Agent Warrants issued in connection with the placement of the Company’s Senior Convertible Promissory Notes   24,366    2.61    63,595    8.25 
Common Stock, $0.001 par value per share, underlying Placement Agent Warrants issued in connection with the PIPE Financing (defined below)   70,500    2.61    184,005    23.88 
Common Stock, $0.001 par value per share, issued in connection with the O’Leary Financing (defined below)   13,000    2.61    33,930    4.40 
Common Stock, $0.001 par value per share, underlying Warrants issued in connection with the O’Leary (defined below)   25,000    2.61    65,250    8.47 
Common Stock, $0.001 par value per share, issued in connection with the Rawls Financing (defined below)   66,000    2.61    172,260    22.36 
Common Stock, $0.001 par value per share, underlying Warrants issued in connection with the Rawls (defined below)   125,000    2.61    326,250    42.35 
Common Stock, $0.001 par value per share, issued in connection with the Solit Financing (defined below)   26,000    2.61    67,860    8.81 
Common Stock, $0.001 par value per share, underlying Warrants issued in connection with the Solit (defined below)   50,000    2.61    130,500     16.94 
Common Stock, $0.001 par value per share, issued in connection with the Greentree Financing (defined below)   160,000    2.61    417,600    33.88 
Common Stock, $0.001 par value per share, underlying Warrants issued in connection with the Greentree Financing (defined below)   550,000    2.61    1,435,500    186.33 
Total    1,175,492    $2.61   $ 3,068,034    $

377.90

 

 

(1) Pursuant to Rule 416 under the Securities Act, the shares registered hereby also include an indeterminate number of additional shares as may from time to time become issuable by reason of stock splits, distributions, recapitalizations or other similar transactions.
(2) Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(c) under the Securities Act, on the basis of the average high and low sales price of the Registrant’s common stock as reported by The Nasdaq Capital Market on February 11, 2020.
(3) The fee is calculated by multiplying the aggregate offering amount by 0.0001298, effective October 1, 2019, pursuant to Section 6(b) of the Securities Act.
(4)

Previously paid

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

 

 

 

The information in this preliminary prospectus is not complete and may be changed. The Selling Shareholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED August 28, 2020

 

 

Edison Nation, Inc.

 

1,175,492 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 1,175,492 shares of common stock, par value $0.001 per share (the “common stock”) of Edison Nation, Inc. (the “Company,” “Edison Nation,” “we,” “our” or “us”). These shares include: (i) 160,492 shares of common stock underlying warrants (the “Warrants”) issued to employees of Alexander Capital, L.P. in relation to three separate financing transactions led by Alexander Capital, L.P. on behalf of the Company, and (ii) 550,000 shares of common stock underlying a warrant and 160,000 shares of common stock, all issued to Greentree Financial Group, Inc. and (iii) 25,000 shares of common stock underlying a warrant and 13,000 shares of common stock all issued to Richard O’Leary, and (iv) 125,000 shares of common stock underlying a warrant and 66,000 shares of common stock all issued to Rawleigh H. Ralls, and (v) 50,000 shares of common stock underlying a warrant and 26,000 shares of common stock all issued to Paul J. Solit and Julie B. Solit. 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 31 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 “EDNT.” On February 11, 2020, the last reported sale price of our common stock was $2.74 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 16 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 August 28, 2020.

 

 1 

 

 

TABLE OF CONTENTS

 

   Page
Cautionary Note Regarding Forward-Looking Statements  4
Prospectus Summary  5
Summary of the Offering  14
Risk Factors  16
Use of Proceeds  29
Private Placement of Equity Securities  29
Dividend Policy  30
Determination of Offering Price  30
Market for Common Equity and Related Shareholder Matters  30
Plan of Distribution  31
Selling Shareholders for Whose Accounts We Are Registering Shares  32
Management’s Discussion and Analysis of Financial Condition and Results of Operations  34
Business  44
Management  51
Executive Compensation  57
Certain Relationships and Related Party Transactions  61
Principal Shareholders  62
Description of Capital Stock  64
Legal Matters  66
Experts  66
Where You Can Find Additional Information  66
Incorporation of Certain Information by Reference  66
Index to Consolidated Financial Statements  F-1

 

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.

 

 2 

 

 

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

 

“Edison Nation” and other trademarks or service marks of Edison Nation, Inc. appearing in this prospectus are the property of Edison Nation, 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.

 

 3 

 

 

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:

 

  Our ability to effectively execute our business plan;

 

  Our ability to manage our expansion, growth and operating expenses;
     
  Our ability to protect our brands and reputation;
     
  Our ability to repay our debts;
     
  Our ability to rely on third-party suppliers outside of the United States;
     
  Our ability to evaluate and measure our business, prospects and performance metrics;
     
  Our ability to compete and succeed in a highly competitive and evolving industry;
     
  Our ability to respond and adapt to changes in technology and customer behavior;
     
  Risks in connection with completed or potential acquisitions, dispositions and other strategic growth opportunities and initiatives;
     
  Risks related to the anticipated timing of the closing of any potential acquisitions; and
     
  Risks related to the integration with regards to potential or completed acquisitions; and
     
  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
     
  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.

 

 4 

 

 

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, “Edison Nation,” the “Company,” “we,” “us,” and “our,” refer to Edison Nation, 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.

 

Edison Nation 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.

 

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, Edison Nation maintains a consumer-facing online presence whereby innovators can submit ideas for consideration by us. If an idea is successfully chosen, Edison Nation 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. Edison Nation 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, Edison Nation 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 Edison Nation’s 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.

 

Edison Nation 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 Edison Nation 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.

 

 5 

 

 

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 will occur in the first quarter of 2020 and will result in a significant net sales decline as compared to the first quarter of 2019.

 

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.

 

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:

 

The significant growth of ecommerce (14% compound annual growth rate, estimated to reach $4.9 trillion by 2021 (eMarketer 2018));
The increasing velocity of “brick and mortar” retail closures, now surpassing Great Recession levels (Cushman & Wakefield/Moody’s Analytics 2018);
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;
The marriage of media-based entertainment and consumer goods;
The rapid adoption of crowdsourcing to expedite successful new product launches; and
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 Edison Nation 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 Edison Nation’s 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 Edison Nation NPD platform. In addition, Cloud B is leveraging Edison Nation’s Hong Kong-based manufacturer sourcing and management capabilities, as well as the Company’s marketing and packaging resources.

 

 6 

 

 

Summary of Risk Factors

 

Our business is subject to numerous risks and uncertainties, including those in the section captioned “Risk Factors” beginning on page 16 and elsewhere in this prospectus. These risks include, but are not limited to, the following:

 

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;

 

the loss of key personnel or the inability of replacements to quickly and successfully perform in their new roles could adversely affect 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;

 

we may require additional financing to sustain or grow our operations;

 

if we fail to manage our growth, our business and operating results could be harmed;

 

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;

 

an inability to develop and introduce products in a timely and cost-effective manner may damage our business;

 

our success will depend on the reliability and performance of third-party distributors, manufacturers, and suppliers;

 

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

 

a significant portion of our business is conducted with customers and suppliers located outside of the United States. Currency, economic, political, and other risks associated with our international operations in China could adversely affect our operating results.

 

Recent Developments

 

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.

 

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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 six months ended June 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).

 

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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.

 

Receivables Financings

 

On August 12, 2020, the Company entered into an Amendment to a Purchase of Inventory and Repurchase Agreement (the “Amendment”) dated November 12, 2019. Under the terms of the Amendment, (i) the repurchase date is extended to December 10, 2020; and (ii) the Company agreed to pay the Purchaser-Assignee a commitment fee of $13,053, and (iii) the Company agreed to pay the Purchaser-Assignee 2% per month for extension periods commencing July 1, 2020 through December 10, 2020.

 

On February 21, 2020, the Company entered into a receivables financing arrangement for certain receivables of the Company not to exceed $1,250,000 at any one time. The agreement allows for borrowings up to 85% of the outstanding receivable based on the credit quality of the customer. The fee is between 1% and 2% of the total invoices financed.

 

On March 31, 2019, the Company entered into a receivables financing arrangement for specific customer receivables. The agreement allowed for borrowing up to 80% of the outstanding receivable based on the credit quality of the customer. The Company’s Chairman and Chief Executive Officer personally guaranteed all amounts due under the agreement. The fee is between 1% and 2% of the total invoice financed. The proceeds were used for funding the purchase of products sold on HSN, but the Company is not currently utilizing this receivables financing arrangement, and therefore no amounts are outstanding under the agreement as of February 12, 2020.

  

On November 12, 2019, the Company entered into a Receivables Purchase Agreement with a financial institution (the “Receivables Purchase Agreement”), whereby the Company agreed to purchase $225,000 of receivables for $200,000. The Company’s Chairman and Chief Executive Officer as well as NL Penn Capital, LP personally guaranteed all amounts due under the agreement. NL Penn Capital, LP is owned by Christopher B. Ferguson, our Chairman and Chief Executive Officer. The proceeds were used for general working capital.

 

On November 18, 2019, the Company entered into a Future Receivables Purchase Agreement with a financial institution (the “Future Receivables Purchase Agreement”), whereby the Company agreed to purchase of $337,500 of receivables for $250,000. The proceeds were used to fund our orders with our factories for overseas distributors as such receivables were not eligible as collateral under our current working capital facility. Christopher B. Ferguson, our Chairman and Chief Executive Officer, personally guaranteed the prompt and complete performance of the Company’s obligations under the Future Receivables Purchase Agreement.

 

May 2019 Securities Purchase Agreement

 

On May 13, 2019, the Company entered into a securities purchase agreement (the “May 2019 SPA”) with certain accredited investors (the “Investors”) pursuant to which the Investors purchased Senior Convertible Promissory Notes (the “May 2019 Notes”) from the Company. The use of proceeds from the May 2019 Notes was used for general working capital and to fund new product launches. Unless there is a specific Event of Default (as such term is defined in the May 2019 Notes), the Investors shall not have the ability to convert the principal and interest under the May 2019 Notes into shares of common stock. Pursuant to the May 2019 SPA, the Company agreed to sell to the Investors the May 2019 Notes, in the aggregate principal amount of $1,111,111, which are convertible into shares of common stock. Additionally, the Company will issue an additional 20,000 shares of common stock to the Investors as additional consideration for the purchase of the May 2019 Notes. Under the terms of the May 2019 SPA, the Investors have piggyback registration rights in the event the Company files a Form S-1 or Form S-3 within six months of May 13, 2019. The Company is also subject to certain customary negative covenants under the May 2019 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 Investors under the terms of the May 2019 SPA and the May 2019 Notes.

 

As issued on May 13, 2019, the principal amount of the May 2019 Notes is $1,111,111, with an original issue discount in the amount of $111,111. The maturity date of the May 2019 Notes is November 13, 2019. The per share conversion price into which the principal amount and interest under the May 2019 Notes may be converted is equal to 80% multiplied by the lowest traded price of our common stock during the 20 consecutive trading days preceding the date of conversion. The conversion price may be adjusted in connection with certain material corporate events, and the Company is subject to cash penalties in the event that the Company fails to timely deliver certificates for shares of common stock issuable upon conversion of May 2019 Notes. The May 2019 Notes contain a cap, such that the total number of shares of Common Stock issuable under the May 2019 Notes are limited to 19.99% of the Company’s outstanding shares of common stock as of May 13, 2019.

 

So long as an Event of Default has not occurred under the terms of the May 2019 Notes, the Company may prepay the May 2019 Notes at any time, given not less than three trading days’ notice. If the Company exercises its right to prepay the May 2019 Notes at any time within the initial 180 days following May 13, 2019, the prepayment amount to be paid by the Company shall be an amount in cash equal to the sum of 115% multiplied by the principal on the May 2019 Notes then outstanding, plus all accrued and unpaid interest, including unpaid default interest, if any.

 

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The May 2019 notes are no longer outstanding and were converted into 560,185 shares of common stock in November 2019.

 

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.

 

Ed Roses, LLC Joint Venture

 

On August 23, 2019, the Company formed Ed Roses, LLC, a 50% joint venture with 4Keeps Roses, Inc., to distribute preserved roses, flowers and associated gift products.

 

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.

 

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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 29.

 

Acquisition of Uber Mom, LLC Assets

 

On November 6, 2019, the Company issued $22,500 shares of our common stock and paid $52,352 in cash to acquire the assets of Uber Mom, LLC, which was the approximate value of Uber Mom, LLC’s inventory.

 

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.

 

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 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.

 

As reported in the Company’s 8-K filing of April 17, 2020, EN Medical received more than ten million dollars in purchase orders for various medical related supplies, personal protective equipment and hand sanitizers. From that date until today, certain of those purchase orders have been shipped and received; certain purchase orders have been amended and remain pending shipment; certain purchase orders have been canceled; additionally new purchase orders have been received and completed; and new purchase orders remain open and pending shipment. Set forth below is a table to update the current status of the purchase orders for EN Medical, which is inclusive of amounts for Global.

 

Purchase Orders update for the Quarter ended June 30, 2020:   Amounts ($)  
       
Q2 purchase orders received and completed by June 30, 2020: (1)   $ 3,920,965  
         
Q2 purchase orders received, amended and pending shipment as of June 30, 2020:   $ 9,950,000  
         
Q2 purchase orders cancelled as of June 30, 2020:   $ 2,467,500  

 

  (1) Note certain amounts in the above table reflect the net revenue received or due to be received by EN Medical for its services in facilitating the shipment of goods and not the actual dollar value of the goods that were shipped to customers.

 

Purchase Orders as of the date of this filing:   Amounts ($)  
       
Purchase orders received subsequent to the quarter ended June 30, 2020:   $ 34,448,000  
         
Total current purchase orders received and pending shipment as of date of filing:   $ 44,398,000  

 

With regard to purchase orders completed during the quarter ended June 30, 2020, the product breakdown for EN Medical was as follows:

 

Products:   Amounts ($)  
       
Sanitizer   $ 2,804,019  
Gowns     907,500  
Gloves     150,000  
Masks     59,446  
         
Total   $ 3,920,965  

 

With regard to purchase orders completed during the quarter ended June 30, 2020, the type of customer for EN Medical was as follows:

 

Customers:   Amounts ($)  
       
Government   $ 2,276,882  
Distributors     1,130,107  
Enterprise Customers:     276,720  
Small Business:     206,077  
Education:     31,179  
         
Total   $ 3,920,965  

 

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 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.

 

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.

 

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 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.

 

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.

 

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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 is 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.

 

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Corporate Information

 

Our principal executive offices are located at 1 West Broad Street, Suite 1004, Bethlehem, Pennsylvania 18018. Our telephone number is (866) 536-0943. The address of our website is www.edisonnation.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”). 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:

 

  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”);
  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;
  comply with any new requirements adopted by the Public Company Accounting Oversight Board (the “PCAOB”) requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer;
  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
  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:

 

  last day of the fiscal year in which we have $1.07 billion or more in annual revenues;
  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);
  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.

 

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SUMMARY OF THE OFFERING

 

This offering involves a total of 1,175,492 shares of our common stock, which includes: (i) 160,492 shares of common stock underlying warrants (the “Warrants”) issued to employees of Alexander Capital, L.P. in relation to three separate financing transactions led by Alexander Capital, L.P. on behalf of the Company, and (ii) 550,000 shares of common stock underlying the Greentree Warrant and 160,000 shares of common stock issued to Greentree in connection with the Greentree Financing, and (iii) 25,000 shares of common stock underlying a warrant and 13,000 shares of common stock all issued to Richard O’Leary, and (iv) 125,000 shares of common stock underlying a warrant and 66,000 shares of common stock all issued to Rawleigh H. Ralls, and (v) 50,000 shares of common stock underlying a warrant and 26,000 shares of common stock all issued to Paul J. Solit and Julie B. Solit.

 

Common stock offered by the Selling Shareholders  

1,175,492 shares (1)

     
Selling Shareholders   See “Selling Shareholders for Whose Accounts We Are Registering Shares” beginning on page 32.
     
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   11,673,291 shares (2)
     
Common stock outstanding after this offering   12,583,783 shares (2)(3)
     
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 31.
     
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 and the Greentree 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 “EDNT.”
     
Transfer agent and registrar  

Nevada Agency & Transfer Company

  

(1) Includes the following shares of common stock issuable upon exercise of outstanding warrants:

 

  70,500 shares of common stock issuable upon exercise of outstanding Placement Agent Warrants issued to employees of Alexander Capital, L.P. in connection with the PIPE Financing (defined below), at an exercise price of $2.50 per share;
  24,366 shares of common stock issuable upon exercise of outstanding Placement Agent Warrants issued to employees of Alexander Capital, L.P. in connection with the placement of the Company’s Senior Convertible Promissory Notes, at an exercise price of $2.85 per share;
  65,626 shares of common stock issuable upon exercise of outstanding Selling Agent Warrants issued to employees of Alexander Capital, L.P. in connection with the Company’s initial public offering, at an exercise price of $6.00 per share;
  25,000 shares of common stock issuable upon exercise of the O’Leary Warrant;
  125,000 shares of common stock issuable upon exercise of the Ralls Warrant;
  50,000 shares of common stock issuable upon exercise of the Solit Warrant; and
  550,000 shares of common stock issuable upon exercise of the Greentree Warrant.

 

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(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:

 

 

550,000 shares of common stock issuable upon exercise of the Greentree Warrant;

 

70,500 shares of common stock issuable upon exercise of outstanding Placement Agent Warrants issued to employees of Alexander Capital, L.P. in connection with the PIPE Financing (defined below), at an exercise price of $2.50 per share;

 

24,366 shares of common stock issuable upon exercise of outstanding Placement Agent Warrants issued to employees of Alexander Capital, L.P. in connection with the placement of the Company’s Senior Convertible Promissory Notes, at an exercise price of $2.85 per share;

 

65,626 shares of common stock issuable upon exercise of outstanding Selling Agent Warrants issued to employees of Alexander Capital, L.P. in connection with the Company’s initial public offering, at an exercise price of $6.00 per share;

  25,000 shares of common stock issuable upon exercise of the O’Leary Warrant;
  125,000 shares of common stock issuable upon exercise of the Ralls Warrant; and
  50,000 shares of common stock issuable upon exercise of the Solit Warrant.

 

(3) Shares of our common stock that will be outstanding after this offering is based on 11,673,291 shares of common stock outstanding as of August 27, 2020, but excludes:

 

  13,412 shares of common stock reserved for future issuance under the Edison Nation, Inc. Omnibus Incentive Plan (the “Plan”);
  1,764,705 shares of common stock reserved for future issuance under the Company’s Amended and Restated Edison Nation, Inc. Omnibus Incentive Plan (the “Amended Plan”) registered on Form S-8 on July 15, 2020;
  80,000 shares of common stock issuable upon the exercise of options outstanding as of August 27, 2020;
  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;
  240,000 shares of common stock granted but not issued to our directors as restricted stock units; and
  40,000 shares of common stock granted but not issued to 32 Entertainment, LLC as restricted stock units.

 

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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 six months ended June 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 June 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 June 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.

 

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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.

 

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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.

 

We have violated the terms of the PIPE Purchase Agreement and registration rights agreement, which such violation could have a material adverse effect on our financial health and our ability to obtain financing in the future.

 

On October 2, 2019, the Company entered into the PIPE Purchase Agreement, which contains a prohibition on equity sales by the Company, which such prohibition was violated by the Greentree Financing (defined below). The Company also entered into registration rights agreement in connection with the PIPE Financing, which required the Company to file a resale registration statement within a prescribed time period. The Company did not file such a registration statement within the time period required by the registration rights agreement. If those investors were to have taken action as a result of the Company’s violations, the Company’s results could have been adversely impacted in future periods, and would have likely harmed the Company’s ability to obtain financing in the future at all.

 

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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 June 30, 2020, the Company’s largest customer comprised approximately 11% 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.

 

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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 business is closely tied to theme park patronage, and factors that negatively impact theme parks may also negatively affect our ability to generate revenues.

 

Theme parks represent a significant portion of our customers. Therefore, factors that may negatively impact the theme park industry may also negatively impact our future revenues. If theme parks experience reduced patronage, revenues may be reduced as sales of our products correspondingly decline, or theme parks may stop selling our products altogether. The levels of theme park patronage, and therefore our revenues, are affected by a number of factors beyond our control, including:

 

  general economic conditions;

 

  levels of disposable income of theme park patrons;

 

  downturn or loss in popularity of the theme park industry in general;

 

  the relative popularity of entertainment alternatives to theme parks;

 

  local conditions in key markets, including seasonal and weather-related factors;

 

  increased transportation costs;

 

  natural disasters, acts of terrorism and anti-terrorism efforts;

 

  changes or proposed changes to tax laws;

 

  legal and regulatory issues affecting the development, operation and licensing of theme parks;

 

  the availability and cost of capital to construct, expand or renovate new and existing theme parks;

 

  the level of new theme park construction and renovation schedules of existing them parks; and

 

  competitive conditions in the theme park industry, including the effect of such conditions on the pricing of our products.

 

These factors significantly impact the demand for our products.

 

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;

 

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  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; and

 

  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.

 

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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.

 

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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.

 

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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 has caused disruptions in our manufacturing operations, which have 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.

 

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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:

 

  delays or difficulties in reopening of theme parks and water parks in the United States, Asia and Europe;
     
  the uncertainty that our contractors, suppliers, and other business partners may be prevented from conducting business activities for an unknown period of time;
     
  the impact of social distancing on theme parks;
     
  delays in receiving approval from local regulatory authorities to initiate our planned clinical trials;
     
  the undetermined costs to theme parks in reopening to remain within local, state and federal guidelines that may ultimately effect our sales;
     
  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;
     
  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
     
  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 August 27, 2020, our executive officers, directors, and shareholders who owned more than 5% of our outstanding common stock, in the aggregate, beneficially own 3,367,771 shares of common stock representing approximately 26.15% 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:

 

  our actual or projected operating results, financial condition, cash flows, and liquidity, or changes in business strategy or prospects;

 

  equity issuances by us, or share resales by our shareholders, or the perception that such issuances or resales may occur;

 

  loss of a major funding source;

 

  actual or anticipated accounting problems;

 

  publication of research reports about us, or the industries in which we operate;

 

  changes in market valuations of similar companies;

 

  adverse market reaction to any indebtedness we incur in the future;

 

  speculation in the press or investment community;

 

  price and volume fluctuations in the overall stock market from time to time;

 

  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;

 

  changes in law, regulatory policies or tax guidelines, or interpretations thereof;

 

  any shortfall in revenue or net income or any increase in losses from levels expected by investors or securities analysts;

 

  operating performance of companies comparable to us;

 

  short-selling pressure with respect to shares of our shares generally;

 

  uncertainty surrounding the strength of the United States economic recovery; and

 

  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. These provisions include:

 

  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;

 

  reduced disclosure about our executive compensation arrangements;

 

  no non-binding advisory votes on executive compensation or golden parachute arrangements; and

 

  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.

 

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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.

 

Although we have no present intention to issue any shares of preferred stock or to create any series of preferred stock, we may issue such shares in the future. If we were to issue shares of preferred stock, the rights of the holders of common stock could be impaired by such 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.

 

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.

 

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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. 

 

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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

 

PIPE Financing

 

In October 2019, 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”) to accredited investors in a series of four closings. The aggregate amount sold in the private placement (the “PIPE Financing”) was $2,350,000.

 

As discussed further below, the Company issued warrants to the placement agent of a value equal to six percent (6%) of the aggregate number of shares of common stock sold to purchasers in the PIPE Financing. The warrants are exercisable at $2.50 per share (125% of the offering price).

 

Registration Rights Agreement

 

In connection with the above-referenced private placement, we and the investors in the PIPE Financing entered into a Registration Rights Agreement on October 2, 2019 (the “PIPE Registration Rights Agreement”) providing for the registration for resale of the common stock pursuant to a registration statement to be filed with the Commission, which this registration statement is intended to fulfill. We agreed to use our best efforts to cause this registration statement to be declared effective as soon as possible, but in no event later than 90 days of the closing of the PIPE Financing (or 120 days in the event of a full review of the registration statement by the SEC Commission), and to keep this registration statement continuously effective for a period that extends from the first date on which the SEC Commission issues an order of effectiveness in relation to this registration statement until such date that all registrable securities covered by this registration statement have been sold thereunder or pursuant to Rule 144 or may be sold without volume or manner-of-sale restrictions pursuant to Rule 144 and without the requirement for the Company to be in compliance with the current public information under Rule 144 and, as determined by our counsel pursuant to a written opinion letter to such effect we did not meet the deadline for filing and effectiveness of the PIPE Registration Rights Agreement. If we do not meet our obligations with respect to the effectiveness of this registration statement, we must pay, on a monthly basis, to each investor party to the PIPE Registration Rights Agreement an amount in cash, as partial liquidated damages, equal to 1% of the aggregate amount invested by each of them in the PIPE Financing (increasing to 1.5% following the 2nd month anniversary), up to a maximum of 8% of the aggregate investment amount for each of them. The PIPE Registration Rights Agreement prohibits us from filing any other registration statements until all the securities registrable under the PIPE Registration Rights Agreement are registered pursuant to a registration statement that is declared effective by the SEC. The 90-day period has elapsed and the Company is subject to the foregoing penalties. As of August 27, 2020, none of the investors in the PIPE Financing have taken adverse action as a result of such violations.

  

Placement Agent Agreement

 

Pursuant to an engagement letter dated May 2, 2019, as amended on August 6, 2019, between us and Alexander Capital, L.P. (“Alexander”), for a period of 120 days from the date of the agreement, we engaged Alexander to serve as our exclusive placement agent with respect to private placements of the Company’s equity securities. The engagement entitled Alexander to a cash fee of 9% of the gross proceeds received by us from the sale of our equity securities, a non-accountable expense allowance of 1% of the gross proceeds received by us from the sale of our equity securities, reimbursement of Alexander’s legal expenses in an amount equal to $15,000, as well as reimbursement for Alexander’s reasonable out of pocket expenses. We have paid Alexander from the proceeds of the PIPE Financing. We also issued to Alexander 70,500 Warrants to purchase up to a total of 6% of the shares of common stock sold in the PIPE Financing. The Warrants are exercisable at $2.50 per share (125% of the offering price). The Company notes that the number of Warrants issued in the PIPE Financing was erroneously reported as 126,000 Warrants in the Company’s Current Report on Form 8-K filed with the SEC on October 4, 2019 (and amended on October 8, 2019). The placement agent agreement contains customary representations, warranties and covenants of the parties and indemnification provisions under which we have agreed to indemnify Alexander against certain liabilities.

 

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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.

 

Holders of Record

 

The Company had approximately 762 holders of record of our common stock as of August 27, 2020.

 

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       1,778,117  

Equity compensation plans not approved by shareholders (1)

    -     $ -       -  
Total     80,000     $ 7.01       1,778,117  

 

(1)

The information presented in this table is as of August 27, 2020.

 

(2)

We originally adopted the Edison Nation, 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 August 27, 2020) 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 (1,764,705 remaining as of August 27, 2020) shares of common stock to be issued as stock-based incentives under the Company’s Amended and Restated Edison Nation, Inc. Omnibus Incentive Plan.

 

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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.

 

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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 1,175,492 shares of our common stock, which were issued in various transactions exempt from registration under the Securities Act, as follows:

 

  265,000 of the shares registered hereby for resale are common stock previously issued to such selling shareholders;
     
 

550,000 of the shares registered hereby are issuable upon the exercise of the warrant issued to Greentree Financial Group, Inc. on January 23, 2020. Please see Note 5 — Debt within the Company’s financial statements for the three and six months ended June 30, 2020 for additional information;

     
  67,744 of the shares registered hereby are issuable upon the exercise of the warrants issued to Christopher Carlin;
     
  51,128 of the shares registered hereby are issuable upon the exercise of the warrants issued to Jonathan Gazdak;
     
  20,358 of the shares registered hereby are issuable upon the exercise of the warrants issued to Joseph Amato;
     
  20,358 of the shares registered hereby are issuable upon the exercise of the warrant issued to Rocco Guidicipietro;
     
 

904 of the shares registered hereby are issuable upon the exercise of the warrants issued to Bari Latterman;

     
  25,000 of the shares registered hereby are issuable upon the exercise of the warrant issued to Richard O’Leary;
     
  125,000 of the shares registered hereby are issuable upon the exercise of the warrant issued to Rawleigh H. Ralls; and
     
  50,000 of the shares registered hereby are issuable upon the exercise of the warrant issued to Paul J. Solit and Julie B. Solit.

 

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.

 

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 August 27, 2020.

 

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.”

 

 32 

 

 

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)

 
Greentree Financial Group, Inc. (iv)     710,000      

5.51

%     710,000       0       0.00 %
Christopher Carlin (v)     67,744         * %     67,744       0       0.00 %
Jonathan Gazdak (vi)     51,128         * %     51,128       0       0.00 %
Joseph Amato (vii)     20,358         * %     20,358       0       0.00 %
Rocco Guidicipietro (viii)     20,358         * %     20,358       0       0.00 %
Bari Latterman (ix)     904       * %     904       0       0.00 %
Richard O’Leary (x)     38,000       * %     38,000       0       0.00 %
Rawleigh H. Ralls (xi)     191,000       1.48 %     191,000       0       0.00 %
Paul J. Solit and Julie B. Solit (xii)     76,000         * %     76,000       0       0.00 %
TOTAL     1,175,492       9.13 %     1,175,492       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 11,673,291 shares of common stock outstanding as of August 27, 2020; and including 160,492 shares of our common stock issuable upon the exercise of the warrants issued to employees of Alexander Capital, LP; 550,000 shares of our common stock issuable upon exercise of the Greentree Warrant and 200,000 shares of common stock issuable to multiple holders in connection with financing transactions, which are all outstanding as of August 21, 2020; but excluding 240,000 shares of common stock issued to our directors as restricted stock units, 53,333 shares issuable under an option granted to one of our executives; 1,764,705 (13,412 remaining as of August 27, 2020) shares of our common stock reserved for future issuance under the Company’s Edison Nation, Inc. Omnibus Incentive Plan; 1,764,705 (1,764,705 remaining as of August 27, 2020) shares of our common stock reserved for future issuance under the Company’s Amended and Restated Edison Nation, Inc. Omnibus Incentive Plan; 80,000 shares of our common stock issuable upon the exercise of options outstanding as of August 27, 2020; 285,632 shares of common stock issuable upon conversion of the 4%, 5-year senior convertible notes in connection with the EN acquisition; 40,000 shares of common stock granted but not issued to 32 Entertainment, LLC as restricted stock units.

 

(iii) Assumes that all securities registered will be sold.

 

(iv) Includes 550,000 shares issuable upon exercise of the Greentree Warrant, 100,000 shares issued in connection with the Greentree Financing and 60,000 shares issued in connection for the Greentree advisory services. Please see Note 5 — Debt within the Company’s financial statements for the three and six months ended June 30, 2020 for additional information.

 

(v) Includes 27,676 shares of common stock issuable upon exercise of the warrant issued on April 29, 2018, with an exercise price of $6.00 per share, 10,105 shares of common stock issuable upon exercise of the warrant issued on May 13, 2019, with an exercise price of $2.85 per share and 29,963 shares of common stock issuable upon exercise of the warrant issued on November 25, 2019, with an exercise price of $2.50 per share.

 

(vi) Includes 20,548 shares of common stock issuable upon exercise of the warrant issued on April 29, 2018, with an exercise price of $6.00 per share, 7,668 shares of common stock issuable upon exercise of the warrant issued on May 13, 2019, with an exercise price of $2.85 per share and 22,913 shares of common stock issuable upon exercise of the warrant issued on November 25, 2019, with an exercise price of $2.50 per share.

 

(vii) Includes 8,500 shares of common stock issuable upon exercise of the warrant issued on April 29, 2018, with an exercise price of $6.00 per share, 3,045 shares of common stock issuable upon exercise of the warrant issued on May 13, 2019, with an exercise price of $2.85 per share and includes 8,812 shares of common stock issuable upon exercise of the warrant issued on November 25, 2019, with an exercise price of $2.50 per share.

 

(viii) Includes 8,500 shares of common stock issuable upon exercise of the warrant issued on April 29, 2018, with an exercise price of $6.00 per share, 3,045 shares of common stock issuable upon exercise of the warrant issued on May 13, 2019, with an exercise price of $2.85 per share and 8,812 shares of common stock issuable upon exercise of the warrant issued on November 25, 2019, with an exercise price of $2.50 per share.

 

(ix) Includes 402 shares of common stock issuable upon exercise of the warrant issued on April 29, 2018, with an exercise price of $6.00 per share and 503 shares of common stock issuable upon exercise of the warrant issued on May 13, 2019, with an exercise price of $2.85 per share.

 

(x) Includes 6,500 shares of common stock issued as Incentive shares in the January 17, 2020 financing transaction, 6,500 shares of common stock issued as Additional Incentive shares under the Amendment to the January 17, 2020 financing transaction and 25,000 shares of common stock issuable upon exercise of the warrant issued on January 17, 2020.

 

(xi) Includes 33,000 shares of common stock issued as Incentive shares in the January 10, 2020 financing transaction, 33,000 shares of common stock issued as Additional Incentive shares under the Amendment to the January 10, 2020 financing transaction and 125,000 shares of common stock issuable upon exercise of the warrant issued on January 10, 2020.

 

(xii) Includes 13,000 shares of common stock issued as Incentive shares in the January 15, 2020 financing transaction, 13,000 shares of common stock issued as Additional Incentive shares under the Amendment to the January 15, 2020 financing transaction and 50,000 shares of common stock issuable upon exercise of the warrant issued on January 15, 2020.

 

 33 

 

 

Relationship with Selling Shareholders

 

Except as disclosed in the table above, 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 six months ended June 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, Edison Nation, 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 June 30, 2020, Edison Nation, 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. Edison Nation, 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.

 

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 elsewhere in this prospectus

 

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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 June 30, 2020 versus Three Months Ended June 30, 2019

 

The following table sets forth information comparing the components of net (loss) income for the three months ended June 30, 2020 and 2019:

 

    Three Months Ended June 30,     Period over Period Change  
    2020     2019     $     %  
                         
Revenues, net   $ 6,880,026     $ 5,968,255     $ 911,771       15.28 %
Cost of revenues     4,889,784       3,924,252       965,532       24.60 %
Gross profit     1,990,242       2,044,003       (53,761 )     -2.63 %
                                 
Operating expenses:                                
Selling, general and administrative     2,770,930       3,392,596       (621,666 )     -18.32 %
Operating loss     (780,688 )     (1,348,593 )     567,905       -42.11 %
                                 
Other (expense) income:                                
Rental income     25,703       25,703       -       0 %
Interest expense     (847,154 )     (401,170 )     (445,984 )     111.17 %
Gain on divestiture     -       -       -       0 %
Total other expense, net     (821,451 )     (375,467 )     (445,984 )     118.78 %
Loss before income taxes     (1,602,139 )     (1,724,060 )     121,921       -7.07 %
Income tax expense     -       51,005       (51,005 )     -100.00 %
Net loss     (1,602,139 )     (1,775,065 )     172,926       9.74 %
Net income (loss) attributable to noncontrolling interests     22,241       (39,648 )     61,889       -156.10 %
Net loss attributable to Edison Nation, Inc.   $ (1,624,380 )   $ (1,735,417 )   $ 111,037       -6.40 %

 

Revenue

 

For the three months ended June 30, 2020, revenues increased by $911,771 or 15.28%, as compared to the three months ended June 30, 2019. The increase was primarily the result of an increase in business and new customers under the Company’s Edison Nation Medical operations. The full impact of the COVID-19 outbreak to the Company’s operations remains uncertain. Some of the Company’s historically larger customers, such as amusement parks remain closed or operating in a limited capacity. After operating at lower than planned production levels during most of the first quarter due to COVID-19, the Company’s third-party manufacturing facilities in China are currently operating at planned capacity for this time of year. Manufacturing and warehouse partners outside of China are operating at varying levels of productivity depending on local government and safety considerations, with some markets operating at lower than normal production levels while other facilities have been closed entirely. The COVID-19 situation continues to be fluid, but the Company currently expects all manufacturing facilities to reopen in the third quarter, based upon the Company’s understanding of local governments directions at this time.

 

Cost of Revenues

 

For the three months ended June 30, 2020, cost of revenues increased by $965,532 or 24.60%, as compared to the three months ended June 30, 2019. The increase was primarily attributable to the increase in total consolidated revenues.

 

Gross Profit

 

For the three months ended June 30, 2020, gross profit decreased by $53,761, or 2.63%, as compared to the three months ended June 30, 2019. For the three months ended June 30, 2020, gross margin increased to 28.93%, as compared to 34.25% for the three months ended June 30, 2019. The decrease in gross profit and gross margin was due to product mix of goods sold to customers through our Ferguson Containers and Edison Nation Medical operations.

 

Operating Expenses

 

Selling, general and administrative expenses were $2,770,930 and $3,392,596 for the three months ended June 30, 2020 and 2019, respectively, representing a decrease of $621,666, or 18.32%. The decrease was primarily the result of reduction in professional fees of approximately $649,000 and stock-based compensation of approximately $210,000 offset by an increase in selling fees related to Amazon of approximately $265,000 of selling expenses.

 

Rental Income

 

Rental income was $25,703 for both the three months ended June 30, 2020 and 2019.

 

 35 

 

 

Interest expense

 

Interest expense was $847,154 for the three months ended June 30, 2020 versus $401,170 in the previous three months ended June 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 three months ended June 30, 2020, a decrease of $51,005 or 100.00%, compared to an expense of $51,005 for the three months ended June 30, 2019. The decrease was primarily due to the decrease in income from our foreign operations with no offset for income in the United States.

 

Six Months Ended June 30, 2020 versus Six Months Ended June 30, 2019

 

The following table sets forth information comparing the components of net (loss) income for the six months ended June 30, 2020 and 2019:

 

    Six Months Ended June 30,     Period over Period Change  
    2020     2019     $     %  
                         
Revenues, net   $ 10,547,136     $ 11,706,789     $ (1,159,653 )     -9.91 %
Cost of revenues     7,308,196       7,869,810       (561,614 )     -7.14 %
Gross profit     3,283,940       3,836,979       (553,039 )     -14.41 %
                                 
Operating expenses:                                
Selling, general and administrative     6,963,643       6,441,784       521,859       8.10 %
Operating loss     (3,724,703 )     (2,604,805 )     (1,119,898 )     43.00 %
                                 
Other (expense) income:                                
Rental income     51,407       51,407       -       0 %
Interest expense     (1,571,111 )     (525,864 )     (1,045,427 )     198.87 %
Gain on divestiture     4,911,760       -       4,911,760       100.00 %
Total other income (expense), net     3,392,056       (474,457 )     3,866,513       -814.93 %
Loss before income taxes     (332,647 )     (3,079,262 )     2,746,615       -89.20 %
Income tax expense     -       74,200       (74,200 )     -100.00 %
Net loss     (332,647 )     (3,153,462 )     2,820,815       -89.45 %
Net loss attributable to noncontrolling interests     22,241       17,245       4,996       28.97 %
Net loss attributable to Edison Nation, Inc.   $ (354,888 )   $ (3,170,707 )   $ 2,815,819       -88.81 %

 

Revenue

 

For the six months ended June 30, 2020, revenues decreased by $1,159,653 or 9.91%, as compared to the six months ended June 30, 2019. The decrease was primarily the result of decrease in business operations in the first quarter due to the COVID-19 pandemic in China and the US offset by an increase in business and new customers under the Company’s Edison Nation Medical operations in the second quarter. The full impact of the COVID-19 outbreak to the Company’s operations remains uncertain. Some of the Company’s historically larger customers, such as amusement parks remain closed or operating in a limited capacity. After operating at lower than planned production levels during most of the first quarter due to COVID-19, the Company’s third-party manufacturing facilities in China are currently operating at planned capacity for this time of year. Manufacturing and warehouse partners outside of China are operating at varying levels of productivity depending on local government and safety considerations, with some markets operating at lower than normal production levels while other facilities have been closed entirely. The COVID-19 situation continues to be fluid, but the Company currently expects all manufacturing facilities to reopen in the third quarter, based upon the Company’s understanding of local governments directions at this time.

 

 36 

 

 

Cost of Revenues

 

For the six months ended June 30, 2020, cost of revenues decreased by $561,614 or 7.14%, as compared to the six months ended June 30, 2019. The decrease was primarily attributable to the decrease in total consolidated revenues.

 

Gross Profit

 

For the six months ended June 30, 2020, gross profit decreased by $553,039, or 14.41%, as compared to the six months ended June 30, 2019. For the six months ended June 30, 2020, gross margin decreased to 31.14%, as compared to 32.78% for the six months ended June 30, 2019. The decrease in gross profit and gross margin was due to product mix of goods sold to customers through our Ferguson Containers and Edison Nation Medical operations.

 

Operating Expenses

 

Selling, general and administrative expenses were $6,963,643 and $6,441,784 for the six months ended June 30, 2020 and 2019, respectively, representing an increase of $521,859, or 8.10%. The increase was primarily the result of an increase in stock-based compensation of approximately $873,000, selling fees related to Amazon of approximately $561,000 of selling expenses offset by a reduction in professional fees of approximately $727,000 and travel expense of $118,000.

 

Rental Income

 

Rental income was $51,407 for both the six months ended June 30, 2020 and 2019.

 

Interest expense

 

Interest expense was $1,571,111 for the six months ended June 30, 2020 versus $525,864 in the previous six months ended June 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 six months ended June 30, 2020, a decrease of $74,200 or 100.00%, compared to an expense of $74,200 for the six months ended June 30, 2019. The decrease was primarily due to the decrease in income from our foreign operations with no offset for income in the United States.

 

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 six months ended June 30, 2020 and 2019, EBITDA and Adjusted EBITDA consisted of the following:

 

    Three Months
Ended June 30,
   Six Months
Ended June 30,
 
    2020    2019    2020    2019  
Net (loss)   $ (1,602,139 )   $ (1,775,065 )   $ (332,647 )   $ (3,153,462 )
                                 
Interest expense, net     841,529       401,170       1,571,111       525,864  
Income tax expense     -       51,005       -       74,200  
Depreciation and amortization     296,108       332,187       612,406       633,570  
EBITDA     (458,877 )     (990,703 )     1,850,870       (1,919,828 )
Stock-based compensation     268,916       346,071       1,588,427       708,490  
Restructuring and severance costs     189,009       134,597       431,145       170,982  
Transaction and acquisition costs     -       -       82,736       223,538  
Other non-recurring costs     -       519,191       40,860       623,365  
Gain on divestiture     -       -       (4,911,760 )     -  
Adjusted EBITDA (1)   $ (952 )   $ 9,156     $ (917,722 )   $ (193,453 )

 

  (1) On June 8, 2020 the Company entered into a binding memorandum of understating (the “Agreement”) with Office Mart, Inc. (the “Customer”) and Zaaz Medical, Inc. (the “Sourcing Partner”) (collectively “the Parties”) to deliver certain goods to a third party (the “Transaction”). The Company was responsible for bringing the parties together and satisfied its performance obligation under the agreement. On August 10, 2020, the Company entered into an amendment to the Agreement (the “Amendment”) related to the Transaction whereas the Company and the Customer agreed to the settlement of the fees earned related to the Transaction of $907,500 as of June 30, 2020. The Transaction was recorded in accounts receivable and deferred revenues as of June 30, 2020 on the balance sheet with no impact to the condensed consolidated statement of operations. The Company has elected to defer the revenues until cash collection, but had the Company recognized the revenues adjusted EBITDA would have been $906,548 and $(10,222) for the three and six months ended June 30, 2020, respectively.

 

EBITDA and Adjusted EBITDA is a financial measure that is not calculated in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Management believes that because Adjusted EBITDA excludes (a) certain non-cash expenses (such as depreciation, amortization and stock-based compensation) and (b) expenses that are not reflective of the Company’s core operating results over time (such as restructuring costs, litigation or dispute settlement charges or gains, and transaction-related costs), this measure provides investors with additional useful information to measure the Company’s financial performance, particularly with respect to changes in performance from period to period. The Company’s management uses EBITDA and Adjusted EBITDA (a) as a measure of operating performance, (b) for planning and forecasting in future periods, and (c) in communications with the Company’s board of directors concerning the Company’s financial performance. The Company’s presentation of EBITDA and Adjusted EBITDA are not necessarily comparable to other similarly titled captions of other companies due to different methods of calculation and should not be used by investors as a substitute or alternative to net income or any measure of financial performance calculated and presented in accordance with U.S. GAAP. Instead, management believes EBITDA and Adjusted EBITDA should be used to supplement the Company’s financial measures derived in accordance with U.S. GAAP to provide a more complete understanding of the trends affecting the business.

 

Although Adjusted EBITDA is frequently used by investors and securities analysts in their evaluations of companies, Adjusted EBITDA has limitations as an analytical tool, and investors should not consider it in isolation or as a substitute for, or more meaningful than, amounts determined in accordance with U.S. GAAP. Some of the limitations to using non-GAAP measures as an analytical tool are (a) they do not reflect the Company’s interest income and expense, or the requirements necessary to service interest or principal payments on the Company’s debt, (b) they do not reflect future requirements for capital expenditures or contractual commitments, and (c) although depreciation and amortization charges are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and non-GAAP measures do not reflect any cash requirements for such replacements.

 

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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%

 

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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.

 

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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.

 

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 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 
Other non-recurring costs   1,520,777    62,686 
Adjusted EBITDA  $(2,441,459)  $97,132 

 

EBITDA and Adjusted EBITDA is a financial measure that is not calculated in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Management believes that because Adjusted EBITDA excludes (a) certain non-cash expenses (such as depreciation, amortization and stock-based compensation) and (b) expenses that are not reflective of the Company’s core operating results over time (such as restructuring costs, litigation or dispute settlement charges or gains, and transaction-related costs), this measure provides investors with additional useful information to measure the Company’s financial performance, particularly with respect to changes in performance from period to period. The Company’s management uses EBITDA and Adjusted EBITDA (a) as a measure of operating performance, (b) for planning and forecasting in future periods, and (c) in communications with the Company’s board of directors concerning the Company’s financial performance. The Company’s presentation of EBITDA and Adjusted EBITDA are not necessarily comparable to other similarly titled captions of other companies due to different methods of calculation and should not be used by investors as a substitute or alternative to net income or any measure of financial performance calculated and presented in accordance with U.S. GAAP. Instead, management believes EBITDA and Adjusted EBITDA should be used to supplement the Company’s financial measures derived in accordance with U.S. GAAP to provide a more complete understanding of the trends affecting the business.

 

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Although Adjusted EBITDA is frequently used by investors and securities analysts in their evaluations of companies, Adjusted EBITDA has limitations as an analytical tool, and investors should not consider it in isolation or as a substitute for, or more meaningful than, amounts determined in accordance with U.S. GAAP. Some of the limitations to using non-GAAP measures as an analytical tool are (a) they do not reflect the Company’s interest income and expense, or the requirements necessary to service interest or principal payments on the Company’s debt, (b) they do not reflect future requirements for capital expenditures or contractual commitments, and (c) although depreciation and amortization charges are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and non-GAAP measures do not reflect any cash requirements for such replacements.

 

Liquidity and Capital Resources

 

For the year ended December 31, 2019, our operations lost $13,026,228 of which $8,064,101 was non-cash and $364,320 related to transaction costs and non-recurring items. For the six months ended June 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 restructuring charges for payroll and rents.

 

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 June 30, 2020, we had total current assets of $8,071,961 and current liabilities of $11,317,725 resulting in negative working capital of $3,245,314, of which $1,501,148 was related party notes payable. At June 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.

 

At December 31, 2019 and June 30, 2020, we had $3,282,021 and $2,667,513 of outstanding notes payable due to our related parties of which $1,686,352 and $1,166,365 was the current portion, respectively. These notes arose as part of the consideration paid in our acquisition of SRM, Fergco and Edison Nation.

  

At December 31, 2019 and June 30, 2020, we had a cash and cash equivalents balance of $412,719 and $1,762,337, respectively. The Company believes that the funds available to it are adequate to meet its working capital needs, debt service and capital requirements for the next 12 months from the date of this filing.

 

The foregoing factors raise substantial doubt about the Company’s ability to continue as a going concern for at least the next twelve months from the date of issuance of these condensed financial statements. The ability to continue as a going concern is dependent upon the Company’s ability to attract significant new sources of capital, attain a reasonable threshold of operating efficiencies and achieve profitable operations from the sale of its products.

 

The condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. The following is additional information on our operating losses and working capital:

 

The Company’s operating loss for the six months ended June 30, 2020 included approximately $3,600,000 related to depreciation, amortization (including amortization for financing costs and right of use asset) and stock-based compensation. In addition, approximately $366,000 was related to transaction costs, restructuring charges and other non-recurring and redundant costs which are being removed or reduced.

 

Management has considered possible mitigating factors within our management plan on our ability to continue for at least a year from the date these financial statements are filed. The following items are management plans to alleviate any going concern issues for at least the next twelve months from the date these condensed financial statements are available:

 

  Subsequent to June 30, 2020, the Company borrowed $200,000 through a loan agreement and received $250,000 through the exercise of a warrant;
     
  Raise further capital through the sale of addition equity;
     
  Borrow money under debt securities;
     
  The deferral of payments to related party debt holders for both principal of $2,667,513 and related interest expense;
     
  Annual cost saving initiatives related to synergies and the elimination of redundant costs of approximately $1,500,000;
     
  Possible sale of certain brands to other manufacturers;
     
  Edison Nation Medical’s procurement of Personal Protective Equipment (“PPE”) and hand sanitizers and the subsequent sale of PPE items and hand sanitizers to governmental agencies, educational facilities, medical facilities and distributors; and
     
  Entry into joint ventures or total/partial acquisitions of operational entities to expand the sale of PPE through Edison Nation Medical.

 

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Our operating needs include the planned costs to operate our business, including amounts required to fund working capital and capital expenditures. Our future capital requirements and the adequacy of our available funds will depend on many factors, including our ability to successfully commercialize our products and services, competing technological and market developments, and the need to enter into collaborations with other companies or acquire other companies or technologies to enhance or complement our product and service offerings.

 

Cash Flows

 

During the years ended December 31, 2019 and 2018 and six months ended June 30, 2020, our sources and uses of cash were as follows:

 

Cash Flows from Operating Activities

 

Net cash used in operating activities for the year ended December 31, 2019 was $5,036,455, which included a net loss of $14,198,980 that included $334,929 of cash provided by changes in operating assets and liabilities which was offset by stock-based compensation of $2,229,915, depreciation and amortization of $1,316,501 and amortization of debt issuance costs of $944,437.

 

Net cash used in operating activities for the year ended December 31, 2018 was $2,776,003, which included a net loss of $5,344,017, that included $1,512,500 of cash used by changes in operating assets and liabilities which was offset by stock-based compensation of $3,386,494, depreciation and amortization of $487,878 and amortization of debt issuance costs of $300,277.

 

Net cash used in operating activities for the six months ended June 30, 2020 was $2,487,898 which included a net loss of $332,647 that included $825,190 of cash used by changes in operating assets and liabilities, stock-based compensation of $1,588,427, depreciation and amortization of $612,406, amortization of financing costs of $1,227,046 and amortization of right of use assets of $153,820 which was offset by a gain on divestiture of a subsidiary of $4,911,760.

 

Cash Flows from Investing Activities

 

Net cash used in investing activities was $159,938, $1,414,021 and $61,917 for the years ended December 31, 2019, December 31, 2018 and six months ended June 30, 2020, respectively. Cash used in investing activities was attributable the purchase of property and equipment.

 

Cash Flows from Financing Activities

 

Cash provided by financing activities for the year ended December 31, 2019 totaled $3,556,381, which related mostly to borrowings from notes payable.

 

Cash provided by financing activities for the year ended December 31, 2018 was $5,685,487, which related mostly to cash received of $5,315,176 from net proceeds from the Company’s initial public offering and net borrowings of $469,755 under our debt instruments.

 

Cash provided by financing activities for the six months ended June 30, 2020 totaled $3,899,433, which related mostly to borrowings under lines of credit, convertible notes and borrowings under notes payable.

 

Off-Balance Sheet Arrangements

 

We did not have, during the periods presented, and we do not currently have, any relationships with any organizations or financial partnerships, such as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

 

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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 financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these 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 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 annual financial statements included elsewhere in this registration statement.

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

None.

 

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BUSINESS

 

Overview

 

Formed in July 2017 under the laws of the State of Nevada, Edison Nation, 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.

 

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, Edison Nation maintains a consumer-facing online presence whereby innovators can submit ideas for consideration by us. If an idea is successfully chosen, Edison Nation 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. Edison Nation 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, Edison Nation 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 Edison Nation’s 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.

 

Edison Nation 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 Edison Nation 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.

 

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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:

 

The significant growth of ecommerce (14% compound annual growth rate, estimated to reach $4.9 trillion by 2021 (eMarketer 2018));
The increasing velocity of “brick and mortar” retail closures, now surpassing Great Recession levels (Cushman & Wakefield/Moody’s Analytics 2018);
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;

The marriage of media-based entertainment and consumer goods;

The rapid adoption of crowdsourcing to expedite successful new product launches; and
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 Edison Nation 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 Edison Nation’s 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 Edison Nation NPD platform. In addition, Cloud B is leveraging Edison Nation’s Hong Kong-based manufacturer sourcing and management capabilities, as well as the Company’s marketing and packaging resources.

 

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Business

 

One Company Initiative

 

During the first quarter of 2019, the Company began the process of consolidating all of its operating companies into distinct business units, which allows the Company to focus on growing sales and leveraging operations. The units consist of:

  

Innovate. The Edison Nation New Product Development (“NPD”) platform helps inventors go from idea to reality. This is accomplished by optimizing the Company’s new product election process through deeper analytics to predict success on platforms like crowdfunding and web marketplaces like Amazon. The Company drives brand awareness of the platform by producing content for inventors and innovators on media platforms including our own Everyday Edison’s television show.

 

Build and Launch. Distributed by geography, industry skillset and expertise in the development process to ensure efficient product build and launch our teams of product designers and developers take the product from the concept to the consumers hand. The bulk of the Company’s operations are part of this business unit, and the Company will continue to develop this unit to meet the needs of our product launch schedule.

 

Sell. Our omni-channel sales effort is divided into three groups: (1) business-to-business revenue opportunities including traditional brick and mortar retailers, (2) online market places and direct-to-consumer revenue opportunities, and (3) our NiTRO Team (Near Term Revenue Opportunities). NiTRO, identifies brands and products lines that would benefit from being part of Edison Nation.

  

Innovate: The Edison Nation New Product Development & Commercialization Platform

 

New product ideas have little value without the ability and skill required to commercialize them. The considerable investment and executional “know how” needed to initiate a process - from idea to product distribution - has always been a challenge for the individual innovator. Edison Nation’s web presence is designed to take advantage of online marketplace and crowdfunding momentum for our future growth mitigating new product development risk while allowing for optimized product monetization based on a product’s likelihood to succeed. To that end, Edison Nation empowers and enables innovators and entrepreneurs to develop and launch products, gain consumer adoption and achieve commercial scale efficiently at little to no cost.

 

The cornerstone of Edison Nation’s competitive advantage is its NPD platform, which is designed to optimize product licensing and commercialization through best-in-class digital technologies, sourcing / manufacturing expertise and one of the largest sets of go-to-market solutions. The NPD platform can take a product from idea through ecommerce 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.

 

Product Submission Aggregation

 

Interested innovators enter the Edison Nation web site to register for a free account by providing one’s name and email address. The member then creates a username and password to use on the site. Once registered, the member is provided with their own unique, password protected dashboard by which they can begin submitting ideas and join online member forums to learn about industry trends, common questions, engage in member chats, and stay informed of the latest happenings at Edison Nation. They can also track the review progress of ideas they submit through their dashboard.

 

Edison Nation accepts ideas through a secure online submission process. Once a member explores the active searches in different product categories being run on the platform for potential licensees seeking new product ideas to be commercialized, the member can submit their new product ideas for processing. Edison Nation regularly works with different companies and retailers in various product categories to help them find new product ideas.

 

Registered members pay $25 to submit an idea. This submission fee covers a portion of the cost to review each idea submitted to the platform. There are no additional fees after the submission fee.

 

Although the platform might not have an active search that matches the innovator’s idea, the Edison Nation Licensing Team hosts an ongoing search for new consumer product ideas in all categories.

 

“Insider Membership” is Edison Nation’s premium level of membership. Insiders receive feedback on all their ideas submitted and gain access to online features that aren’t available to registered members. In addition, Insiders pay $20 for each idea submitted (20% discount vs. a registered member), can opt-in ideas for free, as well as receive other benefits. An annual membership costs $99, or $9.25 / month automatically debited from a credit card each month. Also included online is feedback to the innovator on the status of each stage of the process and notification when ideas are not selected to move forward during any stage in the review process.

 

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Insiders also have access to the Insider Licensing Program (the “ILP”). The primary benefit of the ILP is having the Edison Nation Licensing Team working directly on an innovator’s behalf to help secure a licensing agreement with one of the company’s manufacturing partners. If an idea is selected for commercialization by a retail partner, Edison Nation will invest in any necessary patent applications, filings and maintenance. The innovator’s name is included on any patent or patent application that Edison Nation files on the member’s behalf after the idea has been selected.

 

In addition to the above member programs, Edison Nation ASOTV (“As Seen on TV”) Team hosts a search for new products suitable for marketing via DRTV (“Direct Response TV”) and subsequent distribution in national retail chains including mass merchandisers, specialty retail, drug chains and department stores.

 

Product Submission Review

 

Led by the Company’s Licensing Team (which has over 150 years of combined experience in a variety of industries and product categories), all ideas submitted by innovators through the Company’s website are reviewed and assessed through an 8-stage process. Edison Nation’s product idea review process is confidential with non-disclosure agreements executed with every participating registered or “Insider” member.

 

 

The NPD platform’s database of over 85,000 product ideas helps determine which inventions have a substantial market opportunity quickly through proprietary algorithms that have been developed incorporating continuous learning from marketplace experience and changes in category requirements.

 

Selected ideas are assessed by the Licensing Team based on nine key factors: competing products, uniqueness, retail pricing, liability & safety, marketability, manufacturing cost, patentability, consumer relevant features and benefits, and potential for commercialization.

 

The time required to review ideas depends upon different variables, such as: the number of searches concurrently running on Edison Nation platform, idea volume and complexity of the search, how many presentation dates to licensees are pending, the date an idea is submitted, etc.

 

Presentation dates to potential licensees are usually set a few weeks following the close of the search. After the presentation has been given to a licensing / retail partner, the partner has 45 days to 6 months to select ideas on which they will move forward.

 

The ILP incorporates a four-stage process:

 

  Stage #1 — Preliminary Review: The Licensing Team performs a preliminary review to ensure an invention meets the program criteria. Factors that might stall an idea from moving forward include: an invention is cost-prohibitive, has engineering challenges, and/or major players in the marketplace have already launched products like it. If none of these apply, an idea will be approved and move on to the preparation phase.

 

  Stage #2 — Preparation: The Licensing Team performs a best partner review. Edison Nation’s retail and manufacturing contacts are assessed, and the team begins to plan which licensors would be the best fit for an idea. A gap analysis and visits the store shelves are executed to gain greater understanding of marketplace potential.

 

  Stage #3 — Pitching: At this phase, an idea can become a “Finalist.” The Licensing Team begins to proactively pitch an idea to potential licensees using a proprietary presentation system. When a company expresses interest, the team proceeds into term sheets and negotiations while staying in constant contact with the prospect until the best possible deal is struck for the innovator.

 

  Stage #4 — Outcome: In the end, the market decides what products will be successful. There are no guarantees. If for some reason Edison Nation is not successful in finding a licensing partner, a complete debrief is given to the Insider.

 

Due to the public nature of licensing, Edison Nation only accepts ideas from Insiders that are patented or patent-pending. A valid provisional patent application is required. The cost of submitting an idea to the ILP is $100, and a member must be an “Insider” to be considered.

 

The Edison Nation ASOTV new product development process follows a six-stage protocol appropriate for the broadcast-based sales channel. For more information regarding the ASOTV process, the Edison Nation NPD platform, its features and member benefits, visit https://app.edisonnation.com/faq.

 

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Acquisition of Intellectual Property

 

Once an innovator’s idea is judged to be a potentially viable, commercial product and selected for potential commercialization, the Company acquires intellectual property rights from the innovator.

 

Once an innovator’s intellectual property is secured, the innovator’s product idea can then either be licensed to a manufacturer or retailer or developed and marketed directly by Edison Nation. In either case, Edison Nation serves as the point-of-contact with the innovator for term sheets, royalty negotiation and concluding licensing agreements. Edison Nation also maintains contact with the innovator to keep them engaged during product development.

 

In general, innovators are paid a percentage of the Company’s revenue from the commercialization of the innovator’s intellectual property. This percentage varies with the Company’s investment in the development of the intellectual property, including whether the Company decides to license the innovator’s idea for commercialization or instead, to directly develop and market the innovator’s idea.

 

Build and Launch: Product Design and Development

 

With product design, product prototyping and creation of marketing assets all resourced with expert Edison Nation in-house capabilities, we have made protracted, high-cost, high-risk research and development models obsolete.

 

Edison Nation custom designs most products in-house for specific customers and their needs. We utilize our existing tooling to produce samples and prototypes for customer reviews, refinement and approval, as well as our in-house packaging design and fabrication resources.

 

The Company’s design and product development professionals are dedicated to the commercialization and marketability of new product concepts advanced through the company’s NPD platform and for licensors / partners like Disney World and Universal Studios.

 

No matter the product, Edison Nation’s objective is to optimize its marketability, function, value and appearance for the benefit of the consumer end user. From concept and prototyping, through design-for-manufacture, special attention is paid to a product’s utility, ease of use, lowest cost bill of materials, and how it “communicates” its features and benefits through design.

 

The combined experience and expertise of the Company’s team spans many high-demand categories including household items, small appliances, kitchenware, and toys. The Company’s in-house capabilities are complimented by third-party engineering and prototyping contractors, and category-specific expert resources within select manufacturers.

 

Manufacturing, Materials, and Logistics

 

To provide greater flexibility in the manufacturing and delivery of products, and as part of a continuing effort to reduce manufacturing costs, Edison Nation has concentrated production of most of the Company’s products in third-party manufacturers located in China and Hong Kong. The Company maintains a fully staffed Hong Kong office for sourcing, overseeing manufacturing and quality assurance.

 

Edison Nation’s contracted manufacturing base continues to expand, from two manufacturing facilities as of October 31, 2018 to a total of five manufacturing facilities as of February 12, 2020. These include three manufacturers required to produce Cloud B children’s sleep products. Based on anticipated manufacturing requirements, this footprint may expand significantly by the end of 2019. The Company also continues to explore more efficient and expert manufacturing partners to gain greater economies of scale, potential consolidation, and cost savings on an on-going basis.

 

Products are also purchased from unrelated enterprises with specific expertise in the design, development, and manufacture those specialty products.

 

We base our production schedules on customer orders and forecasts, considering historical trends, results of market research, and current market information. Actual shipments of ordered products and order cancellation rates are affected by consumer acceptance of product lines, strength of competing products, marketing strategies of retailers, changes in buying patterns of both retailers and consumers, and overall economic conditions. Unexpected changes in these factors could result in a lack of product availability or excess inventory in a product line.

 

Most of our raw materials are available from numerous suppliers but may be subject to fluctuations in price.

 

Sell: Paths to Market

 

Edison Nation partners with many of the biggest and most well-known online entities, consumer products companies and retailers. They use the Company’s platform as a “think engine” to develop targeted products, significantly reduce research and development expense, and expedite time to market.

 

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Each potential licensee of an innovator’s idea publishes an exclusive page on the Edison Nation web site with innovation goals and timeline for their search. Appropriate new product ideas are submitted in 100% confidence with all intellectual property safely guarded.

 

Once the search concludes, Edison Nation presents each with the best patent protected, or patentable ideas that can be selected for development.

 

Licensing partners and customers include Amazon, Bed, Bath & Beyond, Church & Dwight, Black & Decker, HSN, Worthington Industries, Pampered Chef, Boston America Corp., Walmart, Target, PetSmart, “As Seen on TV,” Sunbeam, Home Depot, and Apothecary Products.

 

Online Marketplace and Crowdfunding

 

Edison Nation has established a commercialization path to include the development and management of crowdfunding campaigns. This is evolving to be a engine for future growth. The benefits of crowdfunding include increased product testing efficiency, decreased financial risk, and the ability to get closer to the end consumer, simultaneously.

 

The ability for consumers to re-order product not only gauges marketplace demand, but it can also be leveraged as a quantitative “proof point” for potential sales to licensees. Most importantly, the money pledged for orders can be used to finance manufacturing and ecommerce launch marketing costs as negative working capital.

 

Sales, Marketing, and Advertising

 

Our Omni-channel sales effort is divided into three groups: (1) business-to-business revenue opportunities including traditional brick and mortar retailers, (2) online market places and direct-to-consumer revenue opportunities, and (3) our NiTRO Team (Near Term Revenue Opportunities). NiTRO, identifies brands and products lines that would benefit from being part of Edison Nation.

 

Edison Nation’s business to business team sells products through a diverse network of manufacturers, distributors and retailers. New customer prospects are gained through outbound sales calls, trade show participation, web searches, referrals from existing customers.

 

The online team for the company has expertise in selling products on platforms such as the Amazon marketplace as well as portals like Walmart.com and “crowd-funded” websites such as Kickstarter and Indiegogo.

 

The NiTRO team identifies small, unique brands that could benefit from becoming part of a larger consumer products organization with more resources. The team seeks to negotiate a mutually beneficial agreement whereby the respective branded products become part of Edison Nation’s portfolio of consumer products. 

 

Media Strategy

 

In order to expand the Company’s universe of registered innovators and entrepreneurs submitting ideas on the Edison Nation NPD web platform, the Company has entered a global agreement for distribution of two existing 13-episode seasons of the Company’s Everyday Edison TV series with a leading digital media service company. The series will be available in its original English version as well as voiceover adaptations in German, French, and Spanish. Distribution is planned for Europe and the Middle East through digital content providers such as Amazon Prime Video.

 

Sources of Revenue

 

The Company pursues the following six sources of sales volume:

 

  Our branded products sold through traditional retail channels of distribution and other channels of business to business distribution;

 

  Our branded products sold through direct to consumer platforms such as the Amazon marketplace as well as portals like Walmart.com and “crowd-funded” websites such as Kickstarter and Indiegogo;

 

 

Custom products and packaging solutions that the Company develops and manufactures for partners such as Disney, Marvel, Madison Square Garden, and Universal Studios;

 

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  Member idea submission and ILP program fees: $25 per submission (registered members); $20 per submission (Insider members); $100 per submission (ILP members);

 

  Licensing agents: We match an innovator’s intellectual property with vertical product category leaders in a licensing structure whereby the innovator can earn up to 50% of the contracted licensing fee. Product categories include kitchenware, small appliances, toys, pet care, baby products, health & beauty aids, entertainment venue merchandise, and housewares; and

 

  Product principals: We work with innovators directly, providing such innovators direct access to all of Edison Nation’s resources. Depending on case-by-case factors, innovators may receive a range of up to 35% - 50% of profits.

 

Employees

 

As of August 27, 2020, we had 45 total employees, 44 of whom were full-time employees. None of our employees are represented by a union or parties to a collective bargaining agreement. We believe our employee relations to be in good standing. 

  

Properties

 

The following table summarizes pertinent details of our properties as of August 27, 2020:

 

Location  Owned
or
Leased
  Lease Expiration  Type of Property
1 West Broad Street, Suite 1004 Bethlehem, PA 18018  Leased  July 31, 2022  Principal Executive Office
909 New Brunswick Avenue Phillipsburg, NJ 08865  Leased  Month-to-Month  Office Space
20 Industrial Road Alpha, NJ 08865  Leased  Month-to-Month  Packaging and Logistics Center
520 Elliot Street, Charlotte, NC 28202  Leased  Month-to-Month  Office Space
660 West Fairbanks Avenue, Suite 1 Winter Park, FL 32789  Leased  September 30, 2020  Office Space
150 West Walnut Street Gardena, CA  Leased  October 31, 2021  Office Space and Warehouse
51 South Lincoln Avenue Washington, NJ 07882  Owned  Month-to-Month  Rental Property
Penninsula Centre 67 Mody Road, 11th Floor Room 1112 Tsimshatsui East, Kowloon, Hong Kong  Leased  Month-to-Month   Office Space

 

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Legal Proceedings

 

From time to time, we may be subject to various legal proceedings and claims that are routine and incidental to our business. Although some of these legal proceedings may result in adverse decisions or settlements, management believes that the final disposition of such matters will not have a material adverse effect on our business, financial position, results of operations or cash flows.

 

MANAGEMENT

 

Directors and Executive Officers

 

The following table sets forth information about our directors and executive officers.

 

Name   Age   Position(s)
Executive Officers        
Christopher B. Ferguson   51   Chief Executive Officer and Chairman
Kevin Ferguson   59   President and Treasurer
Brett Vroman   39   Chief Financial Officer and Corporate Secretary
Bruce Bennett   61   Executive Vice President and Chief Product Officer
         
Non-Employee Directors        
Frank Jennings (1)(2)(3)   48   Director
Louis Foreman   51   Director
Kevin O’Donnell (1)(2)(3)   44   Director
Mary Ann Halford (1)(2)(3)   55   Director

 

(1) Member of the Audit Committee

(2) Member of the Compensation Committee​

(3) Member of the Corporate Governance and Nominating Committee

 

Executive Officers

 

Christopher B. Ferguson has acted as our Chief Executive Officer, as well as Chairman of our board of directors since July 2017. From July 2013 until July 2017, Mr. Ferguson served as Chief Executive Officer of SRM and Fergco. In 2010, Mr. Ferguson co-founded a company in the fiber network industry, FTE Networks. Inc. (FTNW:NYSEAMERICAN), and served as CEO of the company until June 2013. In August 2001, Mr. Ferguson co-founded Mercer Staffing, and acted as its president until December 2007. In June 1995, Mr. Ferguson founded The Florio Group, a private equity investment company, with former New Jersey governor James J. Florio. From June 1995 to October 2001, Mr. Ferguson served as Managing Director of The Florio Group. From May 1995 until August 1999, Mr. Ferguson also acted as Chief Financial Officer for Cabot Marsh Corporation, a healthcare consulting firm. Mr. Ferguson holds a Bachelor of Arts degree from Villanova University and a Juris Doctor degree from Widener University School of Law. Mr. Ferguson offers executive decision-making and risk assessment skills as a result of his previous experiences and services as Chief Executive Officer of a public company. Our nominating and corporate governance committee and board of directors considered Mr. Ferguson’s 12 years of experience as a founder and senior executive officer of public and private corporations, and his current services as our Chief Executive Officer and determined that his vast experience in the role as a leader and executive and his direct involvement and understanding of both SRM and Fergco’s ongoing operations should facilitate the board of directors in its evaluation of strategic initiatives and operational performance.

 

Kevin J. Ferguson has acted as our President and Treasurer since July 2017 and acted as a member of our board of directors from July 2017 until April 2019. Mr. Ferguson acted as a member of the board of directors of Fergco from June 1995 until July 2017 and was employed as Fergco’s president from June 1999 to July 2017. Between June 1995 and May 1999, he worked as head of sales for Fergco. Mr. Ferguson holds a Bachelor of Science degree in business administration from Villanova University.

 

Brett Vroman has served as our Chief Financial Officer since June 2019 and previously served as our Controller from May 2018 through May 2019. Prior to joining the Company, from October 2014 to May 2018, Mr. Vroman was Director of Financial Reporting at Avantor, Inc., a global manufacturer and distributor of high-quality products, services and solutions to customers and suppliers in the life science, advanced technology and applied materials industries. From March 2011 to October 2014, Mr. Vroman was employed as an Assurance Senior Manager at BDO USA, LLP, a public accounting, tax, consulting and business advisory firm and from December 2005 to February 2011, Mr. Vroman last held the position of Audit Manager at Smart and Associates, LLP, a business advisory and consulting firm. Mr. Vroman is a certified public accountant and holds a Bachelor of Science in Accounting from York College of Pennsylvania.

 

Bruce R. Bennett has been our Executive Vice President and Chief Product Officer since July 2017. From January 1998 to June 2017, Mr. Bennett was employed as president of SRM, where he focused largely on the company’s product sourcing between China and the company’s various entertainment industry customers, such as Disney, Universal Studios, Six Flags, SeaWorld and Madison Square Garden. Mr. Bennett started at SRM in 1984, as assistant to the president, and worked his way up to the role of Vice President of Sales and Marketing prior to being named president of the company in January 1998.

 

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Non-Employee Directors

 

Frank Jennings has been a member of our board of directors since June 2018 and brings over 26 years of experience in business development and management of sales professionals in a variety of technology-adjacent industries. From August 2014 to present, Mr. Jennings has been employed as the Vice President of Sales, North America by Doctor on Demand, Inc., a telemedicine provider. From August 2011 to August 2014, he was employed as Assistant Vice President of New Business Development by Castlight Health, a technology company focused on employee health benefits solutions. Mr. Jennings holds a Bachelor of Arts from Ohio State University. Mr. Jenning’s service in both operational and leadership roles provides a significant benefit to our audit, nominating and corporate governance, and compensation committees, as well as to our board of directors.

 

Louis Foreman has been a member of our board of directors since March 2019 and has served as the Preferred Designee and a member of the Board of Managers of Edison Nation Holdings, LLC, a wholly owned subsidiary of the Company, since September 2018. From May 2005 to the present, Mr. Foreman has worked as the Creator and Executive Producer of the television show Everyday Edisons. In addition to his role as a founder of the Edison Nation brand, from November 2001 to the present, Mr. Foreman has served as the Chief Executive Officer of Enventys Partners, an integrated product development firm. From May 2012 to the present, Mr. Foreman has also served as Chief Executive Officer of Edison Nation Medical, a healthcare innovation portal. From June 2010 to December 2017, Mr. Foreman served as President of the Intellectual Property Owners Education Foundation, a non-profit organization devoted to educational and charitable activities designed to promote the value of intellectual property rights. Mr. Foreman holds a Bachelor of Arts degree in Economics from the University of Illinois at Urbana-Champaign. His experience in prior leadership roles as well as his operational experience as founder of Edison Nation provide a significant benefit to our board of directors.

 

Kevin J. O’Donnell has been a member of our board of directors since March 2019, and founded PopTop Partners, LLC, a boutique investment firm specializing in small to mid-market companies with an emphasis on the retail and restaurant sector in April 2011, and continues to serve as the firm’s Managing Partner to the present day. Mr. O’Donnell brings close to 20 years of strategic corporate growth, financial structuring, and business development initiatives to emerging growth companies. From May 2007 to June 2010, Mr. O’Donnell served as the Founder/President of KOR Capital, LLC, a private equity and consulting firm specializing in turn around management of mid-market companies. From December 1999 to February 2007, Mr. O’Donnell was a Co-Founder and Principal of ALS, LLC, a human resources management organization. Mr. O’Donnell holds a Bachelor of Arts from the University of Central Florida. Mr. O’Donnell’s service in both operational and leadership roles provides a significant benefit to our audit, nominating and corporate governance, and compensation committees, as well as to our board of directors.

 

Mary Ann Halford has served as a member of our board of directors since April 2020. From December 2017 to the present, Mary Ann Halford has served as a Senior Advisor with OC&C Strategy Consultants, supporting the growth and development of their media and entertainment practice in the U.S. In addition, from May 2017 to the present, Ms. Halford has been an Executive in Residence with Progress Partners, a media and tech financial advisory business, supporting the firm on advising clients as well as supporting the development their recent Progress Ventures raise.  From March 2012 to April 2017, Ms. Halford served initially as a Managing Director and then a Senior Managing Director at FTI Consulting’s TMT Group where she significantly expanded the firm’s media and entertainment practice globally with a focus on broadcasters and content companies. Ms. Halford’s clients included RTL, CME, MediaWorks, Fox, Disney, Media General, TEGNA, Cox, Raycom, Townsquare, NBC/Universal, Gray Broadcasting, Pearl TV, as well as private equity firms investing in the industry. In addition, Ms. Halford has founded and developed two consulting firms, BizWorks360 and Global Media Strategies, working with clients such as Viacom, Scholastic Corporation, HIT Entertainment, National Public Media, Rainbow Media, Gaiam, The Weinstein Company, amongst others. On the operational side, Ms. Halford built out the digital operations for ITN Networks from 2008 – 2009 and from 1997 through 2002, Ms. Halford built and developed the platform for the Fox International Channels Group. In addition, from 2007 through 2014, Ms. Halford served on the Board of Directors of Triton Digital.  Ms. Halford received her Bachelor of Arts degree in Government and Economics from Georgetown University and her Master’s in Business Administration from Harvard University.

 

Family Relationships

 

Other than Messrs. Christopher B. Ferguson and Kevin J. Ferguson, who are brothers, there are no family relationships among any of our executive officers or directors.

 

Corporate Governance Overview

 

We are committed to having sound corporate governance principles, which are essential to running our business efficiently and maintaining our integrity in the marketplace. We understand that corporate governance practices change and evolve over time, and we seek to adopt and use practices that we believe will be of value to our shareholders and will positively aid in the governance of the Company. To that end, we regularly review our corporate governance policies and practices and compare them to the practices of other peer institutions and public companies. We will continue to monitor emerging developments in corporate governance and enhance our policies and procedures when required or when our Board determines that it would benefit our Company and our shareholders.

 

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In this section, we describe the roles and responsibilities of our board of directors and its committees and describe our corporate governance policies, procedures and related documents. The charters of the audit, nominating and corporate governance, and compensation committees of our board of directors, our Corporate Governance Guidelines and Code of Business Conduct and Ethics can be accessed electronically under the “Governance” link on the Investor Relations page of our website at https://www.edisonnation.com. (The inclusion of our website address in this section does not include or incorporate by reference the information on our website into this prospectus.) We will also provide a copy of the audit and compensation committee charters, our Corporate Governance Guidelines and our Code of Business Conduct and Ethics without charge upon written request sent to our Investor Relations department at Investor Relations, 1 West Broad Street, Suite 1004, Bethlehem, Pennsylvania 18018 or (866) 536-0943.

 

Board Composition and Leadership Structure

 

Five (5) directors comprise our board of directors: Christopher B. Ferguson, Louis Foreman, Frank Jennings, Kevin J. O’Donnell and Mary Ann Halford.

 

Christopher Ferguson serves as our Chief Executive Officer and our Chairman. Although the roles of our Chief Executive Officer and Chairman of our board of directors are currently performed by the same person, we do not have a policy regarding the separation of these roles, as our board of directors believes that it is in the best interests of the Company and our shareholders to make that determination from time to time based upon the position and direction of the Company and the membership of our board of directors.

 

Our board of directors has determined that our leadership structure is appropriate for the Company and our shareholders as it helps to ensure that the board of directors and management act with a common purpose and provides a single, clear chain of command to execute our strategic initiatives and business plans. In addition, our board of directors believes that a combined role of Chief Executive Officer and Chairman is better positioned to act as a bridge between management and our board of directors, facilitating the regular flow of information. Our board of directors also believes that it is advantageous to have a Chairman with an extensive knowledge of our industry.

 

Director Independence

 

Applicable Nasdaq rules require a majority of a listed company’s board of directors to be comprised of independent directors within one (1) year of listing. In addition, Nasdaq rules require that, subject to specified exceptions, each member of a listed company’s audit, compensation and nominating and corporate governance committees be independent, and that audit committee members also satisfy independence criteria set forth in Rule 10A-3 under the Exchange Act. The Nasdaq independence definition includes a series of objective tests, such as that the director is not, and has not been for at least three (3) years, one of our employees, that neither the director nor any of his family members has engaged in various types of business dealings with us and that the director is not associated with the holders of more than five percent (5%) of our common stock. In addition, under applicable Nasdaq rules, a director will only qualify as an “independent director” if, in the opinion of the listed company’s board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

 

Our board of directors has undertaken a review of the independence of each director. Based on information provided by each director concerning his background, employment and affiliations, our board of directors has determined that Messrs. Frank Jennings, Kevin O’Donnell and Toper Taylor and independent do not have relationships that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is “independent” as that term is defined under the listing standards of Nasdaq. In making such determination, our board of directors considered the relationships that each such non-employee director has with our Company and all other facts and circumstances that our board of directors deemed relevant in determining his independence, including the beneficial ownership of our capital stock by each non-employee director.

 

Board’s Role in Risk Oversight and Management

 

Our board of directors, as a whole and through its committees, is responsible for the oversight of risk management, while our management is responsible for the day-to-day management of risks faced by us. The board of directors receives regular reports from members of senior management on areas of material risk to the Company, including operational, financial, legal, regulatory, strategic and reputational risks as more fully discussed in the section titled “Risk Factors” appearing elsewhere in this prospectus. In its risk oversight role, our board of directors has the responsibility to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed.

 

Committees of Our Board of Directors

 

Our board of directors has established an audit committee, a compensation committee, and a nominating and corporate governance committee. The composition and responsibilities of each committee of our board of directors are described below. Members serve on these committees until their resignation or until otherwise determined by our board of directors. Our board of directors may establish other committees as it deems necessary or appropriate from time to time.

 

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Although each committee is directly responsible for evaluating certain enumerated risks and overseeing the management of such risks, the entire board of directors is generally responsible for and is regularly informed through committee reports about such risks and any corresponding remediation efforts designed to mitigate such risks. In addition, appropriate committees of the board of directors receive reports from senior management within the organization in order to enable the board of directors to understand risk identification, risk management and risk mitigation strategies. When a committee receives such a report, the chairman of the relevant committee reports on the discussion to the full board of directors during the committee reports portion of the next board of directors meeting. This enables the board of directors and its committees to coordinate the risk oversight role.

 

Audit Committee

 

The members of our audit committee are Frank Jennings, Kevin J. O’Donnell and Mary Ann Halford. Mr. O’Donnell chairs the audit committee. The audit committee’s main function is to oversee our accounting and financial reporting processes, internal systems of control, independent registered public accounting firm relationships and the audits of our financial statements. The committee’s responsibilities include, among other things:

 

appointing, approving the compensation of and assessing the independence of our registered public accounting firm;

 

overseeing the work of our independent registered public accounting firm, including through the receipt and consideration of reports from such firm;

 

reviewing and discussing with management and the independent registered public accounting firm our annual and quarterly financial statements and related disclosures;

 

monitoring our internal control over financial reporting, disclosure controls and procedures and code of business conduct and ethics;

 

overseeing our internal audit function;

 

overseeing our risk assessment and risk management policies;

 

establishing policies regarding hiring employees from the independent registered public accounting firm and procedures for the receipt and retention of accounting related complaints and concerns;

 

meeting independently with our internal auditing staff, independent registered public accounting firm and management;

 

reviewing and approving or ratifying any related person transactions; and

 

preparing the audit committee report required by SEC rules.

 

All audit and non-audit services, other than de minimis non-audit services, to be provided to us by our independent registered public accounting firm must be approved in advance by our audit committee.

 

Nominating and Corporate Governance Committee

 

The members of our nominating and corporate governance committee are Frank Jennings, Kevin J. O’Donnell and Mary Ann Halford. Ms. Halford chairs the nominating and corporate governance committee. This committee’s responsibilities include, among other things:

 

identifying and evaluating candidates, including the nomination of incumbent directors for reelection and nominees recommended by shareholders, to serve on our board of directors;

 

considering and making recommendations to our board of directors regarding the composition and chairmanship of the committees of our board of directors;

 

developing and recommending to our board of directors corporate governance principles, codes of conduct and compliance mechanisms; and

 

overseeing periodic evaluations of the board of directors’ performance, including committees of the board of directors.

 

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When evaluating director candidates, the nominating and corporate governance committee may consider several factors, including relevant experience, independence, commitment, compatibility with the Chief Executive Officer and the board of directors culture, prominence and understanding of the Company’s business, as well as any other factors the corporate governance and nominating committee deems relevant at the time. The corporate governance and nominating committee makes a recommendation to the full board of directors as to any person it believes should be nominated by our board of directors, and our board of directors determines the nominees after considering the recommendation and report of the corporate governance and nominating committee.

 

Any director or executive officer of the Company may recommend a candidate to the nominating and corporate governance committee for its consideration. The nominating and corporate governance committee will also consider nominees to our board of directors recommended by shareholders if shareholders comply with the advance notice requirements in our Second Amended and Restated Bylaws. Our Second Amended and Restated Bylaws provide that a shareholder who wishes to nominate a person for election as a director at a meeting of shareholders must deliver timely written notice to our Corporate Secretary at the following address:

 

Board of Directors

c/o Corporate Secretary

Edison Nation, Inc.

1 West Broad Street, Suite 1004

Bethlehem, Pennsylvania 18018

 

This notice must contain, as to each nominee, all of the information relating to such person as would be required to be disclosed in a proxy statement meeting the requirements of Regulation 14A under the Exchange Act and certain other information, including: the name and address of the shareholder delivering the notice as it appears on our books; the class and number of shares owned beneficially and of record by such shareholder; information about derivative instruments beneficially owned by such shareholder and any opportunity to profit or share in any profit derived from any increase or decrease in the value of the shares of our stock; any proxy, contract, arrangement, understanding or relationship pursuant to which such shareholder has a right to vote any shares of our stock; any short interest in any of our securities held by such shareholder; any rights to dividends on shares of our stock owned beneficially or of record by such shareholder that are separated or separable from the underlying shares of stock; any proportionate interest in shares of our stock or derivative instruments held by a general or limited partnership in which such shareholder is, or owns a beneficial interest in, the general partner; any performance-related fees to which such shareholder is entitled based on the value of our securities; any arrangement or understanding between such shareholder and the proposed nominee; and whether such shareholder intends to deliver a solicitation notice, as more fully described in our Second Amended and Restated Bylaws. The foregoing summary does not include all requirements a shareholder must satisfy in order to nominate a candidate to our board of directors. Shareholders who wish to recommend a nominee to our board of directors should carefully read our Second Amended and Restated Bylaws, which are available at www.edisonnation.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.)

 

Compensation Committee

 

The members of our compensation committee are Frank Jennings, Kevin J. O’Donnell and Mary Ann Halford. Mr. Jennings chairs the compensation committee. The primary purpose of our compensation committee is to discharge the responsibilities of our board of directors in overseeing our compensation policies, plans and programs and to review and determine the compensation to be paid to our executive officers, directors and other senior management, as appropriate. Specific responsibilities of our compensation committee include, among other things:

 

reviewing and recommending corporate goals and objectives relevant to the compensation of our Chief Executive Officer and other executive officers;

 

making recommendations to our board of directors with respect to, the compensation level of our executive officers;

 

reviewing and recommending to our board of directors employment agreements and significant arrangements or transactions with executive officers;

 

reviewing and recommending to our board of directors with respect to director compensation; and

 

overseeing and administering our equity-based incentive plan or plans.

 

Each member of our compensation committee is a non-employee director, as defined in Rule 16b-3 promulgated under the Exchange Act and an outside director, as defined pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended, or the “Code.”

 

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With respect to director compensation, our compensation committee is responsible for reviewing the compensation paid to members of the board of directors and recommending modifications to the compensation of members of the board of directors that the compensation committee determines are appropriate and advisable to the board of directors for its approval from time to time. In this regard, the compensation committee may request that management report to the compensation committee periodically on the status of the compensation of board of directors in relation to other similarly situated companies.

 

In determining compensation for our executive officers, the compensation committee typically considers, but is not required to accept, the recommendations of our Chief Executive Officer regarding the performance and proposed base salary and bonus and equity awards for the other executive officers, as well as himself. The compensation committee may also request the assistance of our Chief Financial Officer in evaluating the financial, accounting and tax implications of various compensation awards paid to the executive officers. However, our Chief Financial Officer does not determine the amounts or types of compensation paid to the executive officers. Our Chief Executive Officer and certain of our other executive officers may attend compensation committee meetings, as requested by the compensation committee. None of our executive officers, including our Chief Executive Officer, attend any portion of the compensation committee meetings during which the executive officer’s compensation is established and approved.

 

Compensation Committee Interlocks and Insider Participation

 

Not applicable to smaller reporting companies.

 

Compensation Committee Report

 

Not applicable to smaller reporting companies.

 

Board Diversity

 

Our nominating and corporate governance committee is responsible for reviewing with board of directors, on an annual basis, the appropriate characteristics, skills and experience required for the board of directors as a whole and its individual members. In evaluating the suitability of individual candidates (both new candidates and current members), the nominating and corporate governance committee, in recommending candidates for election, and the board of directors, in approving (and, in the case of vacancies, appointing) such candidates, will take into account many factors, including the following:

 

personal and professional integrity, ethics and values;

 

experience in corporate management, such as serving as an officer or former officer of a publicly-held company;

 

development or commercialization experience in large consumer products companies;

 

experience as a board member or executive officer of another publicly-held company;

 

strong finance experience;

 

diversity of expertise and experience in substantive matters pertaining to our business relative to other board members;

 

diversity of background and perspective, including with respect to age, gender, race, place of residence and specialized experience;

 

conflicts of interest; and

 

practical and mature business judgment.

 

Currently, our board of directors evaluates each individual in the context of the board of directors as a whole, with the objective of assembling a group that can best maximize the success of the business and represent shareholder interests through the exercise of sound judgment using its diversity of experience in these various areas.

 

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Director Nomination Process

 

Our board of directors believes that its directors should have the highest professional and personal ethics and values, consistent with the Company’s longstanding values and standards. They should have broad experience at the policy-making level in business, government or civic organizations. They should be committed to enhancing shareholder value and should have sufficient time to carry out their duties and to provide insight and practical wisdom based on their own unique experience. Each director must represent the interests of all shareholders. When considering potential director candidates, our board of directors also considers the candidate’s independence, character, judgment, diversity, age, skills, including financial literacy, and experience in the context of our needs and those of our board of directors. Our board of directors believe that diversity is an important attribute of the members who comprise our board of directors and that the members should represent an array of backgrounds and experiences and should be capable of articulating a variety of viewpoints. Our board of directors priority in selecting board members is the identification of persons who will further the interests of our shareholders through his or her record of professional and personal experiences and expertise relevant to our business.

 

Shareholder Nominations to the Board of Directors

 

Article II, Section 2.5 of our Second Amended and Restated Bylaws provides that our board of directors will accept for consideration submissions from shareholders of recommendations for the nomination of directors. Acceptance of a recommendation for consideration does not imply that the board of directors will nominate the recommended candidate. Director nominations by a shareholder or group of shareholders for consideration by our shareholders at our annual meeting of shareholders, or at a special meeting of our shareholders that includes on its agenda the election of one or more directors, may only be made pursuant to Article II, Section 2.5 of our Second Amended and Restated Bylaws or as otherwise provided by law. Nominations pursuant to our Second Amended and Restated Bylaws are made by delivering to our Corporate Secretary, within the time frame described in our Second Amended and Restated Bylaws, all of the materials and information that our bylaws require for director nominations by shareholders.

 

No person shall be eligible to serve as a director of the Company unless nominated in accordance with the procedures set forth in Article II, Section 2.5 of our Second Amended and Restated Bylaws and any nominee proposed by a shareholder not nominated in accordance with Article II, Section 2.5 shall not be considered or acted upon for execution at such meeting. Shareholders’ notice for any proposals requested to be included in our prospectus pursuant to Rule 14a-8 under the Exchange Act (including director nominations), must be made in accordance with that rule.

 

Role of Board in Risk Oversight Process

 

Our board of directors has responsibility for the oversight of the Company’s risk management processes and, either as a whole or through its committees, regularly discusses with management our major risk exposures, their potential impact on our business and the steps we take to manage them. The risk oversight process includes receiving regular reports from our committees and members of senior management to enable our board of directors to understand the company’s risk identification, risk management and risk mitigation strategies with respect to areas of potential material risk, including operations, finance, legal, regulatory, strategic and reputational risk.

 

The audit committee reviews information regarding liquidity and operations and oversees our management of financial risks. Periodically, the audit committee reviews our policies with respect to risk assessment, risk management, loss prevention and regulatory compliance. Oversight by the audit committee includes direct communication with our external auditors, and discussions with management regarding significant risk exposures and the actions management has taken to limit, monitor or control such exposures. The compensation committee is responsible for assessing whether any of our compensation policies or programs has the potential to encourage excessive risk-taking. The nominating and corporate governance committee manages risks associated with the independence of the board, corporate disclosure practices, and potential conflicts of interest. While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire board is regularly informed through committee reports about such risks. Matters of significant strategic risk are considered by our board of directors as a whole.

 

Code of Business Conduct and Ethics

 

We have adopted a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A current copy of the code is posted on the Corporate Governance section of our website, www.edisonnation.com. In addition, we post on our website all disclosures that are required by law or the listing standards of the Nasdaq Capital Market concerning any amendments to, or waivers from, any provision of the code. (Reference to our website address does not constitute incorporation by reference of the information contained at or available through our website, and you should not consider it to be a part of this prospectus.)

 

EXECUTIVE COMPENSATION

 

As an emerging growth company under the JOBS Act, we have opted to comply with the executive compensation disclosure rules applicable to “smaller reporting companies” as such term is defined in the rules promulgated under the Securities Act, which permit us to limit reporting of executive compensation to our principal executive officer and our two (2) other most highly compensated named executive officers.

 

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Summary Compensation Table

 

The following table provides information regarding the compensation awarded to or earned during 2019 and 2018, as applicable, by our named executive officers.

 

Name and Principal Position   Year     Salary 
($)
    Bonus 
($)
    Stock 
Awards 
($)(1)
    Options 
Awards 
($)(2)
    All Other 
Compensation 
($)
    Total 
($)
 
Christopher B. Ferguson     2019       175,000 (4)                             175,000  
Chief Executive Officer     2018       120,000                               120,000  
                                                         
Philip Anderson (3)     2019       105,769             65,626             59,245       230,640  
Chief Strategy Officer, former Chief Financial Officer     2018       141,346             15,000       340,606       59,245       556,197  
                                                         
Bruce Bennett     2019       170,019                         8,844       178,863  
EVP and Chief Product Officer     2018       170,019       1,000       15,000             8,844       194,863  
                                                         
Brett Vroman     2019       180,000 (5)                              180,000  
Chief Financial Officer and Corporate Secretary     2018       100,769       1,500       15,000       186,418             303,687  

 

(1) The dollar amounts shown in this column represent the fair value of shares on their respective grant dates. The grant date fair value was computed in accordance with ASC 718. Refer to Note 14 to the consolidated audited financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and contained herein for a discussion of the relevant assumption used to determine the grant date fair value of these awards.

 

(2) The dollar amounts shown in this column represent the fair value of shares on their respective grant dates. The grant date fair value was computed in accordance with ASC 718. Refer to Note 14 to the consolidated audited financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and contained herein for a discussion of the relevant assumption used to determine the grant date fair value of these awards.

 

(3) Mr. Anderson received $59,254 and $52,254, respectively, for his services as a consultant before his employment by the Company. On June 7, 2019, Mr. Anderson changed roles from the Company’s Chief Financial Officer to its Chief Strategy Officer. On December 2, 2019, Mr. Anderson separated from any employment with the Company.

 

(4) Mr. Ferguson was only paid $112,385 during 2019 and the remaining $62,615 has been voluntarily deferred until an undetermined future date.

 

(5) Mr. Vroman served as the Company’s Controller until June 6, 2019 and was appointed Chief Financial Officer on June 7, 2019. Mr. Vroman was only paid $160,000 during 2019 and the remaining $20,000 has been voluntarily deferred until an undetermined future date.

 

(6) Mr. Bennett received $8,844 for both 2019 and 2018, respectively, as an allowance for his automobile.

 

Narrative to Summary Compensation Table

 

General

 

During 2019 and 2018, we compensated our named executive officers through a combination of base salary, cash bonuses and other benefits including car allowances. Each of our named executive officers has substantial responsibilities in connection with the day-to-day operations of our Company. Since we were recently formed, the amounts indicated in the table above reflect compensation paid or accrued directly by our operating subsidiaries for these individuals prior to the formation of the Company.

 

Base Salary

 

The base salaries of our named executive officers were historically reviewed and set annually by the board of directors of SRM and Fergco; base salaries were also reviewed upon the promotion of an executive officer to a new position or another change in job responsibility. In establishing base salaries for our named executive officers for 2018, 2019 and into the future, our compensation committee relied and will continue to rely on external market data and peer data obtained from outside sources. In addition to considering the information obtained from such sources, our compensation committee will consider:

 

  each named executive officer’s scope of responsibility;

 

  each named executive officer’s years of experience and experience in our industry;

 

  the types and amount of the elements of compensation to be paid to each named executive officer;

 

  our financial performance and performance with respect to other aspects of our operations, such as our growth and profitability; and

 

  each named executive officer’s individual performance and contributions to our performance, including leadership and team-work.

 

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Cash Bonuses

 

Our named executive officers are also eligible to receive an annual cash bonus as a percentage of base salary based on our achievement of various metrics. Annual incentive awards are intended to recognize and reward those named executive officers who contribute meaningfully to our performance for the year. These bonuses are subject to the discretion of the compensation committee each year as to whether and in what amounts they will be paid.

 

Stock Awards

 

Our stock incentive awards are issued under the Edison Nation, Inc. Omnibus Incentive Plan (the “Plan”) originally adopted by our board of directors in December 2017 and amended and restated on September 6, 2018. The Plan provides for up to 1,764,705 (13,412 remaining as of August 27, 2020) shares of our common stock, or approximately 15% of our outstanding shares calculated on a fully diluted basis, 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.

 

On July 15, 2020, the Company filed a Registration Statement on Form S-8 registering 1,764,705 shares of common stock to be issued as stock-based incentives under the Company’s Amended and Restated Edison Nation, Inc. Omnibus Incentive Plan.

 

Section 162(m) of the Code

 

Section 162(m) of the Code generally limits the corporate tax deduction for compensation in excess of $1 million that is paid to our named executive officers. Section 162(m) of the Code was amended by the Tax Cut and Jobs Act of 2018 so that the exceptions for payment of “performance-based compensation” or commissions have been eliminated. However, because we recently became a publicly-held corporation in connection with an initial public offering, the $1 million annual deduction limit does not apply during a limited “transition period” for compensation paid under our Plan. This relief applies to stock incentive awards of that are outstanding as well as future awards granted with respect to shares available under the Plan. The compensation committee intends to continue to rely on the transition relief until it expires at our annual meeting of shareholders in 2020 or, if sooner, when the shares currently available for awards at the time of the initial public offering have been depleted.

  

Employment Agreements

 

On September 26, 2018, the Company entered into written employment agreements with Christopher B. Ferguson, its Chief Executive Officer. The Company has generally employed its executive officers “at will” and did not previously have written employment agreements with Messrs. Ferguson.

 

Mr. Ferguson’s Employment Agreement provides for a term of 3 years terminable at will by either party, an annual base salary of  $175,000 per year and an annual discretionary bonus of up to 100% of his base salary based on performance criteria determined by the Company’s board of directors. Mr. Ferguson will also receive the normal benefits available to the Company’s executives. If Mr. Ferguson’s employment is terminated by the Company without Cause (as defined in Mr. Ferguson’s Employment Agreement) or by Mr. Ferguson as a result of a material breach by the Company, Mr. Ferguson will be entitled to payment of an amount equal to 6 months of his base salary and continuation of benefits for 6 months following the termination. Mr. Ferguson’s Employment Agreement also contains certain restrictive covenants, including indefinite confidentiality, a one year restriction from directly or indirectly owning or participating in a Competing Business (as defined in Mr. Ferguson’s Employment Agreement), and an 18-month restriction on solicitation of employees, customers, and suppliers of the Company.

 

In Mr. Vroman’s capacity as the Company’s Controller, Brett Vroman had previously entered into an Employment Agreement with the Company on October 5, 2018 (the “Vroman Employment Agreement”). As a result of Mr. Vroman’s appointment as Chief Financial Officer, Mr. Vroman and the Company amended the Vroman Employment Agreement on June 6, 2019 (the “Vroman Amendment”).

 

The Vroman Employment Agreement provides for a term of 3 years terminable at will by either party, as well as an annual discretionary bonus of up to 50% of his base salary based on performance criteria determined by the Board. Mr. Vroman will also receive the normal benefits available to the Company’s executives. If Mr. Vroman’s employment is terminated by the Company without Cause (as defined in the Vroman Employment Agreement) or by Mr. Vroman as a result of a material breach by the Company, Mr. Vroman will be entitled to payment of an amount equal to 6 months of his base salary and continuation of benefits for 6 months following the termination. The Vroman Employment Agreement also contains certain restrictive covenants, including indefinite confidentiality, a one year restriction from directly or indirectly owning or participating in a Competing Business (as defined in the Vroman Employment Agreement), and an 18-month restriction on solicitation of employees, customers, and suppliers of the Company.

 

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The Vroman Amendment provides that Mr. Vroman’s base salary shall be increased to $200,000 for the remainder of the term of the Vroman Employment Agreement. Additionally, Mr. Vroman has agreed to surrender certain Stock Options (defined under the Vroman Employment Agreement) previously awarded for 50,000 restricted stock units under the Plan. The restricted stock units will become vested upon Mr. Vroman’s completion of services specified in the Amendment or, if sooner, upon a change in control of the Company (as described in the Plan) or Mr. Vroman’s death. Mr. Vroman’s restricted stock units will be subject to the further terms of the Incentive Plan.

 

Outstanding Equity Awards at August 27, 2020

 

The following table provides information with respect to holdings of unvested options and stock awards held by our named executive officers, at August 27, 2020.

 

   Option Awards 
Name  Number of
securities
underlying
unexercised
option
exercisable
(#)
   Number of
securities
underlying
unexercised
option
unexercisable
(#)
   Option
exercise price
($)
   Option
expiration
date
 
Christopher B. Ferguson   -    -   $-    - 
Philip Anderson (1)   -    -   $-    - 
Bruce Bennett   -    -   $-    - 
Brett Vroman   53,333    26,667   $7.01    9/26/2023 

 

(1) Mr. Anderson previously held 210,000 options pursuant to his original employment agreement with the Company, which were surrendered to the Company on January 7, 2020 in exchange for the issuance of 100,000 shares of our restricted common stock, pursuant to Mr. Anderson’s Separation and Release Agreement, dated June 7, 2019, which was further amended by that certain Amendment and Release Agreement between the Company and Mr. Anderson, dated December 2, 2019.

 

Non-Employee Director Compensation

 

We do not have a formal policy with respect to compensation payable to our non-employee directors for service as directors. The table below shows the equity and other compensation granted to our non-employee directors during fiscal 2019:

 

Name   Fees Earned
or Paid in
Cash ($)
    Stock
Awards
($)(1)(2)
    Option
Awards
($)(1)(2)
    All Other
Compensation ($)
    Total ($)  
Louis Foreman     -       100,000       -       -       100,000  
Frank Jennings     40,000       100,000       -       -       140,000  
Kevin O’Donnell     40,000       100,000       -       -       140,000  
Toper Taylor     20,000       120,000       -       -       140,000  

 

  (1) On April 14, 2020, Toper Taylor provided notice of his intention to resign as a member of the Board of Directors (the “Board”) of Edison Nation, Inc. (the “Company”), effective as of April 14, 2020 (the “Taylor Resignation”). Mr. Taylor served as the chairman of the Board’s nominating and corporate governance committee and as a member of the Board’s audit committee and compensation committee. Mr. Taylor’s resignation was not in connection with any known disagreement with the Company on any matter relating to the Company’s operations, policies, or practices.
     
  (2) 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.

 

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

Policies and Procedures for Related Person Transactions

 

Our board of directors has adopted written policies and procedures for the review of any transaction, arrangement or relationship in which we are a participant, the amount involved exceeds $120,000 and one of our executive officers, directors, director nominees or 5% shareholders, or their immediate family members, each of whom we refer to as a “related person,” has a direct or indirect material interest.

 

If a related person proposes to enter into such a transaction, arrangement or relationship, which we refer to as a “related person transaction,” the related person must report the proposed related person transaction to our Chief Financial Officer. The policy calls for the proposed related person transaction to be reviewed and, if deemed appropriate, approved by our audit committee. Whenever practicable, the reporting, review and approval will occur prior to entry into the transaction. If advance review and approval is not practicable, the committee will review, and, in its discretion, may ratify the related person transaction. The policy also permits the chairman of the committee to review and, if deemed appropriate, approve proposed related person transactions that arise between committee meetings, subject to ratification by the committee at its next meeting. Any related person transactions that are ongoing in nature will be reviewed annually.

 

A related person transaction reviewed under the policy will be considered approved or ratified if it is authorized by the committee after full disclosure of the related person’s interest in the transaction. As appropriate for the circumstances, the committee will review and consider:

 

the related person’s interest in the related person transaction;

 

the approximate dollar value of the amount involved in the related person transaction;

 

the approximate dollar value of the amount of the related person’s interest in the transaction without regard to the amount of any profit or loss;

 

whether the transaction was undertaken in the ordinary course of our business;

 

whether the terms of the transaction are no less favorable to us than terms that could have been reached with an unrelated third party; and

 

the purpose of, and the potential benefits to us of, the transaction.

 

The audit committee may approve or ratify the transaction only if the committee determines that, under all of the circumstances, the transaction is in our best interests. The committee may impose any conditions on the related person transaction that it deems appropriate.

 

In addition to the transactions that are excluded by the instructions to the SEC’s related person transaction disclosure rule, our board of directors has determined that the following transactions do not create a material direct or indirect interest on behalf of related persons and, therefore, are not related person transactions for purposes of this policy:

 

interests arising solely from the related person’s position as an executive officer of another entity (whether or not the person is also a director of such entity) that is a participant in the transaction, where (i) the related person and all other related persons own in the aggregate less than a 10% equity interest in such entity, (ii) the related person and his or her immediate family members are not involved in the negotiation of the terms of the transaction and do not receive any special benefits as a result of the transaction, and (iii) the amount involved in the transaction is less than the greater of   $200,000 or 5% of the annual gross revenues of the company receiving payment under the transaction; and

 

a transaction that is specifically contemplated by provisions of our articles of incorporation, as amended and restated, or Second Amended and Restated Bylaws.

 

The policy provides that transactions involving compensation of executive officers shall be reviewed and approved by the compensation committee in the manner specified in its charter.

 

We have a written policy regarding the review and approval of related person transactions. With respect to such transactions, it is our policy for our board of directors to consider the nature of and business reason for such transactions, how the terms of such transactions compared to those which might be obtained from unaffiliated third parties and whether such transactions were otherwise fair to and in the best interests of, or not contrary to, our best interests. In addition, all related person transactions required prior approval, or later ratification, by our board of directors.

 

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Related Party Transactions

 

NL Penn Capital, LP and SRM Entertainment Group 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. 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.

 

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. 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.

 

As of June 30, 2020, December 31, 2019 and December 31, 2018, due to related party consists of net amounts due to SRM Entertainment Group LLC (“SRM LLC”) and NL Penn Capital, LP, which are both majority owned by Chris Ferguson, our Chairman and Chief Executive Officer. The amount due to related parties is related to the acquisitions of Pirasta, LLC and Best Party Concepts, LLC offset by operating expenses that were paid by SRM LLC and Edison Nation on behalf of SRM LLC and NL Penn Capital, LP. As of June 30, 2020, December 31, 2019 and December 31, 2018, the net amount due to related parties was $57,784, $17,253 and $140,682, respectively. Such amounts are due currently.

 

Service Agreement

 

On August 1, 2018, the Company entered into a one-year letter agreement with Enventys Partners, LLC, a North Carolina limited liability company (“Enventys”), whereby Enventys agreed to provide services to the Company as an independent contractor in the areas of product development and crowdfunding campaign marketing. During the term of the Enventys Agreement, the Company shall pay Enventys a fixed fee of $15,000 per month for product development assistance, including design research, mechanical engineering and quality control planning. Depending on the success of each campaign, the Company may also pay Enventys a commission of up to ten percent of the total funds raised in the applicable campaign. Louis Foreman, who is a member of the Company’s board of directors, is also the Chief Executive Officer and the largest equity holder of Enventys. We incurred fees of approximately $97,500 related to the services performed by Enventys for the twelve months ended December 31, 2019, respectively. In April 2019, the Company and Enventys terminated the letter agreement, such that no further payments are due from the Company to Enventys.

 

Stock Option and Other Compensation Plans

  

On September 6, 2018, the Company’s board of directors approved an amendment and restatement of the Company’s omnibus incentive plan solely to reflect the Company’s name change to Edison Nation, Inc. Thus, the Edison Nation, Inc. Omnibus Incentive Plan (the “Plan”) which remains effective as of February 9, 2018, provides for the issuance of up to 1,764,705 (13,412 remaining as of August 27, 2020) shares of common stock to help align the interests of management and our shareholders and reward our executive officers for improved Company performance. 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. The exercise price of stock options are equal to the fair market value of the underlying Company common stock on the date of grant.

 

On July 15, 2020, the Company filed a Registration Statement on Form S-8 registering 1,764,705 (1,764,705 remaining as of August 27, 2020) shares of common stock to be issued as stock-based incentives under the Company’s Amended and Restated Edison Nation, Inc. Omnibus Incentive Plan.

 

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 $20,000, 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 each member of the board of directors restricted stock units of 20,000 shares which vested immediately, except for Toper Taylor who received 30,000 shares in November 2019, related to the share amounts due to him under the terms of his agreement with us. In addition, the Company granted each non-employee director restricted stock units of 30,000 shares, which vested on January 1, 2020.

 

PRINCIPAL SHAREHOLDERS

 

Security Ownership of Management and Certain Beneficial Owners

 

The following table sets forth the beneficial ownership of our Common Stock as of August 27, 2020 by:

 

each shareholder known by us to beneficially own more than 5% of our outstanding Common Stock;
each of our directors;
each of our named executive officers; and
all of our directors and executive officers as a group.

 

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We have determined beneficial ownership in accordance with the rules of the SEC. These rules generally provide that a person is the beneficial owner of securities if such person has or shares the power to vote or direct the voting of securities, or to dispose or direct the disposition of securities. A security holder is also deemed to be, as of any date, the beneficial owner of all securities that such security holder has the right to acquire within 60 days after such date through (i) the exercise of any option or warrant, (ii) the conversion of a security, (iii) the power to revoke a trust, discretionary account or similar arrangement, or (iv) the automatic termination of a trust, discretionary account or similar arrangement. Except as disclosed in the footnotes to this table and subject to applicable community property laws, we believe that each person identified in the table has sole voting and investment power over all of the shares shown opposite such person’s name.

 

The percentage of beneficial ownership is based on 12,877,116 shares of our Common Stock outstanding as of August 27, 2020, which includes 11,673,291 shares of common stock outstanding, 240,000 shares of common stock issued to our directors as restricted stock units, 53,333 shares issuable under an option granted to one of our executives, 160,492 shares of our common stock issuable upon the exercise of the warrants issued to employees of Alexander Capital, LP; 550,000 shares of our common stock issuable upon exercise of the Greentree Warrant; 25,000 shares of our common stock issuable upon exercise of the O’Leary Warrant; 125,000 shares of our common stock issuable upon exercise of the Ralls Warrant; 50,000 shares of our common stock issuable upon exercise of the Solit Warrant, which are all outstanding as of August 27, 2020 and excludes:

 

  1,764,705 (13,412 remaining as of August 27, 2020) shares of common stock reserved for future issuance under the Edison Nation, Inc. Omnibus Incentive Plan (the “Plan”);
  1,764,705 (1,764,705 remaining as of August 27, 2020) shares of common stock reserved for future issuance under the Company’s Amended and Restated Edison Nation, Inc. Omnibus Incentive Plan (the “Amended Plan”) registered on Form S-8 on July 15, 2020;
  80,000 shares of common stock issuable upon the exercise of options outstanding as of August 27, 2020;
  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; and
  40,000 shares of common stock granted but not issued to 32 Entertainment, LLC as restricted stock units.

 

Name of Beneficial Owner  

Number of

Shares

    Percentage  
5% Shareholders (1)                
Greentree Financial Group, Inc. (2)     710,000       5.51 %
Lelainya D. Ferguson (3)     1,455,750       11.30 %
Executive Officers and Directors                
Christopher B. Ferguson (4)     1,779,950       13.82 %
Kevin Ferguson (5)     313,500       2.43 %
Brett Vroman (6)     56,333       * %
Bruce Bennett     3,500       * %
Frank Jennings (7)     51,300       * %
Louis Foreman (8)     372,288       2.89 %
Kevin O’Donnell (9)     50,900       * %
Mary Ann Halford (10)     30,000       * %
Total Executive Officers and Directors     2,657,771       20.64 %

 

*Represents beneficial ownership of less than one percent (1%).

 

(1) The address for each shareholder listed in the table above is: c/o Edison Nation, Inc. 1 West Broad Street, Suite 1004, Bethlehem, Pennsylvania 18018.

 

(2) Includes 550,000 shares of our common stock issuable upon exercise of the Greentree Warrant, 100,000 origination shares in connection with the Greentree financing and 60,000 shares issued for advisory services.

 

(3) Includes 1,455,750 shares held jointly with Mrs. Ferguson’s spouse, Christopher B. Ferguson.

 

(4) Includes 1,455,750 shares held by Mr. Ferguson’s spouse, Lelainya D. Ferguson, 13,000 shares held by FergcoBros, LLC and 300,000 shares individually. Mr. Ferguson person disclaims beneficial ownership of the shares held in the name of FergcoBros, LLC.

 

(5) Includes 13,000 shares held by FergcoBros, LLC and 300,500 shares individually by Mr. ferguson. Mr. Ferguson person disclaims beneficial ownership of the shares held in the name of FergcoBros, LLC.

 

(6) Includes 3,000 shares held by Mr. Vroman and 53,333 shares issuable under the option held by Mr. Vroman.

 

(7) Includes 50,000 shares issued to Mr. Jennings as Director’s compensation, 350 shares held by Mr. Jennings’ spouse, 200 shares held by Mr. Jennings’ son 100 shares held by Mr. Jennings’ children, respectively.

 

(8) The indicated ownership is based solely upon a Schedule 13G filed with the SEC by Mr. Foreman on September 21, 2019. This total includes 278,542 shares indirectly held by Mr. Foreman through Venture Six LLC (the “Venture Six Shares”) and 50,000 shares issued to Mr. Foreman as Director’s compensation Mr. Foreman is the managing member of Venture Six LLC and disclaims beneficial ownership of the Venture Six Shares reported.

 

(9) Includes 50,000 shares issued to Mr. O’Donnell as Director’s compensation and 575 shares held by Mr. O’Donnell’s children.

 

(10) Includes 30,000 shares issued to Ms. Halford as Director’s compensation. 

 

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DESCRIPTION OF CAPITAL STOCK

 

General

 

The following description of our capital stock and provisions of our amended and restated articles of incorporation and Second Amended and Restated Bylaws are summaries and are qualified by reference to such amended and restated articles of incorporation and bylaws that will be in effect upon the closing of this offering. By becoming a shareholder in our Company, you will be deemed to have notice of and consented to these provisions of our amended and restated articles of incorporation and Second Amended and Restated Bylaws.

 

We have two authorized classes of stock: common stock (250,000,000 shares authorized) and preferred stock (30,000,000 shares authorized).

 

Common Stock

 

Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of shareholders and do not have cumulative voting rights. An election of directors by our shareholders shall be determined by a plurality of the votes cast by the shareholders entitled to vote on the election. Holders of common stock are entitled to receive proportionately any dividends as may be declared by our board of directors, subject to any preferential dividend rights of outstanding preferred stock.

 

In the event of our liquidation or dissolution, the holders of common stock are entitled to receive proportionately all assets available for distribution to shareholders after the payment of all debts and other liabilities and subject to the prior rights of any outstanding preferred stock. Holders of common stock have no preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of common stock are subject to and may be adversely affected by the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future.

 

As of August 27, 2020 there were 11,673,291 shares of our Common Stock outstanding, which excludes:

 

  13,412 shares of common stock reserved for future issuance under the Edison Nation, Inc. Omnibus Incentive Plan (the “Plan”);
  1,764,705 (1,764,705 remaining as of August 27, 2020) shares of common stock reserved for future issuance under the Company’s Amended and Restated Edison Nation, Inc. Omnibus Incentive Plan (the “Amended Plan”) registered on Form S-8 on July 15, 2020;
  80,000 shares of common stock issuable upon the exercise of options outstanding as of August 27, 2020;
  285,632 shares of common stock issuable upon conversion of the 5%, 5-year senior convertible notes in connection with the Edison Nation Holdings, LLC acquisition;
  240,000 shares of common stock issued to our directors as restricted stock units;
  53,333 shares issuable under an option granted to one of our executives;
  65,626 shares of common stock issuable upon exercise of the Selling Agent Warrants issued in connection with the company’s initial public offering;
  24,366 shares of common stock issuable upon exercise of the Placement Agent Warrants in connection with the May 2019 Notes;
  70,500 shares of common stock issuable upon exercise of the Placement Agent Warrants in connection with the PIPE financing;
  550,000 shares of common stock issuable upon exercise of the Greentree Warrant;
  200,000 shares of common stock issuable upon the exercise of warrants in connection with various financings; and
  40,000 shares of common stock granted but not issued to 32 Entertainment, LLC as restricted stock units.

 

Preferred Stock

 

Under our amended and restated articles of incorporation, we have 30,000,000 shares of preferred stock authorized presently. However, our board of directors has the authority, without further action by the stockholders, to issue up to that number of shares of preferred stock in one or more series, to establish from time to time the number of shares to be included in each such series, to fix the rights, preferences and privileges of the shares of each wholly unissued series and any qualifications, limitations or restrictions thereon, and to increase or decrease the number of shares of any such series, but not below the number of shares of such series then outstanding. Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of the common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in control of the company and may adversely affect the market price of our common stock and the voting and other rights of the holders of our common stock.

 

On March 25, 2020, Edison Nation, Inc. (the “Company”) filed a certificate of amendment to the Company’s articles of incorporation with the Secretary of State of the State of Nevada in order to: (i) increase the number of shares of the Company’s authorized preferred stock, par value $0.001 per share, from 0 shares to 30,000,000 shares of preferred stock; (ii) clarify the application of the forum selection clause in the Company’s amended and restated articles of incorporation, specifically that such clause does not apply to federal causes of actions arising under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (the “Exchange Act”); and (iii) include affirmative changes to correspond to the Company’s First Amended and Restated Bylaws, confirming that the Company’s shareholders may vote by written consent.

 

Anti-Takeover Provisions

 

We are governed by the provisions of Nevada Revised Statutes 78.378 to 78.3793 because we are incorporated in Nevada, which prohibits a person who owns in excess of ten percent (10%) of our outstanding voting stock from merging, consolidating or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of ten percent (10%) of our outstanding voting stock, unless the merger, consolidation or combination is approved in a prescribed manner. Any provision in our amended and restated articles of incorporation or our Second Amended and Restated Bylaws or Nevada law that has the effect of delaying or deterring a change in control could limit the opportunity for our Shareholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.

 

 64 

 

 

Removal of Directors

 

A director may be removed only for cause and only by the affirmative vote of the holders of at least 75% of the votes that all our shareholders would be entitled to cast in an annual election of directors. Any vacancy on our board of directors, including a vacancy resulting from an enlargement of our board of directors, may be filled only by vote of a majority of our directors then in office.

 

Authorized but Unissued Shares

 

The authorized but unissued shares of our common stock are available for future issuance without shareholder approval, subject to any limitations imposed by the listing standards of The Nasdaq Capital Market. These additional shares may be used for a variety of corporate finance transactions, acquisitions and employee benefit plans. The existence of authorized but unissued and unreserved common stock and preferred stock could make more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.

 

Warrants

 

As of August 27, 2020, there were 910,492 shares of our common stock issuable upon exercise of outstanding Warrants, including the 550,000 shares of common stock underlying the Greentree Warrant and 160,492 shares of common stock underlying the Alexander Warrants. 

 

Options

 

As of August 27, 2020, there were 80,000 shares of our common stock issuable upon exercise of outstanding stock options pursuant to our equity plans with a weighted average exercise price of $7.01 per share.

 

Restricted Stock Units

 

As of August 27, 2020, there were 240,000 shares of our common stock granted but not issued to our directors as Restricted Stock Units and 40,000 shares of our common stock granted but not issued to 32 Entertainment, LLC as Restricted Stock Units.

 

Registration Rights

 

On September 4, 2018, as part of the closing of our acquisition of all of the voting membership interests of Edison Nation Holdings, LLC, we entered into a registration rights agreement certain members of Edison Nation Holdings, LLC, which provided those members with demand and piggyback registration rights in respect of any registrable shares of the Company’s common stock received pursuant to the terms of that certain Membership Interest Purchase Agreement (the “Purchase Agreement”) by and among us, Edison Nation Holdings, LLC and its members dated June 29, 2018.

 

See the section entitled “Recent Developments—32 Entertainment, LLC Financing” relating to the registration rights granted to investors in the Greentree Financing.

 

See the section entitled “Private Placement of Securities--Registration Rights” relating to the registration rights granted to investors in the PIPE Financing.

 

See the section entitled “Recent Developments—Greentree Financing” relating to the registration rights granted to investors in the Greentree Financing.

 

Transfer Agent and Registrar

 

The transfer agent and registrar for our common stock is Nevada Agency & Transfer Company, which is located at 50 W. Liberty Street, #880, Reno, Nevada 89501 and the telephone number is (775) 322-0626.

 

The Nasdaq Capital Market

 

Our common stock trades on The Nasdaq Capital Market under the symbol “EDNT.”

 

 65 

 

 

LEGAL MATTERS

 

The validity of the shares of common stock offered hereby and certain other legal matters will be passed upon for us by Lucosky Brookman LLP, New York, NY.

 

EXPERTS

 

The financial statements of Edison Nation, Inc. as of December 31, 2019 and 2018 appearing in this prospectus and Registration Statement, have been audited by Marcum LLP, independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report, given on the authority of such firm as experts in accounting and auditing.

 

WHERE YOU CAN FIND MORE INFORMATION

 

We have filed with the SEC a Registration Statement on Form S-1 under the Securities Act, with respect to the shares of common stock being offered by this prospectus. This prospectus does not contain all of the information in the Registration Statement and its exhibits. For further information with respect to Edison Nation, Inc. and the common stock offered by this prospectus, we refer you to the Registration Statement and its exhibits. Statements contained in this prospectus as to the contents of any contract or any other document referred to are not necessarily complete, and in each instance, we refer you to the copy of the contract or other document filed as an exhibit to the Registration Statement. Each of these statements is qualified in all respects by this reference.

 

You can read our SEC filings, including the registration statement, over the Internet at the SEC’s website at http://www.sec.gov.

 

We are subject to the information reporting requirements of the Exchange Act, and we will file reports, proxy statements and other information with the SEC. These reports, proxy statements and other information will be available for inspection and copying at the public reference room and website of the SEC referred to above. We also maintain a website at www.edisonnation.com, at which you may access these materials free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. The information contained in, or that can be accessed through, our website is not part of this prospectus.

 

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

 

Certain information about us is “incorporated by reference” to reports and exhibits that we file with the SEC that are not included in this prospectus. We disclose important information to you by referring you to those documents. Any statement contained in this prospectus or a document incorporated or deemed to be incorporated by reference into this prospectus will be deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained in this prospectus or any other subsequently filed document that is deemed to be incorporated by reference into this prospectus modifies or supersedes such statement. Any statement so modified or superseded will not be deemed, except as so modified or superseded, to constitute a part of this prospectus. We incorporate by reference the documents listed below that we have filed with the SEC:

 

  Annual Report on Form 10-K for the fiscal year ended December 31, 2019 as well as the Amended Annual report for the fiscal year December 31, 2019 on Form 10-K/A filed on June 4, 2020;
  Quarterly Reports on Form 10-Q for the quarters ended March 31, 2019, June 30, 2019, September 30, 2019, March 31, 2020 and June 30, 2020;
  Current Reports on Form 8-K, filed on March 13, 2019, March 29, 2019, May 10, 2019, May 17, 2019, June 11, 2019, June 19, 2019, June 20, 2019, July 29, 2019, August 29, 2019, October 4, 2019, October 8, 2019, and January 29, 2020, February 21, 2020, March 12, 2020, March 26, 2020, April 17, 2020, April 27, 2020, May 13, 2020 and May 26, 2020 as well as the Current Report on Form 8-K/A filed on October 8, 2019; and
  Definitive Proxy Statement on Schedule 14A, filed on April 30, 2019.

 

All documents that we file with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, on or after the date of this prospectus and prior to the termination of this offering are also incorporated herein by reference and will automatically update and, to the extent described above, supersede information contained or incorporated by reference in this prospectus and previously filed documents that are incorporated by reference in this prospectus. However, anything herein to the contrary notwithstanding, no document, exhibit or information or portion thereof that we have “furnished” or may in the future “furnish” to (rather than “file” with) the SEC, including, without limitation, any document, exhibit or information filed pursuant to Item 2.02, Item 7.01 and certain exhibits furnished pursuant to Item 9.01 of our Current Reports on Form 8-K, shall be incorporated by reference into this prospectus.

 

You may request a copy of any of the reports or documents incorporated by reference into this prospectus, at no cost (other than exhibits and schedules to such filings, unless such exhibits or schedules are specifically incorporated by reference into this prospectus supplement and the accompanying prospectus), by writing or calling us at the following address: Investor Relations, 1 West Broad Street, Suite 1004, Bethlehem, Pennsylvania 18018 or (866) 536-0943.

 

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

PART I

 

INDEX TO FINANCIAL STATEMENTS

 

    Page
Unaudited Condensed Consolidated Financial Statements for the Six Months Ended June 30, 2020 and 2019   F-2
Condensed Consolidated Balance Sheets as of June 30, 2020 (Unaudited) and December 31, 2019   F-2
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2020 and 2019 (Unaudited)   F-3
Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three and six months ended June 30, 2020 and 2019 (Unaudited)   F-4
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019 (Unaudited)   F-5
Notes to Condensed Consolidated Financial Statements   F-6 - F-21
Audited Consolidated Financial Statements for the Years Ended December 31, 2019 and 2018   F-22
Report of Independent Registered Public Accounting Firm   F-22
Consolidated Balance Sheets as of December 31, 2019 and 2018   F-23
Consolidated Statements of Operations for the years ended December 31, 2019 and 2018   F-24
Consolidated Statement of Changes in Shareholders’ Equity (Deficit) for the years ended December 31, 2019 and 2018   F-25
Consolidated Statements of Cash Flows for the years ended December 31, 2019 and 2018   F-26
Notes to Consolidated Financial Statements   F-27 - F-52

 

F-1

 

 

Edison Nation, Inc. and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS

 

    June 30, 2020     December 31, 2019  
    (Unaudited)        
             
Assets                
Current assets:                
Cash and cash equivalents   $ 1,762,337     $ 412,719  
Accounts receivable, net    

3,086,195

      2,108,099  
Inventory     1,190,998       1,369,225  
Prepaid expenses and other current assets     1,884,542       917,433  
Income tax receivable     147,889       147,889  
Total current assets    

8,071,961

      4,955,365  
Property and equipment, net     932,027       931,968  
Right of use assets, net     578,280       732,100  
Intangible assets, net     11,047,515       11,598,063  
Goodwill     5,392,123       5,392,123  
Total assets   $

26,021,906

    $ 23,609,619  
                 
Liabilities and stockholders’ equity                
Current liabilities:                
Accounts payable   $ 3,047,197     $ 7,397,650  
Accrued expenses and other current liabilities     1,704,484       1,594,669  
Deferred revenues    

1,061,989

      159,591  
Current portion of operating leases liabilities     279,427       272,215  
Income tax payable     8,446       22,919  
Line of credit, net of debt issuance costs of $0 and $15,573, respectively     2,151,108       456,995  
Current portion of convertible notes payable, net of debt issuance costs of $535,235     900,765       -  
Current portion of notes payable, net of debt issuance costs of $86,349 and $212,848, respectively     970,710       1,365,675  
Current portion of notes payable – related parties     1,166,365       1,686,352  
Due to related party     26,784       17,253  
Total current liabilities    

11,317,275

      12,973,319  
Operating leases liabilities –net of current portion     326,482       482,212  
Convertible notes payable – related parties, net of current portion, net of debt discount of $316,667 and $366,666, respectively     1,111,495       1,061,495  
Notes payable, net of current portion     825,004       42,492  
Notes payable – related parties, net of current portion     1,501,148       1,595,669  
Total liabilities    

15,081,404

      16,155,187  
Commitments and Contingencies (Note 8)                
                 
Stockholders’ equity                
Preferred stock, $0.001 par value, 30,000,000 shares authorized; 0 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively   $ -     $ -  
Common stock, $0.001 par value, 250,000,000 shares authorized; 9,618,401 and 8,015,756 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively     9,618       8,016  
Additional paid-in-capital     30,802,083       26,259,575  
Accumulated deficit     (18,850,350 )     (18,495,461 )
Total stockholders’ equity attributable to Edison Nation, Inc.     11,961,351       7,772,130  
Noncontrolling interests     (1,020,849 )     (317,698 )
Total stockholders’ equity     10,940,502       7,454,432  
Total liabilities and stockholders’ equity   $

26,021,906

    $ 23,609,619  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

F-2

 

 

Edison Nation, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

   

For the Three Months

Ended June 30,

   

For the Six Months

Ended June 30,

 
    2020     2019     2020     2019  
Revenues, net   $

6,880,026

    $ 5,968,255     $

10,547,136

    $ 11,706,789  
Cost of revenues     4,889,784       3,924,252       7,308,196       7,869,810  
Gross profit    

1,990,242

      2,044,003      

3,283,940

      3,836,979  
                                 
Operating expenses:                                
Selling, general and administrative    

2,770,930

      3,392,596      

6,963,643

      6,441,784  
Operating loss     (780,688 )     (1,348,593 )     (3,724,703 )     (2,604,805 )
                                 
Other (expense) income:                                
Rental income     25,703       25,703       51,407       51,407  
Interest expense     (847,154 )     (401,170 )     (1,571,111 )     (525,864 )
Gain on divestiture     -       -       4,911,760       -  
Total other (expense) income     (821,451 )     (375,467 )     3,392,056       (474,457 )
Loss before income taxes     (1,602,139 )     (1,724,060 )     (332,647 )     (3,079,262 )
Income tax expense     -       51,005       -       74,200  
Net loss   $ (1,602,139 )   $ (1,775,065 )   $ (332,647 )   $ (3,153,462 )
Net income (loss) attributable to noncontrolling interests     22,241       (39,648 )     22,241       17,245  
Net loss attributable to Edison Nation, Inc.   $ (1,624,380 )   $ (1,735,417 )   $ (354,888 )   $ (3,170,707 )
Net loss per share:                                
Net loss per share – basic and diluted   $ (0.18 )   $ (0.30 )   $ (0.04 )   $ (0.55 )
Weighted average number of common shares outstanding – basic and diluted     8,920,554       5,702,693       8,551,012       5,682,150  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

F-3

 

 

Edison Nation, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

 

    For the Three Months Ended June 30, 2020 and 2019  
    Common Stock    

Additional

Paid-in

    Accumulated     Noncontrolling    

Total

Stockholders’

 
    Shares     Amount     Capital     Deficit     Interest     Equity  
Balance, April 1, 2020     8,676,501     $ 8,677     $ 28,790,704     $ (17,225,970 )   $ (344,090 )   $ 11,229,321  
Issuance of common stock to note holders     279,400       279       588,411       -       -       588,690  
Issuance of common stock for divestiture     150,000       150       404,850       -       -       405,000  
Issuance of common stock to consultants     212,500       212       (212 )     -       -       -  
Stock-based compensation     -       -       319,630       -       -       319,630  
Issuance of common stock for Global Clean Solutions, LLC acquisition    

300,000

     

300

     

698,700

     

-

     

-

     

699,000

 
Distributions     -       -       -       -       (699,000 )     (699,000 )
Net (loss) income     -       -       -       (1,624,380 )     22,241       (1,602,139 )
Balance, June 30, 2020     9,618,401     $ 9,618     $ 30,802,083     $ (18,850,350 )   $ (1,020,849 )   $ 10,940,502  
                                                 
Balance, April 1, 2019     5,680,330     $ 5,680     $ 20,859,158     $ (7,001,046 )   $ 1,008,469     $ 14,872,261  
Issuance of common stock to note holders     35,000       35       99,165       -       -       99,200  
Issuance of common stock to vendors for services     22,500       23       88,602       -       -       88,625  
Stock-based compensation     -       -       89,987       -       -       89,987  
Net loss     -       -       -       (1,735,417 )     (39,648 )     (1,775,065 )
Balance, June 30, 2019     5,737,830     $ 5,738     $ 21,136,912     $ (8,736,463 )   $ 968,821     $ 13,375,008  

  

    For the Six Months Ended June 30, 2020 and 2019  
    Common Stock    

Additional

Paid-in

    Accumulated     Noncontrolling    

Total

Stockholders’

 
    Shares     Amount     Capital     Deficit     Interest     Equity  
Balance, January 1, 2020     8,015,756     $ 8,016     $ 26,259,576     $ (18,495,462 )   $ (317,698 )   $ 7,454,432  
Issuance of common stock to note holders     439,400       439       789,575       -       -       790,014  
Returned common stock from noteholder     (153,005 )     (153 )     153       -       -       -  
Issuance of common stock for divestiture     150,000       150       404,850       -       -       405,000  
Issuance of common stock to consultants     866,250       866       561,896       -       -       562,762  
Issuance of warrants to noteholders and beneficial conversion option     -       -       1,018,953       -       -       1,018,953  
Issuance of common stock for Global Clean Solutions, LLC acquisition    

300,000

     

300

     

698,700

     

-

     

-

     

699,000

 
Stock-based compensation     -       -       1,068,380       -       -       1,068,380  
Divestiture of Cloud B     -       -       -               (26,392 )     (26,392 )
Distributions     -       -       -       -       (699,000 )     (699,000 )
Net (loss) income     -       -       -       (354,888 )     22,241       (332,647 )
Balance, June 30, 2020     9,618,401     $ 9,618     $ 30,802,083     $ (18,850,350 )   $ (1,020,849 )   $ 10,940,502  
                                                 
Balance, January 1, 2019     5,654,830     $ 5,655     $ 20,548,164     $ (5,565,756 )   $ 951,576     $ 15,939,639  
Issuance of common stock to note holders     50,000       50       173,250       -       -       173,300  
Issuance of common stock to vendors for services     33,000       33       141,092       -       -       141,125  
Stock-based compensation     -       -       274,406       -       -       274,406  
Net loss     -       -       -       (3,170,707 )     17,245       (3,153,462 )
Balance, June 30, 2019     5,737,830     $ 5,738     $ 21,136,912     $ (8,736,463 )   $ 968,821     $ 13,375,008  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

F-4

 

 

Edison Nation, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

    Six Months Ended June 30,  
    2020     2019  
Cash Flow from Operating Activities                
Net loss attributable to Edison Nation, Inc.   $ (354,888 )   $ (3,170,707 )
Net income attributable to noncontrolling interests     22,241       17,245  
Net loss     (332,647 )     (3,153,462 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation and amortization     612,406       633,570  
Amortization of financing costs     1,227,046       391,223  
Stock-based compensation     1,588,427       708,490  
Amortization of right of use asset     153,820       155,408  
Gain on divestiture     (4,911,760 )     -  
Changes in assets and liabilities:                
Accounts receivable     (978,097 )     (1,215,155 )
Inventory     178,227       (336,544 )
Prepaid expenses and other current assets     (967,109 )     (561,331 )
Accounts payable     (344,847 )     1,191,252  
Accrued expenses and other current liabilities    

1,425,622

      480,928  
Operating lease liabilities     (148,518 )     (144,132 )
Due from related party     9,532       (65,600 )
Net cash used in operating activities     (2,487,898 )     (1,915,353 )
                 
Cash Flows from Investing Activities                
Purchases of property and equipment     (61,917 )     (106,770 )
Net cash used in investing activities     (61,917 )     (106,770 )
                 
Cash Flows from Financing Activities                
Borrowings under lines of credit, net     1,678,540       240,000  
Borrowings under convertible notes payable     1,436,000       1,111,111  
Borrowings under notes payable     1,767,352       1,110,000  
Repayments under lines of credit     -       (31,542 )
Repayments under notes payable     (824,472 )     (566,710 )
Repayments under notes payable – related parties     (14,508 )     (40,997 )
Fees paid for financing costs     (143,479 )     (427,411 )
Net cash provided by financing activities     3,899,433       1,394,451  
Net increase (decrease) in cash and cash equivalents     1,349,618       (627,672 )
Cash and cash equivalents – beginning of period     412,719       2,052,731  
Cash and cash equivalents – end of period   $ 1,762,337       1,425,059  
                 
Supplemental Disclosures of Cash Flow Information                
Cash paid during the period for:                
Interest   $ 144,740     $ 74,908  
Income taxes   $ 235,725     $ -  
Noncash investing and financing activity:                
Shares issued to note holders   $ -     $ 173,300  
Conversion under notes payable   $ 424,000     $ -  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

F-5

 

 

Edison Nation, Inc. and Subsidiaries

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1 — Basis of Presentation and Nature of Operations

 

The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and with Form 10-Q and Article 10 of Regulation S-X of the United States Securities and Exchange Commission (the “SEC”). Accordingly, they do not contain all information and footnotes required by GAAP for annual financial statements. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of June 30, 2020 and the results of operations, changes in stockholders’ equity, and cash flows for the periods presented. The results of operations for the six and three months ended June 30, 2020 are not necessarily indicative of the operating results for the full fiscal year or any future period.

 

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. The Company’s accounting policies are described in the Notes to Consolidated Financial Statements in its Annual Report on Form 10-K for the year ended December 31, 2019, and updated, as necessary, in this Quarterly Report on Form 10-Q.

 

As used herein, the terms the “Company,” “Edison Nation” “we,” “us,” “our” and similar refer to Edison Nation, Inc., a Nevada corporation incorporated on July 18, 2017 under the laws of the State of Nevada as Idea Lab X Products, Inc. and also formerly known as Xspand Products Lab, Inc. prior to its name change on September 12, 2018, and/or its wholly-owned and majority-owned operating subsidiaries, and/or where applicable, its management.

 

Edison Nation is a vertically-integrated, end-to-end, consumer product research & development, manufacturing, sales and fulfillment company. The Company’s proprietary web-enabled platform provides a low risk, high reward platform and process to connect innovators of new product ideas with potential licensees.

 

As of June 30, 2020, Edison Nation, 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. Edison Nation, Inc. owns 50% of Best Party Concepts, LLC, Ed Roses, LLC and Global Clean Solutions, LLC, all of which are VIE’s. 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 and proprietary branded hand sanitizer 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.

 

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.

 

Liquidity

 

For the six months ended June 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 restructuring charges for payroll and rents.

 

At June 30, 2020, we had total current assets of $8,071,961 and current liabilities of $11,317,275 resulting in negative working capital of $3,245,314, of which $1,166,365 was related party notes payable. At June 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.

 

The foregoing factors raise substantial doubt about the Company’s ability to continue as a going concern for at least the next twelve months from the date of issuance of these condensed consolidated financial statements. The ability to continue as a going concern is dependent upon the Company’s ability to attract significant new sources of capital, attain a reasonable threshold of operating efficiencies and achieve profitable operations from the sale of its products.

 

The condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. The following is additional information on our operating losses and working capital:

 

The Company’s operating loss for the six months ended June 30, 2020 included $3,600,000 related to depreciation, amortization (including amortization for financing costs and right of use asset) and stock-based compensation. In addition, approximately $366,000 was related to transaction costs, restructuring charges and other non-recurring and redundant costs which are being removed or reduced.

 

Management has considered possible mitigating factors within our management plans on our ability to continue for at least a year from the date these financial statements are filed. The following items are management plans to alleviate any going concern issues for at least the next twelve months from the date these condensed consolidated financial statements are available:

 

  Subsequent to June 30, 2020, the Company borrowed $200,000 through a loan agreement and received $250,000 through the exercise of a warrant.
     
  Raise further capital through the sale of addition equity.
     
  Borrow money under debt securities.
     
 

The deferral of payments to related party debt holders for both principal of $2,667,513 and related interest expense.

     
  Annual cost saving initiatives related to synergies and the elimination of redundant costs of approximately $1,500,000.
     
  Possible sale of certain brands to other manufacturers.
     
  Edison Nation Medical’s procurement of Personal Protective Equipment (“PPE”) and hand sanitizers and the subsequent sale of PPE items and hand sanitizers to governmental agencies, educational facilities, medical facilities and distributors.
     
  Entry into joint ventures or total/partial acquisitions of operational entities to expand the sale of PPE and proprietary hand sanitizer through Edison Nation Medical.

 

Our operating needs include the planned costs to operate our business, including amounts required to fund working capital and capital expenditures. Our future capital requirements and the adequacy of our available funds will depend on many factors, including our ability to successfully commercialize our products and services, competing technological and market developments, and the need to enter into collaborations with other companies or acquire other companies or technologies to enhance or complement our product and service offerings.

 

F-6

 

 

Edison Nation, Inc. and Subsidiaries

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 2 — Summary of Significant Accounting Policies

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of Edison Nation, Inc. and its wholly-owned and majority owned subsidiaries. All intercompany balances and transactions have been eliminated.

 

Variable Interest Entity Assessment

 

A VIE is an entity (a) that has total equity at risk that is not sufficient to finance its activities without additional subordinated financial support from other entities, (b) where the group of equity holders does not have the power to direct the activities of the entity that most significantly impact the entity’s economic performance, or the obligation to absorb the entity’s expected losses or the right to receive the entity’s expected residual returns, or both, or (c) where the voting rights of some investors are not proportional to their obligations to absorb the expected losses of the entity, their rights to receive the expected residual returns of the entity, or both, and substantially all of the entity’s activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights. In order to determine if an entity is considered a VIE, the Company first performs a qualitative analysis, which requires certain subjective decisions regarding its assessments, including, but not limited to, the design of the entity, the variability that the entity was designed to create and pass along to its interest holders, the rights of the parties, and the purpose of the arrangement. If the Company cannot conclude after a qualitative analysis whether an entity is a VIE, it performs a quantitative analysis. The qualitative analysis considered the design of the entity, the risks that cause variability, the purpose for which the entity was created, and the variability that the entity was designed to pass along to its variable interest holders.

 

Use of Estimates

 

Preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, together with amounts disclosed in the related notes to the financial statements.

 

The Company’s significant estimates used in these financial statements include, but are not limited to, accounts receivable reserves, the valuation allowance related to the Company’s deferred tax assets, the recoverability and useful lives of long-lived assets, debt conversion features, stock-based compensation, certain assumptions related to the valuation of the reserved shares and the assets acquired and liabilities assumed related to the Company’s acquisitions. Certain of the Company’s estimates could be affected by external conditions, including those unique to the Company and general economic conditions. It is reasonably possible that these external factors could have an effect on the Company’s estimates and could cause actual results to differ from those estimates.

 

Cash and Cash Equivalents

 

The Company has cash on deposit in several financial institutions which, at times, may be in excess of Federal Deposit Insurance Corporation (“FDIC”) insurance limits. The Company has not experienced losses in such accounts and periodically evaluates the creditworthiness of its financial institutions. The Company reduces its credit risk by placing its cash and cash equivalents with major financial institutions. The Company had approximately $928,000 not covered by FDIC insurance limits as of June 30, 2020 of which approximately $113,000 was held in foreign bank accounts.

 

Accounts Receivable

 

As of June 30, 2020, the following customer represented more than 10% of total accounts receivable:

 

    June 30, 2020  
Customer:        
Customer A     14 %

 

Inventory

 

Inventory is recorded at the lower of cost or net realizable value on a first-in, first-out basis. The Company reduces the carrying value of inventories for those items that are potentially excess, obsolete, or slow moving based on changes in customer demand, technology developments, or other economic factors.

 

Revenue Recognition

 

Generally, the Company considers all revenues as arising from contracts with customers. Revenue is recognized based on the five-step process outlined in the Accounting Standards Codification (“ASC”) 606:

 

Step 1 – Identify the Contract with the Customer – A contract exists when (a) the parties to the contract have approved the contract and are committed to perform their respective obligations, (b) the entity can identify each party’s rights regarding the goods or services to be transferred, (c) the entity can identify the payment terms for the goods or services to be transferred, (d) the contract has commercial substance and it is probably that the entity will collect substantially all of the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer.

 

F-7

 

 

Edison Nation, Inc. and Subsidiaries

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 2 — Summary of Significant Accounting Policies — (Continued)

 

Step 2 – Identify Performance Obligations in the Contract – Upon execution of a contract, the Company identifies as performance obligations each promise to transfer to the customer either (a) goods or services that are distinct, or (b) a series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer. To the extent a contract includes multiple promised goods or services, the Company must apply judgement to determine whether the goods or services are capable of being distinct within the context of the contract. If these criteria are not met, the goods or services are accounted for as a combined performance obligation.

 

Step 3 – Determine the Transaction Price – When (or as) a performance obligation is satisfied, the Company shall recognize as revenue the amount of the transaction price that is allocated to the performance obligation. The contract terms are used to determine the transaction price. Generally, all contracts include fixed consideration. If a contract did include variable consideration, the Company would determine the amount of variable consideration that should be included in the transaction price based on expected value method. Variable consideration would be included in the transaction price, if in the Company’s judgement, it is probable that a significant future reversal of cumulative revenue under the contract would not occur.

 

Step 4 – Allocate the Transaction Price – After the transaction price has been determined, the next step is to allocate the transaction price to each performance obligation in the contract. If the contract only has one performance obligation, the entire transaction price will be applied to that obligation. If the contract has multiple performance obligations, the transaction price is allocated to the performance obligations based on the relative standalone selling price (SSP) at contract inception.

 

Step 5 – Satisfaction of the Performance Obligations (and Recognize Revenue) – Revenue is recognized when (or as) goods or services are transferred to a customer. The Company satisfies each of its performance obligations by transferring control of the promised good or service underlying that performance obligation to the customer. Control is the ability to direct the use of and obtain substantially all of the remaining benefits from an asset. It includes the ability to prevent other entities from directing the use of and obtaining the benefits from an asset. Indicators that control has passed to the customer include: a present obligation to pay; physical possession of the asset; legal title; risks and rewards of ownership; and acceptance of the asset(s). Performance obligations can be satisfied at a point in time or over time.

 

Substantially all of the Company’s revenues continue to be recognized when control of the goods is transferred to the customer, which is upon shipment of the finished goods to the customer. All sales have fixed pricing and there are currently no material variable components included in the Company’s revenue. Additionally, the Company will issue credits for defective merchandise, historically these credits for defective merchandise have not been material. Based on the Company’s analysis of the new revenue standards, revenue recognition from the sale of finished goods to customers, which represents substantially all of the Company’s revenues, was not impacted by the adoption of the new revenue standards.

 

Disaggregation of Revenue

 

The Company’s primary revenue streams include the sale and/or licensing of consumer goods and packaging materials for innovative products. The Company’s licensing business is not material and has not been separately disaggregated for segment purposes. The disaggregated Company’s revenues for the three and six months ended June 30, 2020 and 2019 was as follows:

 

   

For the Three Months

Ended June 30,

   

For the Six Months

Ended June 30,

 
    2020     2019     2020     2019  
Revenues:                                
Product sales   $ 6,829,111     $ 5,845,651     $ 10,456,012     $ 11,483,001  
Service     -       22,714       -       48,311  
Licensing     50,915       99,890       91,124       175,477  
Total revenues, net   $

6,880,026

    $ 5,968,255     $

10,547,136

    $ 11,706,789  

 

F-8

 

 

Edison Nation, Inc. and Subsidiaries

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 2 — Summary of Significant Accounting Policies — (Continued)

 

For the three and six months ended June 30, 2020 and 2019, the following customer represented more than 10% of total net revenues:

 

   

For the Three Months

Ended June 30,

   

For the Six Months

Ended June 30,

 
    2020     2019     2020     2019  
Customer:                                
Customer A    

*

%     27 %    

*

%     25 %
Customer B     11 %      *       *       *

Customer C

   

11

%    

*

     

*

     

*

 

 

* Customer did not represent greater than 10% of total net revenue.

 

For the three and six months ended June 30, 2020 and 2019, the following geographical regions represented more than 10% of total net revenues:

 

   

For the Three Months

Ended June 30,

   

For the Six Months

Ended June 30,

 
    2020     2019     2020     2019  
Region:                        
North America          98 %     73 %     93 %     75 %
Europe     *       18 %     *       18 %

 

* Region did not represent greater than 10% of total net revenue.

 

Fair Value of Financial Instruments

 

The Company measures the fair value of financial assets and liabilities based on the guidance of ASC 820 “Fair Value Measurements and Disclosures” (“ASC 820”) which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.

 

ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:

 

Level 1 — quoted prices in active markets for identical assets or liabilities

 

Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable

 

Level 3 — inputs that are unobservable (for example, cash flow modeling inputs based on assumptions)

 

The carrying amounts of the Company’s financial instruments, such as cash, accounts receivable, accounts payable, accrued expenses and other current liabilities approximate fair values due to the short-term nature of these instruments. The carrying amount of the Company’s notes payable approximates fair value because the effective yields on these obligations, which include contractual interest rates, taken together with other features such as concurrent issuance of warrants, are comparable to rates of returns for instruments of similar credit risk. The loan held for investment was acquired at fair value, which resulted in a discount.

 

Sequencing Policy

 

Under ASC 815-40-35, the Company follows a sequencing policy whereby, in the event that reclassification of contracts from equity to assets or liabilities is necessary pursuant to ASC 815 due to the Company’s inability to demonstrate it has sufficient authorized shares as a result of certain securities with a potentially indeterminable number of shares, shares will be allocated on the basis of the earliest issuance date of potentially dilutive instruments, with the earliest grants receiving the first allocation of shares. Pursuant to ASC 815, issuance of securities to the Company’s employees or directors are not subject to the sequencing policy.

 

F-9

 

 

Edison Nation, Inc. and Subsidiaries

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 2 — Summary of Significant Accounting Policies — (Continued)

 

Foreign Currency Translation

 

The Company uses the United States dollar as its functional and reporting currency since the majority of the Company’s revenues, expenses, assets and liabilities are in the United States. Assets and liabilities in foreign currencies are translated using the exchange rate at the balance sheet date, while revenue and expense accounts are translated at the average exchange rates prevailing during the year. Equity accounts are translated at historical exchange rates. Gains and losses from foreign currency transactions and translation for the three and six months ended June 30, 2020 and 2019 and the cumulative translation gains and losses as of June 30, 2020 and December 31, 2019 were not material.

 

F-10

 

 

Edison Nation, Inc. and Subsidiaries

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 2 — Summary of Significant Accounting Policies — (Continued)

 

Net Earnings or Loss per Share

 

Basic net income (loss) per common share is computed by dividing net loss by the weighted average number of vested common shares outstanding during the period. Diluted net income per common share is computed by dividing net income by the weighted average number vested of common shares, plus the net impact of common shares (computed using the treasury stock method), if dilutive, resulting from the exercise of dilutive securities. In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive.

 

As of June 30, 2020 and 2019, the Company excluded the common stock equivalents summarized below, which entitled the holders thereof to ultimately acquire shares of common stock, from its calculation of earnings per share, as their effect would have been anti-dilutive.

 

    June 30, 2020     June 30, 2019  
Selling Agent Warrants     160,492       65,626  
Shares reserved in exchange for the cancellation of certain non-voting membership interest in Edison Nation Holdings, LLC     990,000       990,000  
Options     80,000       290,000  
Convertible shares under notes payable     999,536       285,632  
Warrants for noteholders     750,000          
Restricted stock units     270,000       -  
Shares to be issued     46,500       20,000  
Total     3,296,528       1,651,258  

 

F-11

 

 

Edison Nation, Inc. and Subsidiaries

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 2 — Summary of Significant Accounting Policies — (Continued)

 

Recent Accounting Pronouncements

 

In August 2018, the FASB issued Accounting Standards Update (“ASU”) No. 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40), new accounting guidance that addresses the accounting for implementation costs associated with a hosted service. The guidance provides that implementation costs be evaluated for capitalization using the same criteria as that used for internal-use software development costs, with amortization expense being recorded in the same income statement expense line as the hosted service costs and over the expected term of the hosting arrangement. This guidance is effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. The guidance will be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company adopted this accounting guidance in the first quarter of 2020 and the adoption did not have a material impact on the Company’s consolidated financial statements and related disclosures.

 

In August 2018, the FASB issued new accounting guidance that eliminates, adds and modifies certain disclosure requirements for fair value measurements. Among the changes, an entity will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted. The Company adopted this accounting guidance in the first quarter of 2020 and the adoption did not have a material impact on the Company’s consolidated financial statements and related disclosures.

 

In October 2018, the FASB issued new accounting guidance for Variable Interest Entities, which requires indirect interests held through related parties in common control arrangements be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. The guidance is effective for the Company’s interim and annual reporting periods during the year ending December 31, 2020. Early adoption is permitted. The Company adopted this accounting guidance in the first quarter of 2020 and the adoption did not have a material impact on the Company’s consolidated financial statements and related disclosures.

 

In July 2017, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): Part 1 – Accounting for Certain Financial Instruments with Down Round Features and Part 2 – Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with Scope Exception (“ASU No. 2017-11”). Part 1 of ASU No. 2017-11 addresses the complexity of accounting for certain financial instruments with down round features. Down round features are provisions in certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of ASU No. 2017-11 addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification®. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. For public business entities, the amendments in Part I of this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The amendments in Part II of this update do not require any transition guidance because those amendments do not have an accounting effect. The Company adopted this accounting guidance in the first quarter of 2020 and the adoption did not have a material impact on the Company’s consolidated financial statements and related disclosures.

 

F-12

 

 

Edison Nation, Inc. and Subsidiaries

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 2 — Summary of Significant Accounting Policies — (Continued)

 

Subsequent Events

 

The Company has evaluated subsequent events through the date which the financial statements were issued. Based upon such evaluation, except for items described in Note 10, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the financial statements.

 

Segment Reporting

 

The Company uses “the management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. The Company’s chief operating decision maker is the Chairman and Chief Executive Officer (“CEO”) of the Company, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. The Company deploys resources on a consolidated level to all brands of the Company and therefore the Company only identifies one reportable operating segment with multiple product offerings.

 

F-13

 

 

Edison Nation, Inc. and Subsidiaries

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 3 — Acquisitions and Divestitures

 

Divestiture of Subsidiary

 

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 and an indemnification agreement as described below, 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, as part of the sale of Cloud B, Inc., 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. In addition, the Company shall indemnify the Buyer for expenses (including attorneys’ fees and all other costs, expenses and obligations) in connection with defending any Claim in connection with the Cloud B. The Company has recorded $405,000 related to the fair value of the 150,000 shares of common stock which were issued to the Buyer on June 30, 2020.

 

The table below shows the assets and liabilities that the Company was relieved of in the transaction:

 

    February 17, 2020  
Accounts payable     4,005,605  
Accrued Expenses     370,289  
Income Tax Payable     14,473  
Notes Payable     900,000  
Non-Controlling Interest     26,393  
Shares to be issued to Buyer     (405,000 )
Gain on divestiture   $ 4,911,760  

 

On March 11, 2020, the Company issued 238,750 shares of our common stock to acquire the assets of HMNRTH, LLC. On July 1, 2020, the Company made payment in the amount of $70,850 to the principals of HMNRTH, LLC. The transaction was treated as an asset purchase and not accounted for as a business combination due to the limited inputs, processes and outputs, which did not meet the requirements to be a business.

 

Note 4 — Variable Interest Entities

 

The Company is involved in the formation of various entities considered to be Variable Interest Entities (“VIEs”). The Company evaluates the consolidation of these entities as required pursuant to ASC Topic 810 relating to the consolidation of VIEs. These VIEs are primarily partnerships formed to supply consumer goods to through various distribution and retail channels.

 

The Company’s determination of whether it is the primary beneficiary of VIE is based in part on an assessment of whether or not the Company and its related parties are exposed to the majority of the risks and rewards of the entity. Typically, the Company is entitled to substantially all or portion of the economics of these VIEs. The Company is the primary beneficiary of the VIE entities.

 

The following table presents the carrying values of the assets and liabilities of entities that are VIEs and consolidated by the Company at June 30, 2020:

 

    June 30, 2020     December 31, 2019  
    (Unaudited)        
             
Assets                
Current assets:                
Cash and cash equivalents   $ 802,033     $ 6,234  
Accounts receivable, net     955,246       21,697  
Inventory     20,623       51,090  
Prepaid expenses and other current assets     1,412,728       379,561  
Total current assets     3,190,630       458,582  
Property and equipment, net     24,001       32,661  
Total assets   $ 3,214,631     $ 491,243  
                 
Liabilities and stockholders’ equity                
Current liabilities:                
Accounts payable   $ 194,738     $ 337,648  
Accrued expenses and other current liabilities     15,806       -  
Deferred revenues     907,500       -  
Line of credit, net of debt issuance costs of $0 and $15,573, respectively     1,690,945       -  
Notes payable, current     150,000       -  
Due to related party     315,666       315,666  
Total current liabilities     3,274,655       12,973,319  

 

The following table presents the operations of entities that are VIEs and consolidated by the Company at June 30, 2020:

 

   

For the Three Months

Ended June 30,

   

For the Six Months

Ended June 30,

 
    2020     2019     2020     2019  
Revenues, net   $

1,051,945

    $ 80,120     $

1,274,477

    $ 285,542  
Cost of revenues     789,000       49,590       994,923       124,659  
Gross profit    

262,945

      30,530      

279,554

      160,883  
                                 
Operating expenses:                                
Selling, general and administrative    

136,648

      100,961      

203,562

      192,699  
Operating income     126,297       (70,431 )     75,992       (31,816 )
                                 
Other (expense) income:                                
Interest expense     (21,331 )     -       (56,956 )     -  
Total other (expense) income     (21,331 )     -       (56,956 )     -  
Loss before income taxes     104,966       (70,431 )     19,036       (31,816 )
Income tax expense     -       -       -       -  
Net income   $ 104,966     $ (70,431 )   $ 19,036     $ (31,816 )

 

At June 30, 2020 and December 31, 2019, there were no unconsolidated VIEs for which the Company holds a variable interest.

 

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 Solutions, 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. Global Clean Solutions, LLC is a VIE. The fair value of the shares of $699,000 was treated as a distribution to the noncontrolling interest members.

 

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. The fair value of the shares is expensed over the estimated vesting period and is adjusted based on the number of shares that vest.

 

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 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 the 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.

 

Note 5 — Accounts Receivable

 

As of June 30, 2020 and December 31, 2019, accounts receivable consisted of the following:

 

    June 30, 2020     December 31, 2019  
Accounts receivable   $

3,163,956

    $ 2,185,859  
Less: Allowance for doubtful accounts     (77,761 )     (77,760 )
Total accounts receivable, net   $

3,086,195

    $ 2,108,099  

 

Note 6 — Inventory

 

As of June 30, 2020 and December 31, 2019, inventory consisted of the following:

 

    June 30, 2020     December 31, 2019  
Raw materials   $

25,648

  $ 49,232  
Finished goods     1,265,350       1,419,993  
Reserve for obsolescence     (100,000 )    

(100,000

Total inventory   $ 1,190,998     $ 1,69,225  

 

F-14

 

 

Edison Nation, Inc. and Subsidiaries

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 7 — Debt

 

As of June 30, 2020 and December 31, 2019, debt consisted of the following:

 

    June 30, 2020     December 31, 2019  
Line of credit:                
Secured line of credit   $ 1,690,945     $ -  

Receivables financing

   

460,163

     

472,567

 
Debt issuance costs     -       (15,573 )
Total lines of credit     2,151,108       456,995  
                 
Convertible notes payable:                
Senior convertible notes payable – related parties     1,428,161       1,428,161  
Senior convertible notes payable     1,100,000       -  
Convertible notes payable     336,000       -  
Debt issuance costs     (851,901 )     (366,666 )
Total convertible notes payable     2,012,260       1,061,495  
Less: current portion of long-term convertible notes payable     (900,765 )     -  
Noncurrent portion of long-term convertible notes payable     1,111,495       1,061,495  
                 
Notes payable:                
Notes payable     1,882,064       1,621,015  
Debt issuance costs     (86,350 )     (212,848 )
Total long-term debt     1,795,714       1,408,167  
Less: current portion of long-term debt     (970,710 )     (1,365,675 )
Noncurrent portion of long-term debt     825,004       42,492  
                 
Notes payable – related parties:                
Notes payable     2,667,513       3,282,021  
Less: current portion of long-term debt – related parties     (1,166,365 )     (1,686,352 )
Noncurrent portion of long-term debt – related parties   $ 1,501,148     $ 1,595,669  

 

Convertible Notes Payable

 

On January 23, 2020, Edison Nation, Inc. (the “Company”) entered into a $1,100,000 loan agreement the (“Loan Agreement”) with Greentree Financial Group, Inc. (the “Investor”), pursuant to which the Investor purchased a 10% Convertible Promissory Note (the “Note”) from the Company, and the Company issued to the Investor a three year warrant (the “Warrant”) to purchase 550,000 shares of the Company’s common stock, $0.001 per share (“Common Stock”). The Note 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 Note. The Note reiterates the registration rights set forth in the Loan Agreement and the Warrant. There is no prepayment penalty on the Note. If the Note is not prepaid by the 90th day after the effective date of the Registration Statement, the Investor is required to convert the entire amount of principal and interest outstanding on the Note at that time, at a price of $2.00 per share, unless an event of default (as such events are described in the Note) under the Note has occurred, in which case the 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 Note mandatorily converts. In the event that the average of the 15 lowest closing prices for the Company’s common stock on NASDAQ or other primary trading market for the Company’s common stock (the average of such lowest closing prices being herein referred to, the “True-up Price”) during the period beginning on the effective date of the Registration Statement and ending on the 90th day after the effective date of the Registration Statement (the “Subsequent Pricing Period”) is less than $2.00 per share, then the Company will issue the Lender additional shares of the Company’s common stock (the “True-up Shares”) within three days. No value has been assigned to the True-up Shares due to the contingency of an effective Registration Statement. The warrant has an exercise price of $2.00 per share, subject to certain adjustments to the exercise price set forth in the Warrant. The 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 Warrant is greater than $2.00 per share, the Warrant may be exercised cashlessly, based on a cashless exercise formula. The Warrant reiterates the registration rights set forth in the Loan Agreement and the Note. The Warrant also contains a repurchase provision, which at any time after the Registration Statement is effective and the 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 Warrant at a price of $1.00 per share. The $1,100,000 of proceeds from the Note will be used for general working capital purposes and for the repayment of debt. On January 24, 2020, the Company used $588,366 of the proceeds from the Note to pay off in full the 12% Convertible Promissory Note held by Labrys Fund, LP. Upon execution of the Loan Agreement, the Company issued to the Investor 100,000 shares of Common Stock (the “Origination Shares”) as an origination fee, plus an additional 60,000 shares of Common Stock as consideration for advisory services. Pursuant to the Loan Agreement, the Company agreed to issue and sell to the Investor the Note, in the principal amount of $1,100,000.

 

On January 29, 2020, the Company and Greentree Financial Group, Inc. (the “Investor”), entered into an Amendment Agreement, amending the January 22, 2020 Loan Agreement, the Note, and the Warrant to: (i) correct the effective date set forth in the Loan Agreement, Note and Warrant to January 23, 2020 and the due date to October 23, 2020, (ii) clarify the terms of the registration right provision in the Loan Agreement such that the Company was required to register a total of 1,500,000 shares of Common Stock, which such amount of shares is the sum of 550,000 shares of Common Stock issuable upon conversion of the Note, 550,000 Warrant Shares, the 100,000 Origination Shares, and 300,000 shares of Common Stock to account for changes to the conversion and/or exercise price under the Note and Warrant, and (iii) to ensure that the total number of shares of Common Stock issued pursuant to the Loan Agreement, the Note, and/or the Warrant, each as amended, does not exceed 17.99% of the Company’s issued and outstanding Common Stock as of January 23, 2020. The Company is subject to a $35,000 penalty on a monthly basis if a registration statement is not effective after 105 days from January 23, 2020. The Company recognized a beneficial conversion option of $586,785 related to the 550,000 shares of Common Stock issuable upon conversion of the Note, a debt discount of $296,891 based on the relative fair value related to the 550,000 Warrant Shares, a debt discount of $201,324 based on the relative fair value related to the 160,000 Origination and Advisory Shares.

 

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 issued 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. Upon an Event of Default, the Conversion Price shall equal the Alternate Conversion Price (as defined herein) (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The “Alternate Conversion Price” shall equal the lesser of (i) 80% multiplied by the average of the three lowest daily volume weighted average prices (“VWAP”) during the previous twenty (20) Trading Days (as defined below) before the Issue Date of this Note (representing a discount rate of 20%) or (ii) 80% multiplied by the Market Price (as defined herein) (representing a discount rate of 20%). “Market Price” means the average of the three lowest daily VWAPs for the Common Stock during the twenty (20) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date.

 

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 issued 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. Upon an Event of Default, the Conversion Price shall equal the Alternate Conversion Price (as defined herein) (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The “Alternate Conversion Price” shall equal the lesser of (i) 80% multiplied by the average of the three lowest daily volume weighted average prices (“VWAP”) during the previous twenty (20) Trading Days (as defined below) before the Issue Date of this Note (representing a discount rate of 20%) or (ii) 80% multiplied by the Market Price (as defined herein) (representing a discount rate of 20%). “Market Price” means the average of the three lowest daily VWAPs for the Common Stock during the twenty (20) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date.

 

F-15

 

 

Edison Nation, Inc. and Subsidiaries

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 7 — Debt — (Continued)

 

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, 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.

 

Promissory Notes

 

On January 2, 2020, the Company entered into that certain Loan Agreement with Tiburon Opportunity Fund (the “Lender”), dated January 2, 2020 (the “Loan Agreement”). Pursuant to the terms of the Loan Agreement, the Lender agreed to loan the Company $400,000. The Loan is interest bearing at the rate of 1.5% per month through the term of the Loan. Additionally, the 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. 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.

 

On January 2, 2020, Ed Roses, LLC (the “Partnership”) entered into a Loan Agreement (the “Agreement”) with Sook Hyun Lee (the “Lender”). Under the terms of the Agreement, the Lender agreed to lend $150,000 to the Partnership for general working capital. The Loan was due on April 15, 2020 (the “Maturity Date”) and accrues interest at 15% per annum. The Agreement shall automatically renew at the Maturity date for successive 90-day periods unless written notice is remitted by either party. On the Maturity date, the Partnership shall pay the Lender all unpaid principal and interest and a $30,000 commitment fee. The Lender shall have a collateral interest in the accounts receivable of the Partnership, including but not limited to 7 Eleven receivables. As collateral, Edison Nation, Inc. placed 75,000 shares of common stock in reserve.

 

On January 10, 2020, the Company entered into a 5% Promissory Note Agreement with Equity Trust Company on behalf of Rawleigh Ralls (“Ralls”) 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. Please see Note 12 — Subsequent Events for further information.

 

On January 15, 2020, the Company entered into a 5% Promissory Note Agreement with Paul J. Solit & Julie B. Solit (“Solits”) 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. Please see Note 12 — Subsequent Events for further information.

 

On January 17, 2020, the Company entered into a 5% Promissory Note Agreement with Richard O’Leary (“O’Leary”) 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. Please see Note 12 — Subsequent Events for further information.

 

F-16

 

 

Edison Nation, Inc. and Subsidiaries

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 7 — Debt — (Continued)

 

On March 6, 2019, Edison Nation, Inc. (the “Company”) entered into a securities purchase agreement (the “SPA”) with an accredited investor (the “Investor”) pursuant to which the Investor purchased a 2% unsecured, senior convertible promissory note (the “Note”) from the Company. The Note was in the amount of $560,000 with an original issue discount of $60,000. The Company issued 15,000 shares of its common stock (“Common Stock”) valued at $74,100 based on the share price on the date of issuance to the Investor as additional consideration for the purchase of the Note. The Under the terms of the SPA, the Investor will have 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 is also subject to certain customary negative covenants under the 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 SPA and the Note. The maturity date of the Note is six months from March 6, 2019. All principal amounts and the interest thereon are convertible into shares Common Stock only in the event that an Event of Default occurs. On January 24, 2020, the Company paid the Investor $588,366 to pay the Note 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, subject to thresholds, 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.

 

Receivables Financing

 

On February 21, 2020, the Company entered into a receivables financing arrangement for certain receivables of the Company not to exceed $1,250,000 at any one time. The agreement allows for borrowings up to 85% of the outstanding receivable based on the credit quality of the customer. The fee is between 1% and 2% of the total invoices financed.

 

In April 2019, we entered into a receivables financing arrangement for certain receivables of the Company. The agreement allows for borrowings up to 80% of the outstanding receivable based on the credit quality of the customer. The fee is between 1% and 2% of the total invoices financed.

 

On November 12, 2019, the Company entered into a Receivables Purchase Agreement with a financial institution (the “Receivables Purchase Agreement”), whereby the Company agreed to the sale of $250,000 of receivables for $200,000. The proceeds were used for general working capital.

 

On November 18, 2019, the Company entered into a Future Receivables Purchase Agreement with a financial institution (the “Future Receivables Purchase Agreement”), whereby the Company agreed to the sale of $337,500 of receivables for $250,000. The proceeds were used to fund our receivables for overseas distributors. Christopher B. Ferguson, our Chairman and Chief Executive Officer, personally guaranteed the prompt and complete performance of the Company’s obligations under the Future Receivables Purchase Agreement.

 

Line of Credit

 

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”).

 

The scheduled maturities of the debt for the next five years as of December 31, 2019, are as follows:

 

For the Years Ended December 31,   Amount  
2020 (excluding the six months ended June 30, 2020)     3,737,443  
2021     206,760  
2022     1,419,285  
2023     1,440,278  
2024     -  
Thereafter     -  
      6,803,766  
Less: debt discount     (595,088 )
    $ 6,208,678  

 

For the three and six months ended June 30, 2020, interest expense was $847,154 and $1,571,111, respectively of which $75,692 and $152,326 were related party interest expense. For the three and six months ended June 30, 2019, interest expense was $401,170 and $525,864, respectively, of which $79,374 and $159,636 was related party interest expense, respectively.

 

F-17

 

 

Edison Nation, Inc. and Subsidiaries

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 8 — Income Taxes

 

A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows:

 

   

For the Six Months

Ended June 30,

 
    2020     2019  
Tax at federal statutory rate     21.0 %     21.0 %
U.S. income subject to valuation allowance     -21.0 %     -21.0 %
Foreign tax     0.0 %     -1.7 %
Effective income tax rate     0.0 %     -1.7 %

 

The Company has determined that the gain on divestiture of $4,911,760 is a taxable transaction to the Company. The tax provision of approximately $1,030,000 would be offset by the utilization of the Company’s net operating loss carryforwards. The Company has sufficient net operating losses carryforwards to cover any tax liabilities generated due to the divestment of Cloud B, Inc. The Company does not have any deferred income tax expense from the gain due to the Company recording a full valuation allowance against all net operating losses in prior periods.

 

Note 9 — Related Party Transactions

 

NL Penn Capital, LP and SRM Entertainment Group LLC

 

As of June 30, 2020 and December 31, 2019, due to related party consists of net amounts due to SRM Entertainment Group LLC (“SRM LLC”) and NL Penn Capital, LP (“NL Penn”), the majority owner of both, which are owned by Chris Ferguson, our Chairman and Chief Executive Officer. The amount due to related parties is related to the acquisitions of Pirasta, LLC and Best Party Concepts, LLC offset by operating expenses that were paid by SRM and Edison Nation on behalf of SRM LLC and NL Penn. As of June 30, 2020 and December 31, 2019, the net amount due to related parties was $57,784 and $17,253, respectively. Such amounts are due currently. NL Penn and affiliated entities may lend additional capital to Edison Nation pursuant to terms and conditions similar to the current working capital lenders to Edison Nation such as Franklin Capital. In addition, Edison Nation borrows working capital from Franklin Capital, and Mr. Ferguson is a personal guarantor on the working capital facility provided to Edison Nation by Franklin Capital.

 

Note 10 — Commitments and Contingencies

 

Operating Leases

 

The Company has entered into non-cancellable operating leases for office, warehouse, and distribution facilities, with original lease periods expiring through 2021. In addition to minimum rent, certain of the leases require payment of real estate taxes, insurance, common area maintenance charges, and other executory costs. Differences between rent expense and rent paid are recognized as adjustments to operating lease right-of-use assets on the consolidated balance sheets.

 

As of June 30, 2020, the Company recorded operating lease liabilities of $326,482 and right of use assets for operating leases of $578,280. During the three and six months ended June 30, 2020, operating cash outflows relating to operating lease liabilities was $81,105 and $164,091, respectively, and the expense for right of use assets for operating leases was $75,997 and $153,818, respectively. As of June 30, 2020, the Company’s operating leases had a weighted-average remaining term of 3.7 years and weighted-average discount rate of 4.5%. Excluded from the measurement of operating lease liabilities and operating lease right-of-use assets were certain office, warehouse and distribution contracts that either qualify for the short-term lease recognition exception.

 

F-18

 

 

Edison Nation, Inc. and Subsidiaries

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 10 — Commitments and Contingencies — (Continued)

 

On June 6, 2018, the Company’s wholly owned subsidiary, Best Party Concepts, LLC, entered into a lease for office space in Newtown, PA, which expired on May 30, 2020 and was not renewed.

 

Total rent expense for the three and six months ended June 30, 2020 was $122,943 and $269,709, respectively. Total rent expense for the three and six months ended June 30, 2019 was $138,070 and $282,503, respectively. Rent expense is included in general and administrative expense on the consolidated statements of operations.

 

Rental Income

 

Fergco leases a portion of the building located in Washington, New Jersey that it owns under a month to month lease. Total rental income related to the leased space for both the three and six months ended June 30, 2020 and 2019 was both $25,703 and $51,407, respectively, and is included in other income on the consolidated statements of operations.

 

Legal Contingencies

 

The Company is involved in claims and litigation in the ordinary course of business, some of which seek monetary damages, including claims for punitive damages, which are not covered by insurance. For certain pending matters, accruals have not been established because such matters have not progressed sufficiently through discovery, and/or development of important factual information and legal information is insufficient to enable the Company to estimate a range of possible loss, if any. An adverse determination in one or more of these pending matters could have an adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

 

We are, and may in the future become, subject to various legal proceedings and claims that arise in or outside the ordinary course of business.

 

On April 14, 2020, Oceanside Traders, LLC (“Plaintiff”) filed a complaint against Cloud B, Inc. and Edison Nation, Inc. (together the “Defendants”) with the Superior Court of Ocean County, New Jersey alleging a breach of contract in that the Defendants failed to pay Plaintiff for goods sold in the amount of $141,007 plus $138,180 for overpayments and $279,187 for lost profits for a total of $443,383. A default judgment was entered against Edison Nation in the case in the amount of $284,248.91. The same day the default judgment was entered, the Company filed a motion to vacate on the grounds that Edison Nation was not properly served with the complaint.

 

On March 13, 2019, Rosenberg Fortuna & Laitman LLP and Mark Principe (together the “Plaintiffs”) filed a complaint against Safe TV Shop, LLC (the “Defendant”) with the Supreme Court of the State of New York, County of Nassau alleging a breach of indemnification arising out of the use of a certain packaging material. On February 12, 2020, the parties entered a Stipulation and Settlement and Consent Agreement, whereby the Plaintiff entered into a Consent Judgment in the amount of $50,000. The Company has accrued $50,000 for the amount of the judgment, but there have been no operations by the Plaintiff since the date of acquisition by the Company.

 

F-19

 

 

Edison Nation, Inc. and Subsidiaries

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 11 — Stockholders’ Equity

 

Preferred Stock

 

On March 25, 2020, the Company filed a certificate of amendment to the Company’s articles of incorporation with the Secretary of State of the State of Nevada in order to: (i) increase the number of shares of the Company’s authorized preferred stock, par value $0.001 per share, from 0 shares to 30,000,000 shares of preferred stock; (ii) clarify the application of the forum selection clause in the Company’s amended and restated articles of incorporation, specifically that such clause does not apply to federal causes of actions arising under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (the “Exchange Act”); and (iii) include affirmative changes to correspond to the Company’s First Amended and Restated Bylaws, confirming that the Company’s shareholders may vote by written consent. As of June 30, 2020 and December 31, 2019, there were 0 shares of preferred stock issued and outstanding, respectively.

 

Stock-Based Compensation

 

On September 6, 2018, the Company’s board of directors approved an amendment and restatement of the Company’s omnibus incentive plan solely to reflect the Company’s name change to Edison Nation, Inc. Thus, the Edison Nation, Inc. Omnibus Incentive Plan (the “Plan”) which remains effective as of February 9, 2018, provides for the issuance of up to 1,764,705 shares of common stock to help align the interests of management and our stockholders and reward our executive officers for improved Company performance. 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. The exercise price of stock options is equal to the fair market value of the underlying Company common stock on the date of grant.

 

The following table summarizes stock option award activity for the six months ended June 30, 2020:

 

    Shares    

Weighted

Average

Exercise

Price

   

Remaining

Contractual

Life in

Years

   

Aggregate

Intrinsic Value

 
Balance, January 1, 2020     80,000     $ 7.01       3.7       -  
Granted     -       -       -       -  
Balance, June 30, 2020     80,000     $ 7.01       3.5       -  
Exercisable, June 30, 2020     53,333     $ 7.01       3.5       -  

 

As of June 30, 2020, there were 26,667 unvested options to purchase shares of the Company’s common stock or $15,535 of total unrecognized equity-based compensation expense that the Company expected to recognize over a remaining weighted-average period of 1 year.

 

From time to time, the Company grants shares of common stock to consultants and non-employee vendors for services performed. The awards are valued at the market value of the underlying common stock at the date of grant and vest based on the terms of the contract which is usually upon grant.

 

F-20

 

 

Edison Nation, Inc. and Subsidiaries

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 12 — Subsequent Events

 

On July 2, 2020, the Company issued 6,500 shares of common stock valued at $15,535 as incentive shares in connection with the O’Leary financing.

 

On July 6, 2020, the Company issued 25,000 shares of common stock valued at $61,000 to a Consultant for consulting services.

 

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 Issue 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.

 

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 Issue 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 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 Issue 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.

 

On July 23, 2020, the Company issued 320,000 shares of common stock valued at $1,158,400 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 July 24, 2020, the Company issued 113,312 shares of common stock valued at $379,595 to a Consultant for consulting services based on achieving set revenue targets within the agreement.

 

On July 24, 2020, the Company issued 113,312 shares of common stock valued at $379,595 to a Consultant for consulting services based on achieving set revenue targets within the agreement.

 

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 August 3, 2020, the Company issued 30,000 shares of common stock valued at $116,700 to a Consultant for advisory services.

 

On August 4, 2020, the Company issued 20,000 shares of common stock valued at $75,400 to a Consultant for advisory services.

 

On August 4, 2020, the Company issued 370,000 shares of common stock valued at $1,394,900 to Greentree Financial Group, Inc. in satisfaction of $740,000 principal against a note issued on January 23, 2020.

 

On August 12, 2020, the Company entered into an Amendment to a Purchase of Inventory and Repurchase Agreement (the “Amendment”) dated November 12, 2019. Under the terms of the Amendment, (i) the repurchase date is extended to December 10, 2020; and (ii) the Company agreed to pay the Purchaser-Assignee a commitment fee of $13,053, and (iii) the Company agreed to pay the Purchaser-Assignee 2% per month for extension periods commencing July 1, 2020 through December 10, 2020.

 

On August 19, 2020, the Company issued 990,000 shares of common stock valued at $3,168,000 to the members of Edison Nation Holdings, LLC (“EN”) in exchange for the redemption of certain non-voting membership interests of EN as per the terms of the transaction dated September 4, 2018, resulting in the Company owning 100% of EN.

 

F-21

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Stockholders and Board of Directors of

Edison Nation, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Edison Nation, Inc. (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of operations, changes in stockholders’ equity (deficit) and cash flows for each of the two years in the period ended December 31, 2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

 

Explanatory Paragraph – Changes in Accounting Principles

 

ASU No.2016-02

 

As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for leases in 2019 due to the adoption of Accounting Standards update (“ASU”) No. 2016-02, Leases (Topic 842), as amended, effective January 1, 2019, using the modified retrospective approach.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ Marcum LLP  
   
Marcum llp  

 

We have served as the Company’s auditor since 2017.

 

New York, NY

May 29, 2020

 

F-22

 

 

Edison Nation, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

 

  

December 31,

2019

  

December 31,

2018

 
         
Assets          
Current assets:          
Cash and cash equivalents  $412,719   $2,052,731 
Accounts receivable, net   2,108,099    1,877,351 
Inventory   1,369,225    923,707 
Prepaid expenses and other current assets   917,433    611,695 
Income tax receivable   147,889    - 
Total current assets   4,955,365    5,465,484 
Property and equipment, net   931,968    998,863 
Right of use assets, net   732,100    - 
Intangible assets, net   11,598,063    12,687,731 
Goodwill   5,392,123    9,736,510 
Total assets  $23,609,619   $28,888,588 
           
Liabilities and stockholders’ equity           
Current liabilities:          
Accounts payable  $7,397,650   $5,519,159 
Accrued expenses and other current liabilities   1,594,669    1,135,551 
Deferred revenues   159,591    175,956 
Current portion of operating leases liabilities   272,215     
Income tax payable   22,919    129,511 
Line of credit, net of debt issuance costs of $15,573 and $30,000, respectively   456,995    531,804 
Current portion of notes payable, net of debt issuance costs of $212,848 and $0, respectively   1,365,675    313,572 
Current portion of notes payable – related parties   1,686,352    932,701 
Due to related party   17,253   140,682 
Total current liabilities   12,973,319    8,878,936 
Contingent consideration   -    520,000 
Operating leases liabilities –net of current portion   482,212     - 

Convertible notes payable – related parties, net of current portion, net of debt discount of $366,666 and $466,667, respectively

   1,061,495    961,494 
Notes payable, net of current portion   42,492    56,688 
Notes payable – related parties, net of current portion   1,595,669    2,531,490 
Deferred tax liability   -    341 
Total liabilities  $16,155,187   $12,948,949 
Commitments and Contingencies (Note 14)          
           
Stockholders’ equity          
Common stock, $0.001 par value, 250,000,000 shares authorized; 8,015,756 and 5,654,830 shares issued and outstanding as of December 31, 2019 and 2018, respectively  $8,016   $5,655 
Additional paid-in-capital   26,259,575    20,548,164 
Accumulated deficit   (18,495,461)   (5,565,756)
Total stockholders’ equity attributable to Edison Nation, Inc.   7,772,130    14,988,063 
Noncontrolling interests   (317,698)   951,576 
Total stockholders’ equity   7,454,432    15,939,639 
Total liabilities and stockholders’ equity  $23,609,619   $28,888,588 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-23

 

 

Edison Nation, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

 

    Years Ended December 31,  
    2019     2018  
             
Revenues, net   $ 19,629,062     $ 16,502,209  
Cost of revenues     12,822,450       11,425,619  
Gross profit     6,806,612       5,076,590  
                 
Operating expenses:                
Selling, general and administrative     15,909,840       9,718,286  
Gain on change in fair value of earnout liability    

(520,000

)     -  
Impairment of goodwill     4,443,000       -  
Total operating expenses     19,832,840       9,718,286  
Operating loss     (13,026,228 )     (4,641,696 )
                 
Other (expense) income:                
Rental income     102,815       102,815  
Interest expense     (1,298,168 )     (501,221 )
Other income     3,054       -  
Total other expense     (1,192,299 )     (398,406 )
Loss before income taxes     (14,218,527 )     (5,040,102 )
Income tax (benefit) expense    

(19,547

)     303,915  
Net loss   (14,198,980 )   (5,344,017 )
Net loss attributable to noncontrolling interests   (1,269,274 )   (13,891 )
Net loss attributable to Edison Nation, Inc.   (12,929,706 )   (5,330,126 )
Net loss per share - basic and diluted   $ (2.36 )   $ (1.28 )
Weighted average number of common shares outstanding – basic and diluted     6,026,049       4,157,054  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-24

 

 

Edison Nation, Inc. and Subsidiaries

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

 

   Common Stock  

Additional

Paid-in

   Accumulated   Noncontrolling  

Total

Stockholders’

 
   Shares   Amount   Capital   Deficit   Interest   Equity 
                         
Balance, January 1, 2018   3,000,000   $3,000   $-   $(235,630)  $-   $(232,630)
Sale of common stock – investors in the IPO, net of offering costs of $1,247,424   1,312,520    1,313    5,313,863    -    -    5,315,176 
Issuance of common stock to employees   103,636    104    559,395    -    -    559,499 
Issuance of common stock to note holders   33,500    33    167,467    -    -    167,500 
Issuance of common stock to vendors for services   158,797    159    800,841    -    -    801,000 
Acquisition of Edison Nation Holdings, LLC – issuance of common stock to satisfy indebtedness   557,084    557    3,383,728    -    -    3,384,285 
Acquisition of Cloud B, Inc. – issuance of common stock   489,293    489    2,663,711    -    -    2,664,200 
Acquisition of Cloud B, Inc. – noncontrolling interest   -    -    -    -    1,158,000    1,158,000 
Acquisition of Best Party Concepts, LLC – deemed distribution and noncontrolling interest   -    -    (692,533)   -    (192,533)   (885,066)
Acquisition of Pirasta, LLC – deemed distribution   -    -    (188,552)   -    -    (188,552)
Beneficial conversion option on indebtedness related to acquisition of Edison Nation Holdings, LLC   -    -    500,000    -    -    500,000 
Shares reserved for future issuance of common stock to sellers of Edison Nation Holdings, LLC   -    -    6,014,250    -    -    6,014,250 
Stock-based compensation   -    -    2,025,994    -    -    2,025,994 
Net loss   -    -    -    (5,330,126)   (13,891)   (5,344,017)
Balance, December 31, 2018   5,654,830    5,655   20,548,164    (5,565,756)   951,576    15,939,639 
Sale of common stock – investors, net of offering costs of $310,697   1,175,000    1,175    2,038,128    -    -    2,039,303 
Issuance of common stock for services   291,736    292    738,008              738,300 
Issuance of common stock to note holders   286,005    286    386,994    -    -    387,280 
Issuance of common stock to employees   3,000    3    8,847    -    -    8,850 
Issuance of common stock – Uber Mom in connection with acquisition of assets   

45,000

    45    98,568    -    -    98,613 
Issuance of common stock upon the conversion of debt   

560,185

    560    1,119,810    -    -    1,120,370 
Issuance of warrants – note holders   -    -    72,936    -    -    72,936 
Share-based compensation   -    -    1,248,121   -    -    1,248,121
Net loss   -    -    -    (12,929,706)   (1,269,274)   (14,198,980)
Balance, December 31, 2019     8,015,756   $8,016   $  26,259,576   $(18,495,462)  $(317,698)  $7,454,432 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-25

 

 

Edison Nation, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

    Years Ended December 31,  
    2019     2018  
Cash Flow from Operating Activities                
Net loss attributable to Edison Nation, Inc.   $ (12,929,706 )   $ (5,330,126 )
Net loss attributable to noncontrolling interests     (1,269,274 )     (13,891 )
Net loss     (14,198,980 )     (5,344,017 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation and amortization     1,316,501       487,878  
Amortization of debt issuance costs     944,437       300,277  
Stock-based compensation    

2,299,915

      3,386,493  
Change in fair value of earnout    

(520,000

)     -  
Impairment of goodwill     4,443,000       -  
Deferred tax liability     (341 )     (33,868 )
Amortization of right of use asset     295,106       -  
Changes in assets and liabilities:                
Accounts receivable     (230,748 )     590  
Inventory     (445,518 )     59,309  
Prepaid expenses and other current assets     (704,626 )     (353,440 )
Accounts payable     1,878,491       (1,408,184 )
Accrued expenses and other current liabilities     282,516     636,881  
Operating lease liabilities     (272,779 )     -  
Due from related party     (123,429 )     (507,922 )
Net cash used in operating activities     (5,036,455 )     (2,776,003 )
                 
Cash Flows from Investing Activities                
Purchases of property and equipment     (159,938 )     (141,440 )
Acquisitions, net of cash     -       (772,581 )
Purchase of loan held for investment     -       (500,000 )
Net cash used in investing activities     (159,938 )     (1,414,021 )
                 
Cash Flows from Financing Activities                
Net borrowings under line of credit     -       531,804  
Borrowings under convertible notes payable     1,111,111       -  
Borrowings under notes payable     2,482,500       718,559  
Repayments under line of credit     (90,382     -  
Repayments under notes payable     (1,231,744 )     (648,299 )
Repayments under notes payable – related parties     (182,170 )     (132,309 )
Fees paid for financing costs     (581,496 )     (99,444 )
Net proceeds from issuance of common stock – net of offering costs of $310,697     2,048,562       5,315,176  
Net cash provided by financing activities     3,556,381       5,685,487  
Net (decrease) increase in cash and cash equivalents     (1,640,012 )     1,495,463  
Cash and cash equivalents - beginning of year     2,052,731       557,268  
Cash and cash equivalents - end of year   $ 412,719     $ 2,052,731  
                 
Supplemental Disclosures of Cash Flow Information                
Cash paid during the period for:                
Interest   $ 260,444     $ 103,865  
Income taxes   $ 235,275     $ 265,015  
Shares issued to note holders   $ -     $ 167,500  
Shares issued for the acquisition of Edison Nation Holdings, LLC   $ -     $ 3,384,285  
Shares issued for the asset acquisition of Uber Mom   $

98,613

    $ -  
Shares reserved for the acquisition of Edison Nation Holdings, LLC   $ -     $ 6,014,250  
Shares issued for the acquisition of Cloud B, Inc.   $ -     $ 2,664,200  
Borrowings under note payable for the purchase of property and equipment   $ -     $ 73,559  
Issuance of 5%, 5-year senior convertible notes for the acquisition of Edison Nation Holdings, LLC, net of debt discount for conversion feature   $ -     $ 1,428,161  
Change in fair value of earnout   $ (520,000   $ 520,000  
Satisfaction of due from related party for acquisition of Best Party Concepts, LLC   $ -     $ 500,000  
Deemed distribution to shareholder for acquisition of Best Party Concepts, LLC   $ -     $ 692,533  
Satisfaction of due from related party for acquisition of Pirasta, LLC   $ -     $ 470,000  
Deemed distribution to shareholder for acquisitions of Pirasta, LLC   $ -     $ 188,552  

Right of use assets

  $

943,997

    $

-

 

Operating lease liabilities

  $

943,997

    $

-

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-26

 

 

Edison Nation, Inc. and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1 — Basis of Presentation and Nature of Operations

 

As used herein, the terms the “Company,” “Edison Nation” “we,” “us,” “our” and similar refer to Edison Nation, Inc., a Nevada corporation incorporated on July 18, 2017 under the laws of the State of Nevada as Idea Lab X Products, Inc. and also formerly known as Xspand Products Lab, Inc. prior to its name change on September 12, 2018, and/or its wholly-owned and majority-owned operating subsidiaries, and/or where applicable, its management.

 

Edison Nation is a vertically-integrated, end-to-end, consumer product research & development, manufacturing, sales and fulfillment company. The Company’s proprietary web-enabled platform provides a low risk, high reward platform and process to connect innovators of new product ideas with potential licensees.

 

As of December 31, 2019, Edison Nation, Inc. had five wholly-owned subsidiaries: S.R.M. Entertainment Limited (“SRM”), Ferguson Containers, Inc. (“Fergco”), CBAV1, LLC (“CB1”), Pirasta, LLC and Edison Nation Holdings, LLC. Edison Nation, Inc. owns 72.15% of Cloud B, Inc., 50% of Best Party Concepts, LLC and 50% of Ed Roses, 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. Cloud B, Inc. owns 100% of Cloud B UK and Cloud B Australia.

 

August 23, 2019, the Company formed Ed Roses, LLC, a 50% joint venture with 4Keeps Roses, Inc., to distribute preserved roses, flowers and associated gift products.

 

On November 6, 2019, the Company issued 22,500 shares of our common stock and paid $52,352 in cash to acquire the assets of Uber Mom, LLC, which was the approximate value of Uber Mom, LLC’s inventory.

 

Liquidity

 

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.

 

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.

 

The foregoing factors raise substantial doubt about the Company’s ability to continue as a going concern for at least the next twelve months from the date of issuance of these financial statements. The ability to continue as a going concern is dependent upon the Company’s ability to attract significant new sources of capital, attain a reasonable threshold of operating efficiencies and achieve profitable operations from the sale of its products.

 

The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. The following is additional information on our operating losses and working capital:

 

The Company’s operating loss for the year ended December 31, 2019 included $3,621,101 related to depreciation, amortization and stock-based compensation. In addition, approximately $2,414,799 was related to transaction costs, restructuring charges and other non-recurring and redundant costs which are being removed or reduced. The negative working capital includes approximately $4,015,484 related to unsecured trade payables in our Cloud B acquisition. In addition, our outstanding balances under notes payable includes $900,000 related to Cloud B. CB1 owns the senior secured position on the promissory note to Cloud B in the amount of $2,270,000. In February 2019, CB1, pursuant to an Article 9 foreclosure action, perfected its secured UCC interest in all the assets of Cloud B 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. In addition, SRM was an unsecured creditor in the amount of approximately $1,700,000 which is not included in the $4,015,484 due to intercompany elimination but at this time remains unpaid. The total liabilities of approximately $7,100,000, of which $1,700,000, or net of $5,400,000, has been eliminated in consolidation, are not expected to be satisfied due to the foreclosure.

 

On October 2, 2019, the Company entered into a Share Purchase Agreement (the “PIPE Purchase Agreement”) with certain accredited investors (collectively, the “Investors”) for the private placement of 1,175,000 shares of the Company’s common stock, $0.001 par value per share, at a purchase price of $2.00 per share (the “PIPE Transaction”). In a series of three closings conducted in October 2019, the Company received net proceeds of $2,039,303 which consisted of $2,350,000 of gross proceeds offset by $310,697 of fees to placement agent and their lawyers. Alexander Capital, LP (“Alexander Capital”), a FINRA registered broker dealer, acted as placement agent with respect to the PIPE Transaction. In connection with the PIPE Transaction, Alexander Capital received a commission of $141,000, a debt restructuring fee of $64,208, a debt conversion fee of 15,889, a placement fee of $33,600 and warrants to purchase 70,500 shares of the Company’s common stock, at an exercise price of $2.50 per share (the “Placement Agent Warrants”). In connection with the PIPE transaction, the convertible notes entered into on May 13, 2019 were also converted at $2.00 per share into 560,185 shares of the Company’s common stock.

 

Management has considered possible mitigating factors within our management plan on our ability to continue for at least a year from the date these financial statements are filed. The following items are management plans to alleviate any going concern issues:

 

  Cloud B liabilities are unlikely to be paid due to CB1 holding the senior secured position and its rights under the foreclosure to the remaining assets of the entity to satisfy the outstanding obligation.
     
  Raise further capital through the sale of addition equity
     
  Borrow money under debt securities.
     
  The deferral of payments to related party debt holders for both principal of $455,099 and related interest expense.
     
  Cost saving initiatives related to synergies and the elimination of redundant costs of approximately $1,500,000.
     
  Possible sale of certain brands to other manufacturers.
     
  Entry into other business opportunities through the Company’s Edison Nation Medical division.

 

Note 2 — Summary of Significant Accounting Policies

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of Edison Nation, Inc. and its wholly-owned and majority owned subsidiaries. The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and are presented in US dollars. All intercompany balances and transactions have been eliminated.

 

Reclassifications

 

Certain amounts previously presented in the consolidated financial statements have been reclassified to conform to the current year presentation. Such reclassifications had no effect on the previously reported net loss, Stockholders’ equity or cash flows.

 

Use of Estimates

 

Preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, together with amounts disclosed in the related notes to the financial statements.

 

The Company’s significant estimates used in these financial statements include, but are not limited to, accounts receivable reserves, the valuation allowance related to the Company’s deferred tax assets, the recoverability and useful lives of long-lived assets, debt conversion features, stock-based compensation, certain assumptions related to the valuation of the reserved shares and the assets acquired and liabilities assumed related to the Company’s acquisitions. Certain of the Company’s estimates could be affected by external conditions, including those unique to the Company and general economic conditions. It is reasonably possible that these external factors could have an effect on the Company’s estimates and could cause actual results to differ from those estimates.

 

F-27

 

 

Edison Nation, Inc. and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note 2 — Summary of Significant Accounting Policies — (Continued)

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents in the consolidated financial statements.

 

The Company has cash on deposits in several financial institutions which, at times, may be in excess of Federal Deposit Insurance Corporation (“FDIC”) insurance limits. The Company has not experienced losses in such accounts and periodically evaluates the creditworthiness of its financial institutions. The Company reduces its credit risk by placing its cash and cash equivalents with major financial institutions. The Company had approximately $178,485 uninsured at December 31, 2019 of which all $178,485 was held in foreign bank accounts not covered by FDIC insurance limits as of December 31, 2019.

 

Accounts Receivable

 

Accounts receivable are carried at their contractual amounts, less an estimate for uncollectible amounts. As of December 31, 2019 and 2018, the allowance for uncollectable amounts was not material. Management estimates the allowance for bad debts based on existing economic conditions, historical experience, the financial conditions of the customers, and the amount and age of past due accounts. Receivables are considered past due if full payment is not received by the contractual due date. Past due accounts are generally written off against the allowance for bad debts only after all collection attempts have been exhausted.

 

As of December 31, 2019, no customers represented more than 10% of total accounts receivable.

 

Inventory

 

Inventory is recorded at the lower of cost or net realizable value on a first-in, first-out basis. The Company reduces the carrying value of inventories for those items that are potentially excess, obsolete, or slow moving based on changes in customer demand, technology developments, or other economic factors.

 

Loan Held for Investment

 

Loan held for investment is reported on the balance sheet at the acquired cost which approximates the fair value, which resulted in a discount. The acquired loan had evidence of deterioration of credit quality and for which it was probable, at the time of our acquisition, that the Company would be unable to collect all contractually required payments. For these loans, the excess of the undiscounted contractual cash flows over the undiscounted cash flows estimated by us at the time of acquisition was not accreted into income (nonaccretable discount). The amount representing the excess of cash flows estimated by us at acquisition over the purchase price was accreted into purchase discount earned over the life of the applicable loans (accretable discount). The nonaccretable discount was not accreted into income. If cash flows could not be reasonably estimated for any loan, and collection was not probable, the cost recovery method of accounting was used. Under the cost recovery method, any amounts received were applied against the recorded amount of such loans.

 

Subsequent to acquisition, if cash flow projections improved, and it was determined that the amount and timing of the cash flows related to the nonaccretable discount was reasonably estimable and collection was probable, the corresponding decrease in the nonaccretable discount was transferred to the accretable discount and was accreted into interest income over the remaining life of any such loan on the interest method. If cash flow projections deteriorated subsequent to acquisition, the decline was accounted for through the allowance for loan losses. Depending on the timing of an acquisition, the initial allocation of discount generally is made primarily to nonaccretable discount until the Company is able to assess any cash flows expected to be collected over the purchase price which are then transferred to accretable discount.

 

Property and Equipment, Net

 

Property and equipment are stated at cost, net of accumulated depreciation and amortization, which is recorded commencing at the in-service date using the straight-line method over the estimated useful lives of the assets, as follows: 3 to 5 years for office equipment, 5 to 7 years for furniture and fixtures, 6 to 10 years for machinery and equipment, 10 to 15 years for building improvements, 5 years for software, 5 years for molds, 5 to 7 years for vehicles and 40 years for buildings.

 

F-28

 

 

Edison Nation, Inc. and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note 2 — Summary of Significant Accounting Policies — (Continued)

 

When fixed assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the statements of operations for the respective period. Minor additions and repairs are expensed in the period incurred. Major additions and repairs which extend the useful life of existing assets are capitalized and depreciated using the straight-line method over their remaining estimated useful lives.

 

Long-Lived Assets

 

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The Company assesses the recoverability of its long-lived assets using undiscounted cash flows. If an asset is found to be impaired, the amount recognized for impairment is equal to the difference between the carrying value and the asset’s fair value. The Company did not record any impairment charges related to long-lived assets during the years ended December 31, 2019 and 2018.

 

Goodwill and Intangible Assets

 

We record intangible assets based on their fair value on the date of acquisition. Goodwill is recorded for the difference between the fair value of the purchase consideration over the fair value of the net identifiable tangible and intangible assets acquired. We perform an impairment assessment of goodwill on an annual basis, or whenever impairment indicators exist. In the absence of any impairment indicators, goodwill is assessed for impairment during the fourth quarter of each fiscal year. Judgments regarding the existence of impairment indicators are based on market conditions and operational performance of the business.

 

We may assess our goodwill for impairment initially using a qualitative approach to determine whether it is more likely than not that the fair value of these assets is greater than their carrying value. When performing a qualitative test, we assess various factors including industry and market conditions, macroeconomic conditions and performance of our businesses. If the results of the qualitative assessment indicate that it is more likely than not that our goodwill and other indefinite-lived intangible assets are impaired, a quantitative impairment analysis would be performed to determine if impairment is required. We may also elect to perform a quantitative analysis of goodwill initially rather than using a qualitative approach.

 

The impairment testing for goodwill is performed at the reporting unit level. The valuation methods used in the quantitative fair value assessment, discounted cash flow and market multiples method, require our management to make certain assumptions and estimates regarding certain industry trends and future profitability of our reporting units. If the fair value of a reporting unit exceeds the related carrying value, the reporting unit’s goodwill is considered not to be impaired and no further testing is performed. If the carrying value of a reporting unit exceeds its fair value, an impairment loss is recorded for the difference. The valuation of goodwill is affected by, among other things, our business plan for the future and estimated results of future operations. Future events could cause us to conclude that impairment indicators exist, and, therefore, that goodwill may be impaired.

 

Intangible assets include the cost of patents or patent rights (hereinafter, collectively “patents”) and trademarks. Patent and trademark costs are amortized utilizing the straight-line method over their remaining economic useful lives. Costs incurred related to patents prior to issuance are included in prepaid patent expense until the time the patent is issued and amortization begins or until management determines it is no longer likely the patent will be issued and amounts are expensed. Edison Nation reviews long-lived assets and intangible assets for potential impairment annually and when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. In the event the expected undiscounted future cash flows resulting from the use of the asset is less than the carrying amount of the asset, an impairment loss is recorded equal to the excess of the asset’s carrying value over its fair value. If an asset is determined to be impaired, the loss is measured based on quoted market prices in active markets, if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including a discounted value of estimated future cash flows. In the event that management decides to no longer allocate resources to a patent portfolio, an impairment loss equal to the remaining carrying value of the asset is recorded.

 

F-29

 

 

Edison Nation, Inc. and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note 2 — Summary of Significant Accounting Policies — (Continued)

 

Revenue Recognition

 

Generally, the Company considers all revenues as arising from contracts with customers. Revenue is recognized based on the five-step process outlined in the Accounting Standards Codification (“ASC”) 606:

 

Step 1 – Identify the Contract with the Customer – A contract exists when (a) the parties to the contract have approved the contract and are committed to perform their respective obligations, (b) the entity can identify each party’s rights regarding the goods or services to be transferred, (c) the entity can identify the payment terms for the goods or services to be transferred, (d) the contract has commercial substance and it is probably that the entity will collect substantially all of the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer.

 

Step 2 – Identify Performance Obligations in the Contract – Upon execution of a contract, the Company identifies as performance obligations each promise to transfer to the customer either (a) goods or services that are distinct, or (b) a series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer. To the extent a contract includes multiple promised goods or services, the Company must apply judgement to determine whether the goods or services are capable of being distinct within the context of the contract. If these criteria are not met, the goods or services are accounted for as a combined performance obligation.

 

Step 3 – Determine the Transaction Price – When (or as) a performance obligation is satisfied, the Company shall recognize as revenue the amount of the transaction price that is allocated to the performance obligation. The contract terms are used to determine the transaction price. Generally, all contracts include fixed consideration. If a contract did include variable consideration, the Company would determine the amount of variable consideration that should be included in the transaction price based on expected value method. Variable consideration would be included in the transaction price, if in the Company’s judgement, it is probable that a significant future reversal of cumulative revenue under the contract would not occur.

 

Step 4 – Allocate the Transaction Price – After the transaction price has been determined, the next step is to allocate the transaction price to each performance obligation in the contract. If the contract only has one performance obligation, the entire transaction price will be applied to that obligation. If the contract has multiple performance obligations, the transaction price is allocated to the performance obligations based on the relative standalone selling price (SSP) at contract inception.

 

Step 5 – Satisfaction of the Performance Obligations (and Recognize Revenue) – Revenue is recognized when (or as) goods or services are transferred to a customer. The Company satisfies each of its performance obligations by transferring control of the promised good or service underlying that performance obligation to the customer. Control is the ability to direct the use of and obtain substantially all of the remaining benefits from an asset. It includes the ability to prevent other entities from directing the use of and obtaining the benefits from an asset. Indicators that control has passed to the customer include: a present obligation to pay; physical possession of the asset; legal title; risks and rewards of ownership; and acceptance of the asset(s). Performance obligations can be satisfied at a point in time or over time.

 

Substantially all of the Company’s revenues continue to be recognized when control of the goods are transferred to the customer, which is upon shipment of the finished goods to the customer. All sales have fixed pricing and there are currently no material variable components included in the Company’s revenue. Additionally, the Company will issue credits for defective merchandise, historically these credits for defective merchandise have not been material. Based on the Company’s analysis of the new revenue standards, revenue recognition from the sale of finished goods to customers, which represents substantially all of the Company’s revenues, was not impacted by the adoption of the new revenue standards.

 

Disaggregation of Revenue

 

The Company’s primary revenue streams include the sale and/or licensing of consumer goods and packaging materials for innovative products. The Company’s licensing business is not material and has not been separately disaggregated for segment purposes. The disaggregated Company’s revenues for the years ended December 31, 2019 and 2018 was as follows:

 

  

For the Years

Ended December 31,

 
   2019   2018 
         
Revenues:          
Product sales  $

19,184,428

   $16,037,221 
Service revenues   -    197,068 
Licensing revenues   444,634    267,920 
Total revenues, net  $

19,629,062

   $16,502,209 

 

F-30

 

 

Edison Nation, Inc. and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note 2 — Summary of Significant Accounting Policies — (Continued)

 

For the years ended December 31, 2019 and 2018, the following customers represented more than 10% of total net revenues:

 

   For the years ended
December 31,
 
   2019   2018 
Customer:        
Customer A   14%   21%

 

For the years ended December 31, 2019 and 2018, the following geographical regions represented more than 10% of total net revenues:

 

   For the Years Ended
December 31,
 
   2019   2018 
Region:        
North America   76%   80%
Asia-Pacific   9%   13%
Europe   15%   7%

 

Cost of Revenues

 

Cost of revenues includes freight charges, purchasing and receiving costs, depreciation and inspection costs.

 

Shipping and Handling Costs

 

Shipping and handling costs include inbound freight costs and the cost to ship product to the customer and are included in cost of sales.

 

Fair Value of Financial Instruments

 

The Company measures the fair value of financial assets and liabilities based on the guidance of ASC 820 “Fair Value Measurements and Disclosures” (“ASC 820”) which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.

 

ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:

 

Level 1 — quoted prices in active markets for identical assets or liabilities

 

Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable

 

Level 3 — inputs that are unobservable (for example, cash flow modeling inputs based on assumptions)

 

The carrying amounts of the Company’s financial instruments, such as cash, accounts receivable, accounts payable, accrued expenses and other current liabilities approximate fair values due to the short-term nature of these instruments. The carrying amount of the Company’s notes payable approximates fair value because the effective yields on these obligations, which include contractual interest rates, taken together with other features such as concurrent issuance of warrants, are comparable to rates of returns for instruments of similar credit risk. The loan held for investment was acquired at fair value, which resulted in a discount.

 

F-31

 

 

Edison Nation, Inc. and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note 2 — Summary of Significant Accounting Policies — (Continued)

 

The following changes in level 3 instruments for the year ended December 31, 2019 are presented below:

 

   Contingent
Consideration
Earnout
 
Balance, January 1, 2019  $(520,000)
Change in fair value of earnout   520,000 
Balance, December 31, 2019  $- 

 

Foreign Currency Translation

 

The Company uses the United States dollar as its functional and reporting currency since the majority of the Company’s revenues, expenses, assets and liabilities are in the United States. Assets and liabilities in foreign currencies are translated using the exchange rate at the balance sheet date, while revenue and expense accounts are translated at the average exchange rates prevailing during the year. Equity accounts are translated at historical exchange rates. Gains and losses from foreign currency transactions and translation for the years ended December 31, 2019 and 2018 and the cumulative translation gains and losses as of December 31, 2019 and 2018 were not material.

 

Income Taxes

 

The Company accounts for income taxes under the provisions of the Financial Accounting Standards Board (“FASB”) ASC Topic 740 “Income Taxes” (“ASC Topic 740”).

 

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of items that have been included or excluded in the financial statements or tax returns. Deferred tax assets and liabilities are determined on the basis of the difference between the tax basis of assets and liabilities and their respective financial reporting amounts (“temporary differences”) at enacted tax rates in effect for the years in which the temporary differences are expected to reverse.

 

The Company utilizes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

 

Management has evaluated and concluded that there were no material uncertain tax positions requiring recognition in the Company’s consolidated financial statements as of December 31, 2019 and 2018. The Company does not expect any significant changes in its unrecognized tax benefits within twelve months of the reporting date.

 

The Company’s policy is to classify assessments, if any, for tax related interest as interest expense and penalties as general and administrative expenses in the statements of operations.

 

F-32

 

 

Edison Nation, Inc. and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note 2 — Summary of Significant Accounting Policies — (Continued)

 

Net Earnings or Loss per Share

 

Basic net (loss) income per common share is computed by dividing net (loss) income by the weighted average number of vested common shares outstanding during the period. Diluted net income per common share is computed by dividing net income by the weighted average number vested of common shares, plus the net impact of common shares (computed using the treasury stock method), if dilutive, resulting from the exercise of dilutive securities. In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive. As of December 31, 2019, the Company excluded the common stock equivalents summarized below, which entitle the holders thereof to ultimately acquire shares of common stock, from its calculation of earnings per share, as their effect would have been anti-dilutive.

 

      December 31,  
      2019  
Selling Agent Warrants     160,492  
Shares reserved in exchange for the cancellation of certain non-voting membership interest in Edison Nation Holdings, LLC     990,000  
Options     80,000  
Convertible shares under notes payable     285,632  
Warrants for noteholders     50,000  
Restricted stock units     210,000  
Shares to be issued to consultants     412,500  
Total     2,188,624  

 

F-33

 

 

Edison Nation, Inc. and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note 2 — Summary of Significant Accounting Policies — (Continued)

 

Deferred Financing Costs

 

Deferred financing costs include debt discounts and debt issuance costs related to a recognized debt liability and are presented in the balance sheet as a direct deduction from the carrying value of the debt liability. Amortization of deferred financing costs are included as a component of interest expense. Deferred financing costs are amortized using the straight-line method over the term of the recognized debt liability which approximates the effective interest method.

 

Recent Accounting Pronouncements

 

In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (ASU 2016-02) which amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. This accounting guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. Additionally, this accounting guidance requires a modified retrospective transition approach for all leases existing at, or entered into after the date of initial application, with an option to use certain transition relief. In July 2018, the FASB issued a practical expedient that would allow entities the option to apply the provisions of the new lease guidance at the effective date of adoption without adjusting the comparative periods presented. The Company adopted this standard in the first quarter of 2019 and the adoption had the following impact on the Company’s results and consolidated financial statements:

 

F-34

 

 

Edison Nation, Inc. and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note 2 — Summary of Significant Accounting Policies — (Continued)

 

 

The Company has elected the “package of practical expedients” and as a result is not required to reassess its prior accounting conclusions about lease identification, lease classification and initial direct costs for lease contracts that exist as of the transition date. However, the Company has not elected the use of hindsight for determining the reasonably certain lease term.

 

The new lease standard also provides practical expedients and policy elections for an entity’s ongoing accounting. The Company has elected the practical expedient to not separate lease and non-lease components for all of its leases. The Company has elected the short-term lease recognition exemption, which results in no recognition of right-of-use assets and lease liabilities for existing short-term leases at transition.

 

Upon adoption on January 1, 2019, the Company recognized right of use assets for operating leases and operating lease liabilities that have not previously been recorded. The lease liability for operating leases is based on the net present value of future minimum lease payments. The right of use asset for operating leases is based on the lease liability. The Company did not have any deferred rent or material prepaid rent.

 

The cumulative effect of initially applying the new lease accounting standard as of January 1, 2019 is as follows:

 

   January 1,
2019
   Cumulative
Effect
Adjustment
   January 1,
2019, as
adjusted
 
Assets:               
Right of use assets – operating leases  $     -   $943,997   $943,997 
                
Liabilities:               
Current portion of operating lease liabilities  $-   $261,866   $261,866 
Operating lease liabilities, net of current portion  $-   $682,131   $682,131 

 

The adoption of the standard did not result in any material changes to the recognition of operating lease expenses in the Company’s consolidated statements of operations.

 

In January 2017, the FASB issued Accounting Standards Update No. 2017-04 (ASU 2017-04), “Simplifying the Test for Goodwill Impairment”, which removes Step 2 from the goodwill impairment test. ASU 2017-04 requires that if a reporting unit’s carrying value exceeds its fair value, an impairment charge would be recognized for the excess amount, not to exceed the carrying amount of goodwill. ASU 2017-04 will be effective for interim and annual reporting periods beginning after December 15, 2019. Early application is permitted after January 1, 2017. The Company early adopted ASU 2017-04 in the third quarter of 2018. The Company recognized an impairment charge of $4,443,000 under the simplified test for goodwill impairment.

 

In June 2018, the FASB issued an amendment to the accounting guidance related to accounting for employee share-based payments which clarifies that an entity should recognize excess tax benefits in the period in which the amount of the deduction is determined. This amendment is effective for annual periods beginning after December 15, 2018. The Company adopted this accounting guidance in the first quarter of 2019 with no impact on our financial statements.

 

In August 2018, the FASB issued new accounting guidance that addresses the accounting for implementation costs associated with a hosted service. The guidance provides that implementation costs be evaluated for capitalization using the same criteria as that used for internal-use software development costs, with amortization expense being recorded in the same income statement expense line as the hosted service costs and over the expected term of the hosting arrangement. This guidance is effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. The guidance will be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. We have not yet adopted this accounting guidance and are currently evaluating the effect this accounting guidance will have on our financial statements.

 

In August 2018, the FASB issued new accounting guidance that eliminates, adds and modifies certain disclosure requirements for fair value measurements. Among the changes, an entity will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted. Since this accounting guidance only revises disclosure requirements, it will not have a material impact on the Company’s consolidated financial statements.

 

In October 2018, the FASB issued new accounting guidance for Variable Interest Entities, which requires indirect interests held through related parties in common control arrangements be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. The guidance is effective for the Company’s interim and annual reporting periods during the year ending December 31, 2020. Early adoption is permitted. The Company currently does not believe that the adoption of this accounting guidance will have a material impact on its consolidated financial statements and related disclosures.

 

Subsequent Events

 

The Company has evaluated subsequent events through the date which the financial statements were issued. Based upon the evaluation, except for items described in Note 16, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the financial statements.

 

Segment Reporting

 

The Company uses “the management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. The Company’s chief operating decision maker is the Chairman and Chief Executive Officer (“CEO”) of the Company, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. The Company deploys resources on a consolidated level to all brands of the Company and therefore the Company only identifies one reportable operating segment with multiple product offerings.

 

F-35

 

 

Edison Nation, Inc. and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note 3 — Acquisition

 

On September 4, 2018, the Company completed the acquisition of all of the voting membership interest of Edison Nation Holdings, LLC for a total purchase price of $12,820,978 comprising of (i) $950,000 cash (ii) the assumption of the remaining balance of the senior convertible debt through the issuance to the holders of 4%, 5-year senior convertible notes (the “New Convertible Notes”), in the aggregate principal and interest amount of the sum of $1,428,161, less debt discount of $500,000 for the approximate fair value of the conversion feature, which are convertible into approximately 285,632 shares of the Company’s common stock, at the option of the holder of such New Convertible Notes (subject to certain adjustments as provided in the Membership Interest Purchase Agreement (the “Purchase Agreement”) among the Company and Edison Nation Holdings, LLC and Edison Nation Holdings, LLC members dated June 29, 2018 and the terms 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 that will be created specifically in connection with the transaction contemplated by the Purchase Agreement (which exchange obligations may be instead satisfied in cash instead of shares of common stock, in the Company’s sole discretion), and (iv) the issuance of 557,084 shares or $3,760,317 of the Company’s common stock in full satisfaction of the indebtedness represented by promissory notes payable by EN to Venture Six, LLC and Wesley Jones.

 

The activity of Edison Nation Holdings, LLC included in the Company’s consolidated statements of operations from the date of acquisition was net sales of $267,920 and net loss of $197,485.

 

On October 29, 2018, the Company completed the acquisition of 72.15% of the outstanding capital stock of Cloud B, Inc. 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 annual gross sales of Cloud B, as reduced by the total gross sales generated by Cloud B in 2018. The Earn Out Agreement expires on December 31, 2021. In February 2019, CBAVI, LLC foreclosed on the Promissory Note it held that was secured by Cloud B, Inc.’s assets. After the foreclosure, there likely will be no assets to distribute to other creditors. In addition, the fair value of the earnout originally valued at $520,000 was reduced to $0 with an adjustment to change in fair value in the Company’s Consolidated Statements of Operations.

 

The activity of Cloud B, Inc. included in the Company’s consolidated statements of operations from the date of acquisition was net sales of $1,512,328 and net loss of $44,408.

 

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. 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.

 

The activity of Pirasta, LLC included in the Company’s consolidated statements of operations from the date of acquisition to December 31, 2018 was not material.

 

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. 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. NL Penn Capital, LP is owned by Christopher B. Ferguson, our Chairman and Chief Executive Officer.

 

The activity of Best Party Concepts, LLC included in the Company’s consolidated statements of operations from the date of acquisition to December 31, 2018 was not material.

 

On November 6, 2019, the Company issued 45,000 shares of our common stock to acquire the assets of Uber Mom, LLC for $52,352, which was the approximate value of Uber Mom, LLC’s inventory.

 

The activity of Uber Mom included in the Company’s consolidated statements of operations from the date of acquisition to December 31, 2019 was not material.

 

Joint Venture

 

On August 23, 2019, the Company formed Ed Roses, LLC, a 50% joint venture with 4Keeps Roses, Inc., to distribute preserved roses, flowers and associated gift products.

 

F-36

 

 

Edison Nation, Inc. and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note 3 — Acquisition — (Continued)

 

The following table summarizes the aggregate purchase price consideration paid for acquisitions during 2019:

 

   Uber Mom 
Cash paid  $52,352 
Fair value of issued shares   98,613 
Purchase consideration  $150,965 

 

The following table summarizes the aggregate purchase price consideration paid for acquisitions during 2018:

 

   Edison Nation           Best Party 
   Holdings, LLC   Cloud B, Inc.   Pirasta, LLC   Concepts, LLC 
Cash paid   950,000    -   $-   $- 
Fair value of issued shares   3,384,285    2,664,200    -    - 
Fair value of reserved shares   6,014,250    -    -    - 
Issuance of debt   1,428,161    -    -    - 
Settlement of due from related party   -    -    470,000    500,000 
Fair value of contingent consideration   -    520,000    -    - 
Adjustment to purchase price – earnout        

(520,000

)          
Purchase consideration  $11,776,696   $2,664,200   $470,000   $500,000 

 

The Company believes that these combinations will further strengthen its future growth opportunities while also increasing product diversification. The Company accounted for these acquisitions 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 during 2018 at the date of acquisition:

 

    Edison Nation                 Best Party  
    Holdings, LLC     Cloud B, Inc.     Pirasta, LLC     Concepts, LLC  
Cash and cash equivalents   $ 68,681     $ 104,744     $ 3,629     $ 365  
Accounts receivable     15,958       636,755       7,696       6,906  
Inventory     -       566,500       36,537       139,918  
Other assets     39,691       172,747       -       4.356  
Property and equipment     1,852       53,345       -       10,931  
Goodwill     5,497,242       3,364,432       354,836       -  
Intangible assets     6,400,000       6,600,000       -       -  
Total assets acquired     12,023,424       11,498,523       402,698       162,476  
Debt     -       1,400,000       -       -  
Accounts payable     227,025       5,748,797       2,052       34,041  
Accrued expenses and other liabilities     19,703       527,526       119,198       513,502  
Total liabilities assumed     246,728       7,676,323       121,250       547,543  
Noncontrolling interest     -       1,158,000       -       (192,534 )
Distribution to shareholder     -       -       (188,552 )     (692,533 )
    $ 11,776,696     $ 2,664,200     $ 470,000     $ 500,000  

 

The noncontrolling interest was valued based on the fair value of consideration paid to the Cloud B Sellers.

 

The following table summarizes the preliminary purchase price allocation of fair values of the assets acquired and liabilities assumed during 2019 at the date of acquisition:

 

   Uber Mom 
Inventory  $52,352 
Goodwill   98,613 
Total assets acquired  $150,965 

 

The following represents the pro forma consolidated income statement as if the acquisitions had been included in the consolidated results of the Company for the entire years ending December 31, 2018:

 

  

Years Ended

December 31,

 
   2018 
     
Revenues, net  $20,988,594 
Cost of revenues   13,566,605 
Gross profit   7,421,989 
      
Operating expenses:     
Selling, general and administrative   13,144,691 
Operating (loss) income   (5,722,702)
      
Other (expense) income:     
Other (expense) income   (398,406)
(Loss) income before income taxes   (6,121,108)
Income tax expense   304,298 
Net (loss) income  $(6,425,406)
Net (loss) income attributable to noncontrolling interests   (415,466)
Net (loss) income attributable to Edison Nation, Inc.   (6,009,940)
Net (loss) income per share - basic and diluted  $(1.09)
Weighted average number of common shares outstanding – basic and diluted   5,513,706 

 

In connection with the acquisitions the Company will no longer present multiple segments for packaging materials and consumer goods segment as resources will be deployed on a consolidated level and all entities will operate cross functionally as one team to bring products to market.

 

Note 4 — Accounts Receivable

 

As of December 31, 2019 and 2018, accounts receivable consisted of the following:

 

    December 31,     December 31,  
    2019     2018  
Accounts receivable   $ 2,185,859     $ 1,889,112  
Less: Allowance for doubtful accounts     (77,760     (11,761 )
Total accounts receivable, net   $ 2,108,099     $ 1,877,351  

 

Note 5 — Inventory

 

As of December 31, 2019 and 2018, inventory consisted of the following:

 

   December 31,   December 31, 
   2019   2018 
Raw materials  $

49,232

   $48,576 
Finished goods 

1,319,993

    875,131 
Total inventory  $

1,369,225

   $923,707 

 

F-37

 

 

Edison Nation, Inc. and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note 6 — Prepaid expenses and other current assets

 

As of December 31, 2019 and 2018, accrued expenses and other current liabilities consisted of the following:

 

   December 31,   December 31, 
   2019   2018 
Deposits on inventory  $680,792   $133,073 
Deposits   11,409    66,862 
Prepaid insurance   46,848    59,892 
Accrued revenue   18,966    36,657 
Prepaid consulting fees   137,328    251,000 
Other   22,090    64,211 
Total prepaid expenses and other current assets  $917,433   $611,695 

 

Note 7 — Property and equipment, net

 

As of December 31, 2019 and 2018, property and equipment consisted of the following:

 

    December 31,     December 31,  
    2019     2018  
Land   $ 79,100     $ 79,100  
Buildings – rental property     445,635       427,704  
Building improvements     766,859       760,017  
Equipment and machinery     3,917,080       3,929,332  
Furniture and fixtures     387,836       322,157  
Computer software     23,518       23,518  
Molds     4,651,889       4,589,153  
Vehicles     521,962       502,960  
      10,793,879       10,633,941  
Less: accumulated depreciation     (9,861,911 )     (9,635,078 )
Total property and equipment, net   $ 931,968     $ 998,863  

 

Depreciation expense for the years ended December 31, 2019 and 2018 was $231,518 and $175,609, respectively.

 

Note 8 — Goodwill

 

The changes in the carrying amount of goodwill for the year ended December 31, 2019 consisted of the following:

 

   Total 
Balance, January 1, 2018  $- 
Acquisitions   9,736,510 
Balance, January 1, 2019  $9,736,510 
Acquisition of Uber Mom   98,613 
Impairment   (4,443,000)
Balance, December 31, 2019  $5,392,123 

 

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.

 

F-38

 

 

Edison Nation, Inc. and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note 9 — Intangible assets, net

 

As of December 31, 2019, intangible assets consisted of the following:

 

                      Gross               Net  
                      Carrying       Accumulated       Carrying  
                      Amount       Amortization       Amount  
Finite lived intangible assets:                                        
Customer relationships     15 years       13.8 years     $ 4,270,000     $ 339,556     $ 3,930,444  
Developed technology     7 years       5.7 years       3,800,000       697,619       3,102,381  
Membership network     7 years       5.7 years       1,740,000       331,429       1,408,571  
Non-compete agreements     2 years       .7 years       50,000       33,333       16,667  
Total finite lived intangible assets                   $ 9,860,000     $ 1,401,937      $ 8,458,063  
                                         
Indefinite lived intangible assets:                                        
Trademarks and tradenames     Indefinite             $ 3,140,000     $ -     $ 3,140,000  
Total indefinite lived intangible assets                   $ 3,140,000     $ -     $ 3,140,000  
Total intangible assets                   $ 13,000,000      $ 1,401,937     $ 11,598,063  

 

As of December 31, 2018, intangible assets consisted of the following:

 

           Gross       Net 
           Carrying   Accumulated   Carrying 
           Amount   Amortization   Amount 
Finite lived intangible assets:                         
Customer relationships   15 years    14.8 years   $4,270,000   $61,555   $4,208,445 
Developed technology   7 years    6.7 years   3,800,000    159,524    3,640,476 
Membership network   7 years    6.7 years   1,740,000    82,857    1,657,143 
Non-compete agreements   2 years    1.7 years   50,000    8,333    41,667 
Total finite lived intangible assets            $9,860,000   $312,269   $9,547,731 
                          
Indefinite lived intangible assets:                         
Trademarks and tradenames   Indefinite        $3,140,000   $-   $3,140,000 
Total indefinite lived intangible assets            $3,140,000   $-   $3,140,000 
Total intangible assets            $13,000,000   $312,269   $12,687,731 

 

Amortization expense for the years ended December 31, 2019 and 2018 was $1,089,668 and $312,269, respectively.

 

The estimated future amortization of intangibles subject to amortization at December 31, 2019 was as follows:

 

For the Years Ended December 31,     Amount  
2020   $ 1,092,762  
2021     1,076,095  
2022     1,076,095  
2023     1,076,095  
2024    

1,076,095

 
Thereafter   $ 3,060,921  

 

Note 10 — Accrued expenses and other current liabilities

 

As of December 31, 2019 and 2018, accrued expenses and other current liabilities consisted of the following:

 

    December 31,     December 31,  
    2019     2018  
Accrued taxes - other   $ 261,396     $ 259,559  
Accrued payroll and benefits     482,719       175,336  
Accrued professional fees     201,318       133,261  
Customer deposits     13,212       35,094  
Accrued interest     341,559       269,782  
Accrued legal contingencies     240,105       -  
Other     54,359       262,519  
Total accrued expenses and other current liabilities   $ 1,594,668     $ 1,135,551  

 

F-39

 

 

Edison Nation, Inc. and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note 11 — Debt

 

As of December 31, 2019 and December 31, 2018, debt consisted of the following:

 

    December 31,     December 31,  
    2019     2018  
Line of credit:                
Asset backed line of credit   $ 472,567     $ 561,804  
Debt issuance costs     (15,573 )     (30,000 )
Total line of credit     456,995       531,804  
                 
Senior convertible notes payable:                
Senior convertible notes payable     1,428,161       1,428,161  
Debt issuance costs     (366,666 )     (466,667 )
Total long-term senior convertible notes payable     1,061,495       961,494  
Less: current portion of long-term notes payable     -       -  
Noncurrent portion of long-term convertible notes payable     1,061,495       961,494  
                 
Notes payable:                
Notes payable    

1,621,015

      370,250  
Debt issuance costs     (212,848 )     -  
Total long-term debt    

1,408,167

      370,250  
Less: current portion of long-term debt    

(1,365,675

)     (313,572 )
Noncurrent portion of long-term debt     42,492       56,678  
                 
Notes payable – related parties:                
Notes payable     3,282,021       3,464,191  
Less: current portion of long-term debt – related parties     (1,686,352 )     (932,701 )
Noncurrent portion of long-term debt – related parties   $ 1,595,669     $ 2,531,490  

 

Line of Credit

 

On December 27, 2018, the Company entered into credit agreement providing for an asset backed line of credit of $1,000,000. The credit agreement contains a revolving maturity date which is subject to an annual review by the lender. The credit agreement is collateralized by substantially all of the assets of Ferguson Containers, Inc. The interest rate was 8.5% as of December 31, 2019. The agreement contains certain covenants and definition. As of December 31, 2019, the Company was not in compliance with certain covenants under the line of credit. Subsequently, the Company repaid the line of credit in full from the use of funds from the Bayview factoring agreement.

 

Long-term Convertible Notes Payable – Related Parties

 

On September 4, 2018, in connection with the acquisition of EN, the Company issued five senior convertible notes payable aggregating $1,428,161. The notes have an effective interest rate of four percent (4%) per annum. The Company is required to make semi-annual interest payments on June 30th and December 31st of each year. The notes have an option to convert at a conversion price of $5.00. Prepayments are not allowed under the notes without the prior written consent of applicable holders of a note until the second anniversary of the effective date of the note, after which time the notes may be prepaid without penalty at any time upon sixty (60) days’ written notice to the holders. The holders have piggyback registration rights. If the conversion option is not elected by the holder, all outstanding principal and interest is due on September 4, 2023. The Company recorded a debt discount of $500,000 related to the beneficial conversion feature that will be amortized over five (5) years to interest expense.

 

F-40

 

 

Edison Nation, Inc. and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note 11 — Debt — (Continued)

 

Notes Payable

 

The Company borrowed funds under two separate notes, aggregating $645,000, in February 2018 and March 2018. In addition, the Company issued the 20,000 and 13,500 shares to the holders of the notes payable, respectively. The fair value of the shares issued was $167,500 which was recorded as a debt discount and fully amortized through interest expense. As of December 31, 2019, both holders of the notes were paid in full.

 

On September 7, 2018, the Company borrowed $73,559 related to the purchase of a commercial delivery vehicle. The note bears interest at a rate of 4.5% per annum. The monthly payments under the note are $1,371 commencing on October 6, 2018 and maturing on September 6, 2023. The loan is collaterized by the commercial delivery vehicle having the approximate value of $75,000.

 

On December 1, 2016, Cloud B, Inc. entered into a Loan Agreement with an outside associate of CEO Linda Suh. The loan was in the amount of $300,000. This loan was for a period of six (6) months and bears no interest and therefore no monthly interest payments. A Loan Amendment and Extension Agreement was entered into on June 1, 2017, extending the maturity of the loan until December 31, 2017. This loan remains outstanding. No collateral was provided by the Company for any of the above-referenced loans.

 

On May 16, 2019, the Company entered into a non-interest bearing promissory note of $300,000, with an original issue discount of $50,000. The Company issued 20,000 shares of its common stock to the note holder as additional consideration for the purchase of the note. The Company recorded $62,000 as a debt discount as of December 31, 2019 related to the value of the shares issued. The note matured on November 16, 2019 and was paid in full.

 

On June 14, 2019, the Company entered into that certain Loan Agreement with Tiburon Opportunity Fund (the “Lender”), dated June 14, 2019 (the “Loan Agreement”). Pursuant to the terms of the Loan Agreement, the Lender agreed to loan the Company $250,000. The Loan is interest bearing at the rate of 1.5% per month through the term of the Loan. Additionally, the 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 August 11, 2019. The 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 Loan Agreement, the Lender may declare 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 grants the Lender a collateral interest in certain accounts receivable of SRM Entertainment Ltd., a subsidiary of the Company. The outstanding principal and interest on the note was repaid on December 27, 2019.

 

On August 26, 2019, the Company entered into a securities purchase agreement with Labrys Fund, LP (the “Investor”) pursuant to which the Investor purchased a 12% Convertible Promissory Note (the “Note”) from the Company. Unless there is a specific Event of Default (as such term is defined in the Note) or the Note remains unpaid by the Maturity Date, then the Investor shall not have the ability to convert the principal and interest under the Notes into shares of the Company’s common stock. The Company agreed to issue and sell to the Investor the Note, in the principal amount of $560,000, with an original issue discount in the amount of $60,000. The Note is due and payable February 26, 2020 (the “Maturity Date”). Additionally, the Company issued 181,005 shares of Common Stock to the Investor as a commitment fee, of which 153,005 shares of Common Stock must be returned to the Company in the event the Note is fully paid and satisfied prior to the Maturity Date.

 

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.

 

On December 4, 2019, the Company entered into a Senior Secured Note Agreement (the “32E Loan Agreement”) with 32 Entertainment LLC (“32E”), pursuant to which 32E agreed to loan the Company $250,000 (the “Loan”). The Loan is interest bearing at the rate of 10.0% per annum through the term of the Loan. The Company issued 10,000 shares of common stock to 32E in connection with the 32E Loan Agreement. In addition, the Company issued a warrant (the “32E Warrant”) to purchase 50,000 shares of the Company’s common stock. Under the terms of the 32E Loan Agreement, the Company entered into a registration rights agreement whereby the Company agreed to register the shares and file this registration statement on a Form S-1 with the SEC. The Company was required to have such registrations statement declared effective by the SEC within 90 calendar days. The 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 Loan Agreement, 32E may declare the principal amount of the Loan owing under the 32E Loan Agreement at the time of default to be immediately due and payable. Interest is due in March, June and September. The outstanding principal and interest on the note are due on December 4, 2020. On May 19, 2020, the 32E Loan Agreement was amended to change the due date on the outstanding principal and interest to May 31, 2020.

 

Notes Payable – Related Parties

 

On September 30, 2018, in connection with the acquisition of SRM and Fergco, the Company issued two notes payable aggregating $2,996,500. One note was issued to NL Penn Capital, L.P, in relation to the acquisition of SRM in the amount of $2,120,000 and the other note was issued to the stockholders of Fergco in the amount of $876,500. The notes bear interest at a rate of six percent (6%) per annum and have an effective interest rate of six percent (6%) per annum. The Company is required to make monthly payments comprised of principal and interest beginning in January 2018 that are amortized over ten (10) years, with a balloon payment of all outstanding principal and interest due at the respective maturity dates of $677,698, due on December 1, 2020, and $1,249,043, due on December 1, 2022. NL Penn Capital, L.P. has from time to time agreed to defer payments due under the note. The former stockholders of Fergco have agreed to defer all payments due under the note and the deferred amount is due on demand.

 

F-41

 

 

Edison Nation, Inc. and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note 11 — Debt — (Continued)

 

On April 24, 2014, Cloud B, Inc. entered into two Shareholder Loan Agreements. One shareholder loan was from former shareholder, Board Member, and CEO of Cloud B, Inc. prior to the acquisition on October 29, 2018, Linda Suh in the amount of $100,000. This loan bears interest at a rate of 7.0% per annum for the first twelve (12) months and 8.0% per annum thereafter. The Company is required to make monthly interest only payments. Interest payments on this loan have been paid through November 2018. The other shareholder loan was from former shareholder and Board Member of Cloud B, Inc. prior to the acquisition on October 29, 2018, John Royan in the amount of $500,000. This loan bears interest at a rate of 7.0% per annum for the first six (6) months and 8.0% per annum for the next six (6) months. The Company was required to make monthly interest only payments through May 2015, with the loan becoming due and payable on May 28, 2015. This loan remains outstanding with the last interest payment made in July 2015.

 

Convertible Notes

 

On March 6, 2019, Edison Nation 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 FirstFire Note was in the amount of $560,000 with an original issue discount of $60,000. The Company issued 15,000 shares of its common stock valued at $74,100 based on the share price on the date of issuance to the Investor as additional consideration for the purchase of the FirstFire Note. The Under the terms of the FirstFire SPA, the Investor will have “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 is 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 FirstFire Note is six months from March 6, 2019. All principal amounts and the interest thereon are convertible into shares of the Company’s common stock only in the event that an event of default occurs.

 

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.

 

On May 13, 2019, the Company entered into a securities purchase agreement (the “May 2019 SPA”) with certain accredited investors (the “Investors”) pursuant to which the Investors purchased Senior Convertible Promissory Notes (the “May 2019 Notes”) from the Company. The use of proceeds from the May 2019 Notes was used for general working capital and to fund new product launches. Unless there is a specific Event of Default (as such term is defined in the May 2019 Notes), the Investors shall not have the ability to convert the principal and interest under the May 2019 Notes into shares of common stock. Pursuant to the May 2019 SPA, the Company agreed to sell to the Investors the May 2019 Notes, in the aggregate principal amount of $1,111,111, which are convertible into shares of common stock. Additionally, the Company will issue an additional 20,000 shares of common stock to the Investors as additional consideration for the purchase of the May 2019 Notes. Under the terms of the May 2019 SPA, the Investors have piggyback registration rights in the event the Company files a Form S-1 or Form S-3 within six months of May 13, 2019. The Company is also subject to certain customary negative covenants under the May 2019 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 Investors under the terms of the May 2019 SPA and the May 2019 Notes.

 

As issued on May 13, 2019, the principal amount of the May 2019 Notes is $1,111,111, with an original issue discount in the amount of $111,111. The maturity date of the May 2019 Notes is November 13, 2019. The per share conversion price into which the principal amount and interest under the May 2019 Notes may be converted is equal to 80% multiplied by the lowest traded price of our common stock during the 20 consecutive trading days preceding the date of conversion. The conversion price may be adjusted in connection with certain material corporate events, and the Company is subject to cash penalties in the event that the Company fails to timely deliver certificates for shares of common stock issuable upon conversion of May 2019 Notes. The May 2019 Notes contain a cap, such that the total number of shares of Common Stock issuable under the May 2019 Notes are limited to 19.99% of the Company’s outstanding shares of common stock as of May 13, 2019. The Company issued 20,000 shares of its common stock to the note holders as additional consideration for the purchase of the notes in July 2019.

 

So long as an Event of Default has not occurred under the terms of the May 2019 Notes, the Company may prepay the May 2019 Notes at any time, given not less than three trading days’ notice. If the Company exercises its right to prepay the May 2019 Notes at any time within the initial 180 days following May 13, 2019, the prepayment amount to be paid by the Company shall be an amount in cash equal to the sum of 115% multiplied by the principal on the May 2019 Notes then outstanding, plus all accrued and unpaid interest, including unpaid default interest, if any.

 

Alexander Capital placed the notes and received warrants to purchase 24,366 shares of the Company’s common stock, at an exercise price of $2.85 per share. The notes were converted into 560,185 shares of common stock in November 2019 at $2.00 per share.

 

F-42

 

 

Edison Nation, Inc. and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note 11 — Debt — (Continued)

 

Receivables Financing and Inventory

 

In April 2019, we entered into a receivables financing arrangement for certain receivables of the Company. The agreement allows for borrowings up to 80% of the outstanding receivable based on the credit quality of the customer. The fee is between 1% and 2% of the total invoices financed.

 

On November 12, 2019, the Company entered into a Receivables Purchase Agreement with a financial institution (the “Receivables Purchase Agreement”), whereby the Company agreed to the sell of $225,000 of receivables for $200,000. The proceeds were used for general working capital.

 

On November 18, 2019, the Company entered into a Future Receivables Purchase Agreement with a financial institution (the “Future Receivables Purchase Agreement”), whereby the Company agreed to the sell of $337,500 of receivables for $250,000. The proceeds were used to fund our receivables for overseas distributors. Christopher B. Ferguson, our Chairman and Chief Executive Officer, personally guaranteed the prompt and complete performance of the Company’s obligations under the Future Receivables Purchase Agreement.

 

F-43

 

 

Edison Nation, Inc. and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note 11 — Debt — (Continued)

 

The scheduled maturities of the debt for the next five years as of December 31, 2019, are as follows:

 

For the Years Ended December 31,  Amount 
2020  $3,737,443 
2021   206,760 
2022   1,419,285 
2023   1,440,278 
2024   - 
Thereafter   - 
   $6,803,766 
Less: debt discount   (595,088)
   $6,208,678 

 

For the year ended December 31, 2019, interest expense was $1,298,168 of which $320,781 was related party interest expense. For the year ended December 31, 2018 interest expense was $501,221.

 

Note 12 — Income Taxes

 

Edison Nation, Inc. is taxed as a corporation and pays corporate federal, state and local taxes on income allocated to it from Fergco, Edison Nation Holdings, LLC, Edison Nation, LLC, Safe TV Shop, LLC, Everyday Edisons, LLC and Pirasta, LLC based upon Edison Nation, Inc.’s economic interest in those entities. Cloud B, Inc. is taxed as a corporation and pays corporate federal, state and local taxes on its income. The Company has three foreign entities of which only SRM has operations, SRM is an entity subject to the Hong Kong, China tax regime. The Hong Kong tax returns remain subject to examination by local taxing authorities beginning with the tax year ended December 31, 2011.

 

Cloud B, Inc. was a Subchapter S pass-through entity for income tax purposes prior to its acquisition by the Company on October 29, 2018. Accordingly, Cloud B, Inc. was not subject to income taxes prior to the acquisition and therefore the tax provision related to the United States income is only for the post-acquisition period.

 

Edison Nation Holdings, LLC and its subsidiaries are disregarded limited liability corporation entities for income tax purposes. Accordingly, EN was not subject to income taxes prior to the acquisition on September 4, 2018 and the results of operations were not material therefore the tax provision related to the United States income is only for the post-acquisition period.

 

United States and foreign components of income before income taxes were as follows:

 

   

For the Years

Ended December 31,

 
    2019     2018  
United States   $ (14,210,716 )   $ (5,828,261 )
Foreign     (7,811 )     788,159  
Income before income taxes   $ (14,218,527 )   $ (5,040,102 )

 

F-44

 

 

Edison Nation, Inc. and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note 12 — Income Taxes – (Continued)

 

The tax effects of temporary differences that give rise to deferred tax assets or liabilities are presented below:

 

   

For the Years

Ended December 31,

 
    2019     2018  
Deferred tax assets:                
Stock-based compensation   $ 987,747     $ 682,115  
Goodwill and intangible assets     -       19,410  
Operating lease liabilities     158,430       -  
Net operating loss carryforwards     2,324,863       493,063  
Less: valuation allowance     (2,424,196 )     (1,194,587 )
Net deferred tax assets   $ 1,046,844     $ -  
                 
Deferred tax liabilities:                
Right of use assets     (153,741 )     -  
Goodwill and intangible assets     (811,000 )     -  
Property and equipment   $ (82,103 )   $ 341  
Net deferred tax liabilities   $ (1,046,844 )   $ 341  
Net deferred tax liabilities   $ -     $ 341  

 

As of December 31, 2019 and 2018, the Company had $9,675,770 and $2,223,498 of federal net operating loss carryforwards and $7,532,274 and $0 of state net operating loss carryforwards for income tax purposes, respectively. In connection with the IPO the Company does not believe the ownership change resulted in the loss of past net operating loss carryforwards. The above net operating loss carryforwards may be subject to an annual limitation under Section 382 and 383 of the Internal Revenue Code of 1986, and similar state provisions if the Company experiences one or more ownership changes. The Company believes the goodwill acquired in the Edison Nation Holdings acquisition is deductible for tax purposes. The Company evaluates its ability to realize deferred tax assets on a quarterly basis and establishes a valuation allowance when it is more likely than not that all or a portion of a deferred tax asset may not be realized. As of December 31, 2019 and 2018, the Company has recorded a net deferred tax asset of $3,471,040 and $1,194,587, respectively. However, these net deferred tax assets will only be utilized to the extent the Company generates sufficient taxable income. As of December 31, 2019, and 2018, the Company established a valuation allowance in the amount of $2,424,196 and $1,194,587, respectively, against the net deferred tax asset as it is not more likely than not that it is realizable based on current available evidence.

 

The income tax provision (benefit) consists of the following:

 

   

For the Years

Ended December 31,

 
    2019     2018  
Current:            
Federal   $ -     $ 10,185  
Foreign     3,166       292,491  
State and local     (22,372 )     35,107  
Total current   $ (19,206 )   $ 337,783  
                 
Deferred:                
Federal   $

(896,468

)   $ (722,975 )
Foreign     (341 )     (2,316 )
State and local    

(333,141

)      (10,102 )
Less: valuation allowance    

1,229,609

     

701,525

 
Total deferred   $ (341 )   $ (33,868 )
Income tax provision (benefit)   $ 19,547     $ 303,915  

 

F-45

 

 

Edison Nation, Inc. and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note 12 — Income Taxes – (Continued)

 

A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows:

 

   

For the Years

Ended December 31,

 
    2019     2018  
Tax at federal statutory rate     21.0 %     21.0 %
Effect of U.S. tax law change     0.0 %     0.0 %
U.S. income attributable to pass-through entity     0.0 %     0.0 %
U.S. income subject to valuation allowance     -14.6 %     -20.5 %
State and local income taxes     0.2 %     0.0 %
Foreign income not subject to U.S. federal tax     0.0 %     0.0 %
Foreign tax     0.0 %     -6.3 %
Nondeductible expenses     -6.5 %     0.0 %
Other     0.0 %     -0.2 %
Effective income tax rate     0.1 %     -6.0 %

 

The statutory federal income tax rate differs from the Company’s effective tax rate due to the valuation allowance related to deferred tax assets and net operating losses and foreign income taxes in Hong Kong.

 

Note 13 — Related Party Transactions

 

NL Penn Capital, LP and SRM Entertainment Group 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. 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.

 

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. 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.

 

As of December 31, 2019 and December 31, 2018, the net amounts due to related parties consists of net amounts due to SRM Entertainment Group LLC (“SRM LLC”) and NL Penn Capital, LP, which are both majority owned by Chris Ferguson, our Chairman and Chief Executive Officer. The amount due to related parties is related to the acquisitions of Pirasta, LLC and Best Party Concepts, LLC offset by operating expenses that were paid by SRM and Edison Nation on behalf of SRM LLC and NL Penn Capital, LP. As of December 31, 2019 and December 31, 2018, the net amount due to related parties was $17,253 and $140,682, respectively. Such amounts are due currently.

 

Enventys Partners, LLC

 

On August 1, 2018, the Company entered into a one-year letter agreement with Enventys Partners, LLC, a North Carolina limited liability company (“Enventys”), whereby Enventys agreed to provide services to the Company as an independent contractor in the areas of product development and crowdfunding campaign marketing. During the term of the Enventys Agreement, the Company shall pay Enventys a fixed fee of $15,000 per month for product development assistance, including design research, mechanical engineering and quality control planning. Depending on the success of each campaign, the Company may also pay Enventys a commission of up to ten percent of the total funds raised in the applicable campaign. Louis Foreman, who is a member of the Company’s board of director, is also the Chief Executive Officer and the largest equity holder of Enventys. We incurred fees of approximately $97,500 related to the services performed by Enventys for the year ended December 31, 2019. During 2019, the Company and Enventys agreed to the cancellation of the agreement.

 

In addition, during 2019 we engaged Enventys to design our website and incurred fees of $10,000 related to website development for the Ferguson Containers website.

 

F-46

 

 

Edison Nation, Inc. and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note 14 — Commitments and Contingencies

 

Operating Lease

 

The Company has entered into non-cancellable operating leases for office, warehouse, and distribution facilities, with original lease periods expiring through 2021. In addition to minimum rent, certain of the leases require payment of real estate taxes, insurance, common area maintenance charges, and other executory costs. Differences between rent expense and rent paid are recognized as adjustments to operating lease right-of-use assets on the consolidated balance sheets.

 

On June 6, 2018, the Company’s wholly owned subsidiary, Best Party Concepts, LLC, entered into a lease for office space in Newtown, PA, which shall expire on May 30, 2020. Monthly lease payments are approximately $1,880 for a total of approximately $22,560 for the total term of the lease.

 

On August 8, 2016, SRM entered into a lease for office space in Kowloon, Hong Kong. On August 8, 2018, SRM extended its lease for office space in Kowloon, Hong Kong so that the lease will now expire on August 7, 2020. Monthly lease payments are approximately $6,400 for a total of approximately $154,000 for the total term of the lease.

 

On November 1, 2018, the Company’s wholly owned subsidiary, Cloud B, Inc., entered into a lease for office and warehouse space in Gardena, CA, which shall expire on October 31, 2021. Monthly lease payments are approximately $16,175 for a total of approximately $582,300 for the total term of the lease.

 

On October 1, 2018, the Company entered into a lease for office space in Winter Park, Florida, which expires on September 30, 2020. Monthly lease payments are approximately $1,887 for a total of approximately $45,288 for the total term of the lease.

 

On July 1, 2019, the Company entered into a lease for office space in Bethlehem, Pennsylvania, which expires on July 31, 2020. Monthly lease payments are $2,415 for a total of approximately $89,000 for the total term of the lease.

 

Total rent expense for the years ended December 31, 2019 and 2018 was $451,711 and $343,253, respectively. Rent expense is included in general and administrative expense on the consolidated statements of operations.

 

The following is a reconciliation of future undiscounted cash flows to the operating liabilities, and the related right of use assets, included in our Condensed Consolidated Balance Sheets as of December 31, 2019:

 

  

December 31,

2019

 
2020   315,660 
2021   267,249 
2022   96,288 
2023   78,648 
2024   52,432 
2025 and thereafter   - 
Total future lease payments   810,277 
Less: imputed interest   (55,850)
Present value of future operating lease payments   754,427 
Less: current portion of operating lease liabilities   (272,215)
Operating lease liabilities, net of current portion   482,212 
Right of use assets – operating leases, net   732,100 

 

Rental Income

 

Fergco leases a portion of the building located in Washington, New Jersey that it owns under a month to month lease. Total rental income related to the leased space for both the years ended December 31, 2019 and 2018 was $102,815 and $102,815, respectively, and is included in other income on the consolidated statements of operations.

 

Consulting Agreements

 

On September 12, 2019, the Company entered into a Consulting Agreement (the “Agreement”) with a Consultant for general corporate governance. Under the terms of the Agreement, the Consultant is to be compensated 50,000 shares of common stock upon execution of the Agreement and 50,000 shares at the six-month anniversary of the Agreement. The Agreement has a term of one year.

 

On September 12, 2019, the Company entered into a Consulting Agreement (the “Agreement”) with a Consultant for sales fulfillment, procurement and quality control. Under the terms of the Agreement, the Consultant is to be compensated $33,333 per month, a minimum bonus of $100,000 at the 90 day anniversary of the Agreement, 300,000 shares of common stock upon the execution of the Agreement and additional shares of common stock based up certain revenue and operational targets. The Agreement has a term of 5 years and can be terminated by either party after the 3-year anniversary of the Agreement.

 

Legal Contingencies

 

The Company is involved in claims and litigation in the ordinary course of business, some of which seek monetary damages, including claims for punitive damages, which are not covered by insurance. For certain pending matters, accruals have not been established because such matters have not progressed sufficiently through discovery, and/or development of important factual information and legal information is insufficient to enable the Company to estimate a range of possible loss, if any. An adverse determination in one or more of these pending matters could have an adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

 

We are, and may in the future become, subject to various legal proceedings and claims that arise in or outside the ordinary course of business.

 

On April 14, 2020, Oceanside Traders, LLC (“Plaintiff”) filed a complaint against Cloud B, Inc. and Edison Nation, Inc. (together the “Defendants”) with the Superior Court of Ocean County, New Jersey alleging a breach of contract in that the Defendants failed to pay Plaintiff for goods sold in the amount of $141,007 plus $138,180 for overpayments and $279,187 for lost profits for a total of $443,383. The parties are currently in settlement discussions, and the Company has accrued $190,105 for anticipated settlement costs.

 

On July 15, 2019, the Company received correspondence from the staff of the Arkansas Securities Commissioner in connection with the state’s notice filing requirements for offerings exempt under Tier 2 of Regulation A, Section 18(b)(3) of the Security Act, such as the Company’s Form 1-A. The Company has resolved the matter with the Arkansas Securities Department for $1,100.

 

On March 13, 2019, Rosenberg Fortuna & Laitman LLP and Mark Principe (together the “Plaintiffs”) filed a complaint against Safe TV Shop, LLC (the “Defendant”) with the Supreme Court of the State of New York, County of Nassau alleging a breach of indemnification arising out of the use of a certain packaging material. On February 12, 2020, the parties entered a Stipulation and Settlement and Consent Agreement, whereby the Plaintiff entered into a Consent Judgment in the amount of $50,000. The Company has accrued $50,000 for the amount of the judgment, but there have been no operations by the Plaintiff since the date of acquisition by the Company.

 

F-47

 

 

Edison Nation, Inc. and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note 15 — Stockholders’ Equity

 

Common Stock

 

The Company issued 1,312,520 shares of common stock related to the IPO, at a public offering price of $5.00 per share in August 2018. The Company received gross proceeds of $6,562,600 and net proceeds of $5,315,176 after deducting underwriter commissions and expenses of $714,802, legal fees of $157,358, escrow closing fees of $4,000 and other direct offering expenses which together aggregate $1,204,030. As of December 31, 2019 and 2018, there were 8,015,756 and 5,654,930 shares of common stock issued and outstanding, respectively.

 

On October 2, 2019, Edison Nation, Inc. (the “Company”) entered into a Share Purchase Agreement (the “PIPE Purchase Agreement”) with certain accredited investors (collectively, the “Investors”) for the private placement of 1,175,000 shares of the Company’s common stock, $0.001 par value per share, at a purchase price of $2.00 per share (the “PIPE Transaction”). The PIPE Purchase Agreement contained certain closing conditions relating to the sale of securities, representations and warranties by the Company and the Investors, as well as covenants of the Company and the Investors (including indemnification 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.

 

Stock-Based Compensation

 

On September 6, 2018, the Company’s board of directors approved an amendment and restatement of the Company’s omnibus incentive plan solely to reflect the Company’s name change to Edison Nation, Inc. Thus, the Edison Nation, Inc. Omnibus Incentive Plan (the “Plan”) which remains effective as of February 9, 2018, provides for the issuance of up to 1,764,705 shares of common stock to help align the interests of management and our stockholders and reward our executive officers for improved Company performance. 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. The exercise price of stock options are equal to the fair market value of the underlying Company common stock on the date of grant.

 

   For the Twelve Months
Ended December 31,
 
   2019   2018 
Stock option awards  $175,675   $304,745 
Non-employee awards   1,564,670    2,329,874 
Restricted stock unit awards   447,300    559,499 
Phantom stock awards   112,270    54,048 
   $2,299,915   $3,248,166 

 

The stock-based compensation is included in selling, general and administrative expense for the twelve months ended December 31, 2019 and 2018.

 

For the year ended December 31, 2018, the Company recorded stock-based compensation expense of $3,248,166, of which 1,721,250, related to the assumption of certain consulting agreements which were satisfied by the principal stockholder of SRM transferring 344,250 shares to the consultants.

 

The following table summarizes stock option award activity during 2019:

 

    Shares    

Weighted

Average

Exercise

Price

   

Remaining

Contractual

Life in

Years

   

Aggregate

Intrinsic Value

 
Balance, January 1, 2019     290,000     $ 5.55       4.2       -  
Granted     -       -       -       -  
Forfeited     (210,000     5.00       -       -  
Balance, December 31, 2019     80,000       7.01       3.7       -  
Exercisable, December 31, 2019     53,333       7.01       3.7       -  

 

As of December 31, 2019, there were 26,667 unvested options to purchase shares of the Company’s common stock or $46,605 of total unrecognized equity-based compensation expense that the Company expected to recognize over a remaining weighted-average period of 1 year.

 

From time to time, the Company grants shares of common stock to consultants and non-employee vendors for services performed. The awards are valued at the market value of the underlying common stock at the date of grant and vest based on the terms of the contract which is usually upon grant.

 

F-48

 

 

Edison Nation, Inc. and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note 15 — Stockholders’ Equity – (Continued)

 

Pipe Financing

 

On October 2, 2019, Edison Nation, Inc. (the “Company”) entered into a Share Purchase Agreement (the “PIPE Purchase Agreement”) with certain accredited investors (collectively, the “Investors”) for the private placement of 1,175,000 shares of the Company’s common stock, $0.001 par value per share, at a purchase price of $2.00 per share (the “PIPE Transaction”). The PIPE Purchase Agreement contained certain closing conditions relating to the sale of securities, representations and warranties by the Company and the Investors, as well as covenants of the Company and the Investors (including indemnification 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.

 

In a series of three closings conducted in October 2019, the Company received net proceeds of $2,039,303 which consisted of $2,350,000 of gross proceeds offset by $310,697 of fees to placement agent and their lawyers. Alexander Capital, LP (“Alexander Capital”), a FINRA registered broker dealer, acted as placement agent with respect to the PIPE Transaction. In connection with the PIPE Transaction, Alexander Capital received a commission of $141,000, a debt restructuring fee of $64,208, a debt conversion fee of 15,889, a placement fee of $33,600 and warrants to purchase 70,500 shares of the Company’s common stock, at an exercise price of $2.50 per share (the “Placement Agent Warrants”).

 

In connection with the PIPE Purchase Agreement, the Company entered into Registration Rights Agreements with each of the Investors (the “Registration Rights Agreement”), pursuant to which the Company is required to prepare and file a registration statement (the “Registration Statement”) with the United States Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended, covering the resale of the shares of common stock issued to the Investors under the PIPE Purchase Agreement, as well as the Placement Agent Warrants. The Company will be 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 Transaction. The registration statement was not filed or declared effective within the timeframe set forth in the Registration Rights Agreements, and the Company is obligated to pay the Investors 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 Registration Rights Agreement also contains mutual indemnifications by the Company and each Investor, which the Company believes are customary for transactions of this type.

 

In connection with the PIPE transaction, the convertible notes entered into on May 13, 2019 were also converted at $2.00 per share into 560,185 shares of the Company’s common stock.

 

In addition, 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.

 

Selling Agent Agreement

 

In connection with the IPO, the Company agreed to issue to the selling agent in the IPO, warrants to purchase a number of shares of the common stock equal to 5.0% of the total shares of common stock sold in any closing of the IPO, excluding shares purchased by investors sourced via alternative funding platforms (the “Selling Agent Warrants”). The Selling Agent Warrants are exercisable commencing on the qualification date of the IPO and have a term of 5 years. The Selling Agent Warrants are not redeemable by the Company. The exercise price for the Selling Agent Warrants is 20% greater than the IPO offering price, or $6.00 per share. On August 16, 2018, the Company issued 65,626 of Selling Agent Warrants that are exercisable for 65,626 shares of the Company’s common stock.

 

F-49

 

 

Edison Nation, Inc. and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note 16 — Subsequent Events

 

On January 2, 2020, the Company entered into that certain Loan Agreement with Tiburon Opportunity Fund (the “Lender”), dated January 2, 2020 (the “Loan Agreement”). Pursuant to the terms of the Loan Agreement, the Lender agreed to loan the Company $400,000. The Loan is interest bearing at the rate of 1.5% per month through the term of the Loan. Additionally, the 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. On April 24, 2020 the Company and Lender entered into a Debt Conversion Agreement whereby the Lender elected to convert $400,000 of funds loaned to the Company into shares of the Company’s common stock. The conversion price was $2.00 per share for a total of 200,000 shares of restricted common stock issued by the Company.

 

On January 2, 2020, the Company, through its partnership with ED Roses, LLC (the “Borrower”), entered into a Loan Agreement (the “Agreement”) with Sook Hyun Lee (the “Lender”). Under the terms of the Agreement, the Lender agrees to loan $150,000 to the Borrower in return for $180,000 ($150,000 principal plus $30,000 commitment fee). The loan accrues interest at 15% per annum and matures on April 15, 2020. The Lender shall receive a collateral interest in the accounts receivable of the Borrower including, but not limited to the 7 Eleven receivables. The Company shall place 75,000 shares of common stock in reserve as collateral.

 

On January 10, 2020, the Company entered into a 5% Promissory Note Agreement with Equity Trust Company on behalf of Rawleigh Ralls (“Ralls”) 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 the Company issued to Ralls a warrant (the “Ralls Warrant”) to purchase 125,000 shares of the Company’s common stock. 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. The maturity date of the Ralls Note is July 10, 2020.

 

On January 13, 2020, we issued 50,000 shares of our common stock valued at $100,000 to Ridgewood LLC, a consultant for strategic consulting services for assistance with sales on Amazon.com.

 

On January 15, 2020, the Company entered into a 5% Promissory Note Agreement with Paul J. Solit & Julie B. Solit (“Solits”) 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 the Company issued to the Solits a warrant (the “Solit Warrant”) to purchase 50,000 shares of the Company’s common stock. 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 O’Leary. The maturity date of the Solit Note is July 15, 2020.

 

On January 17, 2020, the Company entered into a 5% Promissory Note Agreement with Richard O’Leary (“O’Leary”) 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 the Company issued to O’Leary a warrant (the “O’Leary Warrant”) to purchase 25,000 shares of the Company’s common stock. 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. The maturity date of the O’Leary Note is July 17, 2020.

 

On January 23, 2020, Edison Nation, Inc. (the “Company”) entered into a $1,100,000 loan agreement the (“Loan Agreement”) with Greentree Financial Group, Inc. (the “Investor”), pursuant to which the Investor purchased a 10% Convertible Promissory Note (the “Note”) from the Company, and the Company issued to the Investor a warrant (the “Warrant”) to purchase 550,000 shares of the Company’s common stock, $0.001 per share (“Common Stock”). The $1,100,000 of proceeds from the Note will be used for general working capital purposes and for the repayment of debt. On January 24, 2020, the Company used $588,366.44 of the proceeds from the Note to pay off in full the 12% Convertible Promissory Note held by Labrys Fund, LP. Upon execution of the Loan Agreement, the Company issued to the Investor 100,000 shares of Common Stock (the “Origination Shares”) as an origination fee, plus an additional 60,000 shares of Common Stock as consideration for advisory services. Pursuant to the Loan Agreement, the Company agreed to issue and sell to the Investor the Note, in the principal amount of $1,100,000. The Note, as amended, is due and payable October 23, 2020 (the “Maturity Date”) and is convertible at any time at a price of $2.00 per share. Pursuant to the Loan Agreement, the Company also issued the Investor 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 Warrant. The Warrant, as amended, expires on January 23, 2023.

 

F-50

 

 

Edison Nation, Inc. and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note 16 — Subsequent Events – (Continued)

 

On January 24, 2020, the Company repaid the Labrys Note in full. Upon repayment of the Labrys Note, Labrys Fund, LP 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.

 

On January 29, 2020, the Company and Greentree Financial Group, Inc. (the “Investor”), entered into an Amendment Agreement, amending the January 22, 2020 Loan Agreement, the Note, and the Warrant to: (i) correct the effective date set forth in the Loan Agreement, Note and Warrant to January 23, 2020, (ii) clarify the terms of the registration right provision in the Loan Agreement, and (iii) to ensure that the total number of shares of Common Stock issued pursuant to the Loan Agreement, the Note, and/or the Warrant, each as amended, does not exceed 17.99% of the Company’s issued and outstanding Common Stock as of January 23, 2020.

 

On February 7, 2020, we issued 15,000 shares of our common stock to MZHCI, LLC valued at $40,350 in connection with the satisfaction of outstanding amounts due under a settlement agreement.

 

On February 17, 2020, the Company entered into that certain 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. Pursuant to that certain Release Agreement by and between the Company and the Buyer included as an exhibit to the Purchase Agreement, the Buyer agreed to release any and all claims against the Company, and its officers, directors or affiliates arising from the Purchase Agreement or the purchase, sale, and assignment of the Cloud B Shares. Pursuant to that certain Indemnification Agreement by and between the Company and the Buyer included as an exhibit to the Purchase Agreement, the Company agreed to indemnify, defend and hold harmless the Buyer, and its owners, managers and representatives arising from any events that occurred prior to the purchase, sale, and assignment of the Cloud B Shares to the Buyer. The Company’s indemnification obligations pursuant to such Indemnification Agreement are limited to the issuance of 150,000 shares of the Company’s common stock to the Buyer.

 

On March 11, 2020, the Company and its wholly owned subsidiary, Scalematix, LLC, 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.

 

On March 16, 2020, the Company issued 300,000 shares of our common stock valued at $600,000 to a Consultant as per the terms of the Consulting Agreement dated September 12, 2019.

 

On March 16, 2020, the Company issued 50,000 shares of our common stock valued at $100,000 to a Consultant as per the terms of the Consulting Agreement dated September 12, 2019.

 

On March 25, 2020, Edison Nation, Inc. (the “Company”) filed a certificate of amendment to the Company’s articles of incorporation with the Secretary of State of the State of Nevada in order to: (i) increase the number of shares of the Company’s authorized preferred stock, par value $0.001 per share, from 0 shares to 30,000,000 shares of preferred stock; (ii) clarify the application of the forum selection clause in the Company’s amended and restated articles of incorporation, specifically that such clause does not apply to federal causes of actions arising under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (the “Exchange Act”); and (iii) include affirmative changes to correspond to the Company’s First Amended and Restated Bylaws, confirming that the Company’s shareholders may vote by written consent.

 

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 April 13, 2020, we issued 12,500 shares of 12,500 shares of our common stock valued at $31,625 to Caro Partners, LLC for consulting services.

 

F-51

 

 

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.

 

On April 24, 2020, the Company entered into a Consulting Agreement (the “Agreement”) with Tiburon (the “Consultant”). Under the terms of the Agreement, the Consultant is to provide business development services and consultation related to potential trade financing opportunities. The Agreement has a term of six (6) months. The Consultant is to be compensated ten thousand (10,000) shares of common stock upon execution of the Agreement and then shall receive six (6) additional monthly payments of eight thousand (8,000) shares of restricted common stock per month beginning on May 24, 2020 and ending on October 24, 2020.

 

On April 24, 2020, we issued 10,700 shares of our common stock valued at $21,935 to BHP Capital NY Inc. as origination shares as per the terms of the Securities Purchase Agreement dated April 7, 2020.

 

On April 24, 2020, we issued 10,700 shares of our common stock valued at $21,935 to Jefferson Street Capital, LLC as origination shares as per the terms of the Securities Purchase Agreement dated April 7, 2020.

 

On May 7, 2020, the Company entered into a Purchase of Inventory and Repurchase Agreement (the “Agreement”) with Fergco Bros, LLC (“Purchaser”). Under the terms of the Agreement, the Company assigned its rights, title and interest to inventory relating to its Edison Nation Medical customer, Orange County, CA (the “Inventory”) for payment in the amount of $100.000. The Company shall have the right to repurchase the Inventory for $105,000 in whole or periodioc installments by May 15, 2020. The Agreement was amended on May 15, 2020, to extend the repurchase date to June 30, 2020.

 

On May 13, 2020, the Company’s wholly owned subsidiary, Ferguson Containers, Inc., entered into a Distributor Agreement with Marrone Bio Innovations, LLC (“Marrone”) for the distribution of Marrone’s Jet-Oxide 15% peroxyacetic acid-based sanitizer/disinfectant.

 

May 17, 2020, the Company entered into an Amendment to Purchase of Inventory and Repurchase Agreement with the Purchasers-Assignees dated May 17, 2020. Under the terms of the Amendment, the repurchase date was extended to June 30, 2020 and the Company confirmed that of the Purchaser-Assignees is entitled to receive 10,000 shares of common stock.

 

On May 19, 2020, the Company entered into an Amendment (the “Amendment”) to the Senior Secured Note (the “Note”) issued by the Company to 32 Entertainment, LLC (the “Lender”) dated December 4, 2019. Under the terms of the Amendment, the Company issued the Lender 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, 2020. On or before May 28, 2020, the Company shall prepay $50,000 toward the principal plus interest in the amount of $6,250 for a total of $56,250. The Lender shall also receive 40,000 restricted stock units and surrender the warrant issued to the Lender in the December 4, 2019 financing transaction.

 

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”).

 

On May 20, 2020, 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 defines the operating rules of Global and the ownership percentage of each member: Edison Nation, Inc. 50%, PPE 25% and Graphene 25%.

 

On May 21, 2020, the Company issued 200,000 shares of common stock valued at $456,000 to PPE Brickell Supplies, LLC as per the terms of the Agreement and Plan of Share Exchange dated May 20, 2020.

 

On May 21, 2020, the Company issued 50,000 shares of common stock valued at $114,000 to Graphene Holdings, LLC as per the terms of the Agreement and Plan of Share Exchange dated May 20, 2020.

 

On May 21, 2020, the Company issued 50,000 shares of common stock valued at $114,000 to a Consultant for consulting services related to the Agreement and Plan of Share Exchange dated May 20, 2020.

 

On May 22, 2020, the Company issued 200,000 shares of common stock valued at $466,000 to Graphene Holdings as per the terms of the Agreement and Plan of Share Exchange dated May 20, 2020.

 

F-52

 

 

1,725,492 Shares

 

 

 

PROSPECTUS

 

 

 

         , 2020

 

Through and including              , 2020 (the 25th day after the date of this offering), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

 

   
 

 

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

 

Item 13. Other Expenses of Issuance and Distribution

 

The following table sets forth the costs and expenses payable in connection with the sale and distribution of the securities being registered. All amounts are estimated except the SEC registration fees. Except as otherwise noted, all the expenses below will be paid by us.

 

SEC Registration Fees  $870.08 
Legal Fees and Expenses   100,000 
Accounting Fees and Expenses   20,000.00 
Printing and Related Expenses   10,000.00 
Miscellaneous   5,000.00 
Total  $135,870.08 

 

 

*         Estimated expenses not presently known.

 

Item 14. Indemnification of Directors and Officers

 

Our Second Amended and Restated Bylaws, subject to the provisions of Nevada Law, contain provisions which allow the corporation to indemnify any person against liabilities and other expenses incurred as the result of defending or administering any pending or anticipated legal issue in connection with service to us if it is determined that person acted in good faith and in a manner which he reasonably believed was in the best interest of the corporation. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons, we have been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

 

The indemnification rights set forth above shall not be exclusive of any other right which an indemnified person may have or hereafter acquire under any statute, provision of our amended and restated articles of incorporation, our Second Amended and Restated Bylaws, agreement, vote of shareholders or disinterested directors or otherwise.

 

We maintain standard policies of insurance that provide coverage (1) to our directors and officers against loss rising from claims made by reason of breach of duty or other wrongful act, and (2) to us with respect to indemnification payments that we may make to such directors and officers.

 

The proposed form of underwriting agreement filed as Exhibit 1.1 to this Registration Statement will provide for indemnification of our directors and officers by the underwriter party thereto against certain liabilities. See “Undertakings” below for a description of the SEC’s position regarding such indemnification provisions.

 

Item 15. Recent Sales of Unregistered Securities

 

We claimed exemption from registration under the Securities Act for the sales and issuances of securities in the following transactions under Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder, in that such sales and issuances did not involve a public offering, or under Rule 701 promulgated under the Securities Act, in that they were offered and sold either pursuant to written compensatory plans or pursuant to a written contract relating to compensation, as provided by Rule 701. All of the purchasers of unregistered securities for which we relied on Section 4(a)(2) and/or Regulation D represented that they were accredited investors as defined under the Securities Act. We claimed such exemption on the basis that (a) the purchasers in each case represented that they intended to acquire the securities for investment only and not with a view to the distribution thereof and that they either received adequate information about the registrant or had access, through employment or other relationships, to such information and (b) appropriate legends were affixed to the stock certificates issued in such transactions.

  

 II-1 
 

 

Issuance of common stock – Quarter ended March 31, 2020

 

On January 23, 2020, we issued 160,000 shares of our common stock to Greentree valued at $374,400 in connection with the Greentree Financing.

 

On March 16, 2020, we issued 238,750 shares of common stock valued at $477,500 as per the terms of the Asset Purchase Agreement dated March 11, 2020.

 

Issuance of common stock – Quarter ended June 30, 2020

 

On April 24, 2020, we issued 10,700 shares of our common stock valued at $21,935 to BHP Capital NY Inc. as origination shares as per the terms of the Securities Purchase Agreement dated April 7, 2020.

 

On April 24, 2020, we issued 10,700 shares of our common stock valued at $21,935 to Jefferson Street Capital, LLC as origination shares as per the terms of the Securities Purchase Agreement dated April 7, 2020.

 

On May 21, 2020, the Company issued 200,000 shares of common stock valued at $456,000 to PPE Brickell Supplies, LLC as per the terms of the Agreement and Plan of Share Exchange dated May 20, 2020.

 

On May 21, 2020, the Company issued 50,000 shares of common stock valued at $114,000 to Graphene Holdings, LLC as per the terms of the Agreement and Plan of Share Exchange dated May 20, 2020.

 

On May 21, 2020, the Company issued 50,000 shares of common stock valued at $114,000 to a Consultant for consulting services.

 

On June 30, 2020, the Company issued 212,000 shares of common stock valued at $440,960 to Tiburon Opportunity Fund in satisfaction of a note payable.

 

On June 30, 2020, the Company issued 150,000 shares of common stock valued at $405,000 to a designee of the Buyer of the Company’s former subsidiary, Cloud B, Inc.

 

On June 30, 2020, the Company issued 33,000 shares of common stock valued at $79,860 as incentive shares in connection with the Ralls financing.

 

On June 30, 2020, the Company issued 13,000 shares of common stock valued at $30,420 as incentive shares in connection with the Solit financing.

 

Issuance of common stock – Quarter ended September 30, 2020

 

On July 2, 2020, the Company issued 6,500 shares of common stock valued at $15,535 as incentive shares in connection with the O’Leary financing.

 

On July 6, 2020, the Company issued 25,000 shares of common stock valued at $61,000 to a Consultant for consulting services.

 

On July 14, 2020, the Company issued 6,500 shares of common stock valued at $24,570 as Additional Incentive shares in connection with the O’Leary financing.

 

On July 14, 2020, the Company issued 33,000 shares of common stock valued at $124,740 as Additional Incentive shares in connection with the Ralls financing.

 

On July 14, 2020, the Company issued 13,000 shares of common stock valued at $49,140 as Additional Incentive shares in connection with the Solit financing.

 

On July 23, 2020, the Company issued 320,000 shares of common stock valued at $1,158,400 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 valued at $1,394,900 to Greentree Financial Group, Inc. in satisfaction of $740,000 principal against a note issued on January 23, 2020.

 

On August 19, 2020, the Company issued 990,000 shares of common stock valued at $3,168,000 to the members of Edison Nation Holdings, LLC (“EN”) in exchange for the redemption of certain non-voting membership interests of EN as per the terms of the transaction dated September 4, 2018, resulting in the Company owning 100% of EN.

 

Issuance of common stock - 2019

 

On March 6, 2019, we issued 15,000 shares of our common stock valued at $74,100 related to the borrowing of funds under a note payable.

 

On May 24, 2019, we issued 20,000 shares of our common stock valued at $62,000 to a note holder related to the borrowing of funds.

 

On June 18, 2019, we issued 15,000 shares of our common stock valued at $37,200 to a note holder to satisfy a portion of the payoff of one of our notes.

 

On July 16, 2019, we issued 20,000 shares of our common stock valued at $70,920 to note holders related to the borrowing of funds.

 

On August 26, 2019, we issued 181,005 shares of our common stock, of which 153,005 shares were reserved shares which were returnable upon repayment, valued at $713,159.70 to a note holder related to the borrowing of funds. These shares were returned in 2020 and are no longer outstanding.

 

On November 4, 2019, we issued 15,000 shares of our common stock valued at $29,880 to one of our note holders related to our borrowing of funds.

 

On November 21, 2019, we issued 1,175,000 shares of our common stock to investors at a purchase price of $2.00 per share in connection with the PIPE Transaction.

 

On December 5, 2019, we issued 45,000 shares of our common stock valued at $90,000 related to the acquisition of the assets of Uber Mom, LLC.

 

On December 19, 2019, we issued 10,000 shares of our common stock valued at $20,000 to 32 Entertainment, LLC, related to the borrowing of funds.

 

On December 31, 2019, we issued 10,000 shares of our common stock valued at $20,000 to Joseph Tropea, a note holder, related to the borrowing of funds.

 

 II-2 
 

 

Issuance of common stock - 2018

 

On May 4, 2018, we issued 13,500 shares of our common stock valued at $67,500 related to the borrowing of funds under a note payable.

 

On August 23, 2018, we issued 20,000 shares of our common stock valued at $100,000 related to the borrowing of funds under a note payable.

 

On September 4, 2018, we issued 557,084 shares of our common stock valued at $3,384,285 related to the acquisition of Edison Nation Holdings, LLC.

  

On December 27, 2018, we issued 489,293 shares of our common stock valued at $2,664,200 related to the acquisition of Cloud B, Inc.

 

Issuance of common stock under the Company’s Equity Compensation Plan:

  

On May 8, 2018, we issued 61,900 shares of our common stock valued at $306,000 to various employees.

 

On August 17, 2018, we issued 50,000 shares of our common stock valued at $250,000 to a consultant for services provided.

 

On September 10, 2018, we issued 20,000 shares of our common stock valued at $100,000 to a consultant for services performed.

 

On September 20, 2018, we issued 5,000 shares of our common stock valued at $25,000 to a consultant for services performed.

 

On October 23, 2018, we issued 10,000 shares of our common stock valued at $50,000 to a consultant for services performed.

 

On November 6, 2018, we issued 2,000 shares of our common stock valued at $10,000 to a consultant for services performed.

 

On December 21, 2018, we issued 50,000 shares of our common stock valued at $251,000 to a consultant for services performed.

 

On December 27, 2018, we issued 18,797 shares of our common stock valued at $100,000 to a consultant for services performed.

 

On December 27, 2018, we issued 41,736 shares of our common stock valued at $250,000 to 2 employees.

 

On December 28, 2018, we issued 3,000 shares of our common stock valued at $15,000 to a consultant for services performed.

 

On March 13, 2019, we issued 10,500 shares of our common stock valued at $52,500 to two consultants for services performed.

 

On May 6, 2019, we issued 12,500 shares of our common stock valued at $47,625 to an innovator for the licensing of their product.

 

On May 24, 2019, we issued 10,000 shares of our common stock valued at $30,000 to a consultant for strategic consulting services.

 

On July 16, 2019, we issued 25,000 shares of our common stock valued at $98,500 to a consultant for strategic consulting services.

 

On July 16, 2019, we issued 50,000 shares of our common stock valued at $197,000 to a consultant for investor relations services.

 

On September 4, 2019, we issued 17,000 shares of our common stock under our plan valued at $54,250 to consultants for strategic consulting services.

 

On September 4, 2019, we issued 3,000 shares of our common stock under our plan valued at $8,850 to an employee.

 

On December 17, 2019, we issued 10,000 shares of our common stock valued at $20,000 to a consultant for strategic consulting services for our Amazon.com business.

 

On January 7, 2020, we issued 100,000 shares of our common stock valued at $200,000 to Phil Anderson, former Chief Strategic Officer, for satisfaction of surrendering his outstanding options.

 

On January 7, 2020, we issued 32,813 shares of our common stock valued at $65,626 to Phil Anderson, our former Chief Financial Officer and Chief Strategic Officer, for satisfaction of his remaining payments under his strategic consulting contract.

 

On December 31, 2019, we issued 23,923 shares of our common stock valued at $47,846 to 4 Keeps Roses, Inc, related to the joint venture of Ed Roses, LLC.

 

On January 13, 2020, we issued 50,000 shares of our common stock valued at $100,000 to Ridgewood LLC, a consultant for strategic consulting services for assistance with sales on Amazon.com.

 

On February 7, 2020, we issued 15,000 shares of our common stock to MZHCI, LLC valued at $40,350 in connection with the satisfaction of outstanding amounts due under a settlement agreement.

 

On March 16, 2020, the Company issued 300,000 shares of our common stock valued at $600,000 to a Consultant as per the terms of the Consulting Agreement dated September 12, 2019.

 

On March 16, 2020, the Company issued 50,000 shares of our common stock valued at $100,000 to a Consultant as per the terms of the Consulting Agreement dated September 12, 2019.

 

On April 13, 2020, we issued 12,500 shares of 12,500 shares of our common stock valued at $31,625 to Caro Partners, LLC for consulting services.

 

On May 22, 2020, the Company issued 200,000 shares of common stock valued at $466,000 to Graphene Holdings as per the terms of the Agreement and Plan of Share Exchange dated May 20, 2020.

 

On July 24, 2020, the Company issued 113,312 shares of common stock valued at $379,595 to a Consultant for consulting services based on achieving set revenue targets within the agreement.

 

On July 24, 2020, the Company issued 113,312 shares of common stock valued at $379,595 to a Consultant for consulting services based on achieving set revenue targets within the agreement.

 

On August 3, 2020, the Company issued 30,000 shares of common stock valued at $116,700 to a Consultant for advisory services.

 

On August 4, 2020, the Company issued 20,000 shares of common stock valued at $75,400 to a Consultant for advisory services.

 

Item 16. Exhibits and Financial Statement Schedules

 

(a) Exhibits.

 

Exhibit      

Incorporated By Reference

to

  Filed
Number   Description   Form   Exhibit   Filing Date   Herewith
3.1   Articles of Merger, filed with the Secretary of State of Nevada effective September 7, 2018   8-K   3.1   September 12, 2018    
3.2   Second Amended and Restated Bylaws of Edison Nation, Inc.   8-K   3.2   September 12, 2018    

3.3

  Second Amended and Restated Articles of Incorporation of Edison Nation, Inc.   8-K  

3.1

 

March 26, 2020

   
5.1   Legal opinion of Lucosky Brookman LLP               *
10.1   Form of Senior Convertible Promissory Note   8-K   2.1   July 6, 2018    
10.1   Membership Interest Purchase Agreement dated June 29, 2018   8-K   10.1   July 6, 2018    
10.2   Fifth Amended and Restated Operating Agreement of Edison Nation Holdings, LLC, dated September 4, 2018   8-K   10.2   September 6, 2018    
10.3   Registration Rights Agreement dated September 4, 2018   8-K   10.3   September 6, 2018    
10.4+   Amended and Restated Edison Nation, Inc. Omnibus Incentive Plan   8-K   3.3   September 12, 2018    
10.5+   Employment Agreement, by and between Edison Nation, Inc. and Christopher Ferguson, dated September 26, 2018   8-K   10.1   October 5, 2018   +
10.6+   Employment Agreement, by and between Edison Nation, Inc. and Phil Anderson, dated September 26, 2018   8-K   10.2   October 5, 2018   +
10.7   Stock Purchase Agreement, dated October 24, 2018   8-K   10.1   October 30, 2018    
10.8   Securities Purchase Agreement, dated March 6, 2019   8-K   10.1   March 13, 2019    
10.9   Senior Convertible Promissory Note, dated March 6, 2019   8-K   10.2   March 13, 2019    
10.10   Pledge Agreement, dated March 12, 2019   8-K   10.3   March 13, 2019    
10.11   Form of Securities Purchase Agreement dated May 13, 2019   8-K   10.1   May 17, 2019    
10.12   Form of Senior Convertible Promissory Note dated May 13, 2019   8-K   10.2   May 17, 2019    
10.13   Settlement and Release Agreement dated June 17, 2019 with FirstFire Global Opportunities Fund, LLC   8-K    10.1   June 19, 2019    
10.14   Loan Agreement with Tiburon Opportunity Fund, dated June 14, 2019   8-K   10.1   June 20, 2019    
10.15   Operating Agreement of Ed Roses, LLC, dated August 23, 2019   S-1   10.18   February 12, 2020    
10.16   Securities Purchase Agreement with Labrys Fund, LP, dated August 26, 2019   8-K   10.1   August 29, 2019    
10.17   12% Convertible Promissory Note, dated August 26, 2019   8-K   10.2   August 29, 2019    
10.18   Form of Share Purchase Agreement, dated October 2, 2019   8-K   10.1   October 4, 2019    
10.19   Form of Registration Rights Agreement, dated October 2, 2019   8-K   10.2   October 4, 2019    
10.20   Uber Mom Asset Purchase Agreement, dated November 6, 2019   S-1   10.23   February 12, 2020    
10.21   Purchase of Inventory and Repurchase Agreement with Claudia McFillin and Joseph Tropea, dated November 12, 2019   S-1   10.24   February 12, 2020    
10.22   Future Receivables Sale and Purchase Agreement with Velocity Group USA Inc., dated November 18, 2019   S-1   10.25   February 12, 2020    
10.23   10% Senior Secured Note with 32 Entertainment LLC, dated December 4, 2019   S-1   10.26   February 12, 2020    
10.24  

Common Stock Purchase Warrant with 32 Entertainment LLC, dated December 4, 2019

  S-1   10.27   February 12, 2020    

 

 II-3 
 

 

Exhibit      

Incorporated By Reference

to

  Filed
Number   Description   Form   Exhibit   Filing Date   Herewith
10.25   Registration Rights Agreement with 32 Entertainment LLC, dated December 4, 2019   S-1   10.28   February 12, 2020    
10.26   Loan Agreement with Tiburon Opportunity Fund, dated January 2, 2020   S-1   10.29   February 12, 2020    
10.27   5% Note Agreement with Equity Trust Company, Custodian FBO: Rawleigh H. Ralls, dated January 10, 2020   S-1   10.30   February 12, 2020    
10.28   Common Stock Purchase Warrant with Equity Trust Company, Custodian FBO: Rawleigh H. Ralls, dated January 10, 2020   S-1   10.31   February 12, 2020    
10.29   5% Note Agreement with Paul J. Solit and Julie B. Solit, dated January 15, 2020   S-1   10.32   February 12, 2020    
10.30   Common Stock Purchase Warrant with Paul J. Solit and Julie B. Solit, dated January 15, 2020   S-1   10.33   February 12, 2020    
10.31   5% Note Agreement with Richard O’Leary, dated January 17, 2020   S-1   10.34   February 12, 2020    
10.32   Common Stock Purchase Warrant with Richard O’Leary, dated January 15, 2020   S-1   10.35   February 12, 2020    
10.33   Loan Agreement with Greentree Financial Group, Inc., dated January 23, 2020   8-K   10.1   January 29, 2020    
10.34   10% Convertible Promissory Note with Greentree Financial Group, Inc., dated January 23, 2020   8-K   10.2   January 29, 2020    
10.35   Common Stock Purchase Warrant with Greentree Financial Group, Inc., dated January 23, 2020   8-K   10.3   January 29, 2020    
10.36   Amendment Agreement with Greentree Financial Group, Inc., dated January 29, 2020   8-K   10.4   January 29, 2020    
10.37   Asset Purchase Agreement between HMNRTH, LLC, TCBM Holdings, LLC and Edison Nation, Inc. and Scalematix, LLC dated March 11, 2020   8-K   10.1   March 12, 2020    
10.38   Securities Purchase Agreement between Edison Nation, Inc. and Jefferson Street Capital, LLC dated April 7, 2020   8-K   10.3   April 27, 2020  
10.39   Convertible Promissory Note between Edison Nation, Inc. and Jefferson Street Capital, LLC dated April 7, 2020  

8-K

 

10.4

 

April 27, 2020

 
10.40   Securities Purchase Agreement between Edison Nation, Inc. and BHP Capital NY Inc. dated April 7, 2020  

8-K

  10.1  

April 27, 2020

 
10.41   Convertible Promissory Note between Edison Nation, Inc. and BHP Capital NY Inc dated April 7, 2020  

8-K

 

10.2

 

April 27, 2020

 
10.42   Promissory Note Small Business Administration-Paycheck Protection Program dated April 15, 2020   8-K   10.8   April 27, 2020    
10.43   Consulting Agreement between Edison Nation, Inc. and Tiburon dated April 24, 2020   8-K   10.5   April 27, 2020    
10.44   Debt Conversion Agreement between Edison Nation, Inc. and Tiburon Opportunity Fund dated April 24, 2020   8-K   10.6   April 27, 2020    
10.45   Distributor Agreement between Edison Nation Holdings, LLC and Marrone Bio Innovations, Inc. dated May 13, 2020   10-K    10.45   May 29, 2020  

10.46   Secured Line of Credit Agreement between Global Solutions, LLC, Edison Nation, Inc. and PPE Brickell Supplies, LLC dated May 20, 2020  

8-K

 

10.1

 

May 26, 2020

   
10.47   Security Agreement between Global Solutions, LLC, Edison Nation, Inc. and PPE Brickell Supplies, LLC dated May 20, 2020   8-K   10.2   May 26, 2020    
10.48   Agreement and Plan of Share Exchange Agreement between Edison Nation, Inc. PPE Brickell Supplies, LLC and Graphene Holdings, LLC dated May 20, 2020   8-K   10.3   May 26, 2020    
10.49   Amended Limited Liability Company Agreement of Global Clean Solutions, LLC dated May 20, 2020   8-K   10.4   May 26, 2020    
10.50   Purchase of Inventory and Repurchase Agreement between Edison Nation, Inc. and Fergco Bros, LLC dated May 7, 2020  

10-K

  10.50  

May 29, 2020

 
10.51   Amendment to Purchase of Inventory and Repurchase Agreement between Edison Nation, Inc. and Fergco Bros, LLC dated May 15, 2020    10-K   10.51    May 29, 2020  
10.52   Amendment to Senior Secured Note between Edison Nation, Inc. and 32 Entertainment, LLC dated May 19, 2020    10-K   10.52    May 29, 2020  
10.53   Amended Subordinate Secured Note between Edison Nation, Inc and 32 Entertainment, LLC dated May 19, 2020  

10-K

  10.53  

May 29, 2020

 
10.54   Agreement for the Purchase and Sale of Common Stock of Cloud B, Inc. dated February 17, 2020   8-K   10.1   February 21, 2020    
10.55   Amendment to Note Agreement and Common Stock Purchase Warrant between Edison Nation, Inc. and Richard O’Leary dated July 10, 2020   S-1    10.55   July 16, 2020    
10.56   Amendment to Note Agreement and Common Stock Purchase Warrant between Edison Nation, Inc. and Equity Trust Company, a Custodian FBO: Rawleigh H. Ralls IRA dated July 10, 2020   S-1    10.56    July 16, 2020     
10.57   Amendment to Note Agreement and Common Stock Purchase Warrant between Edison Nation, Inc. and Paul J. Solit and Julie B. Solit dated July 10, 2020   S-1    10.57   July 16, 2020    
10.58   Convertible Promissory Note between Edison Nation, Inc. and Jefferson Street Capital, LLC dated July 29, 2020   10-Q   10.30   August 18, 2020    
10.59   Memorandum of Understanding between the Global Clean Solutions, LLC, Office Mart, Inc. and ZAAZ Medical, Inc. dated June 8, 2020   10-Q   10.31   August 18, 2020    
10.60   Amendment to Memorandum of Understanding dated August 6, 2020   10-Q   10.32   August 18, 2020    
21.1   List of Significant Subsidiaries   S-1   21.1   February 12, 2020  
23.1   Consent of Marcum llp               *
                     
101.INS*   XBRL Instance Document               *
101.SCH*   XBRL Taxonomy Extension Schema Document               *
101.CAL*   XBRL Taxonomy Extension Calculation Linkbase Document               *
101.DEF*   XBRL Taxonomy Extension Definition Linkbase Document               *
101.LAB*   XBRL Taxonomy Extension Label Linkbase Document               *
101.PRE*   XBRL Taxonomy Extension Presentation Linkbase Document               *

 

  * Filed herewith.
     
  ** Furnished herewith.
     
  + Denotes a management compensatory plan, contract or arrangement

 

(b) Financial statement schedules.

 

No financial statement schedules are provided because the information called for is not required or is shown in the consolidated financial statements or related notes.

  

Item 17. Undertakings

 

(a) The undersigned registrant hereby undertakes:

 

(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

 

(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;

 

(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.

 

(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;

 

(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

 II-4 
 

 

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

 

(4) That, for the purpose of determining liability under the Securities Act to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

 

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

 

 II-5 
 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Act of 1933, we have duly caused this Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in Bethlehem, Pennsylvania, on August 28, 2020.

 

  EDISON NATION, INC.
     
  By: /s/ Christopher B. Ferguson
    Christopher B. Ferguson
    Chief Executive Officer

 

POWER OF ATTORNEY

 

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose individual signature appears below hereby authorizes and appoints Christopher B. Ferguson and Brett Vroman, and each of them, with full power of substitution and resubstitution and full power to act without the other, as his true and lawful attorney-in-fact and agent to act in his name, place and stead and to execute in the name and on behalf of each person, individually and in each capacity stated below, and to file any and all amendments to this Registration Statement on Form S-1, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the SEC, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing, ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his substitute or substitutes may lawfully do or cause to be done by virtue thereof.

 

Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.

 

Signature   Title   Date
         
/s/ Christopher B. Ferguson   Chief Executive Officer and Chairman of the Board of Directors   August 28, 2020
Christopher B. Ferguson   (Principal Executive Officer)    
         
/s/ Brett Vroman   Chief Financial Officer   August 28, 2020
Brett Vroman   (Principal Financial Officer and Principal Accounting Officer)    
         
/s/ Louis Foreman   Director   August 28, 2020
Louis Foreman        
         
/s/ Frank Jennings   Director   August 28, 2020
Frank Jennings        
         
/s/ Mary Ann Halford   Director   August 28, 2020
Mary Ann Halford        
         
/s/ Kevin J. O’Donnell   Director   August 28, 2020
Kevin J. O’Donnell        

 

 II-6 

 

 

Exhibit 5.1

 

  LUCOSKY BROOKMAN LLP
August 28, 2020

 

101 Wood Avenue South

5th floor

Woodbridge, NJ 08830

T - (732) 395-4400

F - (732) 395-4401

 

Edison Nation, Inc.

1 West Broad Street, Suite 1004

Bethlehem, PA 18018

111 Broadway

Suite 807

New York, NY 10006

 

Ladies and Gentlemen:

 

We have acted as counsel to Edison Nation, Inc., a Nevada corporation (the “Company” or “you”), and have examined the Amendment 3 to the Registration Statement on Form S-1 (the “Registration Statement”) to be filed by the Company with the U.S. Securities and Exchange Commission (the “Commission”) on or about August 28, 2020, in connection with the registration under the Securities Act of 1933, as amended (the “Securities Act”), of 1,725,492 shares (the “Shares”) of the Company’s common stock, $0.001 par value per share (the “Common Stock”).

 

In connection herewith, we have examined the Registration Statement. We have also examined originals or copies, certified or otherwise identified to our satisfaction, of the Company’s Second Amended and Restated Articles of Incorporation, as amended, and Bylaws, each as currently in effect, and such other corporate records, agreements and instruments of the Company, and certificates of public officials and officers of the Company, and we have made such legal and factual inquiries, as we have deemed necessary or appropriate as a basis for us to render the opinion hereinafter expressed. In our examination of the foregoing, we have assumed the genuineness of all signatures, the legal competence and capacity of natural persons, the authenticity of documents submitted to us as originals and the conformity with authentic original documents of all documents submitted to us as copies or by facsimile or other means of electronic transmission, or which we obtained from the Commission’s Electronic Data Gathering, Analysis and Retrieval system (“Edgar”) or other sites maintained by a court or governmental authority or regulatory body and the authenticity of the originals of such latter documents. If any documents we examined in printed, word processed or similar form has been filed with the Commission on Edgar or such court or governmental authority or regulatory body, we have assumed that the document so filed is identical to the document we examined except for formatting changes.

 

When relevant facts were not independently established, we have relied without independent investigation as to matters of fact upon statements of governmental officials and upon representations made in or pursuant to the Registration Statement and certificates or statements of appropriate representatives of the Company.

 

Based upon the foregoing and subject to the assumptions, qualifications and limitations set forth herein, we are of the opinion that the Shares have been duly authorized and, when issued, paid for, if such payment is required by the applicable award agreement, and delivered pursuant to the terms and in the manner set forth in the Plan and any relevant agreements thereunder, and assuming that the Shares have been and remain duly reserved for issuance within the limits of the Common Stock then remaining authorized but unissued, the Shares will be validly issued, fully paid and nonassessable.

 

In addition to the assumptions, comments, qualifications, limitations and exceptions set forth above, the opinion set forth herein is further limited by, subject to and based upon the following assumptions, comments, qualifications, limitations and exceptions:

 

 
 

 

Our opinion herein reflects only the application of the Nevada Business Corporations Act of the State of Nevada (including the statutory provisions, the applicable provisions of the Nevada Business Corporations Act and reported judicial decisions interpreting the foregoing). We express no opinion herein as to any other laws, statutes, regulations or ordinances. The opinion set forth herein is made as of the date hereof and is subject to, and may be limited by, future changes in factual matters, and we undertake no duty to advise you of the same. The opinion expressed herein is based upon the law in effect (and published or otherwise generally available) on the date hereof, and we assume no obligation to revise or supplement this opinion should such law be changed by legislative action, judicial decision or otherwise. In rendering our opinion, we have not considered, and hereby disclaim any opinion as to, the application or impact of any laws, cases, decisions, rules or regulations of any other jurisdiction, court or administrative agency.

 

This opinion letter is being delivered by us in connection with the filing of the Registration Statement with the Commission. We do not render any opinions except as set forth above. We hereby consent to the inclusion of this opinion letter as Exhibit 5.1 to the Registration Statement and to the reference to this firm in the Registration Statement. In giving this consent, we do not thereby concede that we are in the category of persons whose consent is required under Section 7 of the Securities Act or the Rules and Regulations of the Commission thereunder.

 

Very Truly Yours,  
   
/s/ Lucosky Brookman LLP  
Lucosky Brookman LLP  

 

 

 

Exhibit 23.1

 

Independent Registered Public Accounting Firm’s Consent

 

We consent to the inclusion in this Registration Statement of Edison Nation, Inc. on Amendment No. 3 to Form S-1 (File No. 333-236401) of our report dated May 29, 2020 with respect to our audits of the consolidated financial statements of Edison Nation, Inc. as of December 31, 2019 and 2018 and for the years ended December 31, 2019 and 2018, which report appears in the Prospectus, which is part of this Registration Statement. We also consent to the reference to our Firm under the heading “Experts” in such Prospectus.

 

Our report on the consolidated financial statements refers to a change in the method of accounting for leases in 2019 due to the adoption of Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), as amended, effective January 1, 2019, using the modified retrospective approach.

 

/s/ Marcum llp

 

Marcum llp

New York, NY

August 28, 2020

 

 

v3.20.2
Document and Entity Information
6 Months Ended
Jun. 30, 2020
Cover [Abstract]  
Entity Registrant Name EDISON NATION, INC.
Entity Central Index Key 0001717556
Document Type S-1/A
Amendment Flag true
Amendment Description Amendment No. 3
Entity Filer Category Non-accelerated Filer
Entity Small Business true
Entity Emerging Growth Company true
Entity Ex Transition Period true
v3.20.2
Condensed Consolidated Balance Sheets - USD ($)
Jun. 30, 2020
Dec. 31, 2019
Dec. 31, 2018
Current assets:      
Cash and cash equivalents $ 1,762,337 $ 412,719 $ 2,052,731
Accounts receivable, net 3,086,195 2,108,099 1,877,351
Inventory 1,190,998 1,369,225 923,707
Prepaid expenses and other current assets 1,884,542 917,433 611,695
Income tax receivable 147,889 147,889
Total current assets 8,071,961 4,955,365 5,465,484
Property and equipment, net 932,027 931,968 998,863
Right of use assets, net 578,280 732,100
Intangible assets, net 11,047,515 11,598,063 12,687,731
Goodwill 5,392,123 5,392,123 9,736,510
Total assets 26,021,906 23,609,619 28,888,588
Current liabilities:      
Accounts payable 3,047,197 7,397,650 5,519,159
Accrued expenses and other current liabilities 1,704,484 1,594,669 1,135,551
Deferred revenues 1,061,989 159,591 175,956
Current portion of operating leases liabilities 279,427 272,215
Income tax payable 8,446 22,919 129,511
Line of credit, net of debt issuance costs 2,151,108 456,995 531,804
Current portion of convertible notes payable, net of debt issuance costs 900,765  
Current portion of notes payable, net of debt issuance costs 970,710 1,365,675 313,572
Current portion of notes payable - related parties 1,166,365 1,686,352 932,701
Due to related party 26,784 17,253 140,682
Total current liabilities 11,317,275 12,973,319 8,878,936
Contingent consideration   520,000
Operating leases liabilities - net of current portion 326,482 482,212
Convertible notes payable - related parties, net of current portion, net of debt discount 1,111,495 1,061,495 961,494
Notes payable, net of current portion 825,004 42,492 56,688
Notes payable - related parties, net of current portion 1,501,148 1,595,669 2,531,490
Deferred tax liability   341
Total liabilities 15,081,404 16,155,187 12,948,949
Commitments and Contingencies
Stockholders' equity      
Preferred stock value
Common stock value 9,618 8,016 5,655
Additional paid-in-capital 30,802,083 26,259,575 20,548,164
Accumulated deficit (18,850,350) (18,495,461) (5,565,756)
Total stockholders' equity attributable to Edison Nation, Inc. 11,961,351 7,772,130 14,988,063
Noncontrolling interests (1,020,849) (317,698) 951,576
Total stockholders' equity 10,940,502 7,454,432 15,939,639
Total liabilities and stockholders' equity $ 26,021,906 $ 23,609,619 $ 28,888,588
v3.20.2
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)
Jun. 30, 2020
Dec. 31, 2019
Dec. 31, 2018
Preferred stock, par or stated value per share $ 0.001 $ 0.001  
Preferred stock, shares authorized 30,000,000 30,000,000  
Preferred stock, shares issued 0 0  
Preferred stock, shares outstanding 0 0  
Common stock, par or stated value per share $ 0.001 $ 0.001 $ 0.001
Common stock, shares authorized 250,000,000 250,000,000 250,000,000
Common stock, shares, issued 9,618,401 8,015,756 5,654,830
Common stock, shares, outstanding 9,618,401 8,015,756 5,654,830
Convertible Notes Payable [Member]      
Debt issuance costs, net $ 535,235    
Notes Payable [Member]      
Debt issuance costs, net 86,349 $ 212,848 $ 0
Convertible Notes Payable - Related Parties [Member]      
Debt issuance costs, net 316,667 366,666 466,667
Line of Credit [Member]      
Debt issuance costs, net $ 0 $ 15,573 $ 30,000
v3.20.2
Condensed Consolidated Statements of Operations - USD ($)
3 Months Ended 6 Months Ended 12 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Dec. 31, 2019
Dec. 31, 2018
Income Statement [Abstract]            
Revenues, net $ 6,880,026 $ 5,968,255 $ 10,547,136 $ 11,706,789 $ 19,629,062 $ 16,502,209
Cost of revenues 4,889,784 3,924,252 7,308,196 7,869,810 12,822,450 11,425,619
Gross profit 1,990,242 2,044,003 3,283,940 3,836,979 6,806,612 5,076,590
Operating expenses:            
Selling, general and administrative 2,770,930 3,392,596 6,963,643 6,441,784 15,909,840 9,718,286
Gain on change in fair value of earnout liability         (520,000)
Impairment of goodwill         4,443,000
Total operating expenses         19,832,840 9,718,286
Operating loss (780,688) (1,348,593) (3,724,703) (2,604,805) (13,026,228) (4,641,696)
Other (expense) income:            
Rental income 25,703 25,703 51,407 51,407 102,815 102,815
Interest expense (847,154) (401,170) (1,571,111) (525,864) (1,298,168) (501,221)
Gain on divestiture 4,911,760    
Other income         3,054
Total other (expense) income (821,451) (375,467) 3,392,056 (474,457) (1,192,299) (398,406)
Loss before income taxes (1,602,139) (1,724,060) (332,647) (3,079,262) (14,218,527) (5,040,102)
Income tax expense 51,005 74,200 (19,547) 303,915
Net income (loss) (1,602,139) (1,775,065) (332,647) (3,153,462) (14,198,980) (5,344,017)
Net (loss) income attributable to noncontrolling interests 22,241 (39,648) 22,241 17,245 (1,269,274) (13,891)
Net income (loss) attributable to Edison Nation, Inc. $ (1,624,380) $ (1,735,417) $ (354,888) $ (3,170,707) $ (12,929,706) $ (5,330,126)
Net loss per share:            
Net loss per share - basic and diluted $ (0.18) $ (0.30) $ (0.04) $ (0.55) $ (2.36) $ (1.28)
Weighted average number of common shares outstanding - basic and diluted 8,920,554 5,702,693 8,551,012 5,682,150 6,026,049 4,157,054
v3.20.2
Condensed Consolidated Statement of Changes in Stockholders' Equity (Deficit) - USD ($)
Common Stock [Member]
Additional Paid-In Capital [Member]
Accumulated Deficit [Member]
Noncontrolling Interest [Member]
Total
Balance at Dec. 31, 2017 $ 3,000 $ (235,630) $ (232,630)
Balance, shares at Dec. 31, 2017 3,000,000        
Sale of common stock - investors in the IPO, net of offering costs $ 1,313 5,313,863 5,315,176
Sale of common stock - investors in the IPO, net of offering costs, shares 1,312,520        
Issuance of common stock to employees $ 104 559,395 559,499
Issuance of common stock to employees, shares 103,636        
Issuance of common stock to note holders $ 33 167,467 167,500
Issuance of common stock to note holders, shares 33,500        
Issuance of common stock to vendors for services $ 159 800,841 801,000
Issuance of common stock to vendors for services, shares 158,797        
Acquisition of Edison Nation Holdings, LLC - issuance of common stock to satisfy indebtedness $ 557 3,383,728 3,384,285
Acquisition of Edison Nation Holdings, LLC - issuance of common stock to satisfy indebtedness, shares 557,084        
Acquisition of Cloud B, Inc. - issuance of common stock $ 489 2,663,711 2,664,200
Acquisition of Cloud B, Inc. - issuance of common stock, shares 489,293        
Acquisition of Cloud B, Inc. - noncontrolling interest 1,158,000 1,158,000
Acquisition of Best Party Concepts, LLC - deemed distribution and noncontrolling interest (692,533) (192,533) (885,066)
Acquisition of Pirasta, LLC - deemed distribution (188,552) (188,552)
Beneficial conversion option on indebtedness related to acquisition of Edison Nation Holdings, LLC 500,000 500,000
Shares reserved for future issuance of common stock to sellers of Edison Nation Holdings, LLC 6,014,250 6,014,250
Stock-based compensation 2,025,994 2,025,994
Issuance of common stock asset acquisition- HMNRTH $ 557 3,383,728 3,384,285
Issuance of common stock asset acquisition- HMNRTH, shares 557,084        
Net (loss) income (5,330,126) (13,891) (5,344,017)
Balance at Dec. 31, 2018 $ 5,655 20,548,164 (5,565,756) 951,576 15,939,639
Balance, shares at Dec. 31, 2018 5,654,830        
Issuance of common stock to note holders $ 50 173,250 173,300
Issuance of common stock to note holders, shares 50,000        
Issuance of common stock to vendors for services $ 33 141,092 141,125
Issuance of common stock to vendors for services, shares 33,000        
Stock-based compensation 274,406 274,406
Net (loss) income (3,170,707) 17,245 (3,153,462)
Balance at Jun. 30, 2019 $ 5,738 21,136,912 (8,736,463) 968,821 13,375,008
Balance, shares at Jun. 30, 2019 5,737,830        
Balance at Dec. 31, 2018 $ 5,655 20,548,164 (5,565,756) 951,576 15,939,639
Balance, shares at Dec. 31, 2018 5,654,830        
Sale of common stock - investors in the IPO, net of offering costs $ 1,175 2,038,128 2,039,303
Sale of common stock - investors in the IPO, net of offering costs, shares 1,175,000        
Issuance of common stock to employees $ 3 8,847 8,850
Issuance of common stock to employees, shares 3,000        
Issuance of common stock to note holders $ 286 386,994 387,280
Issuance of common stock to note holders, shares 286,005        
Issuance of common stock to vendors for services $ 292 738,008 738,300
Issuance of common stock to vendors for services, shares 291,736        
Stock-based compensation 1,248,121 1,248,121
Issuance of common stock - Uber Mom in connection with acquisition of assets $ 45 98,568 98,613
Issuance of common stock - Uber Mom in connection with acquisition of assets, shares 45,000        
Issuance of common stock upon the conversion of debt $ 560 1,119,810 1,120,370
Issuance of common stock upon the conversion of debt, shares 560,185        
Issuance of warrants to noteholders and beneficial conversion option 72,936 72,936
Net (loss) income (12,929,706) (1,269,274) (14,198,980)
Balance at Dec. 31, 2019 $ 8,016 26,259,576 (18,495,462) (317,698) 7,454,432
Balance, shares at Dec. 31, 2019 8,015,756        
Balance at Mar. 31, 2019 $ 5,680 20,859,158 (7,001,046) 1,008,469 14,872,261
Balance, shares at Mar. 31, 2019 5,680,330        
Issuance of common stock to note holders $ 35 99,165 99,200
Issuance of common stock to note holders, shares 35,000        
Issuance of common stock to vendors for services $ 23 88,602 88,625
Issuance of common stock to vendors for services, shares 22,500        
Stock-based compensation 89,987 89,987
Net (loss) income (1,735,417) (39,648) (1,775,065)
Balance at Jun. 30, 2019 $ 5,738 21,136,912 (8,736,463) 968,821 13,375,008
Balance, shares at Jun. 30, 2019 5,737,830        
Balance at Dec. 31, 2019 $ 8,016 26,259,576 (18,495,462) (317,698) 7,454,432
Balance, shares at Dec. 31, 2019 8,015,756        
Issuance of common stock to note holders $ 439 789,575 790,014
Issuance of common stock to note holders, shares 439,400        
Stock-based compensation 1,068,380 1,068,380
Issuance of warrants to noteholders and beneficial conversion option 1,018,953 1,018,953
Returned common stock from noteholder $ (153) 153
Returned common stock from noteholder, shares (153,005)        
Issuance of common stock to consultants $ 866 561,896 562,762
Issuance of common stock to consultants, shares 866,250        
Divestiture of Cloud B (26,392) (26,392)
Issuance of common stock for divestiture $ 150 404,850 405,000
Issuance of common stock for divestiture, shares 150,000        
Issuance of common stock for Global Clean Solutions, LLC acquisition $ 300 698,700 699,000
Issuance of common stock for Global Clean Solutions, LLC acquisition 300,000        
Distributions (699,000) (699,000)
Net (loss) income (354,888) 22,241 (332,647)
Balance at Jun. 30, 2020 $ 9,618 30,802,083 (18,850,350) (1,020,849) 10,940,502
Balance, shares at Jun. 30, 2020 9,618,401        
Balance at Mar. 31, 2020 $ 8,677 28,790,704 (17,225,970) (344,090) 11,229,321
Balance, shares at Mar. 31, 2020 8,676,501        
Issuance of common stock to note holders $ 279 588,411 588,690
Issuance of common stock to note holders, shares 279,400        
Stock-based compensation 319,630 319,630
Issuance of common stock to consultants $ 212 (212)
Issuance of common stock to consultants, shares 212,500        
Issuance of common stock for divestiture $ 150 404,850 405,000
Issuance of common stock for divestiture, shares 150,000        
Issuance of common stock for Global Clean Solutions, LLC acquisition $ 300 698,700 699,000
Issuance of common stock for Global Clean Solutions, LLC acquisition 300,000        
Distributions (699,000) (699,000)
Net (loss) income (1,624,380) 22,241 (1,602,139)
Balance at Jun. 30, 2020 $ 9,618 $ 30,802,083 $ (18,850,350) $ (1,020,849) $ 10,940,502
Balance, shares at Jun. 30, 2020 9,618,401        
v3.20.2
Condensed Consolidated Statement of Changes in Stockholders' Equity (Deficit) (Parenthetical) - USD ($)
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Statement of Stockholders' Equity [Abstract]    
Stock issuance costs $ 310,697 $ 1,247,424
v3.20.2
Condensed Consolidated Statements of Cash Flows - USD ($)
6 Months Ended 12 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Dec. 31, 2019
Dec. 31, 2018
Cash Flow from Operating Activities        
Net income (loss) attributable to Edison Nation, Inc. $ (354,888) $ (3,170,707) $ (12,929,706) $ (5,330,126)
Net income attributable to noncontrolling interests 22,241 17,245 (1,269,274) (13,891)
Net loss (332,647) (3,153,462) (14,198,980) (5,344,017)
Adjustments to reconcile net loss to net (income) cash (used in) provided by operating activities:        
Depreciation and amortization 612,406 633,570 1,316,501 487,878
Amortization of financing costs 1,227,046 391,223 944,437 300,277
Stock-based compensation 1,588,427 708,490 2,299,915 3,386,493
Change in fair value of earnout     (520,000)
Impairment of goodwill     4,443,000
Deferred tax liability     (341) (33,868)
Amortization of right of use asset 153,820 155,408 295,106
Gain on divestiture (4,911,760)    
Changes in assets and liabilities:        
Accounts receivable (978,097) (1,215,155) (230,748) 590
Inventory 178,227 (336,544) (445,518) 59,309
Prepaid expenses and other current assets (967,109) (561,331) (704,626) (353,440)
Accounts payable (344,847) 1,191,252 1,878,491 (1,408,184)
Accrued expenses and other current liabilities 1,425,622 480,928 282,516 636,881
Operating lease liabilities (148,518) (144,132) (272,779)
Due from related party 9,532 (65,600) (123,429) (507,922)
Net cash (used in) provided by operating activities (2,487,898) (1,915,353) (5,036,455) (2,776,003)
Cash Flows from Investing Activities        
Purchases of property and equipment (61,917) (106,770) (159,938) (141,440)
Acquisitions, net of cash     (772,581)
Purchase of loan held for investment     (500,000)
Net cash used in investing activities (61,917) (106,770) (159,938) (1,414,021)
Cash Flows from Financing Activities        
Borrowings under lines of credit, net 1,678,540 240,000 531,804
Borrowings under convertible notes payable 1,436,000 1,111,111 1,111,111
Borrowings under notes payable 1,767,352 1,110,000 2,482,500 718,559
Repayments under line of credit (31,542) (90,382)
Repayments under notes payable (824,472) (566,710) (1,231,744) (648,299)
Repayments under long-term debt - related parties (14,508) (40,997) (182,170) (132,309)
Fees paid for financing costs (143,479) (427,411) (581,496) (99,444)
Net proceeds from issuance of common stock - net of offering costs of $310,697     2,048,562 5,315,176
Net cash provided by financing activities 3,899,433 1,394,451 3,556,381 5,685,487
Net increase (decrease) in cash and cash equivalents 1,349,618 (627,672) (1,640,012) 1,495,463
Cash and cash equivalents - beginning 412,719 2,052,731 2,052,731 557,268
Cash and cash equivalents - end 1,762,337 1,425,059 412,719 2,052,731
Supplemental Disclosures of Cash Flow Information        
Cash paid during the period for: Interest 144,740 74,908 260,444 103,865
Cash paid during the period for: Income taxes 235,725 235,275 265,015
Noncash investing and financing activity:        
Shares issued to note holders 173,300 167,500
Conversion under notes payable $ 424,000    
Shares issued for the asset acquisition of Uber Mom     98,613
Shares reserved for the acquisition of Edison Nation Holdings, LLC     6,014,250
Borrowings under note payable for the purchase of property and equipment     73,559
Issuance of 5%, 5-year senior convertible notes for the acquisition of Edison Nation Holdings, LLC, net of debt discount for conversion feature     1,428,161
Change in fair value of earnout     (520,000) 520,000
Right of use assets     943,997
Operating lease liabilities     943,997
Edison Nation Inc. [Member]        
Noncash investing and financing activity:        
Shares issued for the acquisition     3,384,285
Cloud B Inc. [Member]        
Noncash investing and financing activity:        
Shares issued for the acquisition     2,664,200
Best Party Concepts, LLC [Member]        
Noncash investing and financing activity:        
Satisfaction of due from related party for acquisition     500,000
Deemed distribution to shareholder for acquisition     692,533
Pirasta, LLC [Member]        
Noncash investing and financing activity:        
Satisfaction of due from related party for acquisition     470,000
Deemed distribution to shareholder for acquisition     $ 188,552
v3.20.2
Condensed Consolidated Statements of Cash Flows (Parenthetical) - USD ($)
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Statement of Cash Flows [Abstract]    
Stock issuance costs $ 310,697 $ 1,247,424
Debt instrument interest rate, percent 5.00% 5.00%
Debt term 5 years 5 years
v3.20.2
Basis of Presentation and Nature of Operations
6 Months Ended 12 Months Ended
Jun. 30, 2020
Dec. 31, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]    
Basis of Presentation and Nature of Operations

Note 1 — Basis of Presentation and Nature of Operations

 

The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and with Form 10-Q and Article 10 of Regulation S-X of the United States Securities and Exchange Commission (the “SEC”). Accordingly, they do not contain all information and footnotes required by GAAP for annual financial statements. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of June 30, 2020 and the results of operations, changes in stockholders’ equity, and cash flows for the periods presented. The results of operations for the six and three months ended June 30, 2020 are not necessarily indicative of the operating results for the full fiscal year or any future period.

 

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. The Company’s accounting policies are described in the Notes to Consolidated Financial Statements in its Annual Report on Form 10-K for the year ended December 31, 2019, and updated, as necessary, in this Quarterly Report on Form 10-Q.

 

As used herein, the terms the “Company,” “Edison Nation” “we,” “us,” “our” and similar refer to Edison Nation, Inc., a Nevada corporation incorporated on July 18, 2017 under the laws of the State of Nevada as Idea Lab X Products, Inc. and also formerly known as Xspand Products Lab, Inc. prior to its name change on September 12, 2018, and/or its wholly-owned and majority-owned operating subsidiaries, and/or where applicable, its management.

 

Edison Nation is a vertically-integrated, end-to-end, consumer product research & development, manufacturing, sales and fulfillment company. The Company’s proprietary web-enabled platform provides a low risk, high reward platform and process to connect innovators of new product ideas with potential licensees.

 

As of June 30, 2020, Edison Nation, 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. Edison Nation, Inc. owns 50% of Best Party Concepts, LLC, Ed Roses, LLC and Global Clean Solutions, LLC, all of which are VIE’s. 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 and proprietary branded hand sanitizer 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.

 

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.

 

Liquidity

 

For the six months ended June 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 restructuring charges for payroll and rents.

 

At June 30, 2020, we had total current assets of $8,071,961 and current liabilities of $11,317,275 resulting in negative working capital of $3,245,314, of which $1,166,365 was related party notes payable. At June 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.

 

The foregoing factors raise substantial doubt about the Company’s ability to continue as a going concern for at least the next twelve months from the date of issuance of these condensed consolidated financial statements. The ability to continue as a going concern is dependent upon the Company’s ability to attract significant new sources of capital, attain a reasonable threshold of operating efficiencies and achieve profitable operations from the sale of its products.

 

The condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. The following is additional information on our operating losses and working capital:

 

The Company’s operating loss for the six months ended June 30, 2020 included $3,600,000 related to depreciation, amortization (including amortization for financing costs and right of use asset) and stock-based compensation. In addition, approximately $366,000 was related to transaction costs, restructuring charges and other non-recurring and redundant costs which are being removed or reduced.

 

Management has considered possible mitigating factors within our management plans on our ability to continue for at least a year from the date these financial statements are filed. The following items are management plans to alleviate any going concern issues for at least the next twelve months from the date these condensed consolidated financial statements are available:

 

  Subsequent to June 30, 2020, the Company borrowed $200,000 through a loan agreement and received $250,000 through the exercise of a warrant.
     
  Raise further capital through the sale of addition equity.
     
  Borrow money under debt securities.
     
  The deferral of payments to related party debt holders for both principal of $2,667,513 and related interest expense.
     
  Annual cost saving initiatives related to synergies and the elimination of redundant costs of approximately $1,500,000.
     
  Possible sale of certain brands to other manufacturers.
     
  Edison Nation Medical’s procurement of Personal Protective Equipment (“PPE”) and hand sanitizers and the subsequent sale of PPE items and hand sanitizers to governmental agencies, educational facilities, medical facilities and distributors.
     
  Entry into joint ventures or total/partial acquisitions of operational entities to expand the sale of PPE and proprietary hand sanitizer through Edison Nation Medical.

 

Our operating needs include the planned costs to operate our business, including amounts required to fund working capital and capital expenditures. Our future capital requirements and the adequacy of our available funds will depend on many factors, including our ability to successfully commercialize our products and services, competing technological and market developments, and the need to enter into collaborations with other companies or acquire other companies or technologies to enhance or complement our product and service offerings.

Note 1 — Basis of Presentation and Nature of Operations

 

As used herein, the terms the “Company,” “Edison Nation” “we,” “us,” “our” and similar refer to Edison Nation, Inc., a Nevada corporation incorporated on July 18, 2017 under the laws of the State of Nevada as Idea Lab X Products, Inc. and also formerly known as Xspand Products Lab, Inc. prior to its name change on September 12, 2018, and/or its wholly-owned and majority-owned operating subsidiaries, and/or where applicable, its management.

 

Edison Nation is a vertically-integrated, end-to-end, consumer product research & development, manufacturing, sales and fulfillment company. The Company’s proprietary web-enabled platform provides a low risk, high reward platform and process to connect innovators of new product ideas with potential licensees.

 

As of December 31, 2019, Edison Nation, Inc. had five wholly-owned subsidiaries: S.R.M. Entertainment Limited (“SRM”), Ferguson Containers, Inc. (“Fergco”), CBAV1, LLC (“CB1”), Pirasta, LLC and Edison Nation Holdings, LLC. Edison Nation, Inc. owns 72.15% of Cloud B, Inc., 50% of Best Party Concepts, LLC and 50% of Ed Roses, 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. Cloud B, Inc. owns 100% of Cloud B UK and Cloud B Australia.

 

August 23, 2019, the Company formed Ed Roses, LLC, a 50% joint venture with 4Keeps Roses, Inc., to distribute preserved roses, flowers and associated gift products.

 

On November 6, 2019, the Company issued 22,500 shares of our common stock and paid $52,352 in cash to acquire the assets of Uber Mom, LLC, which was the approximate value of Uber Mom, LLC’s inventory.

 

Liquidity

 

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.

 

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.

 

The foregoing factors raise substantial doubt about the Company’s ability to continue as a going concern for at least the next twelve months from the date of issuance of these financial statements. The ability to continue as a going concern is dependent upon the Company’s ability to attract significant new sources of capital, attain a reasonable threshold of operating efficiencies and achieve profitable operations from the sale of its products.

 

The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. The following is additional information on our operating losses and working capital:

 

The Company’s operating loss for the year ended December 31, 2019 included $3,621,101 related to depreciation, amortization and stock-based compensation. In addition, approximately $2,414,799 was related to transaction costs, restructuring charges and other non-recurring and redundant costs which are being removed or reduced. The negative working capital includes approximately $4,015,484 related to unsecured trade payables in our Cloud B acquisition. In addition, our outstanding balances under notes payable includes $900,000 related to Cloud B. CB1 owns the senior secured position on the promissory note to Cloud B in the amount of $2,270,000. In February 2019, CB1, pursuant to an Article 9 foreclosure action, perfected its secured UCC interest in all the assets of Cloud B 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. In addition, SRM was an unsecured creditor in the amount of approximately $1,700,000 which is not included in the $4,015,484 due to intercompany elimination but at this time remains unpaid. The total liabilities of approximately $7,100,000, of which $1,700,000, or net of $5,400,000, has been eliminated in consolidation, are not expected to be satisfied due to the foreclosure.

 

On October 2, 2019, the Company entered into a Share Purchase Agreement (the “PIPE Purchase Agreement”) with certain accredited investors (collectively, the “Investors”) for the private placement of 1,175,000 shares of the Company’s common stock, $0.001 par value per share, at a purchase price of $2.00 per share (the “PIPE Transaction”). In a series of three closings conducted in October 2019, the Company received net proceeds of $2,039,303 which consisted of $2,350,000 of gross proceeds offset by $310,697 of fees to placement agent and their lawyers. Alexander Capital, LP (“Alexander Capital”), a FINRA registered broker dealer, acted as placement agent with respect to the PIPE Transaction. In connection with the PIPE Transaction, Alexander Capital received a commission of $141,000, a debt restructuring fee of $64,208, a debt conversion fee of 15,889, a placement fee of $33,600 and warrants to purchase 70,500 shares of the Company’s common stock, at an exercise price of $2.50 per share (the “Placement Agent Warrants”). In connection with the PIPE transaction, the convertible notes entered into on May 13, 2019 were also converted at $2.00 per share into 560,185 shares of the Company’s common stock.

 

Management has considered possible mitigating factors within our management plan on our ability to continue for at least a year from the date these financial statements are filed. The following items are management plans to alleviate any going concern issues:

 

  Cloud B liabilities are unlikely to be paid due to CB1 holding the senior secured position and its rights under the foreclosure to the remaining assets of the entity to satisfy the outstanding obligation.
     
  Raise further capital through the sale of addition equity
     
  Borrow money under debt securities.
     
  The deferral of payments to related party debt holders for both principal of $455,099 and related interest expense.
     
  Cost saving initiatives related to synergies and the elimination of redundant costs of approximately $1,500,000.
     
  Possible sale of certain brands to other manufacturers.
     
  Entry into other business opportunities through the Company’s Edison Nation Medical division.

v3.20.2
Summary of Significant Accounting Policies
6 Months Ended 12 Months Ended
Jun. 30, 2020
Dec. 31, 2019
Accounting Policies [Abstract]    
Summary of Significant Accounting Policies

Note 2 — Summary of Significant Accounting Policies

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of Edison Nation, Inc. and its wholly-owned and majority owned subsidiaries. All intercompany balances and transactions have been eliminated.

 

Variable Interest Entity Assessment

 

A VIE is an entity (a) that has total equity at risk that is not sufficient to finance its activities without additional subordinated financial support from other entities, (b) where the group of equity holders does not have the power to direct the activities of the entity that most significantly impact the entity’s economic performance, or the obligation to absorb the entity’s expected losses or the right to receive the entity’s expected residual returns, or both, or (c) where the voting rights of some investors are not proportional to their obligations to absorb the expected losses of the entity, their rights to receive the expected residual returns of the entity, or both, and substantially all of the entity’s activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights. In order to determine if an entity is considered a VIE, the Company first performs a qualitative analysis, which requires certain subjective decisions regarding its assessments, including, but not limited to, the design of the entity, the variability that the entity was designed to create and pass along to its interest holders, the rights of the parties, and the purpose of the arrangement. If the Company cannot conclude after a qualitative analysis whether an entity is a VIE, it performs a quantitative analysis. The qualitative analysis considered the design of the entity, the risks that cause variability, the purpose for which the entity was created, and the variability that the entity was designed to pass along to its variable interest holders.

 

Use of Estimates

 

Preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, together with amounts disclosed in the related notes to the financial statements.

 

The Company’s significant estimates used in these financial statements include, but are not limited to, accounts receivable reserves, the valuation allowance related to the Company’s deferred tax assets, the recoverability and useful lives of long-lived assets, debt conversion features, stock-based compensation, certain assumptions related to the valuation of the reserved shares and the assets acquired and liabilities assumed related to the Company’s acquisitions. Certain of the Company’s estimates could be affected by external conditions, including those unique to the Company and general economic conditions. It is reasonably possible that these external factors could have an effect on the Company’s estimates and could cause actual results to differ from those estimates.

 

Cash and Cash Equivalents

 

The Company has cash on deposit in several financial institutions which, at times, may be in excess of Federal Deposit Insurance Corporation (“FDIC”) insurance limits. The Company has not experienced losses in such accounts and periodically evaluates the creditworthiness of its financial institutions. The Company reduces its credit risk by placing its cash and cash equivalents with major financial institutions. The Company had approximately $928,000 not covered by FDIC insurance limits as of June 30, 2020 of which approximately $113,000 was held in foreign bank accounts.

 

Accounts Receivable

 

As of June 30, 2020, the following customer represented more than 10% of total accounts receivable:

 

    June 30, 2020  
Customer:        
Customer A     14 %

 

Inventory

 

Inventory is recorded at the lower of cost or net realizable value on a first-in, first-out basis. The Company reduces the carrying value of inventories for those items that are potentially excess, obsolete, or slow moving based on changes in customer demand, technology developments, or other economic factors.

 

Revenue Recognition

 

Generally, the Company considers all revenues as arising from contracts with customers. Revenue is recognized based on the five-step process outlined in the Accounting Standards Codification (“ASC”) 606:

 

Step 1 – Identify the Contract with the Customer – A contract exists when (a) the parties to the contract have approved the contract and are committed to perform their respective obligations, (b) the entity can identify each party’s rights regarding the goods or services to be transferred, (c) the entity can identify the payment terms for the goods or services to be transferred, (d) the contract has commercial substance and it is probably that the entity will collect substantially all of the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer.

 

Step 2 – Identify Performance Obligations in the Contract – Upon execution of a contract, the Company identifies as performance obligations each promise to transfer to the customer either (a) goods or services that are distinct, or (b) a series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer. To the extent a contract includes multiple promised goods or services, the Company must apply judgement to determine whether the goods or services are capable of being distinct within the context of the contract. If these criteria are not met, the goods or services are accounted for as a combined performance obligation.

 

Step 3 – Determine the Transaction Price – When (or as) a performance obligation is satisfied, the Company shall recognize as revenue the amount of the transaction price that is allocated to the performance obligation. The contract terms are used to determine the transaction price. Generally, all contracts include fixed consideration. If a contract did include variable consideration, the Company would determine the amount of variable consideration that should be included in the transaction price based on expected value method. Variable consideration would be included in the transaction price, if in the Company’s judgement, it is probable that a significant future reversal of cumulative revenue under the contract would not occur.

 

Step 4 – Allocate the Transaction Price – After the transaction price has been determined, the next step is to allocate the transaction price to each performance obligation in the contract. If the contract only has one performance obligation, the entire transaction price will be applied to that obligation. If the contract has multiple performance obligations, the transaction price is allocated to the performance obligations based on the relative standalone selling price (SSP) at contract inception.

 

Step 5 – Satisfaction of the Performance Obligations (and Recognize Revenue) – Revenue is recognized when (or as) goods or services are transferred to a customer. The Company satisfies each of its performance obligations by transferring control of the promised good or service underlying that performance obligation to the customer. Control is the ability to direct the use of and obtain substantially all of the remaining benefits from an asset. It includes the ability to prevent other entities from directing the use of and obtaining the benefits from an asset. Indicators that control has passed to the customer include: a present obligation to pay; physical possession of the asset; legal title; risks and rewards of ownership; and acceptance of the asset(s). Performance obligations can be satisfied at a point in time or over time.

 

Substantially all of the Company’s revenues continue to be recognized when control of the goods is transferred to the customer, which is upon shipment of the finished goods to the customer. All sales have fixed pricing and there are currently no material variable components included in the Company’s revenue. Additionally, the Company will issue credits for defective merchandise, historically these credits for defective merchandise have not been material. Based on the Company’s analysis of the new revenue standards, revenue recognition from the sale of finished goods to customers, which represents substantially all of the Company’s revenues, was not impacted by the adoption of the new revenue standards.

 

Disaggregation of Revenue

 

The Company’s primary revenue streams include the sale and/or licensing of consumer goods and packaging materials for innovative products. The Company’s licensing business is not material and has not been separately disaggregated for segment purposes. The disaggregated Company’s revenues for the three and six months ended June 30, 2020 and 2019 was as follows:

 

   

For the Three Months

Ended June 30,

   

For the Six Months

Ended June 30,

 
    2020     2019     2020     2019  
Revenues:                                
Product sales   $ 6,829,111     $ 5,845,651     $ 10,456,012     $ 11,483,001  
Service     -       22,714       -       48,311  
Licensing     50,915       99,890       91,124       175,477  
Total revenues, net   $ 6,880,026     $ 5,968,255     $ 10,547,136     $ 11,706,789  

 

For the three and six months ended June 30, 2020 and 2019, the following customer represented more than 10% of total net revenues:

 

   

For the Three Months

Ended June 30,

   

For the Six Months

Ended June 30,

 
    2020     2019     2020     2019  
Customer:                                
Customer A     * %     27 %     * %     25 %
Customer B     11     *       *       *  
Customer C     11 %     *       *       *  

 

* Customer did not represent greater than 10% of total net revenue.

 

For the three and six months ended June 30, 2020 and 2019, the following geographical regions represented more than 10% of total net revenues:

 

   

For the Three Months

Ended June 30,

   

For the Six Months

Ended June 30,

 
    2020     2019     2020     2019  
Region:                                
North America          98 %     73 %     93 %     75 %
Europe     *       18 %     *       18 %

 

* Region did not represent greater than 10% of total net revenue.

 

Fair Value of Financial Instruments

 

The Company measures the fair value of financial assets and liabilities based on the guidance of ASC 820 “Fair Value Measurements and Disclosures” (“ASC 820”) which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.

 

ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:

 

Level 1 — quoted prices in active markets for identical assets or liabilities

 

Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable

 

Level 3 — inputs that are unobservable (for example, cash flow modeling inputs based on assumptions)

 

The carrying amounts of the Company’s financial instruments, such as cash, accounts receivable, accounts payable, accrued expenses and other current liabilities approximate fair values due to the short-term nature of these instruments. The carrying amount of the Company’s notes payable approximates fair value because the effective yields on these obligations, which include contractual interest rates, taken together with other features such as concurrent issuance of warrants, are comparable to rates of returns for instruments of similar credit risk. The loan held for investment was acquired at fair value, which resulted in a discount.

 

Sequencing Policy

 

Under ASC 815-40-35, the Company follows a sequencing policy whereby, in the event that reclassification of contracts from equity to assets or liabilities is necessary pursuant to ASC 815 due to the Company’s inability to demonstrate it has sufficient authorized shares as a result of certain securities with a potentially indeterminable number of shares, shares will be allocated on the basis of the earliest issuance date of potentially dilutive instruments, with the earliest grants receiving the first allocation of shares. Pursuant to ASC 815, issuance of securities to the Company’s employees or directors are not subject to the sequencing policy.

 

Foreign Currency Translation

 

The Company uses the United States dollar as its functional and reporting currency since the majority of the Company’s revenues, expenses, assets and liabilities are in the United States. Assets and liabilities in foreign currencies are translated using the exchange rate at the balance sheet date, while revenue and expense accounts are translated at the average exchange rates prevailing during the year. Equity accounts are translated at historical exchange rates. Gains and losses from foreign currency transactions and translation for the three and six months ended June 30, 2020 and 2019 and the cumulative translation gains and losses as of June 30, 2020 and December 31, 2019 were not material.

 

Net Earnings or Loss per Share

 

Basic net income (loss) per common share is computed by dividing net loss by the weighted average number of vested common shares outstanding during the period. Diluted net income per common share is computed by dividing net income by the weighted average number vested of common shares, plus the net impact of common shares (computed using the treasury stock method), if dilutive, resulting from the exercise of dilutive securities. In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive.

 

As of June 30, 2020 and 2019, the Company excluded the common stock equivalents summarized below, which entitled the holders thereof to ultimately acquire shares of common stock, from its calculation of earnings per share, as their effect would have been anti-dilutive.

 

    June 30, 2020     June 30, 2019  
Selling Agent Warrants     160,492       65,626  
Shares reserved in exchange for the cancellation of certain non-voting membership interest in Edison Nation Holdings, LLC     990,000       990,000  
Options     80,000       290,000  
Convertible shares under notes payable     999,536       285,632  
Warrants for noteholders     750,000          
Restricted stock units     270,000       -  
Shares to be issued     46,500       20,000  
Total     3,296,528       1,651,258  

 

Recent Accounting Pronouncements

 

In August 2018, the FASB issued Accounting Standards Update (“ASU”) No. 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40), new accounting guidance that addresses the accounting for implementation costs associated with a hosted service. The guidance provides that implementation costs be evaluated for capitalization using the same criteria as that used for internal-use software development costs, with amortization expense being recorded in the same income statement expense line as the hosted service costs and over the expected term of the hosting arrangement. This guidance is effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. The guidance will be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company adopted this accounting guidance in the first quarter of 2020 and the adoption did not have a material impact on the Company’s consolidated financial statements and related disclosures.

 

In August 2018, the FASB issued new accounting guidance that eliminates, adds and modifies certain disclosure requirements for fair value measurements. Among the changes, an entity will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted. The Company adopted this accounting guidance in the first quarter of 2020 and the adoption did not have a material impact on the Company’s consolidated financial statements and related disclosures.

 

In October 2018, the FASB issued new accounting guidance for Variable Interest Entities, which requires indirect interests held through related parties in common control arrangements be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. The guidance is effective for the Company’s interim and annual reporting periods during the year ending December 31, 2020. Early adoption is permitted. The Company adopted this accounting guidance in the first quarter of 2020 and the adoption did not have a material impact on the Company’s consolidated financial statements and related disclosures.

 

In July 2017, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): Part 1 – Accounting for Certain Financial Instruments with Down Round Features and Part 2 – Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with Scope Exception (“ASU No. 2017-11”). Part 1 of ASU No. 2017-11 addresses the complexity of accounting for certain financial instruments with down round features. Down round features are provisions in certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of ASU No. 2017-11 addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification®. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. For public business entities, the amendments in Part I of this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The amendments in Part II of this update do not require any transition guidance because those amendments do not have an accounting effect. The Company adopted this accounting guidance in the first quarter of 2020 and the adoption did not have a material impact on the Company’s consolidated financial statements and related disclosures.

 

Subsequent Events

 

The Company has evaluated subsequent events through the date which the financial statements were issued. Based upon such evaluation, except for items described in Note 10, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the financial statements.

 

Segment Reporting

 

The Company uses “the management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. The Company’s chief operating decision maker is the Chairman and Chief Executive Officer (“CEO”) of the Company, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. The Company deploys resources on a consolidated level to all brands of the Company and therefore the Company only identifies one reportable operating segment with multiple product offerings.

Note 2 — Summary of Significant Accounting Policies

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of Edison Nation, Inc. and its wholly-owned and majority owned subsidiaries. The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and are presented in US dollars. All intercompany balances and transactions have been eliminated.

 

Reclassifications

 

Certain amounts previously presented in the consolidated financial statements have been reclassified to conform to the current year presentation. Such reclassifications had no effect on the previously reported net loss, Stockholders’ equity or cash flows.

 

Use of Estimates

 

Preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, together with amounts disclosed in the related notes to the financial statements.

 

The Company’s significant estimates used in these financial statements include, but are not limited to, accounts receivable reserves, the valuation allowance related to the Company’s deferred tax assets, the recoverability and useful lives of long-lived assets, debt conversion features, stock-based compensation, certain assumptions related to the valuation of the reserved shares and the assets acquired and liabilities assumed related to the Company’s acquisitions. Certain of the Company’s estimates could be affected by external conditions, including those unique to the Company and general economic conditions. It is reasonably possible that these external factors could have an effect on the Company’s estimates and could cause actual results to differ from those estimates.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents in the consolidated financial statements.

 

The Company has cash on deposits in several financial institutions which, at times, may be in excess of Federal Deposit Insurance Corporation (“FDIC”) insurance limits. The Company has not experienced losses in such accounts and periodically evaluates the creditworthiness of its financial institutions. The Company reduces its credit risk by placing its cash and cash equivalents with major financial institutions. The Company had approximately $178,485 uninsured at December 31, 2019 of which all $178,485 was held in foreign bank accounts not covered by FDIC insurance limits as of December 31, 2019.

 

Accounts Receivable

 

Accounts receivable are carried at their contractual amounts, less an estimate for uncollectible amounts. As of December 31, 2019 and 2018, the allowance for uncollectable amounts was not material. Management estimates the allowance for bad debts based on existing economic conditions, historical experience, the financial conditions of the customers, and the amount and age of past due accounts. Receivables are considered past due if full payment is not received by the contractual due date. Past due accounts are generally written off against the allowance for bad debts only after all collection attempts have been exhausted.

 

As of December 31, 2019, no customers represented more than 10% of total accounts receivable.

 

Inventory

 

Inventory is recorded at the lower of cost or net realizable value on a first-in, first-out basis. The Company reduces the carrying value of inventories for those items that are potentially excess, obsolete, or slow moving based on changes in customer demand, technology developments, or other economic factors.

 

Loan Held for Investment

 

Loan held for investment is reported on the balance sheet at the acquired cost which approximates the fair value, which resulted in a discount. The acquired loan had evidence of deterioration of credit quality and for which it was probable, at the time of our acquisition, that the Company would be unable to collect all contractually required payments. For these loans, the excess of the undiscounted contractual cash flows over the undiscounted cash flows estimated by us at the time of acquisition was not accreted into income (nonaccretable discount). The amount representing the excess of cash flows estimated by us at acquisition over the purchase price was accreted into purchase discount earned over the life of the applicable loans (accretable discount). The nonaccretable discount was not accreted into income. If cash flows could not be reasonably estimated for any loan, and collection was not probable, the cost recovery method of accounting was used. Under the cost recovery method, any amounts received were applied against the recorded amount of such loans.

 

Subsequent to acquisition, if cash flow projections improved, and it was determined that the amount and timing of the cash flows related to the nonaccretable discount was reasonably estimable and collection was probable, the corresponding decrease in the nonaccretable discount was transferred to the accretable discount and was accreted into interest income over the remaining life of any such loan on the interest method. If cash flow projections deteriorated subsequent to acquisition, the decline was accounted for through the allowance for loan losses. Depending on the timing of an acquisition, the initial allocation of discount generally is made primarily to nonaccretable discount until the Company is able to assess any cash flows expected to be collected over the purchase price which are then transferred to accretable discount.

 

Property and Equipment, Net

 

Property and equipment are stated at cost, net of accumulated depreciation and amortization, which is recorded commencing at the in-service date using the straight-line method over the estimated useful lives of the assets, as follows: 3 to 5 years for office equipment, 5 to 7 years for furniture and fixtures, 6 to 10 years for machinery and equipment, 10 to 15 years for building improvements, 5 years for software, 5 years for molds, 5 to 7 years for vehicles and 40 years for buildings.

 

When fixed assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the statements of operations for the respective period. Minor additions and repairs are expensed in the period incurred. Major additions and repairs which extend the useful life of existing assets are capitalized and depreciated using the straight-line method over their remaining estimated useful lives.

 

Long-Lived Assets

 

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The Company assesses the recoverability of its long-lived assets using undiscounted cash flows. If an asset is found to be impaired, the amount recognized for impairment is equal to the difference between the carrying value and the asset’s fair value. The Company did not record any impairment charges related to long-lived assets during the years ended December 31, 2019 and 2018.

 

Goodwill and Intangible Assets

 

We record intangible assets based on their fair value on the date of acquisition. Goodwill is recorded for the difference between the fair value of the purchase consideration over the fair value of the net identifiable tangible and intangible assets acquired. We perform an impairment assessment of goodwill on an annual basis, or whenever impairment indicators exist. In the absence of any impairment indicators, goodwill is assessed for impairment during the fourth quarter of each fiscal year. Judgments regarding the existence of impairment indicators are based on market conditions and operational performance of the business.

 

We may assess our goodwill for impairment initially using a qualitative approach to determine whether it is more likely than not that the fair value of these assets is greater than their carrying value. When performing a qualitative test, we assess various factors including industry and market conditions, macroeconomic conditions and performance of our businesses. If the results of the qualitative assessment indicate that it is more likely than not that our goodwill and other indefinite-lived intangible assets are impaired, a quantitative impairment analysis would be performed to determine if impairment is required. We may also elect to perform a quantitative analysis of goodwill initially rather than using a qualitative approach.

 

The impairment testing for goodwill is performed at the reporting unit level. The valuation methods used in the quantitative fair value assessment, discounted cash flow and market multiples method, require our management to make certain assumptions and estimates regarding certain industry trends and future profitability of our reporting units. If the fair value of a reporting unit exceeds the related carrying value, the reporting unit’s goodwill is considered not to be impaired and no further testing is performed. If the carrying value of a reporting unit exceeds its fair value, an impairment loss is recorded for the difference. The valuation of goodwill is affected by, among other things, our business plan for the future and estimated results of future operations. Future events could cause us to conclude that impairment indicators exist, and, therefore, that goodwill may be impaired.

 

Intangible assets include the cost of patents or patent rights (hereinafter, collectively “patents”) and trademarks. Patent and trademark costs are amortized utilizing the straight-line method over their remaining economic useful lives. Costs incurred related to patents prior to issuance are included in prepaid patent expense until the time the patent is issued and amortization begins or until management determines it is no longer likely the patent will be issued and amounts are expensed. Edison Nation reviews long-lived assets and intangible assets for potential impairment annually and when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. In the event the expected undiscounted future cash flows resulting from the use of the asset is less than the carrying amount of the asset, an impairment loss is recorded equal to the excess of the asset’s carrying value over its fair value. If an asset is determined to be impaired, the loss is measured based on quoted market prices in active markets, if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including a discounted value of estimated future cash flows. In the event that management decides to no longer allocate resources to a patent portfolio, an impairment loss equal to the remaining carrying value of the asset is recorded.

 

Revenue Recognition

 

Generally, the Company considers all revenues as arising from contracts with customers. Revenue is recognized based on the five-step process outlined in the Accounting Standards Codification (“ASC”) 606:

 

Step 1 – Identify the Contract with the Customer – A contract exists when (a) the parties to the contract have approved the contract and are committed to perform their respective obligations, (b) the entity can identify each party’s rights regarding the goods or services to be transferred, (c) the entity can identify the payment terms for the goods or services to be transferred, (d) the contract has commercial substance and it is probably that the entity will collect substantially all of the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer.

 

Step 2 – Identify Performance Obligations in the Contract – Upon execution of a contract, the Company identifies as performance obligations each promise to transfer to the customer either (a) goods or services that are distinct, or (b) a series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer. To the extent a contract includes multiple promised goods or services, the Company must apply judgement to determine whether the goods or services are capable of being distinct within the context of the contract. If these criteria are not met, the goods or services are accounted for as a combined performance obligation.

 

Step 3 – Determine the Transaction Price – When (or as) a performance obligation is satisfied, the Company shall recognize as revenue the amount of the transaction price that is allocated to the performance obligation. The contract terms are used to determine the transaction price. Generally, all contracts include fixed consideration. If a contract did include variable consideration, the Company would determine the amount of variable consideration that should be included in the transaction price based on expected value method. Variable consideration would be included in the transaction price, if in the Company’s judgement, it is probable that a significant future reversal of cumulative revenue under the contract would not occur.

 

Step 4 – Allocate the Transaction Price – After the transaction price has been determined, the next step is to allocate the transaction price to each performance obligation in the contract. If the contract only has one performance obligation, the entire transaction price will be applied to that obligation. If the contract has multiple performance obligations, the transaction price is allocated to the performance obligations based on the relative standalone selling price (SSP) at contract inception.

 

Step 5 – Satisfaction of the Performance Obligations (and Recognize Revenue) – Revenue is recognized when (or as) goods or services are transferred to a customer. The Company satisfies each of its performance obligations by transferring control of the promised good or service underlying that performance obligation to the customer. Control is the ability to direct the use of and obtain substantially all of the remaining benefits from an asset. It includes the ability to prevent other entities from directing the use of and obtaining the benefits from an asset. Indicators that control has passed to the customer include: a present obligation to pay; physical possession of the asset; legal title; risks and rewards of ownership; and acceptance of the asset(s). Performance obligations can be satisfied at a point in time or over time.

 

Substantially all of the Company’s revenues continue to be recognized when control of the goods are transferred to the customer, which is upon shipment of the finished goods to the customer. All sales have fixed pricing and there are currently no material variable components included in the Company’s revenue. Additionally, the Company will issue credits for defective merchandise, historically these credits for defective merchandise have not been material. Based on the Company’s analysis of the new revenue standards, revenue recognition from the sale of finished goods to customers, which represents substantially all of the Company’s revenues, was not impacted by the adoption of the new revenue standards.

 

Disaggregation of Revenue

 

The Company’s primary revenue streams include the sale and/or licensing of consumer goods and packaging materials for innovative products. The Company’s licensing business is not material and has not been separately disaggregated for segment purposes. The disaggregated Company’s revenues for the years ended December 31, 2019 and 2018 was as follows:

 

   

For the Years

Ended December 31,

 
    2019     2018  
             
Revenues:                
Product sales   $ 19,184,428     $ 16,037,221  
Service revenues     -       197,068  
Licensing revenues     444,634       267,920  
Total revenues, net   $ 19,629,062     $ 16,502,209  

 

For the years ended December 31, 2019 and 2018, the following customers represented more than 10% of total net revenues:

 

    For the years ended
December 31,
 
    2019     2018  
Customer:            
Customer A     14 %     21 %
                 

 

For the years ended December 31, 2019 and 2018, the following geographical regions represented more than 10% of total net revenues:

 

    For the Years Ended
December 31,
 
    2019     2018  
Region:            
North America     76 %     80 %
Asia-Pacific     9 %     13 %
Europe     15 %     7 %

 

Cost of Revenues

 

Cost of revenues includes freight charges, purchasing and receiving costs, depreciation and inspection costs.

 

Shipping and Handling Costs

 

Shipping and handling costs include inbound freight costs and the cost to ship product to the customer and are included in cost of sales.

 

Fair Value of Financial Instruments

 

The Company measures the fair value of financial assets and liabilities based on the guidance of ASC 820 “Fair Value Measurements and Disclosures” (“ASC 820”) which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.

 

ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:

 

Level 1 — quoted prices in active markets for identical assets or liabilities

 

Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable

 

Level 3 — inputs that are unobservable (for example, cash flow modeling inputs based on assumptions)

 

The carrying amounts of the Company’s financial instruments, such as cash, accounts receivable, accounts payable, accrued expenses and other current liabilities approximate fair values due to the short-term nature of these instruments. The carrying amount of the Company’s notes payable approximates fair value because the effective yields on these obligations, which include contractual interest rates, taken together with other features such as concurrent issuance of warrants, are comparable to rates of returns for instruments of similar credit risk. The loan held for investment was acquired at fair value, which resulted in a discount.

 

The following changes in level 3 instruments for the year ended December 31, 2019 are presented below:

 

    Contingent
Consideration
Earnout
 
Balance, January 1, 2019   $ (520,000 )
Change in fair value of earnout     520,000  
Balance, December 31, 2019   $ -  

 

Foreign Currency Translation

 

The Company uses the United States dollar as its functional and reporting currency since the majority of the Company’s revenues, expenses, assets and liabilities are in the United States. Assets and liabilities in foreign currencies are translated using the exchange rate at the balance sheet date, while revenue and expense accounts are translated at the average exchange rates prevailing during the year. Equity accounts are translated at historical exchange rates. Gains and losses from foreign currency transactions and translation for the years ended December 31, 2019 and 2018 and the cumulative translation gains and losses as of December 31, 2019 and 2018 were not material.

 

Income Taxes

 

The Company accounts for income taxes under the provisions of the Financial Accounting Standards Board (“FASB”) ASC Topic 740 “Income Taxes” (“ASC Topic 740”).

 

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of items that have been included or excluded in the financial statements or tax returns. Deferred tax assets and liabilities are determined on the basis of the difference between the tax basis of assets and liabilities and their respective financial reporting amounts (“temporary differences”) at enacted tax rates in effect for the years in which the temporary differences are expected to reverse.

 

The Company utilizes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

 

Management has evaluated and concluded that there were no material uncertain tax positions requiring recognition in the Company’s consolidated financial statements as of December 31, 2019 and 2018. The Company does not expect any significant changes in its unrecognized tax benefits within twelve months of the reporting date.

 

The Company’s policy is to classify assessments, if any, for tax related interest as interest expense and penalties as general and administrative expenses in the statements of operations.

 

Net Earnings or Loss per Share

 

Basic net (loss) income per common share is computed by dividing net (loss) income by the weighted average number of vested common shares outstanding during the period. Diluted net income per common share is computed by dividing net income by the weighted average number vested of common shares, plus the net impact of common shares (computed using the treasury stock method), if dilutive, resulting from the exercise of dilutive securities. In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive. As of December 31, 2019, the Company excluded the common stock equivalents summarized below, which entitle the holders thereof to ultimately acquire shares of common stock, from its calculation of earnings per share, as their effect would have been anti-dilutive.

 

      December 31,  
      2019  
Selling Agent Warrants     160,492  
Shares reserved in exchange for the cancellation of certain non-voting membership interest in Edison Nation Holdings, LLC     990,000  
Options     80,000  
Convertible shares under notes payable     285,632  
Warrants for noteholders     50,000  
Restricted stock units     210,000  
Shares to be issued to consultants     412,500  
Total     2,188,624  

 

Deferred Financing Costs

 

Deferred financing costs include debt discounts and debt issuance costs related to a recognized debt liability and are presented in the balance sheet as a direct deduction from the carrying value of the debt liability. Amortization of deferred financing costs are included as a component of interest expense. Deferred financing costs are amortized using the straight-line method over the term of the recognized debt liability which approximates the effective interest method.

 

Recent Accounting Pronouncements

 

In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (ASU 2016-02) which amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. This accounting guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. Additionally, this accounting guidance requires a modified retrospective transition approach for all leases existing at, or entered into after the date of initial application, with an option to use certain transition relief. In July 2018, the FASB issued a practical expedient that would allow entities the option to apply the provisions of the new lease guidance at the effective date of adoption without adjusting the comparative periods presented. The Company adopted this standard in the first quarter of 2019 and the adoption had the following impact on the Company’s results and consolidated financial statements:

  

The Company has elected the “package of practical expedients” and as a result is not required to reassess its prior accounting conclusions about lease identification, lease classification and initial direct costs for lease contracts that exist as of the transition date. However, the Company has not elected the use of hindsight for determining the reasonably certain lease term.

 

The new lease standard also provides practical expedients and policy elections for an entity’s ongoing accounting. The Company has elected the practical expedient to not separate lease and non-lease components for all of its leases. The Company has elected the short-term lease recognition exemption, which results in no recognition of right-of-use assets and lease liabilities for existing short-term leases at transition.

 

Upon adoption on January 1, 2019, the Company recognized right of use assets for operating leases and operating lease liabilities that have not previously been recorded. The lease liability for operating leases is based on the net present value of future minimum lease payments. The right of use asset for operating leases is based on the lease liability. The Company did not have any deferred rent or material prepaid rent.

 

The cumulative effect of initially applying the new lease accounting standard as of January 1, 2019 is as follows:

 

    January 1,
2019
    Cumulative
Effect
Adjustment
    January 1,
2019, as
adjusted
 
Assets:                        
Right of use assets – operating leases   $      -     $ 943,997     $ 943,997  
                         
Liabilities:                        
Current portion of operating lease liabilities   $ -     $ 261,866     $ 261,866  
Operating lease liabilities, net of current portion   $ -     $ 682,131     $ 682,131  

 

The adoption of the standard did not result in any material changes to the recognition of operating lease expenses in the Company’s consolidated statements of operations.

 

In January 2017, the FASB issued Accounting Standards Update No. 2017-04 (ASU 2017-04), “Simplifying the Test for Goodwill Impairment”, which removes Step 2 from the goodwill impairment test. ASU 2017-04 requires that if a reporting unit’s carrying value exceeds its fair value, an impairment charge would be recognized for the excess amount, not to exceed the carrying amount of goodwill. ASU 2017-04 will be effective for interim and annual reporting periods beginning after December 15, 2019. Early application is permitted after January 1, 2017. The Company early adopted ASU 2017-04 in the third quarter of 2018. The Company recognized an impairment charge of $4,443,000 under the simplified test for goodwill impairment.

 

In June 2018, the FASB issued an amendment to the accounting guidance related to accounting for employee share-based payments which clarifies that an entity should recognize excess tax benefits in the period in which the amount of the deduction is determined. This amendment is effective for annual periods beginning after December 15, 2018. The Company adopted this accounting guidance in the first quarter of 2019 with no impact on our financial statements.

 

In August 2018, the FASB issued new accounting guidance that addresses the accounting for implementation costs associated with a hosted service. The guidance provides that implementation costs be evaluated for capitalization using the same criteria as that used for internal-use software development costs, with amortization expense being recorded in the same income statement expense line as the hosted service costs and over the expected term of the hosting arrangement. This guidance is effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. The guidance will be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. We have not yet adopted this accounting guidance and are currently evaluating the effect this accounting guidance will have on our financial statements.

 

In August 2018, the FASB issued new accounting guidance that eliminates, adds and modifies certain disclosure requirements for fair value measurements. Among the changes, an entity will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted. Since this accounting guidance only revises disclosure requirements, it will not have a material impact on the Company’s consolidated financial statements.

 

In October 2018, the FASB issued new accounting guidance for Variable Interest Entities, which requires indirect interests held through related parties in common control arrangements be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. The guidance is effective for the Company’s interim and annual reporting periods during the year ending December 31, 2020. Early adoption is permitted. The Company currently does not believe that the adoption of this accounting guidance will have a material impact on its consolidated financial statements and related disclosures.

 

Subsequent Events

 

The Company has evaluated subsequent events through the date which the financial statements were issued. Based upon the evaluation, except for items described in Note 16, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the financial statements.

 

Segment Reporting

 

The Company uses “the management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. The Company’s chief operating decision maker is the Chairman and Chief Executive Officer (“CEO”) of the Company, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. The Company deploys resources on a consolidated level to all brands of the Company and therefore the Company only identifies one reportable operating segment with multiple product offerings.

v3.20.2
Acquisition and Divestitures
6 Months Ended 12 Months Ended
Jun. 30, 2020
Dec. 31, 2019
Business Combinations [Abstract]    
Acquisition and Divestitures

Note 3 — Acquisitions and Divestitures

 

Divestiture of Subsidiary

 

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 and an indemnification agreement as described below, 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, as part of the sale of Cloud B, Inc., 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. In addition, the Company shall indemnify the Buyer for expenses (including attorneys’ fees and all other costs, expenses and obligations) in connection with defending any Claim in connection with the Cloud B. The Company has recorded $405,000 related to the fair value of the 150,000 shares of common stock which were issued to the Buyer on June 30, 2020.

 

The table below shows the assets and liabilities that the Company was relieved of in the transaction:

 

    February 17, 2020  
Accounts payable     4,005,605  
Accrued Expenses     370,289  
Income Tax Payable     14,473  
Notes Payable     900,000  
Non-Controlling Interest     26,393  
Shares to be issued to Buyer     (405,000 )
Gain on divestiture   $ 4,911,760  

 

On March 11, 2020, the Company issued 238,750 shares of our common stock to acquire the assets of HMNRTH, LLC. On July 1, 2020, the Company made payment in the amount of $70,850 to the principals of HMNRTH, LLC. The transaction was treated as an asset purchase and not accounted for as a business combination due to the limited inputs, processes and outputs, which did not meet the requirements to be a business.

Note 3 — Acquisition

 

On September 4, 2018, the Company completed the acquisition of all of the voting membership interest of Edison Nation Holdings, LLC for a total purchase price of $12,820,978 comprising of (i) $950,000 cash (ii) the assumption of the remaining balance of the senior convertible debt through the issuance to the holders of 4%, 5-year senior convertible notes (the “New Convertible Notes”), in the aggregate principal and interest amount of the sum of $1,428,161, less debt discount of $500,000 for the approximate fair value of the conversion feature, which are convertible into approximately 285,632 shares of the Company’s common stock, at the option of the holder of such New Convertible Notes (subject to certain adjustments as provided in the Membership Interest Purchase Agreement (the “Purchase Agreement”) among the Company and Edison Nation Holdings, LLC and Edison Nation Holdings, LLC members dated June 29, 2018 and the terms 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 that will be created specifically in connection with the transaction contemplated by the Purchase Agreement (which exchange obligations may be instead satisfied in cash instead of shares of common stock, in the Company’s sole discretion), and (iv) the issuance of 557,084 shares or $3,760,317 of the Company’s common stock in full satisfaction of the indebtedness represented by promissory notes payable by EN to Venture Six, LLC and Wesley Jones.

 

The activity of Edison Nation Holdings, LLC included in the Company’s consolidated statements of operations from the date of acquisition was net sales of $267,920 and net loss of $197,485.

 

On October 29, 2018, the Company completed the acquisition of 72.15% of the outstanding capital stock of Cloud B, Inc. 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 annual gross sales of Cloud B, as reduced by the total gross sales generated by Cloud B in 2018. The Earn Out Agreement expires on December 31, 2021. In February 2019, CBAVI, LLC foreclosed on the Promissory Note it held that was secured by Cloud B, Inc.’s assets. After the foreclosure, there likely will be no assets to distribute to other creditors. In addition, the fair value of the earnout originally valued at $520,000 was reduced to $0 with an adjustment to change in fair value in the Company’s Consolidated Statements of Operations.

 

The activity of Cloud B, Inc. included in the Company’s consolidated statements of operations from the date of acquisition was net sales of $1,512,328 and net loss of $44,408.

 

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. 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.

 

The activity of Pirasta, LLC included in the Company’s consolidated statements of operations from the date of acquisition to December 31, 2018 was not material.

 

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. 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. NL Penn Capital, LP is owned by Christopher B. Ferguson, our Chairman and Chief Executive Officer.

 

The activity of Best Party Concepts, LLC included in the Company’s consolidated statements of operations from the date of acquisition to December 31, 2018 was not material.

 

On November 6, 2019, the Company issued 45,000 shares of our common stock to acquire the assets of Uber Mom, LLC for $52,352, which was the approximate value of Uber Mom, LLC’s inventory.

 

The activity of Uber Mom included in the Company’s consolidated statements of operations from the date of acquisition to December 31, 2019 was not material.

 

Joint Venture

 

On August 23, 2019, the Company formed Ed Roses, LLC, a 50% joint venture with 4Keeps Roses, Inc., to distribute preserved roses, flowers and associated gift products.

 

The following table summarizes the aggregate purchase price consideration paid for acquisitions during 2019:

 

    Uber Mom  
Cash paid   $ 52,352  
Fair value of issued shares     98,613  
Purchase consideration   $ 150,965  

 

The following table summarizes the aggregate purchase price consideration paid for acquisitions during 2018:

 

    Edison Nation                 Best Party  
    Holdings, LLC     Cloud B, Inc.     Pirasta, LLC     Concepts, LLC  
Cash paid     950,000       -     $ -     $ -  
Fair value of issued shares     3,384,285       2,664,200       -       -  
Fair value of reserved shares     6,014,250       -       -       -  
Issuance of debt     1,428,161       -       -       -  
Settlement of due from related party     -       -       470,000       500,000  
Fair value of contingent consideration     -       520,000       -       -  
Adjustment to purchase price – earnout             (520,000 )                
Purchase consideration   $ 11,776,696     $ 2,664,200     $ 470,000     $ 500,000  

 

The Company believes that these combinations will further strengthen its future growth opportunities while also increasing product diversification. The Company accounted for these acquisitions 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 during 2018 at the date of acquisition:

 

    Edison Nation                 Best Party  
    Holdings, LLC     Cloud B, Inc.     Pirasta, LLC     Concepts, LLC  
Cash and cash equivalents   $ 68,681     $ 104,744     $ 3,629     $ 365  
Accounts receivable     15,958       636,755       7,696       6,906  
Inventory     -       566,500       36,537       139,918  
Other assets     39,691       172,747       -       4.356  
Property and equipment     1,852       53,345       -       10,931  
Goodwill     5,497,242       3,364,432       354,836       -  
Intangible assets     6,400,000       6,600,000       -       -  
Total assets acquired     12,023,424       11,498,523       402,698       162,476  
Debt     -       1,400,000       -       -  
Accounts payable     227,025       5,748,797       2,052       34,041  
Accrued expenses and other liabilities     19,703       527,526       119,198       513,502  
Total liabilities assumed     246,728       7,676,323       121,250       547,543  
Noncontrolling interest     -       1,158,000       -       (192,534 )
Distribution to shareholder     -       -       (188,552 )     (692,533 )
    $ 11,776,696     $ 2,664,200     $ 470,000     $ 500,000  

 

The noncontrolling interest was valued based on the fair value of consideration paid to the Cloud B Sellers.

 

The following table summarizes the preliminary purchase price allocation of fair values of the assets acquired and liabilities assumed during 2019 at the date of acquisition:

 

    Uber Mom  
Inventory   $ 52,352  
Goodwill     98,613  
Total assets acquired   $ 150,965  

 

The following represents the pro forma consolidated income statement as if the acquisitions had been included in the consolidated results of the Company for the entire years ending December 31, 2018:

 

   

Years Ended

December 31,

 
    2018  
       
Revenues, net   $ 20,988,594  
Cost of revenues     13,566,605  
Gross profit     7,421,989  
         
Operating expenses:        
Selling, general and administrative     13,144,691  
Operating (loss) income     (5,722,702 )
         
Other (expense) income:        
Other (expense) income     (398,406 )
(Loss) income before income taxes     (6,121,108 )
Income tax expense     304,298  
Net (loss) income   $ (6,425,406 )
Net (loss) income attributable to noncontrolling interests     (415,466 )
Net (loss) income attributable to Edison Nation, Inc.     (6,009,940 )
Net (loss) income per share - basic and diluted   $ (1.09 )
Weighted average number of common shares outstanding – basic and diluted     5,513,706  

 

In connection with the acquisitions the Company will no longer present multiple segments for packaging materials and consumer goods segment as resources will be deployed on a consolidated level and all entities will operate cross functionally as one team to bring products to market.

v3.20.2
Variable Interest Entities
6 Months Ended
Jun. 30, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Variable Interest Entities

Note 4 — Variable Interest Entities

 

The Company is involved in the formation of various entities considered to be Variable Interest Entities (“VIEs”). The Company evaluates the consolidation of these entities as required pursuant to ASC Topic 810 relating to the consolidation of VIEs. These VIEs are primarily partnerships formed to supply consumer goods to through various distribution and retail channels.

 

The Company’s determination of whether it is the primary beneficiary of VIE is based in part on an assessment of whether or not the Company and its related parties are exposed to the majority of the risks and rewards of the entity. Typically, the Company is entitled to substantially all or portion of the economics of these VIEs. The Company is the primary beneficiary of the VIE entities.

 

The following table presents the carrying values of the assets and liabilities of entities that are VIEs and consolidated by the Company at June 30, 2020:

 

    June 30, 2020     December 31, 2019  
    (Unaudited)        
             
Assets                
Current assets:                
Cash and cash equivalents   $ 802,033     $ 6,234  
Accounts receivable, net     955,246       21,697  
Inventory     20,623       51,090  
Prepaid expenses and other current assets     1,412,728       379,561  
Total current assets     3,190,630       458,582  
Property and equipment, net     24,001       32,661  
Total assets   $ 3,214,631     $ 491,243  
                 
Liabilities and stockholders’ equity                
Current liabilities:                
Accounts payable   $ 194,738     $ 337,648  
Accrued expenses and other current liabilities     15,806       -  
Deferred revenues     907,500       -  
Line of credit, net of debt issuance costs of $0 and $15,573, respectively     1,690,945       -  
Notes payable, current     150,000       -  
Due to related party     315,666       315,666  
Total current liabilities     3,274,655       12,973,319  

 

The following table presents the operations of entities that are VIEs and consolidated by the Company at June 30, 2020:

 

   

For the Three Months

Ended June 30,

   

For the Six Months

Ended June 30,

 
    2020     2019     2020     2019  
Revenues, net   $ 1,051,945     $ 80,120     $ 1,274,477     $ 285,542  
Cost of revenues     789,000       49,590       994,923       124,659  
Gross profit     262,945       30,530       279,554       160,883  
                                 
Operating expenses:                                
Selling, general and administrative     136,648       100,961       203,562       192,699  
Operating income     126,297       (70,431 )     75,992       (31,816 )
                                 
Other (expense) income:                                
Interest expense     (21,331 )     -       (56,956 )     -  
Total other (expense) income     (21,331 )     -       (56,956 )     -  
Loss before income taxes     104,966       (70,431 )     19,036       (31,816 )
Income tax expense     -       -       -       -  
Net income   $ 104,966     $ (70,431 )   $ 19,036     $ (31,816 )

 

At June 30, 2020 and December 31, 2019, there were no unconsolidated VIEs for which the Company holds a variable interest.

 

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 Solutions, 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. Global Clean Solutions, LLC is a VIE. The fair value of the shares of $699,000 was treated as a distribution to the noncontrolling interest members.

 

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. The fair value of the shares is expensed over the estimated vesting period and is adjusted based on the number of shares that vest.

 

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 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 the 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.

v3.20.2
Accounts Receivable
6 Months Ended 12 Months Ended
Jun. 30, 2020
Dec. 31, 2019
Credit Loss [Abstract]    
Accounts Receivable

Note 5 — Accounts Receivable

 

As of June 30, 2020 and December 31, 2019, accounts receivable consisted of the following:

 

    June 30, 2020     December 31, 2019  
Accounts receivable   $ 3,163,956     $ 2,185,859  
Less: Allowance for doubtful accounts     (77,761 )     (77,760 )
Total accounts receivable, net   $ 3,086,195     $ 2,108,099

Note 4 — Accounts Receivable

 

As of December 31, 2019 and 2018, accounts receivable consisted of the following:

 

    December 31,     December 31,  
    2019     2018  
Accounts receivable   $ 2,185,859     $ 1,889,112  
Less: Allowance for doubtful accounts     (77,760     (11,761 )
Total accounts receivable, net   $ 2,108,099     $ 1,877,351  

v3.20.2
Inventory
6 Months Ended 12 Months Ended
Jun. 30, 2020
Dec. 31, 2019
Inventory Disclosure [Abstract]    
Inventory

Note 6 — Inventory

 

As of June 30, 2020 and December 31, 2019, inventory consisted of the following:

 

    June 30, 2020     December 31, 2019  
Raw materials   $ 25,648     $ 49,232  
Finished goods     1,265,350       1,419,993  
Reserve for obsolescence     (100,000 )     (100,000
Total inventory   $ 1,190,998     $ 1,69,225  

Note 5 — Inventory

 

As of December 31, 2019 and 2018, inventory consisted of the following:

 

    December 31,     December 31,  
    2019     2018  
Raw materials   $ 49,232     $ 48,576  
Finished goods     1,319,993       875,131  
Total inventory   $ 1,369,225     $ 923,707  

v3.20.2
Prepaid Expenses and Other Current Assets
12 Months Ended
Dec. 31, 2019
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]  
Prepaid Expenses and Other Current Assets

Note 6 — Prepaid expenses and other current assets

 

As of December 31, 2019 and 2018, accrued expenses and other current liabilities consisted of the following:

 

    December 31,     December 31,  
    2019     2018  
Deposits on inventory   $ 680,792     $ 133,073  
Deposits     11,409       66,862  
Prepaid insurance     46,848       59,892  
Accrued revenue     18,966       36,657  
Prepaid consulting fees     137,328       251,000  
Other     22,090       64,211  
Total prepaid expenses and other current assets   $ 917,433     $ 611,695  

v3.20.2
Property and Equipment, Net
12 Months Ended
Dec. 31, 2019
Property, Plant and Equipment [Abstract]  
Property and Equipment, Net

Note 7 — Property and equipment, net

 

As of December 31, 2019 and 2018, property and equipment consisted of the following:

 

    December 31,     December 31,  
    2019     2018  
Land   $ 79,100     $ 79,100  
Buildings – rental property     445,635       427,704  
Building improvements     766,859       760,017  
Equipment and machinery     3,917,080       3,929,332  
Furniture and fixtures     387,836       322,157  
Computer software     23,518       23,518  
Molds     4,651,889       4,589,153  
Vehicles     521,962       502,960  
      10,793,879       10,633,941  
Less: accumulated depreciation     (9,861,911 )     (9,635,078 )
Total property and equipment, net   $ 931,968     $ 998,863  

 

Depreciation expense for the years ended December 31, 2019 and 2018 was $231,518 and $175,609, respectively.

v3.20.2
Goodwill
12 Months Ended
Dec. 31, 2019
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill

Note 8 — Goodwill

 

The changes in the carrying amount of goodwill for the year ended December 31, 2019 consisted of the following:

 

    Total  
Balance, January 1, 2018   $ -  
Acquisitions     9,736,510  
Balance, January 1, 2019   $ 9,736,510  
Acquisition of Uber Mom     98,613  
Impairment     (4,443,000 )
Balance, December 31, 2019   $ 5,392,123  

 

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.

v3.20.2
Intangible Assets, Net
12 Months Ended
Dec. 31, 2019
Goodwill and Intangible Assets Disclosure [Abstract]  
Intangible Assets, Net

Note 9 — Intangible assets, net

 

As of December 31, 2019, intangible assets consisted of the following:

 

                      Gross               Net  
                      Carrying       Accumulated       Carrying  
                      Amount       Amortization       Amount  
Finite lived intangible assets:                                        
Customer relationships     15 years       13.8 years     $ 4,270,000     $ 339,556     $ 3,930,444  
Developed technology     7 years       5.7 years       3,800,000       697,619       3,102,381  
Membership network     7 years       5.7 years       1,740,000       331,429       1,408,571  
Non-compete agreements     2 years       .7 years       50,000       33,333       16,667  
Total finite lived intangible assets                   $ 9,860,000     $ 1,401,937      $ 8,458,063  
                                         
Indefinite lived intangible assets:                                        
Trademarks and tradenames     Indefinite             $ 3,140,000     $ -     $ 3,140,000  
Total indefinite lived intangible assets                   $ 3,140,000     $ -     $ 3,140,000  
Total intangible assets                   $ 13,000,000      $ 1,401,937     $ 11,598,063  

 

As of December 31, 2018, intangible assets consisted of the following:

 

                Gross           Net  
                Carrying     Accumulated     Carrying  
                Amount     Amortization     Amount  
Finite lived intangible assets:                                        
Customer relationships     15 years       14.8 years     $ 4,270,000     $ 61,555     $ 4,208,445  
Developed technology     7 years       6.7 years       3,800,000       159,524       3,640,476  
Membership network     7 years       6.7 years       1,740,000       82,857       1,657,143  
Non-compete agreements     2 years       1.7 years       50,000       8,333       41,667  
Total finite lived intangible assets                   $ 9,860,000     $ 312,269     $ 9,547,731  
                                         
Indefinite lived intangible assets:                                        
Trademarks and tradenames     Indefinite             $ 3,140,000     $ -     $ 3,140,000  
Total indefinite lived intangible assets                   $ 3,140,000     $ -     $ 3,140,000  
Total intangible assets                   $ 13,000,000     $ 312,269     $ 12,687,731  

 

Amortization expense for the years ended December 31, 2019 and 2018 was $1,089,668 and $312,269, respectively.

 

The estimated future amortization of intangibles subject to amortization at December 31, 2019 was as follows:

 

For the Years Ended December 31,     Amount  
2020   $ 1,092,762  
2021     1,076,095  
2022     1,076,095  
2023     1,076,095  
2024     1,076,095  
Thereafter   $ 3,060,921  

v3.20.2
Accrued Expenses and Other Current Liabilities
12 Months Ended
Dec. 31, 2019
Payables and Accruals [Abstract]  
Accrued Expenses and Other Current Liabilities

Note 10 — Accrued expenses and other current liabilities

 

As of December 31, 2019 and 2018, accrued expenses and other current liabilities consisted of the following:

 

    December 31,     December 31,  
    2019     2018  
Accrued taxes - other   $ 261,396     $ 259,559  
Accrued payroll and benefits     482,719       175,336  
Accrued professional fees     201,318       133,261  
Customer deposits     13,212       35,094  
Accrued interest     341,559       269,782  
Accrued legal contingencies     240,105       -  
Other     54,359       262,519  
Total accrued expenses and other current liabilities   $ 1,594,668     $ 1,135,551  

v3.20.2
Debt
6 Months Ended 12 Months Ended
Jun. 30, 2020
Dec. 31, 2019
Debt Disclosure [Abstract]    
Debt

Note 7 — Debt

 

As of June 30, 2020 and December 31, 2019, debt consisted of the following:

 

    June 30, 2020     December 31, 2019  
Line of credit:                
Secured line of credit   $ 1,690,945     $ -  
Receivables financing     460,163       472,567  
Debt issuance costs     -       (15,573 )
Total lines of credit     2,151,108       456,995  
                 
Convertible notes payable:                
Senior convertible notes payable – related parties     1,428,161       1,428,161  
Senior convertible notes payable     1,100,000       -  
Convertible notes payable     336,000       -  
Debt issuance costs     (851,901 )     (366,666 )
Total convertible notes payable     2,012,260       1,061,495  
Less: current portion of long-term convertible notes payable     (900,765 )     -  
Noncurrent portion of long-term convertible notes payable     1,111,495       1,061,495  
                 
Notes payable:                
Notes payable     1,882,064       1,621,015  
Debt issuance costs     (86,350 )     (212,848 )
Total long-term debt     1,795,714       1,408,167  
Less: current portion of long-term debt     (970,710 )     (1,365,675 )
Noncurrent portion of long-term debt     825,004       42,492  
                 
Notes payable – related parties:                
Notes payable     2,667,513       3,282,021  
Less: current portion of long-term debt – related parties     (1,166,365 )     (1,686,352 )
Noncurrent portion of long-term debt – related parties   $ 1,501,148     $ 1,595,669  

 

Convertible Notes Payable

 

On January 23, 2020, Edison Nation, Inc. (the “Company”) entered into a $1,100,000 loan agreement the (“Loan Agreement”) with Greentree Financial Group, Inc. (the “Investor”), pursuant to which the Investor purchased a 10% Convertible Promissory Note (the “Note”) from the Company, and the Company issued to the Investor a three year warrant (the “Warrant”) to purchase 550,000 shares of the Company’s common stock, $0.001 per share (“Common Stock”). The Note 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 Note. The Note reiterates the registration rights set forth in the Loan Agreement and the Warrant. There is no prepayment penalty on the Note. If the Note is not prepaid by the 90th day after the effective date of the Registration Statement, the Investor is required to convert the entire amount of principal and interest outstanding on the Note at that time, at a price of $2.00 per share, unless an event of default (as such events are described in the Note) under the Note has occurred, in which case the 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 Note mandatorily converts. In the event that the average of the 15 lowest closing prices for the Company’s common stock on NASDAQ or other primary trading market for the Company’s common stock (the average of such lowest closing prices being herein referred to, the “True-up Price”) during the period beginning on the effective date of the Registration Statement and ending on the 90th day after the effective date of the Registration Statement (the “Subsequent Pricing Period”) is less than $2.00 per share, then the Company will issue the Lender additional shares of the Company’s common stock (the “True-up Shares”) within three days. No value has been assigned to the True-up Shares due to the contingency of an effective Registration Statement. The warrant has an exercise price of $2.00 per share, subject to certain adjustments to the exercise price set forth in the Warrant. The 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 Warrant is greater than $2.00 per share, the Warrant may be exercised cashlessly, based on a cashless exercise formula. The Warrant reiterates the registration rights set forth in the Loan Agreement and the Note. The Warrant also contains a repurchase provision, which at any time after the Registration Statement is effective and the 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 Warrant at a price of $1.00 per share. The $1,100,000 of proceeds from the Note will be used for general working capital purposes and for the repayment of debt. On January 24, 2020, the Company used $588,366 of the proceeds from the Note to pay off in full the 12% Convertible Promissory Note held by Labrys Fund, LP. Upon execution of the Loan Agreement, the Company issued to the Investor 100,000 shares of Common Stock (the “Origination Shares”) as an origination fee, plus an additional 60,000 shares of Common Stock as consideration for advisory services. Pursuant to the Loan Agreement, the Company agreed to issue and sell to the Investor the Note, in the principal amount of $1,100,000.

 

On January 29, 2020, the Company and Greentree Financial Group, Inc. (the “Investor”), entered into an Amendment Agreement, amending the January 22, 2020 Loan Agreement, the Note, and the Warrant to: (i) correct the effective date set forth in the Loan Agreement, Note and Warrant to January 23, 2020 and the due date to October 23, 2020, (ii) clarify the terms of the registration right provision in the Loan Agreement such that the Company was required to register a total of 1,500,000 shares of Common Stock, which such amount of shares is the sum of 550,000 shares of Common Stock issuable upon conversion of the Note, 550,000 Warrant Shares, the 100,000 Origination Shares, and 300,000 shares of Common Stock to account for changes to the conversion and/or exercise price under the Note and Warrant, and (iii) to ensure that the total number of shares of Common Stock issued pursuant to the Loan Agreement, the Note, and/or the Warrant, each as amended, does not exceed 17.99% of the Company’s issued and outstanding Common Stock as of January 23, 2020. The Company is subject to a $35,000 penalty on a monthly basis if a registration statement is not effective after 105 days from January 23, 2020. The Company recognized a beneficial conversion option of $586,785 related to the 550,000 shares of Common Stock issuable upon conversion of the Note, a debt discount of $296,891 based on the relative fair value related to the 550,000 Warrant Shares, a debt discount of $201,324 based on the relative fair value related to the 160,000 Origination and Advisory Shares.

 

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 issued 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. Upon an Event of Default, the Conversion Price shall equal the Alternate Conversion Price (as defined herein) (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The “Alternate Conversion Price” shall equal the lesser of (i) 80% multiplied by the average of the three lowest daily volume weighted average prices (“VWAP”) during the previous twenty (20) Trading Days (as defined below) before the Issue Date of this Note (representing a discount rate of 20%) or (ii) 80% multiplied by the Market Price (as defined herein) (representing a discount rate of 20%). “Market Price” means the average of the three lowest daily VWAPs for the Common Stock during the twenty (20) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date.

 

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 issued 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. Upon an Event of Default, the Conversion Price shall equal the Alternate Conversion Price (as defined herein) (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The “Alternate Conversion Price” shall equal the lesser of (i) 80% multiplied by the average of the three lowest daily volume weighted average prices (“VWAP”) during the previous twenty (20) Trading Days (as defined below) before the Issue Date of this Note (representing a discount rate of 20%) or (ii) 80% multiplied by the Market Price (as defined herein) (representing a discount rate of 20%). “Market Price” means the average of the three lowest daily VWAPs for the Common Stock during the twenty (20) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date.

 

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, 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.

 

Promissory Notes

 

On January 2, 2020, the Company entered into that certain Loan Agreement with Tiburon Opportunity Fund (the “Lender”), dated January 2, 2020 (the “Loan Agreement”). Pursuant to the terms of the Loan Agreement, the Lender agreed to loan the Company $400,000. The Loan is interest bearing at the rate of 1.5% per month through the term of the Loan. Additionally, the 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. 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.

 

On January 2, 2020, Ed Roses, LLC (the “Partnership”) entered into a Loan Agreement (the “Agreement”) with Sook Hyun Lee (the “Lender”). Under the terms of the Agreement, the Lender agreed to lend $150,000 to the Partnership for general working capital. The Loan was due on April 15, 2020 (the “Maturity Date”) and accrues interest at 15% per annum. The Agreement shall automatically renew at the Maturity date for successive 90-day periods unless written notice is remitted by either party. On the Maturity date, the Partnership shall pay the Lender all unpaid principal and interest and a $30,000 commitment fee. The Lender shall have a collateral interest in the accounts receivable of the Partnership, including but not limited to 7 Eleven receivables. As collateral, Edison Nation, Inc. placed 75,000 shares of common stock in reserve.

 

On January 10, 2020, the Company entered into a 5% Promissory Note Agreement with Equity Trust Company on behalf of Rawleigh Ralls (“Ralls”) 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. Please see Note 12 — Subsequent Events for further information.

 

On January 15, 2020, the Company entered into a 5% Promissory Note Agreement with Paul J. Solit & Julie B. Solit (“Solits”) 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. Please see Note 12 — Subsequent Events for further information.

 

On January 17, 2020, the Company entered into a 5% Promissory Note Agreement with Richard O’Leary (“O’Leary”) 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. Please see Note 12 — Subsequent Events for further information.

 

On March 6, 2019, Edison Nation, Inc. (the “Company”) entered into a securities purchase agreement (the “SPA”) with an accredited investor (the “Investor”) pursuant to which the Investor purchased a 2% unsecured, senior convertible promissory note (the “Note”) from the Company. The Note was in the amount of $560,000 with an original issue discount of $60,000. The Company issued 15,000 shares of its common stock (“Common Stock”) valued at $74,100 based on the share price on the date of issuance to the Investor as additional consideration for the purchase of the Note. The Under the terms of the SPA, the Investor will have 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 is also subject to certain customary negative covenants under the 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 SPA and the Note. The maturity date of the Note is six months from March 6, 2019. All principal amounts and the interest thereon are convertible into shares Common Stock only in the event that an Event of Default occurs. On January 24, 2020, the Company paid the Investor $588,366 to pay the Note 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, subject to thresholds, 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.

 

Receivables Financing

 

On February 21, 2020, the Company entered into a receivables financing arrangement for certain receivables of the Company not to exceed $1,250,000 at any one time. The agreement allows for borrowings up to 85% of the outstanding receivable based on the credit quality of the customer. The fee is between 1% and 2% of the total invoices financed.

 

In April 2019, we entered into a receivables financing arrangement for certain receivables of the Company. The agreement allows for borrowings up to 80% of the outstanding receivable based on the credit quality of the customer. The fee is between 1% and 2% of the total invoices financed.

 

On November 12, 2019, the Company entered into a Receivables Purchase Agreement with a financial institution (the “Receivables Purchase Agreement”), whereby the Company agreed to the sale of $250,000 of receivables for $200,000. The proceeds were used for general working capital.

 

On November 18, 2019, the Company entered into a Future Receivables Purchase Agreement with a financial institution (the “Future Receivables Purchase Agreement”), whereby the Company agreed to the sale of $337,500 of receivables for $250,000. The proceeds were used to fund our receivables for overseas distributors. Christopher B. Ferguson, our Chairman and Chief Executive Officer, personally guaranteed the prompt and complete performance of the Company’s obligations under the Future Receivables Purchase Agreement.

 

Line of Credit

 

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”).

 

The scheduled maturities of the debt for the next five years as of December 31, 2019, are as follows:

 

For the Years Ended December 31,   Amount  
2020 (excluding the six months ended June 30, 2020)     3,737,443  
2021     206,760  
2022     1,419,285  
2023     1,440,278  
2024     -  
Thereafter     -  
      6,803,766  
Less: debt discount     (595,088 )
    $ 6,208,678  

 

For the three and six months ended June 30, 2020, interest expense was $847,154 and $1,571,111, respectively of which $75,692 and $152,326 were related party interest expense. For the three and six months ended June 30, 2019, interest expense was $401,170 and $525,864, respectively, of which $79,374 and $159,636 was related party interest expense, respectively.

Note 11 — Debt

 

As of December 31, 2019 and December 31, 2018, debt consisted of the following:

 

    December 31,     December 31,  
    2019     2018  
Line of credit:                
Asset backed line of credit   $ 472,567     $ 561,804  
Debt issuance costs     (15,573 )     (30,000 )
Total line of credit     456,995       531,804  
                 
Senior convertible notes payable:                
Senior convertible notes payable     1,428,161       1,428,161  
Debt issuance costs     (366,666 )     (466,667 )
Total long-term senior convertible notes payable     1,061,495       961,494  
Less: current portion of long-term notes payable     -       -  
Noncurrent portion of long-term convertible notes payable     1,061,495       961,494  
                 
Notes payable:                
Notes payable     1,621,015       370,250  
Debt issuance costs     (212,848 )     -  
Total long-term debt     1,408,167       370,250  
Less: current portion of long-term debt     (1,365,675 )     (313,572 )
Noncurrent portion of long-term debt     42,492       56,678  
                 
Notes payable – related parties:                
Notes payable     3,282,021       3,464,191  
Less: current portion of long-term debt – related parties     (1,686,352 )     (932,701 )
Noncurrent portion of long-term debt – related parties   $ 1,595,669     $ 2,531,490  

 

Line of Credit

 

On December 27, 2018, the Company entered into credit agreement providing for an asset backed line of credit of $1,000,000. The credit agreement contains a revolving maturity date which is subject to an annual review by the lender. The credit agreement is collateralized by substantially all of the assets of Ferguson Containers, Inc. The interest rate was 8.5% as of December 31, 2019. The agreement contains certain covenants and definition. As of December 31, 2019, the Company was not in compliance with certain covenants under the line of credit. Subsequently, the Company repaid the line of credit in full from the use of funds from the Bayview factoring agreement.

 

Long-term Convertible Notes Payable – Related Parties

 

On September 4, 2018, in connection with the acquisition of EN, the Company issued five senior convertible notes payable aggregating $1,428,161. The notes have an effective interest rate of four percent (4%) per annum. The Company is required to make semi-annual interest payments on June 30th and December 31st of each year. The notes have an option to convert at a conversion price of $5.00. Prepayments are not allowed under the notes without the prior written consent of applicable holders of a note until the second anniversary of the effective date of the note, after which time the notes may be prepaid without penalty at any time upon sixty (60) days’ written notice to the holders. The holders have piggyback registration rights. If the conversion option is not elected by the holder, all outstanding principal and interest is due on September 4, 2023. The Company recorded a debt discount of $500,000 related to the beneficial conversion feature that will be amortized over five (5) years to interest expense.

 

Notes Payable

 

The Company borrowed funds under two separate notes, aggregating $645,000, in February 2018 and March 2018. In addition, the Company issued the 20,000 and 13,500 shares to the holders of the notes payable, respectively. The fair value of the shares issued was $167,500 which was recorded as a debt discount and fully amortized through interest expense. As of December 31, 2019, both holders of the notes were paid in full.

 

On September 7, 2018, the Company borrowed $73,559 related to the purchase of a commercial delivery vehicle. The note bears interest at a rate of 4.5% per annum. The monthly payments under the note are $1,371 commencing on October 6, 2018 and maturing on September 6, 2023. The loan is collaterized by the commercial delivery vehicle having the approximate value of $75,000.

 

On December 1, 2016, Cloud B, Inc. entered into a Loan Agreement with an outside associate of CEO Linda Suh. The loan was in the amount of $300,000. This loan was for a period of six (6) months and bears no interest and therefore no monthly interest payments. A Loan Amendment and Extension Agreement was entered into on June 1, 2017, extending the maturity of the loan until December 31, 2017. This loan remains outstanding. No collateral was provided by the Company for any of the above-referenced loans.

 

On May 16, 2019, the Company entered into a non-interest bearing promissory note of $300,000, with an original issue discount of $50,000. The Company issued 20,000 shares of its common stock to the note holder as additional consideration for the purchase of the note. The Company recorded $62,000 as a debt discount as of December 31, 2019 related to the value of the shares issued. The note matured on November 16, 2019 and was paid in full.

 

On June 14, 2019, the Company entered into that certain Loan Agreement with Tiburon Opportunity Fund (the “Lender”), dated June 14, 2019 (the “Loan Agreement”). Pursuant to the terms of the Loan Agreement, the Lender agreed to loan the Company $250,000. The Loan is interest bearing at the rate of 1.5% per month through the term of the Loan. Additionally, the 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 August 11, 2019. The 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 Loan Agreement, the Lender may declare 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 grants the Lender a collateral interest in certain accounts receivable of SRM Entertainment Ltd., a subsidiary of the Company. The outstanding principal and interest on the note was repaid on December 27, 2019.

 

On August 26, 2019, the Company entered into a securities purchase agreement with Labrys Fund, LP (the “Investor”) pursuant to which the Investor purchased a 12% Convertible Promissory Note (the “Note”) from the Company. Unless there is a specific Event of Default (as such term is defined in the Note) or the Note remains unpaid by the Maturity Date, then the Investor shall not have the ability to convert the principal and interest under the Notes into shares of the Company’s common stock. The Company agreed to issue and sell to the Investor the Note, in the principal amount of $560,000, with an original issue discount in the amount of $60,000. The Note is due and payable February 26, 2020 (the “Maturity Date”). Additionally, the Company issued 181,005 shares of Common Stock to the Investor as a commitment fee, of which 153,005 shares of Common Stock must be returned to the Company in the event the Note is fully paid and satisfied prior to the Maturity Date.

 

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.

 

On December 4, 2019, the Company entered into a Senior Secured Note Agreement (the “32E Loan Agreement”) with 32 Entertainment LLC (“32E”), pursuant to which 32E agreed to loan the Company $250,000 (the “Loan”). The Loan is interest bearing at the rate of 10.0% per annum through the term of the Loan. The Company issued 10,000 shares of common stock to 32E in connection with the 32E Loan Agreement. In addition, the Company issued a warrant (the “32E Warrant”) to purchase 50,000 shares of the Company’s common stock. Under the terms of the 32E Loan Agreement, the Company entered into a registration rights agreement whereby the Company agreed to register the shares and file this registration statement on a Form S-1 with the SEC. The Company was required to have such registrations statement declared effective by the SEC within 90 calendar days. The 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 Loan Agreement, 32E may declare the principal amount of the Loan owing under the 32E Loan Agreement at the time of default to be immediately due and payable. Interest is due in March, June and September. The outstanding principal and interest on the note are due on December 4, 2020. On May 19, 2020, the 32E Loan Agreement was amended to change the due date on the outstanding principal and interest to May 31, 2020.

 

Notes Payable – Related Parties

 

On September 30, 2018, in connection with the acquisition of SRM and Fergco, the Company issued two notes payable aggregating $2,996,500. One note was issued to NL Penn Capital, L.P, in relation to the acquisition of SRM in the amount of $2,120,000 and the other note was issued to the stockholders of Fergco in the amount of $876,500. The notes bear interest at a rate of six percent (6%) per annum and have an effective interest rate of six percent (6%) per annum. The Company is required to make monthly payments comprised of principal and interest beginning in January 2018 that are amortized over ten (10) years, with a balloon payment of all outstanding principal and interest due at the respective maturity dates of $677,698, due on December 1, 2020, and $1,249,043, due on December 1, 2022. NL Penn Capital, L.P. has from time to time agreed to defer payments due under the note. The former stockholders of Fergco have agreed to defer all payments due under the note and the deferred amount is due on demand.

 

On April 24, 2014, Cloud B, Inc. entered into two Shareholder Loan Agreements. One shareholder loan was from former shareholder, Board Member, and CEO of Cloud B, Inc. prior to the acquisition on October 29, 2018, Linda Suh in the amount of $100,000. This loan bears interest at a rate of 7.0% per annum for the first twelve (12) months and 8.0% per annum thereafter. The Company is required to make monthly interest only payments. Interest payments on this loan have been paid through November 2018. The other shareholder loan was from former shareholder and Board Member of Cloud B, Inc. prior to the acquisition on October 29, 2018, John Royan in the amount of $500,000. This loan bears interest at a rate of 7.0% per annum for the first six (6) months and 8.0% per annum for the next six (6) months. The Company was required to make monthly interest only payments through May 2015, with the loan becoming due and payable on May 28, 2015. This loan remains outstanding with the last interest payment made in July 2015.

 

Convertible Notes

 

On March 6, 2019, Edison Nation 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 FirstFire Note was in the amount of $560,000 with an original issue discount of $60,000. The Company issued 15,000 shares of its common stock valued at $74,100 based on the share price on the date of issuance to the Investor as additional consideration for the purchase of the FirstFire Note. The Under the terms of the FirstFire SPA, the Investor will have “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 is 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 FirstFire Note is six months from March 6, 2019. All principal amounts and the interest thereon are convertible into shares of the Company’s common stock only in the event that an event of default occurs.

 

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.

 

On May 13, 2019, the Company entered into a securities purchase agreement (the “May 2019 SPA”) with certain accredited investors (the “Investors”) pursuant to which the Investors purchased Senior Convertible Promissory Notes (the “May 2019 Notes”) from the Company. The use of proceeds from the May 2019 Notes was used for general working capital and to fund new product launches. Unless there is a specific Event of Default (as such term is defined in the May 2019 Notes), the Investors shall not have the ability to convert the principal and interest under the May 2019 Notes into shares of common stock. Pursuant to the May 2019 SPA, the Company agreed to sell to the Investors the May 2019 Notes, in the aggregate principal amount of $1,111,111, which are convertible into shares of common stock. Additionally, the Company will issue an additional 20,000 shares of common stock to the Investors as additional consideration for the purchase of the May 2019 Notes. Under the terms of the May 2019 SPA, the Investors have piggyback registration rights in the event the Company files a Form S-1 or Form S-3 within six months of May 13, 2019. The Company is also subject to certain customary negative covenants under the May 2019 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 Investors under the terms of the May 2019 SPA and the May 2019 Notes.

 

As issued on May 13, 2019, the principal amount of the May 2019 Notes is $1,111,111, with an original issue discount in the amount of $111,111. The maturity date of the May 2019 Notes is November 13, 2019. The per share conversion price into which the principal amount and interest under the May 2019 Notes may be converted is equal to 80% multiplied by the lowest traded price of our common stock during the 20 consecutive trading days preceding the date of conversion. The conversion price may be adjusted in connection with certain material corporate events, and the Company is subject to cash penalties in the event that the Company fails to timely deliver certificates for shares of common stock issuable upon conversion of May 2019 Notes. The May 2019 Notes contain a cap, such that the total number of shares of Common Stock issuable under the May 2019 Notes are limited to 19.99% of the Company’s outstanding shares of common stock as of May 13, 2019. The Company issued 20,000 shares of its common stock to the note holders as additional consideration for the purchase of the notes in July 2019.

 

So long as an Event of Default has not occurred under the terms of the May 2019 Notes, the Company may prepay the May 2019 Notes at any time, given not less than three trading days’ notice. If the Company exercises its right to prepay the May 2019 Notes at any time within the initial 180 days following May 13, 2019, the prepayment amount to be paid by the Company shall be an amount in cash equal to the sum of 115% multiplied by the principal on the May 2019 Notes then outstanding, plus all accrued and unpaid interest, including unpaid default interest, if any.

 

Alexander Capital placed the notes and received warrants to purchase 24,366 shares of the Company’s common stock, at an exercise price of $2.85 per share. The notes were converted into 560,185 shares of common stock in November 2019 at $2.00 per share.

 

Receivables Financing and Inventory

 

In April 2019, we entered into a receivables financing arrangement for certain receivables of the Company. The agreement allows for borrowings up to 80% of the outstanding receivable based on the credit quality of the customer. The fee is between 1% and 2% of the total invoices financed.

 

On November 12, 2019, the Company entered into a Receivables Purchase Agreement with a financial institution (the “Receivables Purchase Agreement”), whereby the Company agreed to the sell of $225,000 of receivables for $200,000. The proceeds were used for general working capital.

 

On November 18, 2019, the Company entered into a Future Receivables Purchase Agreement with a financial institution (the “Future Receivables Purchase Agreement”), whereby the Company agreed to the sell of $337,500 of receivables for $250,000. The proceeds were used to fund our receivables for overseas distributors. Christopher B. Ferguson, our Chairman and Chief Executive Officer, personally guaranteed the prompt and complete performance of the Company’s obligations under the Future Receivables Purchase Agreement.

 

The scheduled maturities of the debt for the next five years as of December 31, 2019, are as follows:

 

For the Years Ended December 31,   Amount  
2020   $ 3,737,443  
2021     206,760  
2022     1,419,285  
2023     1,440,278  
2024     -  
Thereafter     -  
    $ 6,803,766  
Less: debt discount     (595,088 )
    $ 6,208,678  

 

For the year ended December 31, 2019, interest expense was $1,298,168 of which $320,781 was related party interest expense. For the year ended December 31, 2018 interest expense was $501,221.

v3.20.2
Income Taxes
6 Months Ended 12 Months Ended
Jun. 30, 2020
Dec. 31, 2019
Income Tax Disclosure [Abstract]    
Income Taxes

Note 8 — Income Taxes

 

A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows:

 

   

For the Six Months

Ended June 30,

 
    2020     2019  
Tax at federal statutory rate     21.0 %     21.0 %
U.S. income subject to valuation allowance     -21.0 %     -21.0 %
Foreign tax     0.0 %     -1.7 %
Effective income tax rate     0.0 %     -1.7 %

 

The Company has determined that the gain on divestiture of $4,911,760 is a taxable transaction to the Company. The tax provision of approximately $1,030,000 would be offset by the utilization of the Company’s net operating loss carryforwards. The Company has sufficient net operating losses carryforwards to cover any tax liabilities generated due to the divestment of Cloud B, Inc. The Company does not have any deferred income tax expense from the gain due to the Company recording a full valuation allowance against all net operating losses in prior periods.

Note 12 — Income Taxes

 

Edison Nation, Inc. is taxed as a corporation and pays corporate federal, state and local taxes on income allocated to it from Fergco, Edison Nation Holdings, LLC, Edison Nation, LLC, Safe TV Shop, LLC, Everyday Edisons, LLC and Pirasta, LLC based upon Edison Nation, Inc.’s economic interest in those entities. Cloud B, Inc. is taxed as a corporation and pays corporate federal, state and local taxes on its income. The Company has three foreign entities of which only SRM has operations, SRM is an entity subject to the Hong Kong, China tax regime. The Hong Kong tax returns remain subject to examination by local taxing authorities beginning with the tax year ended December 31, 2011.

 

Cloud B, Inc. was a Subchapter S pass-through entity for income tax purposes prior to its acquisition by the Company on October 29, 2018. Accordingly, Cloud B, Inc. was not subject to income taxes prior to the acquisition and therefore the tax provision related to the United States income is only for the post-acquisition period.

 

Edison Nation Holdings, LLC and its subsidiaries are disregarded limited liability corporation entities for income tax purposes. Accordingly, EN was not subject to income taxes prior to the acquisition on September 4, 2018 and the results of operations were not material therefore the tax provision related to the United States income is only for the post-acquisition period.

 

United States and foreign components of income before income taxes were as follows:

 

   

For the Years

Ended December 31,

 
    2019     2018  
United States   $ (14,210,716 )   $ (5,828,261 )
Foreign     (7,811 )     788,159  
Income before income taxes   $ (14,218,527 )   $ (5,040,102 )

 

The tax effects of temporary differences that give rise to deferred tax assets or liabilities are presented below:

 

   

For the Years

Ended December 31,

 
    2019     2018  
Deferred tax assets:                
Stock-based compensation   $ 987,747     $ 682,115  
Goodwill and intangible assets     -       19,410  
Operating lease liabilities     158,430       -  
Net operating loss carryforwards     2,324,863       493,063  
Less: valuation allowance     (2,424,196 )     (1,194,587 )
Net deferred tax assets   $ 1,046,844     $ -  
                 
Deferred tax liabilities:                
Right of use assets     (153,741 )     -  
Goodwill and intangible assets     (811,000 )     -  
Property and equipment   $ (82,103 )   $ 341  
Net deferred tax liabilities   $ (1,046,844 )   $ 341  
Net deferred tax liabilities   $ -     $ 341  

 

As of December 31, 2019 and 2018, the Company had $9,675,770 and $2,223,498 of federal net operating loss carryforwards and $7,532,274 and $0 of state net operating loss carryforwards for income tax purposes, respectively. In connection with the IPO the Company does not believe the ownership change resulted in the loss of past net operating loss carryforwards. The above net operating loss carryforwards may be subject to an annual limitation under Section 382 and 383 of the Internal Revenue Code of 1986, and similar state provisions if the Company experiences one or more ownership changes. The Company believes the goodwill acquired in the Edison Nation Holdings acquisition is deductible for tax purposes. The Company evaluates its ability to realize deferred tax assets on a quarterly basis and establishes a valuation allowance when it is more likely than not that all or a portion of a deferred tax asset may not be realized. As of December 31, 2019 and 2018, the Company has recorded a net deferred tax asset of $3,471,040 and $1,194,587, respectively. However, these net deferred tax assets will only be utilized to the extent the Company generates sufficient taxable income. As of December 31, 2019, and 2018, the Company established a valuation allowance in the amount of $2,424,196 and $1,194,587, respectively, against the net deferred tax asset as it is not more likely than not that it is realizable based on current available evidence.

 

The income tax provision (benefit) consists of the following:

 

   

For the Years

Ended December 31,

 
    2019     2018  
Current:            
Federal   $ -     $ 10,185  
Foreign     3,166       292,491  
State and local     (22,372 )     35,107  
Total current   $ (19,206 )   $ 337,783  
                 
Deferred:                
Federal   $ (896,468 )   $ (722,975 )
Foreign     (341 )     (2,316 )
State and local     (333,141     (10,102 )
Less: valuation allowance     1,229,609       701,525  
Total deferred   $ (341 )   $ (33,868 )
Income tax provision (benefit)   $ 19,547     $ 303,915  

 

A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows:

 

   

For the Years

Ended December 31,

 
    2019     2018  
Tax at federal statutory rate     21.0 %     21.0 %
Effect of U.S. tax law change     0.0 %     0.0 %
U.S. income attributable to pass-through entity     0.0 %     0.0 %
U.S. income subject to valuation allowance     -14.6 %     -20.5 %
State and local income taxes     0.2 %     0.0 %
Foreign income not subject to U.S. federal tax     0.0 %     0.0 %
Foreign tax     0.0 %     -6.3 %
Nondeductible expenses     -6.5 %     0.0 %
Other     0.0 %     -0.2 %
Effective income tax rate     0.1 %     -6.0 %

 

The statutory federal income tax rate differs from the Company’s effective tax rate due to the valuation allowance related to deferred tax assets and net operating losses and foreign income taxes in Hong Kong.

v3.20.2
Related Party Transactions
6 Months Ended 12 Months Ended
Jun. 30, 2020
Dec. 31, 2019
Related Party Transactions [Abstract]    
Related Party Transactions

Note 9 — Related Party Transactions

 

NL Penn Capital, LP and SRM Entertainment Group LLC

 

As of June 30, 2020 and December 31, 2019, due to related party consists of net amounts due to SRM Entertainment Group LLC (“SRM LLC”) and NL Penn Capital, LP (“NL Penn”), the majority owner of both, which are owned by Chris Ferguson, our Chairman and Chief Executive Officer. The amount due to related parties is related to the acquisitions of Pirasta, LLC and Best Party Concepts, LLC offset by operating expenses that were paid by SRM and Edison Nation on behalf of SRM LLC and NL Penn. As of June 30, 2020 and December 31, 2019, the net amount due to related parties was $57,784 and $17,253, respectively. Such amounts are due currently. NL Penn and affiliated entities may lend additional capital to Edison Nation pursuant to terms and conditions similar to the current working capital lenders to Edison Nation such as Franklin Capital. In addition, Edison Nation borrows working capital from Franklin Capital, and Mr. Ferguson is a personal guarantor on the working capital facility provided to Edison Nation by Franklin Capital.

Note 13 — Related Party Transactions

 

NL Penn Capital, LP and SRM Entertainment Group 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. 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.

 

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. 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.

 

As of December 31, 2019 and December 31, 2018, the net amounts due to related parties consists of net amounts due to SRM Entertainment Group LLC (“SRM LLC”) and NL Penn Capital, LP, which are both majority owned by Chris Ferguson, our Chairman and Chief Executive Officer. The amount due to related parties is related to the acquisitions of Pirasta, LLC and Best Party Concepts, LLC offset by operating expenses that were paid by SRM and Edison Nation on behalf of SRM LLC and NL Penn Capital, LP. As of December 31, 2019 and December 31, 2018, the net amount due to related parties was $17,253 and $140,682, respectively. Such amounts are due currently.

 

Enventys Partners, LLC

 

On August 1, 2018, the Company entered into a one-year letter agreement with Enventys Partners, LLC, a North Carolina limited liability company (“Enventys”), whereby Enventys agreed to provide services to the Company as an independent contractor in the areas of product development and crowdfunding campaign marketing. During the term of the Enventys Agreement, the Company shall pay Enventys a fixed fee of $15,000 per month for product development assistance, including design research, mechanical engineering and quality control planning. Depending on the success of each campaign, the Company may also pay Enventys a commission of up to ten percent of the total funds raised in the applicable campaign. Louis Foreman, who is a member of the Company’s board of director, is also the Chief Executive Officer and the largest equity holder of Enventys. We incurred fees of approximately $97,500 related to the services performed by Enventys for the year ended December 31, 2019. During 2019, the Company and Enventys agreed to the cancellation of the agreement.

 

In addition, during 2019 we engaged Enventys to design our website and incurred fees of $10,000 related to website development for the Ferguson Containers website.

v3.20.2
Commitments and Contingencies
6 Months Ended 12 Months Ended
Jun. 30, 2020
Dec. 31, 2019
Commitments and Contingencies Disclosure [Abstract]    
Commitments and Contingencies

Note 10 — Commitments and Contingencies

 

Operating Leases

 

The Company has entered into non-cancellable operating leases for office, warehouse, and distribution facilities, with original lease periods expiring through 2021. In addition to minimum rent, certain of the leases require payment of real estate taxes, insurance, common area maintenance charges, and other executory costs. Differences between rent expense and rent paid are recognized as adjustments to operating lease right-of-use assets on the consolidated balance sheets.

 

As of June 30, 2020, the Company recorded operating lease liabilities of $326,482 and right of use assets for operating leases of $578,280. During the three and six months ended June 30, 2020, operating cash outflows relating to operating lease liabilities was $81,105 and $164,091, respectively, and the expense for right of use assets for operating leases was $75,997 and $153,818, respectively. As of June 30, 2020, the Company’s operating leases had a weighted-average remaining term of 3.7 years and weighted-average discount rate of 4.5%. Excluded from the measurement of operating lease liabilities and operating lease right-of-use assets were certain office, warehouse and distribution contracts that either qualify for the short-term lease recognition exception.

 

On June 6, 2018, the Company’s wholly owned subsidiary, Best Party Concepts, LLC, entered into a lease for office space in Newtown, PA, which expired on May 30, 2020 and was not renewed.

 

Total rent expense for the three and six months ended June 30, 2020 was $122,943 and $269,709, respectively. Total rent expense for the three and six months ended June 30, 2019 was $138,070 and $282,503, respectively. Rent expense is included in general and administrative expense on the consolidated statements of operations.

 

Rental Income

 

Fergco leases a portion of the building located in Washington, New Jersey that it owns under a month to month lease. Total rental income related to the leased space for both the three and six months ended June 30, 2020 and 2019 was both $25,703 and $51,407, respectively, and is included in other income on the consolidated statements of operations.

 

Legal Contingencies

 

The Company is involved in claims and litigation in the ordinary course of business, some of which seek monetary damages, including claims for punitive damages, which are not covered by insurance. For certain pending matters, accruals have not been established because such matters have not progressed sufficiently through discovery, and/or development of important factual information and legal information is insufficient to enable the Company to estimate a range of possible loss, if any. An adverse determination in one or more of these pending matters could have an adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

 

We are, and may in the future become, subject to various legal proceedings and claims that arise in or outside the ordinary course of business.

 

On April 14, 2020, Oceanside Traders, LLC (“Plaintiff”) filed a complaint against Cloud B, Inc. and Edison Nation, Inc. (together the “Defendants”) with the Superior Court of Ocean County, New Jersey alleging a breach of contract in that the Defendants failed to pay Plaintiff for goods sold in the amount of $141,007 plus $138,180 for overpayments and $279,187 for lost profits for a total of $443,383. A default judgment was entered against Edison Nation in the case in the amount of $284,248.91. The same day the default judgment was entered, the Company filed a motion to vacate on the grounds that Edison Nation was not properly served with the complaint.

 

On March 13, 2019, Rosenberg Fortuna & Laitman LLP and Mark Principe (together the “Plaintiffs”) filed a complaint against Safe TV Shop, LLC (the “Defendant”) with the Supreme Court of the State of New York, County of Nassau alleging a breach of indemnification arising out of the use of a certain packaging material. On February 12, 2020, the parties entered a Stipulation and Settlement and Consent Agreement, whereby the Plaintiff entered into a Consent Judgment in the amount of $50,000. The Company has accrued $50,000 for the amount of the judgment, but there have been no operations by the Plaintiff since the date of acquisition by the Company.

Note 14 — Commitments and Contingencies

 

Operating Lease

 

The Company has entered into non-cancellable operating leases for office, warehouse, and distribution facilities, with original lease periods expiring through 2021. In addition to minimum rent, certain of the leases require payment of real estate taxes, insurance, common area maintenance charges, and other executory costs. Differences between rent expense and rent paid are recognized as adjustments to operating lease right-of-use assets on the consolidated balance sheets.

 

On June 6, 2018, the Company’s wholly owned subsidiary, Best Party Concepts, LLC, entered into a lease for office space in Newtown, PA, which shall expire on May 30, 2020. Monthly lease payments are approximately $1,880 for a total of approximately $22,560 for the total term of the lease.

 

On August 8, 2016, SRM entered into a lease for office space in Kowloon, Hong Kong. On August 8, 2018, SRM extended its lease for office space in Kowloon, Hong Kong so that the lease will now expire on August 7, 2020. Monthly lease payments are approximately $6,400 for a total of approximately $154,000 for the total term of the lease.

 

On November 1, 2018, the Company’s wholly owned subsidiary, Cloud B, Inc., entered into a lease for office and warehouse space in Gardena, CA, which shall expire on October 31, 2021. Monthly lease payments are approximately $16,175 for a total of approximately $582,300 for the total term of the lease.

 

On October 1, 2018, the Company entered into a lease for office space in Winter Park, Florida, which expires on September 30, 2020. Monthly lease payments are approximately $1,887 for a total of approximately $45,288 for the total term of the lease.

 

On July 1, 2019, the Company entered into a lease for office space in Bethlehem, Pennsylvania, which expires on July 31, 2020. Monthly lease payments are $2,415 for a total of approximately $89,000 for the total term of the lease.

 

Total rent expense for the years ended December 31, 2019 and 2018 was $451,711 and $343,253, respectively. Rent expense is included in general and administrative expense on the consolidated statements of operations.

 

The following is a reconciliation of future undiscounted cash flows to the operating liabilities, and the related right of use assets, included in our Condensed Consolidated Balance Sheets as of December 31, 2019:

 

   

December 31,

2019

 
2020     315,660  
2021     267,249  
2022     96,288  
2023     78,648  
2024     52,432  
2025 and thereafter     -  
Total future lease payments     810,277  
Less: imputed interest     (55,850 )
Present value of future operating lease payments     754,427  
Less: current portion of operating lease liabilities     (272,215 )
Operating lease liabilities, net of current portion     482,212  
Right of use assets – operating leases, net     732,100  

 

Rental Income

 

Fergco leases a portion of the building located in Washington, New Jersey that it owns under a month to month lease. Total rental income related to the leased space for both the years ended December 31, 2019 and 2018 was $102,815 and $102,815, respectively, and is included in other income on the consolidated statements of operations.

 

Consulting Agreements

 

On September 12, 2019, the Company entered into a Consulting Agreement (the “Agreement”) with a Consultant for general corporate governance. Under the terms of the Agreement, the Consultant is to be compensated 50,000 shares of common stock upon execution of the Agreement and 50,000 shares at the six-month anniversary of the Agreement. The Agreement has a term of one year.

 

On September 12, 2019, the Company entered into a Consulting Agreement (the “Agreement”) with a Consultant for sales fulfillment, procurement and quality control. Under the terms of the Agreement, the Consultant is to be compensated $33,333 per month, a minimum bonus of $100,000 at the 90 day anniversary of the Agreement, 300,000 shares of common stock upon the execution of the Agreement and additional shares of common stock based up certain revenue and operational targets. The Agreement has a term of 5 years and can be terminated by either party after the 3-year anniversary of the Agreement.

 

Legal Contingencies

 

The Company is involved in claims and litigation in the ordinary course of business, some of which seek monetary damages, including claims for punitive damages, which are not covered by insurance. For certain pending matters, accruals have not been established because such matters have not progressed sufficiently through discovery, and/or development of important factual information and legal information is insufficient to enable the Company to estimate a range of possible loss, if any. An adverse determination in one or more of these pending matters could have an adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

 

We are, and may in the future become, subject to various legal proceedings and claims that arise in or outside the ordinary course of business.

 

On April 14, 2020, Oceanside Traders, LLC (“Plaintiff”) filed a complaint against Cloud B, Inc. and Edison Nation, Inc. (together the “Defendants”) with the Superior Court of Ocean County, New Jersey alleging a breach of contract in that the Defendants failed to pay Plaintiff for goods sold in the amount of $141,007 plus $138,180 for overpayments and $279,187 for lost profits for a total of $443,383. The parties are currently in settlement discussions, and the Company has accrued $190,105 for anticipated settlement costs.

 

On July 15, 2019, the Company received correspondence from the staff of the Arkansas Securities Commissioner in connection with the state’s notice filing requirements for offerings exempt under Tier 2 of Regulation A, Section 18(b)(3) of the Security Act, such as the Company’s Form 1-A. The Company has resolved the matter with the Arkansas Securities Department for $1,100.

 

On March 13, 2019, Rosenberg Fortuna & Laitman LLP and Mark Principe (together the “Plaintiffs”) filed a complaint against Safe TV Shop, LLC (the “Defendant”) with the Supreme Court of the State of New York, County of Nassau alleging a breach of indemnification arising out of the use of a certain packaging material. On February 12, 2020, the parties entered a Stipulation and Settlement and Consent Agreement, whereby the Plaintiff entered into a Consent Judgment in the amount of $50,000. The Company has accrued $50,000 for the amount of the judgment, but there have been no operations by the Plaintiff since the date of acquisition by the Company.

v3.20.2
Stockholders' Equity
6 Months Ended 12 Months Ended
Jun. 30, 2020
Dec. 31, 2019
Equity [Abstract]    
Stockholders' Equity

Note 11 — Stockholders’ Equity

 

Preferred Stock

 

On March 25, 2020, the Company filed a certificate of amendment to the Company’s articles of incorporation with the Secretary of State of the State of Nevada in order to: (i) increase the number of shares of the Company’s authorized preferred stock, par value $0.001 per share, from 0 shares to 30,000,000 shares of preferred stock; (ii) clarify the application of the forum selection clause in the Company’s amended and restated articles of incorporation, specifically that such clause does not apply to federal causes of actions arising under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (the “Exchange Act”); and (iii) include affirmative changes to correspond to the Company’s First Amended and Restated Bylaws, confirming that the Company’s shareholders may vote by written consent. As of June 30, 2020 and December 31, 2019, there were 0 shares of preferred stock issued and outstanding, respectively.

 

Stock-Based Compensation

 

On September 6, 2018, the Company’s board of directors approved an amendment and restatement of the Company’s omnibus incentive plan solely to reflect the Company’s name change to Edison Nation, Inc. Thus, the Edison Nation, Inc. Omnibus Incentive Plan (the “Plan”) which remains effective as of February 9, 2018, provides for the issuance of up to 1,764,705 shares of common stock to help align the interests of management and our stockholders and reward our executive officers for improved Company performance. 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. The exercise price of stock options is equal to the fair market value of the underlying Company common stock on the date of grant.

 

The following table summarizes stock option award activity for the six months ended June 30, 2020:

 

    Shares    

Weighted

Average

Exercise

Price

   

Remaining

Contractual

Life in

Years

   

Aggregate

Intrinsic Value

 
Balance, January 1, 2020     80,000     $ 7.01       3.7       -  
Granted     -       -       -       -  
Balance, June 30, 2020     80,000     $ 7.01       3.5       -  
Exercisable, June 30, 2020     53,333     $ 7.01       3.5       -  

 

As of June 30, 2020, there were 26,667 unvested options to purchase shares of the Company’s common stock or $15,535 of total unrecognized equity-based compensation expense that the Company expected to recognize over a remaining weighted-average period of 1 year.

 

From time to time, the Company grants shares of common stock to consultants and non-employee vendors for services performed. The awards are valued at the market value of the underlying common stock at the date of grant and vest based on the terms of the contract which is usually upon grant.

Note 15 — Stockholders’ Equity

 

Common Stock

 

The Company issued 1,312,520 shares of common stock related to the IPO, at a public offering price of $5.00 per share in August 2018. The Company received gross proceeds of $6,562,600 and net proceeds of $5,315,176 after deducting underwriter commissions and expenses of $714,802, legal fees of $157,358, escrow closing fees of $4,000 and other direct offering expenses which together aggregate $1,204,030. As of December 31, 2019 and 2018, there were 8,015,756 and 5,654,930 shares of common stock issued and outstanding, respectively.

 

On October 2, 2019, Edison Nation, Inc. (the “Company”) entered into a Share Purchase Agreement (the “PIPE Purchase Agreement”) with certain accredited investors (collectively, the “Investors”) for the private placement of 1,175,000 shares of the Company’s common stock, $0.001 par value per share, at a purchase price of $2.00 per share (the “PIPE Transaction”). The PIPE Purchase Agreement contained certain closing conditions relating to the sale of securities, representations and warranties by the Company and the Investors, as well as covenants of the Company and the Investors (including indemnification 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.

 

Stock-Based Compensation

 

On September 6, 2018, the Company’s board of directors approved an amendment and restatement of the Company’s omnibus incentive plan solely to reflect the Company’s name change to Edison Nation, Inc. Thus, the Edison Nation, Inc. Omnibus Incentive Plan (the “Plan”) which remains effective as of February 9, 2018, provides for the issuance of up to 1,764,705 shares of common stock to help align the interests of management and our stockholders and reward our executive officers for improved Company performance. 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. The exercise price of stock options are equal to the fair market value of the underlying Company common stock on the date of grant.

 

    For the Twelve Months
Ended December 31,
 
    2019     2018  
Stock option awards   $ 175,675     $ 304,745  
Non-employee awards     1,564,670       2,329,874  
Restricted stock unit awards     447,300       559,499  
Phantom stock awards     112,270       54,048  
    $ 2,299,915     $ 3,248,166  

 

The stock-based compensation is included in selling, general and administrative expense for the twelve months ended December 31, 2019 and 2018.

 

For the year ended December 31, 2018, the Company recorded stock-based compensation expense of $3,248,166, of which 1,721,250, related to the assumption of certain consulting agreements which were satisfied by the principal stockholder of SRM transferring 344,250 shares to the consultants.

 

The following table summarizes stock option award activity during 2019:

 

    Shares    

Weighted

Average

Exercise

Price

   

Remaining

Contractual

Life in

Years

   

Aggregate

Intrinsic Value

 
Balance, January 1, 2019     290,000     $ 5.55       4.2       -  
Granted     -       -       -       -  
Forfeited     (210,000     5.00       -       -  
Balance, December 31, 2019     80,000       7.01       3.7       -  
Exercisable, December 31, 2019     53,333       7.01       3.7       -  

 

As of December 31, 2019, there were 26,667 unvested options to purchase shares of the Company’s common stock or $46,605 of total unrecognized equity-based compensation expense that the Company expected to recognize over a remaining weighted-average period of 1 year.

 

From time to time, the Company grants shares of common stock to consultants and non-employee vendors for services performed. The awards are valued at the market value of the underlying common stock at the date of grant and vest based on the terms of the contract which is usually upon grant.

 

Pipe Financing

 

On October 2, 2019, Edison Nation, Inc. (the “Company”) entered into a Share Purchase Agreement (the “PIPE Purchase Agreement”) with certain accredited investors (collectively, the “Investors”) for the private placement of 1,175,000 shares of the Company’s common stock, $0.001 par value per share, at a purchase price of $2.00 per share (the “PIPE Transaction”). The PIPE Purchase Agreement contained certain closing conditions relating to the sale of securities, representations and warranties by the Company and the Investors, as well as covenants of the Company and the Investors (including indemnification 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.

 

In a series of three closings conducted in October 2019, the Company received net proceeds of $2,039,303 which consisted of $2,350,000 of gross proceeds offset by $310,697 of fees to placement agent and their lawyers. Alexander Capital, LP (“Alexander Capital”), a FINRA registered broker dealer, acted as placement agent with respect to the PIPE Transaction. In connection with the PIPE Transaction, Alexander Capital received a commission of $141,000, a debt restructuring fee of $64,208, a debt conversion fee of 15,889, a placement fee of $33,600 and warrants to purchase 70,500 shares of the Company’s common stock, at an exercise price of $2.50 per share (the “Placement Agent Warrants”).

 

In connection with the PIPE Purchase Agreement, the Company entered into Registration Rights Agreements with each of the Investors (the “Registration Rights Agreement”), pursuant to which the Company is required to prepare and file a registration statement (the “Registration Statement”) with the United States Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended, covering the resale of the shares of common stock issued to the Investors under the PIPE Purchase Agreement, as well as the Placement Agent Warrants. The Company will be 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 Transaction. The registration statement was not filed or declared effective within the timeframe set forth in the Registration Rights Agreements, and the Company is obligated to pay the Investors 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 Registration Rights Agreement also contains mutual indemnifications by the Company and each Investor, which the Company believes are customary for transactions of this type.

 

In connection with the PIPE transaction, the convertible notes entered into on May 13, 2019 were also converted at $2.00 per share into 560,185 shares of the Company’s common stock.

 

In addition, 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.

 

Selling Agent Agreement

 

In connection with the IPO, the Company agreed to issue to the selling agent in the IPO, warrants to purchase a number of shares of the common stock equal to 5.0% of the total shares of common stock sold in any closing of the IPO, excluding shares purchased by investors sourced via alternative funding platforms (the “Selling Agent Warrants”). The Selling Agent Warrants are exercisable commencing on the qualification date of the IPO and have a term of 5 years. The Selling Agent Warrants are not redeemable by the Company. The exercise price for the Selling Agent Warrants is 20% greater than the IPO offering price, or $6.00 per share. On August 16, 2018, the Company issued 65,626 of Selling Agent Warrants that are exercisable for 65,626 shares of the Company’s common stock.

v3.20.2
Subsequent Events
6 Months Ended 12 Months Ended
Jun. 30, 2020
Dec. 31, 2019
Subsequent Events [Abstract]    
Subsequent Events

Note 12 — Subsequent Events

 

On July 2, 2020, the Company issued 6,500 shares of common stock valued at $15,535 as incentive shares in connection with the O’Leary financing.

 

On July 6, 2020, the Company issued 25,000 shares of common stock valued at $61,000 to a Consultant for consulting services.

 

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 Issue 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.

 

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 Issue 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 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 Issue 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.

 

On July 23, 2020, the Company issued 320,000 shares of common stock valued at $1,158,400 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 July 24, 2020, the Company issued 113,312 shares of common stock valued at $379,595 to a Consultant for consulting services based on achieving set revenue targets within the agreement.

 

On July 24, 2020, the Company issued 113,312 shares of common stock valued at $379,595 to a Consultant for consulting services based on achieving set revenue targets within the agreement.

 

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 August 3, 2020, the Company issued 30,000 shares of common stock valued at $116,700 to a Consultant for advisory services.

 

On August 4, 2020, the Company issued 20,000 shares of common stock valued at $75,400 to a Consultant for advisory services.

 

On August 4, 2020, the Company issued 370,000 shares of common stock valued at $1,394,900 to Greentree Financial Group, Inc. in satisfaction of $740,000 principal against a note issued on January 23, 2020.

 

On August 12, 2020, the Company entered into an Amendment to a Purchase of Inventory and Repurchase Agreement (the “Amendment”) dated November 12, 2019. Under the terms of the Amendment, (i) the repurchase date is extended to December 10, 2020; and (ii) the Company agreed to pay the Purchaser-Assignee a commitment fee of $13,053, and (iii) the Company agreed to pay the Purchaser-Assignee 2% per month for extension periods commencing July 1, 2020 through December 10, 2020.

 

On August 19, 2020, the Company issued 990,000 shares of common stock valued at $3,168,000 to the members of Edison Nation Holdings, LLC (“EN”) in exchange for the redemption of certain non-voting membership interests of EN as per the terms of the transaction dated September 4, 2018, resulting in the Company owning 100% of EN.

Note 16 — Subsequent Events

 

On January 2, 2020, the Company entered into that certain Loan Agreement with Tiburon Opportunity Fund (the “Lender”), dated January 2, 2020 (the “Loan Agreement”). Pursuant to the terms of the Loan Agreement, the Lender agreed to loan the Company $400,000. The Loan is interest bearing at the rate of 1.5% per month through the term of the Loan. Additionally, the 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. On April 24, 2020 the Company and Lender entered into a Debt Conversion Agreement whereby the Lender elected to convert $400,000 of funds loaned to the Company into shares of the Company’s common stock. The conversion price was $2.00 per share for a total of 200,000 shares of restricted common stock issued by the Company.

 

On January 2, 2020, the Company, through its partnership with ED Roses, LLC (the “Borrower”), entered into a Loan Agreement (the “Agreement”) with Sook Hyun Lee (the “Lender”). Under the terms of the Agreement, the Lender agrees to loan $150,000 to the Borrower in return for $180,000 ($150,000 principal plus $30,000 commitment fee). The loan accrues interest at 15% per annum and matures on April 15, 2020. The Lender shall receive a collateral interest in the accounts receivable of the Borrower including, but not limited to the 7 Eleven receivables. The Company shall place 75,000 shares of common stock in reserve as collateral.

 

On January 10, 2020, the Company entered into a 5% Promissory Note Agreement with Equity Trust Company on behalf of Rawleigh Ralls (“Ralls”) 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 the Company issued to Ralls a warrant (the “Ralls Warrant”) to purchase 125,000 shares of the Company’s common stock. 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. The maturity date of the Ralls Note is July 10, 2020.

 

On January 13, 2020, we issued 50,000 shares of our common stock valued at $100,000 to Ridgewood LLC, a consultant for strategic consulting services for assistance with sales on Amazon.com.

 

On January 15, 2020, the Company entered into a 5% Promissory Note Agreement with Paul J. Solit & Julie B. Solit (“Solits”) 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 the Company issued to the Solits a warrant (the “Solit Warrant”) to purchase 50,000 shares of the Company’s common stock. 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 O’Leary. The maturity date of the Solit Note is July 15, 2020.

 

On January 17, 2020, the Company entered into a 5% Promissory Note Agreement with Richard O’Leary (“O’Leary”) 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 the Company issued to O’Leary a warrant (the “O’Leary Warrant”) to purchase 25,000 shares of the Company’s common stock. 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. The maturity date of the O’Leary Note is July 17, 2020.

 

On January 23, 2020, Edison Nation, Inc. (the “Company”) entered into a $1,100,000 loan agreement the (“Loan Agreement”) with Greentree Financial Group, Inc. (the “Investor”), pursuant to which the Investor purchased a 10% Convertible Promissory Note (the “Note”) from the Company, and the Company issued to the Investor a warrant (the “Warrant”) to purchase 550,000 shares of the Company’s common stock, $0.001 per share (“Common Stock”). The $1,100,000 of proceeds from the Note will be used for general working capital purposes and for the repayment of debt. On January 24, 2020, the Company used $588,366.44 of the proceeds from the Note to pay off in full the 12% Convertible Promissory Note held by Labrys Fund, LP. Upon execution of the Loan Agreement, the Company issued to the Investor 100,000 shares of Common Stock (the “Origination Shares”) as an origination fee, plus an additional 60,000 shares of Common Stock as consideration for advisory services. Pursuant to the Loan Agreement, the Company agreed to issue and sell to the Investor the Note, in the principal amount of $1,100,000. The Note, as amended, is due and payable October 23, 2020 (the “Maturity Date”) and is convertible at any time at a price of $2.00 per share. Pursuant to the Loan Agreement, the Company also issued the Investor 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 Warrant. The Warrant, as amended, expires on January 23, 2023.

 

On January 24, 2020, the Company repaid the Labrys Note in full. Upon repayment of the Labrys Note, Labrys Fund, LP 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.

 

On January 29, 2020, the Company and Greentree Financial Group, Inc. (the “Investor”), entered into an Amendment Agreement, amending the January 22, 2020 Loan Agreement, the Note, and the Warrant to: (i) correct the effective date set forth in the Loan Agreement, Note and Warrant to January 23, 2020, (ii) clarify the terms of the registration right provision in the Loan Agreement, and (iii) to ensure that the total number of shares of Common Stock issued pursuant to the Loan Agreement, the Note, and/or the Warrant, each as amended, does not exceed 17.99% of the Company’s issued and outstanding Common Stock as of January 23, 2020.

 

On February 7, 2020, we issued 15,000 shares of our common stock to MZHCI, LLC valued at $40,350 in connection with the satisfaction of outstanding amounts due under a settlement agreement.

 

On February 17, 2020, the Company entered into that certain 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. Pursuant to that certain Release Agreement by and between the Company and the Buyer included as an exhibit to the Purchase Agreement, the Buyer agreed to release any and all claims against the Company, and its officers, directors or affiliates arising from the Purchase Agreement or the purchase, sale, and assignment of the Cloud B Shares. Pursuant to that certain Indemnification Agreement by and between the Company and the Buyer included as an exhibit to the Purchase Agreement, the Company agreed to indemnify, defend and hold harmless the Buyer, and its owners, managers and representatives arising from any events that occurred prior to the purchase, sale, and assignment of the Cloud B Shares to the Buyer. The Company’s indemnification obligations pursuant to such Indemnification Agreement are limited to the issuance of 150,000 shares of the Company’s common stock to the Buyer.

 

On March 11, 2020, the Company and its wholly owned subsidiary, Scalematix, LLC, 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.

 

On March 16, 2020, the Company issued 300,000 shares of our common stock valued at $600,000 to a Consultant as per the terms of the Consulting Agreement dated September 12, 2019.

 

On March 16, 2020, the Company issued 50,000 shares of our common stock valued at $100,000 to a Consultant as per the terms of the Consulting Agreement dated September 12, 2019.

 

On March 25, 2020, Edison Nation, Inc. (the “Company”) filed a certificate of amendment to the Company’s articles of incorporation with the Secretary of State of the State of Nevada in order to: (i) increase the number of shares of the Company’s authorized preferred stock, par value $0.001 per share, from 0 shares to 30,000,000 shares of preferred stock; (ii) clarify the application of the forum selection clause in the Company’s amended and restated articles of incorporation, specifically that such clause does not apply to federal causes of actions arising under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (the “Exchange Act”); and (iii) include affirmative changes to correspond to the Company’s First Amended and Restated Bylaws, confirming that the Company’s shareholders may vote by written consent.

 

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 April 13, 2020, we issued 12,500 shares of 12,500 shares of our common stock valued at $31,625 to Caro Partners, LLC for consulting services.

 

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.

 

On April 24, 2020, the Company entered into a Consulting Agreement (the “Agreement”) with Tiburon (the “Consultant”). Under the terms of the Agreement, the Consultant is to provide business development services and consultation related to potential trade financing opportunities. The Agreement has a term of six (6) months. The Consultant is to be compensated ten thousand (10,000) shares of common stock upon execution of the Agreement and then shall receive six (6) additional monthly payments of eight thousand (8,000) shares of restricted common stock per month beginning on May 24, 2020 and ending on October 24, 2020.

 

On April 24, 2020, we issued 10,700 shares of our common stock valued at $21,935 to BHP Capital NY Inc. as origination shares as per the terms of the Securities Purchase Agreement dated April 7, 2020.

 

On April 24, 2020, we issued 10,700 shares of our common stock valued at $21,935 to Jefferson Street Capital, LLC as origination shares as per the terms of the Securities Purchase Agreement dated April 7, 2020.

 

On May 7, 2020, the Company entered into a Purchase of Inventory and Repurchase Agreement (the “Agreement”) with Fergco Bros, LLC (“Purchaser”). Under the terms of the Agreement, the Company assigned its rights, title and interest to inventory relating to its Edison Nation Medical customer, Orange County, CA (the “Inventory”) for payment in the amount of $100.000. The Company shall have the right to repurchase the Inventory for $105,000 in whole or periodioc installments by May 15, 2020. The Agreement was amended on May 15, 2020, to extend the repurchase date to June 30, 2020.

 

On May 13, 2020, the Company’s wholly owned subsidiary, Ferguson Containers, Inc., entered into a Distributor Agreement with Marrone Bio Innovations, LLC (“Marrone”) for the distribution of Marrone’s Jet-Oxide 15% peroxyacetic acid-based sanitizer/disinfectant.

 

May 17, 2020, the Company entered into an Amendment to Purchase of Inventory and Repurchase Agreement with the Purchasers-Assignees dated May 17, 2020. Under the terms of the Amendment, the repurchase date was extended to June 30, 2020 and the Company confirmed that of the Purchaser-Assignees is entitled to receive 10,000 shares of common stock.

 

On May 19, 2020, the Company entered into an Amendment (the “Amendment”) to the Senior Secured Note (the “Note”) issued by the Company to 32 Entertainment, LLC (the “Lender”) dated December 4, 2019. Under the terms of the Amendment, the Company issued the Lender 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, 2020. On or before May 28, 2020, the Company shall prepay $50,000 toward the principal plus interest in the amount of $6,250 for a total of $56,250. The Lender shall also receive 40,000 restricted stock units and surrender the warrant issued to the Lender in the December 4, 2019 financing transaction.

 

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”).

 

On May 20, 2020, 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 defines the operating rules of Global and the ownership percentage of each member: Edison Nation, Inc. 50%, PPE 25% and Graphene 25%.

 

On May 21, 2020, the Company issued 200,000 shares of common stock valued at $456,000 to PPE Brickell Supplies, LLC as per the terms of the Agreement and Plan of Share Exchange dated May 20, 2020.

 

On May 21, 2020, the Company issued 50,000 shares of common stock valued at $114,000 to Graphene Holdings, LLC as per the terms of the Agreement and Plan of Share Exchange dated May 20, 2020.

 

On May 21, 2020, the Company issued 50,000 shares of common stock valued at $114,000 to a Consultant for consulting services related to the Agreement and Plan of Share Exchange dated May 20, 2020.

 

On May 22, 2020, the Company issued 200,000 shares of common stock valued at $466,000 to Graphene Holdings as per the terms of the Agreement and Plan of Share Exchange dated May 20, 2020.

v3.20.2
Summary of Significant Accounting Policies (Policies)
6 Months Ended 12 Months Ended
Jun. 30, 2020
Dec. 31, 2019
Accounting Policies [Abstract]    
Principles of Consolidation

Principles of Consolidation

 

The consolidated financial statements include the accounts of Edison Nation, Inc. and its wholly-owned and majority owned subsidiaries. All intercompany balances and transactions have been eliminated.

Principles of Consolidation

 

The consolidated financial statements include the accounts of Edison Nation, Inc. and its wholly-owned and majority owned subsidiaries. The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and are presented in US dollars. All intercompany balances and transactions have been eliminated.

Variable Interest Entity Assessment

Variable Interest Entity Assessment

 

A VIE is an entity (a) that has total equity at risk that is not sufficient to finance its activities without additional subordinated financial support from other entities, (b) where the group of equity holders does not have the power to direct the activities of the entity that most significantly impact the entity’s economic performance, or the obligation to absorb the entity’s expected losses or the right to receive the entity’s expected residual returns, or both, or (c) where the voting rights of some investors are not proportional to their obligations to absorb the expected losses of the entity, their rights to receive the expected residual returns of the entity, or both, and substantially all of the entity’s activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights. In order to determine if an entity is considered a VIE, the Company first performs a qualitative analysis, which requires certain subjective decisions regarding its assessments, including, but not limited to, the design of the entity, the variability that the entity was designed to create and pass along to its interest holders, the rights of the parties, and the purpose of the arrangement. If the Company cannot conclude after a qualitative analysis whether an entity is a VIE, it performs a quantitative analysis. The qualitative analysis considered the design of the entity, the risks that cause variability, the purpose for which the entity was created, and the variability that the entity was designed to pass along to its variable interest holders.

 
Use of Estimates

Use of Estimates

 

Preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, together with amounts disclosed in the related notes to the financial statements.

 

The Company’s significant estimates used in these financial statements include, but are not limited to, accounts receivable reserves, the valuation allowance related to the Company’s deferred tax assets, the recoverability and useful lives of long-lived assets, debt conversion features, stock-based compensation, certain assumptions related to the valuation of the reserved shares and the assets acquired and liabilities assumed related to the Company’s acquisitions. Certain of the Company’s estimates could be affected by external conditions, including those unique to the Company and general economic conditions. It is reasonably possible that these external factors could have an effect on the Company’s estimates and could cause actual results to differ from those estimates.

Use of Estimates

 

Preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, together with amounts disclosed in the related notes to the financial statements.

 

The Company’s significant estimates used in these financial statements include, but are not limited to, accounts receivable reserves, the valuation allowance related to the Company’s deferred tax assets, the recoverability and useful lives of long-lived assets, debt conversion features, stock-based compensation, certain assumptions related to the valuation of the reserved shares and the assets acquired and liabilities assumed related to the Company’s acquisitions. Certain of the Company’s estimates could be affected by external conditions, including those unique to the Company and general economic conditions. It is reasonably possible that these external factors could have an effect on the Company’s estimates and could cause actual results to differ from those estimates.

Reclassifications  

Reclassifications

 

Certain amounts previously presented in the consolidated financial statements have been reclassified to conform to the current year presentation. Such reclassifications had no effect on the previously reported net loss, Stockholders’ equity or cash flows.

Cash and Cash Equivalents

Cash and Cash Equivalents

 

The Company has cash on deposit in several financial institutions which, at times, may be in excess of Federal Deposit Insurance Corporation (“FDIC”) insurance limits. The Company has not experienced losses in such accounts and periodically evaluates the creditworthiness of its financial institutions. The Company reduces its credit risk by placing its cash and cash equivalents with major financial institutions. The Company had approximately $928,000 not covered by FDIC insurance limits as of June 30, 2020 of which approximately $113,000 was held in foreign bank accounts.

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents in the consolidated financial statements.

 

The Company has cash on deposits in several financial institutions which, at times, may be in excess of Federal Deposit Insurance Corporation (“FDIC”) insurance limits. The Company has not experienced losses in such accounts and periodically evaluates the creditworthiness of its financial institutions. The Company reduces its credit risk by placing its cash and cash equivalents with major financial institutions. The Company had approximately $178,485 uninsured at December 31, 2019 of which all $178,485 was held in foreign bank accounts not covered by FDIC insurance limits as of December 31, 2019.

Accounts Receivable

Accounts Receivable

 

As of June 30, 2020, the following customer represented more than 10% of total accounts receivable:

 

    June 30, 2020  
Customer:        
Customer A     14 %

Accounts Receivable

 

Accounts receivable are carried at their contractual amounts, less an estimate for uncollectible amounts. As of December 31, 2019 and 2018, the allowance for uncollectable amounts was not material. Management estimates the allowance for bad debts based on existing economic conditions, historical experience, the financial conditions of the customers, and the amount and age of past due accounts. Receivables are considered past due if full payment is not received by the contractual due date. Past due accounts are generally written off against the allowance for bad debts only after all collection attempts have been exhausted.

 

As of December 31, 2019, no customers represented more than 10% of total accounts receivable.

Inventory

Inventory

 

Inventory is recorded at the lower of cost or net realizable value on a first-in, first-out basis. The Company reduces the carrying value of inventories for those items that are potentially excess, obsolete, or slow moving based on changes in customer demand, technology developments, or other economic factors.

Inventory

 

Inventory is recorded at the lower of cost or net realizable value on a first-in, first-out basis. The Company reduces the carrying value of inventories for those items that are potentially excess, obsolete, or slow moving based on changes in customer demand, technology developments, or other economic factors.

Loan Held for Investment  

Loan Held for Investment

 

Loan held for investment is reported on the balance sheet at the acquired cost which approximates the fair value, which resulted in a discount. The acquired loan had evidence of deterioration of credit quality and for which it was probable, at the time of our acquisition, that the Company would be unable to collect all contractually required payments. For these loans, the excess of the undiscounted contractual cash flows over the undiscounted cash flows estimated by us at the time of acquisition was not accreted into income (nonaccretable discount). The amount representing the excess of cash flows estimated by us at acquisition over the purchase price was accreted into purchase discount earned over the life of the applicable loans (accretable discount). The nonaccretable discount was not accreted into income. If cash flows could not be reasonably estimated for any loan, and collection was not probable, the cost recovery method of accounting was used. Under the cost recovery method, any amounts received were applied against the recorded amount of such loans.

 

Subsequent to acquisition, if cash flow projections improved, and it was determined that the amount and timing of the cash flows related to the nonaccretable discount was reasonably estimable and collection was probable, the corresponding decrease in the nonaccretable discount was transferred to the accretable discount and was accreted into interest income over the remaining life of any such loan on the interest method. If cash flow projections deteriorated subsequent to acquisition, the decline was accounted for through the allowance for loan losses. Depending on the timing of an acquisition, the initial allocation of discount generally is made primarily to nonaccretable discount until the Company is able to assess any cash flows expected to be collected over the purchase price which are then transferred to accretable discount.

Property and Equipment, Net  

Property and Equipment, Net

 

Property and equipment are stated at cost, net of accumulated depreciation and amortization, which is recorded commencing at the in-service date using the straight-line method over the estimated useful lives of the assets, as follows: 3 to 5 years for office equipment, 5 to 7 years for furniture and fixtures, 6 to 10 years for machinery and equipment, 10 to 15 years for building improvements, 5 years for software, 5 years for molds, 5 to 7 years for vehicles and 40 years for buildings.

 

When fixed assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the statements of operations for the respective period. Minor additions and repairs are expensed in the period incurred. Major additions and repairs which extend the useful life of existing assets are capitalized and depreciated using the straight-line method over their remaining estimated useful lives.

Long-Lived Assets  

Long-Lived Assets

 

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The Company assesses the recoverability of its long-lived assets using undiscounted cash flows. If an asset is found to be impaired, the amount recognized for impairment is equal to the difference between the carrying value and the asset’s fair value. The Company did not record any impairment charges related to long-lived assets during the years ended December 31, 2019 and 2018.

Goodwill and Intangible Assets  

Goodwill and Intangible Assets

 

We record intangible assets based on their fair value on the date of acquisition. Goodwill is recorded for the difference between the fair value of the purchase consideration over the fair value of the net identifiable tangible and intangible assets acquired. We perform an impairment assessment of goodwill on an annual basis, or whenever impairment indicators exist. In the absence of any impairment indicators, goodwill is assessed for impairment during the fourth quarter of each fiscal year. Judgments regarding the existence of impairment indicators are based on market conditions and operational performance of the business.

 

We may assess our goodwill for impairment initially using a qualitative approach to determine whether it is more likely than not that the fair value of these assets is greater than their carrying value. When performing a qualitative test, we assess various factors including industry and market conditions, macroeconomic conditions and performance of our businesses. If the results of the qualitative assessment indicate that it is more likely than not that our goodwill and other indefinite-lived intangible assets are impaired, a quantitative impairment analysis would be performed to determine if impairment is required. We may also elect to perform a quantitative analysis of goodwill initially rather than using a qualitative approach.

 

The impairment testing for goodwill is performed at the reporting unit level. The valuation methods used in the quantitative fair value assessment, discounted cash flow and market multiples method, require our management to make certain assumptions and estimates regarding certain industry trends and future profitability of our reporting units. If the fair value of a reporting unit exceeds the related carrying value, the reporting unit’s goodwill is considered not to be impaired and no further testing is performed. If the carrying value of a reporting unit exceeds its fair value, an impairment loss is recorded for the difference. The valuation of goodwill is affected by, among other things, our business plan for the future and estimated results of future operations. Future events could cause us to conclude that impairment indicators exist, and, therefore, that goodwill may be impaired.

 

Intangible assets include the cost of patents or patent rights (hereinafter, collectively “patents”) and trademarks. Patent and trademark costs are amortized utilizing the straight-line method over their remaining economic useful lives. Costs incurred related to patents prior to issuance are included in prepaid patent expense until the time the patent is issued and amortization begins or until management determines it is no longer likely the patent will be issued and amounts are expensed. Edison Nation reviews long-lived assets and intangible assets for potential impairment annually and when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. In the event the expected undiscounted future cash flows resulting from the use of the asset is less than the carrying amount of the asset, an impairment loss is recorded equal to the excess of the asset’s carrying value over its fair value. If an asset is determined to be impaired, the loss is measured based on quoted market prices in active markets, if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including a discounted value of estimated future cash flows. In the event that management decides to no longer allocate resources to a patent portfolio, an impairment loss equal to the remaining carrying value of the asset is recorded.

Revenue Recognition

Revenue Recognition

 

Generally, the Company considers all revenues as arising from contracts with customers. Revenue is recognized based on the five-step process outlined in the Accounting Standards Codification (“ASC”) 606:

 

Step 1 – Identify the Contract with the Customer – A contract exists when (a) the parties to the contract have approved the contract and are committed to perform their respective obligations, (b) the entity can identify each party’s rights regarding the goods or services to be transferred, (c) the entity can identify the payment terms for the goods or services to be transferred, (d) the contract has commercial substance and it is probably that the entity will collect substantially all of the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer.

 

Step 2 – Identify Performance Obligations in the Contract – Upon execution of a contract, the Company identifies as performance obligations each promise to transfer to the customer either (a) goods or services that are distinct, or (b) a series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer. To the extent a contract includes multiple promised goods or services, the Company must apply judgement to determine whether the goods or services are capable of being distinct within the context of the contract. If these criteria are not met, the goods or services are accounted for as a combined performance obligation.

 

Step 3 – Determine the Transaction Price – When (or as) a performance obligation is satisfied, the Company shall recognize as revenue the amount of the transaction price that is allocated to the performance obligation. The contract terms are used to determine the transaction price. Generally, all contracts include fixed consideration. If a contract did include variable consideration, the Company would determine the amount of variable consideration that should be included in the transaction price based on expected value method. Variable consideration would be included in the transaction price, if in the Company’s judgement, it is probable that a significant future reversal of cumulative revenue under the contract would not occur.

 

Step 4 – Allocate the Transaction Price – After the transaction price has been determined, the next step is to allocate the transaction price to each performance obligation in the contract. If the contract only has one performance obligation, the entire transaction price will be applied to that obligation. If the contract has multiple performance obligations, the transaction price is allocated to the performance obligations based on the relative standalone selling price (SSP) at contract inception.

 

Step 5 – Satisfaction of the Performance Obligations (and Recognize Revenue) – Revenue is recognized when (or as) goods or services are transferred to a customer. The Company satisfies each of its performance obligations by transferring control of the promised good or service underlying that performance obligation to the customer. Control is the ability to direct the use of and obtain substantially all of the remaining benefits from an asset. It includes the ability to prevent other entities from directing the use of and obtaining the benefits from an asset. Indicators that control has passed to the customer include: a present obligation to pay; physical possession of the asset; legal title; risks and rewards of ownership; and acceptance of the asset(s). Performance obligations can be satisfied at a point in time or over time.

 

Substantially all of the Company’s revenues continue to be recognized when control of the goods is transferred to the customer, which is upon shipment of the finished goods to the customer. All sales have fixed pricing and there are currently no material variable components included in the Company’s revenue. Additionally, the Company will issue credits for defective merchandise, historically these credits for defective merchandise have not been material. Based on the Company’s analysis of the new revenue standards, revenue recognition from the sale of finished goods to customers, which represents substantially all of the Company’s revenues, was not impacted by the adoption of the new revenue standards.

Revenue Recognition

 

Generally, the Company considers all revenues as arising from contracts with customers. Revenue is recognized based on the five-step process outlined in the Accounting Standards Codification (“ASC”) 606:

 

Step 1 – Identify the Contract with the Customer – A contract exists when (a) the parties to the contract have approved the contract and are committed to perform their respective obligations, (b) the entity can identify each party’s rights regarding the goods or services to be transferred, (c) the entity can identify the payment terms for the goods or services to be transferred, (d) the contract has commercial substance and it is probably that the entity will collect substantially all of the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer.

 

Step 2 – Identify Performance Obligations in the Contract – Upon execution of a contract, the Company identifies as performance obligations each promise to transfer to the customer either (a) goods or services that are distinct, or (b) a series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer. To the extent a contract includes multiple promised goods or services, the Company must apply judgement to determine whether the goods or services are capable of being distinct within the context of the contract. If these criteria are not met, the goods or services are accounted for as a combined performance obligation.

 

Step 3 – Determine the Transaction Price – When (or as) a performance obligation is satisfied, the Company shall recognize as revenue the amount of the transaction price that is allocated to the performance obligation. The contract terms are used to determine the transaction price. Generally, all contracts include fixed consideration. If a contract did include variable consideration, the Company would determine the amount of variable consideration that should be included in the transaction price based on expected value method. Variable consideration would be included in the transaction price, if in the Company’s judgement, it is probable that a significant future reversal of cumulative revenue under the contract would not occur.

 

Step 4 – Allocate the Transaction Price – After the transaction price has been determined, the next step is to allocate the transaction price to each performance obligation in the contract. If the contract only has one performance obligation, the entire transaction price will be applied to that obligation. If the contract has multiple performance obligations, the transaction price is allocated to the performance obligations based on the relative standalone selling price (SSP) at contract inception.

 

Step 5 – Satisfaction of the Performance Obligations (and Recognize Revenue) – Revenue is recognized when (or as) goods or services are transferred to a customer. The Company satisfies each of its performance obligations by transferring control of the promised good or service underlying that performance obligation to the customer. Control is the ability to direct the use of and obtain substantially all of the remaining benefits from an asset. It includes the ability to prevent other entities from directing the use of and obtaining the benefits from an asset. Indicators that control has passed to the customer include: a present obligation to pay; physical possession of the asset; legal title; risks and rewards of ownership; and acceptance of the asset(s). Performance obligations can be satisfied at a point in time or over time.

 

Substantially all of the Company’s revenues continue to be recognized when control of the goods are transferred to the customer, which is upon shipment of the finished goods to the customer. All sales have fixed pricing and there are currently no material variable components included in the Company’s revenue. Additionally, the Company will issue credits for defective merchandise, historically these credits for defective merchandise have not been material. Based on the Company’s analysis of the new revenue standards, revenue recognition from the sale of finished goods to customers, which represents substantially all of the Company’s revenues, was not impacted by the adoption of the new revenue standards.

Disaggregation of Revenue

Disaggregation of Revenue

 

The Company’s primary revenue streams include the sale and/or licensing of consumer goods and packaging materials for innovative products. The Company’s licensing business is not material and has not been separately disaggregated for segment purposes. The disaggregated Company’s revenues for the three and six months ended June 30, 2020 and 2019 was as follows:

 

   

For the Three Months

Ended June 30,

   

For the Six Months

Ended June 30,

 
    2020     2019     2020     2019  
Revenues:                                
Product sales   $ 6,829,111     $ 5,845,651     $ 10,456,012     $ 11,483,001  
Service     -       22,714       -       48,311  
Licensing     50,915       99,890       91,124       175,477  
Total revenues, net   $ 6,880,026     $ 5,968,255     $ 10,547,136     $ 11,706,789  

 

For the three and six months ended June 30, 2020 and 2019, the following customer represented more than 10% of total net revenues:

 

   

For the Three Months

Ended June 30,

   

For the Six Months

Ended June 30,

 
    2020     2019     2020     2019  
Customer:                                
Customer A     * %     27 %     * %     25 %
Customer B     11     *       *       *  
Customer C     11 %     *       *       *  

 

* Customer did not represent greater than 10% of total net revenue.

 

For the three and six months ended June 30, 2020 and 2019, the following geographical regions represented more than 10% of total net revenues:

 

   

For the Three Months

Ended June 30,

   

For the Six Months

Ended June 30,

 
    2020     2019     2020     2019  
Region:                                
North America          98 %     73 %     93 %     75 %
Europe     *       18 %     *       18 %

 

* Region did not represent greater than 10% of total net revenue.

Disaggregation of Revenue

 

The Company’s primary revenue streams include the sale and/or licensing of consumer goods and packaging materials for innovative products. The Company’s licensing business is not material and has not been separately disaggregated for segment purposes. The disaggregated Company’s revenues for the years ended December 31, 2019 and 2018 was as follows:

 

   

For the Years

Ended December 31,

 
    2019     2018  
             
Revenues:                
Product sales   $ 19,184,428     $ 16,037,221  
Service revenues     -       197,068  
Licensing revenues     444,634       267,920  
Total revenues, net   $ 19,629,062     $ 16,502,209  

 

For the years ended December 31, 2019 and 2018, the following customers represented more than 10% of total net revenues:

 

    For the years ended
December 31,
 
    2019     2018  
Customer:            
Customer A     14 %     21 %
                 

 

For the years ended December 31, 2019 and 2018, the following geographical regions represented more than 10% of total net revenues:

 

    For the Years Ended
December 31,
 
    2019     2018  
Region:            
North America     76 %     80 %
Asia-Pacific     9 %     13 %
Europe     15 %     7 %

Cost of Revenues  

Cost of Revenues

 

Cost of revenues includes freight charges, purchasing and receiving costs, depreciation and inspection costs.

Shipping and Handling Costs  

Shipping and Handling Costs

 

Shipping and handling costs include inbound freight costs and the cost to ship product to the customer and are included in cost of sales.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

 

The Company measures the fair value of financial assets and liabilities based on the guidance of ASC 820 “Fair Value Measurements and Disclosures” (“ASC 820”) which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.

 

ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:

 

Level 1 — quoted prices in active markets for identical assets or liabilities

 

Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable

 

Level 3 — inputs that are unobservable (for example, cash flow modeling inputs based on assumptions)

 

The carrying amounts of the Company’s financial instruments, such as cash, accounts receivable, accounts payable, accrued expenses and other current liabilities approximate fair values due to the short-term nature of these instruments. The carrying amount of the Company’s notes payable approximates fair value because the effective yields on these obligations, which include contractual interest rates, taken together with other features such as concurrent issuance of warrants, are comparable to rates of returns for instruments of similar credit risk. The loan held for investment was acquired at fair value, which resulted in a discount.

Fair Value of Financial Instruments

 

The Company measures the fair value of financial assets and liabilities based on the guidance of ASC 820 “Fair Value Measurements and Disclosures” (“ASC 820”) which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.

 

ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:

 

Level 1 — quoted prices in active markets for identical assets or liabilities

 

Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable

 

Level 3 — inputs that are unobservable (for example, cash flow modeling inputs based on assumptions)

 

The carrying amounts of the Company’s financial instruments, such as cash, accounts receivable, accounts payable, accrued expenses and other current liabilities approximate fair values due to the short-term nature of these instruments. The carrying amount of the Company’s notes payable approximates fair value because the effective yields on these obligations, which include contractual interest rates, taken together with other features such as concurrent issuance of warrants, are comparable to rates of returns for instruments of similar credit risk. The loan held for investment was acquired at fair value, which resulted in a discount.

 

The following changes in level 3 instruments for the year ended December 31, 2019 are presented below:

 

    Contingent
Consideration
Earnout
 
Balance, January 1, 2019   $ (520,000 )
Change in fair value of earnout     520,000  
Balance, December 31, 2019   $ -  

Sequencing Policy

Sequencing Policy

 

Under ASC 815-40-35, the Company follows a sequencing policy whereby, in the event that reclassification of contracts from equity to assets or liabilities is necessary pursuant to ASC 815 due to the Company’s inability to demonstrate it has sufficient authorized shares as a result of certain securities with a potentially indeterminable number of shares, shares will be allocated on the basis of the earliest issuance date of potentially dilutive instruments, with the earliest grants receiving the first allocation of shares. Pursuant to ASC 815, issuance of securities to the Company’s employees or directors are not subject to the sequencing policy.

 
Foreign Currency Translation

Foreign Currency Translation

 

The Company uses the United States dollar as its functional and reporting currency since the majority of the Company’s revenues, expenses, assets and liabilities are in the United States. Assets and liabilities in foreign currencies are translated using the exchange rate at the balance sheet date, while revenue and expense accounts are translated at the average exchange rates prevailing during the year. Equity accounts are translated at historical exchange rates. Gains and losses from foreign currency transactions and translation for the three and six months ended June 30, 2020 and 2019 and the cumulative translation gains and losses as of June 30, 2020 and December 31, 2019 were not material.

Foreign Currency Translation

 

The Company uses the United States dollar as its functional and reporting currency since the majority of the Company’s revenues, expenses, assets and liabilities are in the United States. Assets and liabilities in foreign currencies are translated using the exchange rate at the balance sheet date, while revenue and expense accounts are translated at the average exchange rates prevailing during the year. Equity accounts are translated at historical exchange rates. Gains and losses from foreign currency transactions and translation for the years ended December 31, 2019 and 2018 and the cumulative translation gains and losses as of December 31, 2019 and 2018 were not material.

Income Taxes  

Income Taxes

 

The Company accounts for income taxes under the provisions of the Financial Accounting Standards Board (“FASB”) ASC Topic 740 “Income Taxes” (“ASC Topic 740”).

 

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of items that have been included or excluded in the financial statements or tax returns. Deferred tax assets and liabilities are determined on the basis of the difference between the tax basis of assets and liabilities and their respective financial reporting amounts (“temporary differences”) at enacted tax rates in effect for the years in which the temporary differences are expected to reverse.

 

The Company utilizes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

 

Management has evaluated and concluded that there were no material uncertain tax positions requiring recognition in the Company’s consolidated financial statements as of December 31, 2019 and 2018. The Company does not expect any significant changes in its unrecognized tax benefits within twelve months of the reporting date.

 

The Company’s policy is to classify assessments, if any, for tax related interest as interest expense and penalties as general and administrative expenses in the statements of operations.

Net Earnings or Loss Per Share

Net Earnings or Loss per Share

 

Basic net income (loss) per common share is computed by dividing net loss by the weighted average number of vested common shares outstanding during the period. Diluted net income per common share is computed by dividing net income by the weighted average number vested of common shares, plus the net impact of common shares (computed using the treasury stock method), if dilutive, resulting from the exercise of dilutive securities. In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive.

 

As of June 30, 2020 and 2019, the Company excluded the common stock equivalents summarized below, which entitled the holders thereof to ultimately acquire shares of common stock, from its calculation of earnings per share, as their effect would have been anti-dilutive.

 

    June 30, 2020     June 30, 2019  
Selling Agent Warrants     160,492       65,626  
Shares reserved in exchange for the cancellation of certain non-voting membership interest in Edison Nation Holdings, LLC     990,000       990,000  
Options     80,000       290,000  
Convertible shares under notes payable     999,536       285,632  
Warrants for noteholders     750,000          
Restricted stock units     270,000       -  
Shares to be issued     46,500       20,000  
Total     3,296,528       1,651,258

Net Earnings or Loss per Share

 

Basic net (loss) income per common share is computed by dividing net (loss) income by the weighted average number of vested common shares outstanding during the period. Diluted net income per common share is computed by dividing net income by the weighted average number vested of common shares, plus the net impact of common shares (computed using the treasury stock method), if dilutive, resulting from the exercise of dilutive securities. In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive. As of December 31, 2019, the Company excluded the common stock equivalents summarized below, which entitle the holders thereof to ultimately acquire shares of common stock, from its calculation of earnings per share, as their effect would have been anti-dilutive.

 

      December 31,  
      2019  
Selling Agent Warrants     160,492  
Shares reserved in exchange for the cancellation of certain non-voting membership interest in Edison Nation Holdings, LLC     990,000  
Options     80,000  
Convertible shares under notes payable     285,632  
Warrants for noteholders     50,000  
Restricted stock units     210,000  
Shares to be issued to consultants     412,500  
Total     2,188,624  

Deferred Financing Costs  

Deferred Financing Costs

 

Deferred financing costs include debt discounts and debt issuance costs related to a recognized debt liability and are presented in the balance sheet as a direct deduction from the carrying value of the debt liability. Amortization of deferred financing costs are included as a component of interest expense. Deferred financing costs are amortized using the straight-line method over the term of the recognized debt liability which approximates the effective interest method.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

 

In August 2018, the FASB issued Accounting Standards Update (“ASU”) No. 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40), new accounting guidance that addresses the accounting for implementation costs associated with a hosted service. The guidance provides that implementation costs be evaluated for capitalization using the same criteria as that used for internal-use software development costs, with amortization expense being recorded in the same income statement expense line as the hosted service costs and over the expected term of the hosting arrangement. This guidance is effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. The guidance will be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company adopted this accounting guidance in the first quarter of 2020 and the adoption did not have a material impact on the Company’s consolidated financial statements and related disclosures.

 

In August 2018, the FASB issued new accounting guidance that eliminates, adds and modifies certain disclosure requirements for fair value measurements. Among the changes, an entity will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted. The Company adopted this accounting guidance in the first quarter of 2020 and the adoption did not have a material impact on the Company’s consolidated financial statements and related disclosures.

 

In October 2018, the FASB issued new accounting guidance for Variable Interest Entities, which requires indirect interests held through related parties in common control arrangements be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. The guidance is effective for the Company’s interim and annual reporting periods during the year ending December 31, 2020. Early adoption is permitted. The Company adopted this accounting guidance in the first quarter of 2020 and the adoption did not have a material impact on the Company’s consolidated financial statements and related disclosures.

 

In July 2017, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): Part 1 – Accounting for Certain Financial Instruments with Down Round Features and Part 2 – Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with Scope Exception (“ASU No. 2017-11”). Part 1 of ASU No. 2017-11 addresses the complexity of accounting for certain financial instruments with down round features. Down round features are provisions in certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of ASU No. 2017-11 addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification®. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. For public business entities, the amendments in Part I of this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The amendments in Part II of this update do not require any transition guidance because those amendments do not have an accounting effect. The Company adopted this accounting guidance in the first quarter of 2020 and the adoption did not have a material impact on the Company’s consolidated financial statements and related disclosures.

Recent Accounting Pronouncements

 

In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (ASU 2016-02) which amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. This accounting guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. Additionally, this accounting guidance requires a modified retrospective transition approach for all leases existing at, or entered into after the date of initial application, with an option to use certain transition relief. In July 2018, the FASB issued a practical expedient that would allow entities the option to apply the provisions of the new lease guidance at the effective date of adoption without adjusting the comparative periods presented. The Company adopted this standard in the first quarter of 2019 and the adoption had the following impact on the Company’s results and consolidated financial statements:

  

The Company has elected the “package of practical expedients” and as a result is not required to reassess its prior accounting conclusions about lease identification, lease classification and initial direct costs for lease contracts that exist as of the transition date. However, the Company has not elected the use of hindsight for determining the reasonably certain lease term.

 

The new lease standard also provides practical expedients and policy elections for an entity’s ongoing accounting. The Company has elected the practical expedient to not separate lease and non-lease components for all of its leases. The Company has elected the short-term lease recognition exemption, which results in no recognition of right-of-use assets and lease liabilities for existing short-term leases at transition.

 

Upon adoption on January 1, 2019, the Company recognized right of use assets for operating leases and operating lease liabilities that have not previously been recorded. The lease liability for operating leases is based on the net present value of future minimum lease payments. The right of use asset for operating leases is based on the lease liability. The Company did not have any deferred rent or material prepaid rent.

 

The cumulative effect of initially applying the new lease accounting standard as of January 1, 2019 is as follows:

 

    January 1,
2019
    Cumulative
Effect
Adjustment
    January 1,
2019, as
adjusted
 
Assets:                        
Right of use assets – operating leases   $      -     $ 943,997     $ 943,997  
                         
Liabilities:                        
Current portion of operating lease liabilities   $ -     $ 261,866     $ 261,866  
Operating lease liabilities, net of current portion   $ -     $ 682,131     $ 682,131  

 

The adoption of the standard did not result in any material changes to the recognition of operating lease expenses in the Company’s consolidated statements of operations.

 

In January 2017, the FASB issued Accounting Standards Update No. 2017-04 (ASU 2017-04), “Simplifying the Test for Goodwill Impairment”, which removes Step 2 from the goodwill impairment test. ASU 2017-04 requires that if a reporting unit’s carrying value exceeds its fair value, an impairment charge would be recognized for the excess amount, not to exceed the carrying amount of goodwill. ASU 2017-04 will be effective for interim and annual reporting periods beginning after December 15, 2019. Early application is permitted after January 1, 2017. The Company early adopted ASU 2017-04 in the third quarter of 2018. The Company recognized an impairment charge of $4,443,000 under the simplified test for goodwill impairment.

 

In June 2018, the FASB issued an amendment to the accounting guidance related to accounting for employee share-based payments which clarifies that an entity should recognize excess tax benefits in the period in which the amount of the deduction is determined. This amendment is effective for annual periods beginning after December 15, 2018. The Company adopted this accounting guidance in the first quarter of 2019 with no impact on our financial statements.

 

In August 2018, the FASB issued new accounting guidance that addresses the accounting for implementation costs associated with a hosted service. The guidance provides that implementation costs be evaluated for capitalization using the same criteria as that used for internal-use software development costs, with amortization expense being recorded in the same income statement expense line as the hosted service costs and over the expected term of the hosting arrangement. This guidance is effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. The guidance will be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. We have not yet adopted this accounting guidance and are currently evaluating the effect this accounting guidance will have on our financial statements.

 

In August 2018, the FASB issued new accounting guidance that eliminates, adds and modifies certain disclosure requirements for fair value measurements. Among the changes, an entity will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted. Since this accounting guidance only revises disclosure requirements, it will not have a material impact on the Company’s consolidated financial statements.

 

In October 2018, the FASB issued new accounting guidance for Variable Interest Entities, which requires indirect interests held through related parties in common control arrangements be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. The guidance is effective for the Company’s interim and annual reporting periods during the year ending December 31, 2020. Early adoption is permitted. The Company currently does not believe that the adoption of this accounting guidance will have a material impact on its consolidated financial statements and related disclosures.

Subsequent Events

Subsequent Events

 

The Company has evaluated subsequent events through the date which the financial statements were issued. Based upon such evaluation, except for items described in Note 10, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the financial statements.

Subsequent Events

 

The Company has evaluated subsequent events through the date which the financial statements were issued. Based upon the evaluation, except for items described in Note 16, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the financial statements.

Segment Reporting

Segment Reporting

 

The Company uses “the management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. The Company’s chief operating decision maker is the Chairman and Chief Executive Officer (“CEO”) of the Company, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. The Company deploys resources on a consolidated level to all brands of the Company and therefore the Company only identifies one reportable operating segment with multiple product offerings.

Segment Reporting

 

The Company uses “the management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. The Company’s chief operating decision maker is the Chairman and Chief Executive Officer (“CEO”) of the Company, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. The Company deploys resources on a consolidated level to all brands of the Company and therefore the Company only identifies one reportable operating segment with multiple product offerings.

v3.20.2
Summary of Significant Accounting Policies (Tables)
6 Months Ended 12 Months Ended
Jun. 30, 2020
Dec. 31, 2019
Accounting Policies [Abstract]    
Schedule of Concentration of Risk of Accounts Receivable

As of June 30, 2020, the following customer represented more than 10% of total accounts receivable:

 

    June 30, 2020  
Customer:        
Customer A     14 %
 
Schedule of Disaggregation of Revenue

The disaggregated Company’s revenues for the three and six months ended June 30, 2020 and 2019 was as follows:

 

   

For the Three Months

Ended June 30,

   

For the Six Months

Ended June 30,

 
    2020     2019     2020     2019  
Revenues:                                
Product sales   $ 6,829,111     $ 5,845,651     $ 10,456,012     $ 11,483,001  
Service     -       22,714       -       48,311  
Licensing     50,915       99,890       91,124       175,477  
Total revenues, net   $ 6,880,026     $ 5,968,255     $ 10,547,136     $ 11,706,789

The disaggregated Company’s revenues for the years ended December 31, 2019 and 2018 was as follows:

 

   

For the Years

Ended December 31,

 
    2019     2018  
             
Revenues:                
Product sales   $ 19,184,428     $ 16,037,221  
Service revenues     -       197,068  
Licensing revenues     444,634       267,920  
Total revenues, net   $ 19,629,062     $ 16,502,209  

Schedule of Revenue from External Customers and Long-Lived Assets, by Geographical Areas

For the three and six months ended June 30, 2020 and 2019, the following customer represented more than 10% of total net revenues:

 

   

For the Three Months

Ended June 30,

   

For the Six Months

Ended June 30,

 
    2020     2019     2020     2019  
Customer:                                
Customer A     * %     27 %     * %     25 %
Customer B     11     *       *       *  
Customer C     11 %     *       *       *  

 

* Customer did not represent greater than 10% of total net revenue.

 

For the three and six months ended June 30, 2020 and 2019, the following geographical regions represented more than 10% of total net revenues:

 

   

For the Three Months

Ended June 30,

   

For the Six Months

Ended June 30,

 
    2020     2019     2020     2019  
Region:                                
North America          98 %     73 %     93 %     75 %
Europe     *       18 %     *       18 %

 

* Region did not represent greater than 10% of total net revenue.

For the years ended December 31, 2019 and 2018, the following customers represented more than 10% of total net revenues:

 

    For the years ended
December 31,
 
    2019     2018  
Customer:            
Customer A     14 %     21 %
                 

 

For the years ended December 31, 2019 and 2018, the following geographical regions represented more than 10% of total net revenues:

 

    For the Years Ended
December 31,
 
    2019     2018  
Region:            
North America     76 %     80 %
Asia-Pacific     9 %     13 %
Europe     15 %     7 %

Schedule of Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation  

The following changes in level 3 instruments for the year ended December 31, 2019 are presented below:

 

    Contingent
Consideration
Earnout
 
Balance, January 1, 2019   $ (520,000 )
Change in fair value of earnout     520,000  
Balance, December 31, 2019   $ -  

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share

As of June 30, 2020 and 2019, the Company excluded the common stock equivalents summarized below, which entitled the holders thereof to ultimately acquire shares of common stock, from its calculation of earnings per share, as their effect would have been anti-dilutive.

 

    June 30, 2020     June 30, 2019  
Selling Agent Warrants     160,492       65,626  
Shares reserved in exchange for the cancellation of certain non-voting membership interest in Edison Nation Holdings, LLC     990,000       990,000  
Options     80,000       290,000  
Convertible shares under notes payable     999,536       285,632  
Warrants for noteholders     750,000          
Restricted stock units     270,000       -  
Shares to be issued     46,500       20,000  
Total     3,296,528       1,651,258

As of December 31, 2019, the Company excluded the common stock equivalents summarized below, which entitle the holders thereof to ultimately acquire shares of common stock, from its calculation of earnings per share, as their effect would have been anti-dilutive.

 

      December 31,  
      2019  
Selling Agent Warrants     160,492  
Shares reserved in exchange for the cancellation of certain non-voting membership interest in Edison Nation Holdings, LLC     990,000  
Options     80,000  
Convertible shares under notes payable     285,632  
Warrants for noteholders     50,000  
Restricted stock units     210,000  
Shares to be issued to consultants     412,500  
Total     2,188,624  

Schedule of Cumulative Effect of Initially Applying the New Lease Accounting Standard  

The cumulative effect of initially applying the new lease accounting standard as of January 1, 2019 is as follows:

 

    January 1,
2019
    Cumulative
Effect
Adjustment
    January 1,
2019, as
adjusted
 
Assets:                        
Right of use assets – operating leases   $      -     $ 943,997     $ 943,997  
                         
Liabilities:                        
Current portion of operating lease liabilities   $ -     $ 261,866     $ 261,866  
Operating lease liabilities, net of current portion   $ -     $ 682,131     $ 682,131  

v3.20.2
Acquisition and Divestitures (Tables)
6 Months Ended 12 Months Ended
Jun. 30, 2020
Dec. 31, 2019
Business Combinations [Abstract]    
Schedule of Business Combination of Assets and Liabilities

The table below shows the assets and liabilities that the Company was relieved of in the transaction:

 

    February 17, 2020  
Accounts payable     4,005,605  
Accrued Expenses     370,289  
Income Tax Payable     14,473  
Notes Payable     900,000  
Non-Controlling Interest     26,393  
Shares to be issued to Buyer     (405,000 )
Gain on divestiture   $ 4,911,760
 
Summary of the Aggregate Purchase Price Consideration Paid  

The following table summarizes the aggregate purchase price consideration paid for acquisitions during 2019:

 

    Uber Mom  
Cash paid   $ 52,352  
Fair value of issued shares     98,613  
Purchase consideration   $ 150,965  

 

The following table summarizes the aggregate purchase price consideration paid for acquisitions during 2018:

 

    Edison Nation                 Best Party  
    Holdings, LLC     Cloud B, Inc.     Pirasta, LLC     Concepts, LLC  
Cash paid     950,000       -     $ -     $ -  
Fair value of issued shares     3,384,285       2,664,200       -       -  
Fair value of reserved shares     6,014,250       -       -       -  
Issuance of debt     1,428,161       -       -       -  
Settlement of due from related party     -       -       470,000       500,000  
Fair value of contingent consideration     -       520,000       -       -  
Adjustment to purchase price – earnout             (520,000 )                
Purchase consideration   $ 11,776,696     $ 2,664,200     $ 470,000     $ 500,000  

Summary of Preliminary Purchase Price Allocation of Fair Values of the Assets Acquired and Liabilities Assumed  

The following table summarizes the preliminary purchase price allocation of fair values of the assets acquired and liabilities assumed during 2018 at the date of acquisition:

 

    Edison Nation                 Best Party  
    Holdings, LLC     Cloud B, Inc.     Pirasta, LLC     Concepts, LLC  
Cash and cash equivalents   $ 68,681     $ 104,744     $ 3,629     $ 365  
Accounts receivable     15,958       636,755       7,696       6,906  
Inventory     -       566,500       36,537       139,918  
Other assets     39,691       172,747       -       4.356  
Property and equipment     1,852       53,345       -       10,931  
Goodwill     5,497,242       3,364,432       354,836       -  
Intangible assets     6,400,000       6,600,000       -       -  
Total assets acquired     12,023,424       11,498,523       402,698       162,476  
Debt     -       1,400,000       -       -  
Accounts payable     227,025       5,748,797       2,052       34,041  
Accrued expenses and other liabilities     19,703       527,526       119,198       513,502  
Total liabilities assumed     246,728       7,676,323       121,250       547,543  
Noncontrolling interest     -       1,158,000       -       (192,534 )
Distribution to shareholder     -       -       (188,552 )     (692,533 )
    $ 11,776,696     $ 2,664,200     $ 470,000     $ 500,000  

 

The following table summarizes the preliminary purchase price allocation of fair values of the assets acquired and liabilities assumed during 2019 at the date of acquisition:

 

    Uber Mom  
Inventory   $ 52,352  
Goodwill     98,613  
Total assets acquired   $ 150,965  

Schedule of Pro Forma Information  

The following represents the pro forma consolidated income statement as if the acquisitions had been included in the consolidated results of the Company for the entire years ending December 31, 2018:

 

   

Years Ended

December 31,

 
    2018  
       
Revenues, net   $ 20,988,594  
Cost of revenues     13,566,605  
Gross profit     7,421,989  
         
Operating expenses:        
Selling, general and administrative     13,144,691  
Operating (loss) income     (5,722,702 )
         
Other (expense) income:        
Other (expense) income     (398,406 )
(Loss) income before income taxes     (6,121,108 )
Income tax expense     304,298  
Net (loss) income   $ (6,425,406 )
Net (loss) income attributable to noncontrolling interests     (415,466 )
Net (loss) income attributable to Edison Nation, Inc.     (6,009,940 )
Net (loss) income per share - basic and diluted   $ (1.09 )
Weighted average number of common shares outstanding – basic and diluted     5,513,706  

v3.20.2
Variable Interest Entities (Tables)
6 Months Ended
Jun. 30, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Schedule of Variable Interest Entities

The following table presents the carrying values of the assets and liabilities of entities that are VIEs and consolidated by the Company at June 30, 2020:

 

    June 30, 2020     December 31, 2019  
    (Unaudited)        
             
Assets                
Current assets:                
Cash and cash equivalents   $ 802,033     $ 6,234  
Accounts receivable, net     955,246       21,697  
Inventory     20,623       51,090  
Prepaid expenses and other current assets     1,412,728       379,561  
Total current assets     3,190,630       458,582  
Property and equipment, net     24,001       32,661  
Total assets   $ 3,214,631     $ 491,243  
                 
Liabilities and stockholders’ equity                
Current liabilities:                
Accounts payable   $ 194,738     $ 337,648  
Accrued expenses and other current liabilities     15,806       -  
Deferred revenues     907,500       -  
Line of credit, net of debt issuance costs of $0 and $15,573, respectively     1,690,945       -  
Notes payable, current     150,000       -  
Due to related party     315,666       315,666  
Total current liabilities     3,274,655       12,973,319  

 

The following table presents the operations of entities that are VIEs and consolidated by the Company at June 30, 2020:

 

   

For the Three Months

Ended June 30,

   

For the Six Months

Ended June 30,

 
    2020     2019     2020     2019  
Revenues, net   $ 1,051,945     $ 80,120     $ 1,274,477     $ 285,542  
Cost of revenues     789,000       49,590       994,923       124,659  
Gross profit     262,945       30,530       279,554       160,883  
                                 
Operating expenses:                                
Selling, general and administrative     136,648       100,961       203,562       192,699  
Operating income     126,297       (70,431 )     75,992       (31,816 )
                                 
Other (expense) income:                                
Interest expense     (21,331 )     -       (56,956 )     -  
Total other (expense) income     (21,331 )     -       (56,956 )     -  
Loss before income taxes     104,966       (70,431 )     19,036       (31,816 )
Income tax expense     -       -       -       -  
Net income   $ 104,966     $ (70,431 )   $ 19,036     $ (31,816 )
v3.20.2
Accounts Receivable (Tables)
6 Months Ended 12 Months Ended
Jun. 30, 2020
Dec. 31, 2019
Credit Loss [Abstract]    
Schedule of Accounts Receivable

As of June 30, 2020 and December 31, 2019, accounts receivable consisted of the following:

 

    June 30, 2020     December 31, 2019  
Accounts receivable   $ 3,163,956     $ 2,185,859  
Less: Allowance for doubtful accounts     (77,761 )     (77,760 )
Total accounts receivable, net   $ 3,086,195     $ 2,108,099

As of December 31, 2019 and 2018, accounts receivable consisted of the following:

 

    December 31,     December 31,  
    2019     2018  
Accounts receivable   $ 2,185,859     $ 1,889,112  
Less: Allowance for doubtful accounts     (77,760     (11,761 )
Total accounts receivable, net   $ 2,108,099     $ 1,877,351  

v3.20.2
Inventory (Tables)
6 Months Ended 12 Months Ended
Jun. 30, 2020
Dec. 31, 2019
Inventory Disclosure [Abstract]    
Schedule of Inventory

As of June 30, 2020 and December 31, 2019, inventory consisted of the following:

 

    June 30, 2020     December 31, 2019  
Raw materials   $ 25,648     $ 49,232  
Finished goods     1,265,350       1,419,993  
Reserve for obsolescence     (100,000 )     (100,000
Total inventory   $ 1,190,998     $ 1,69,225  

As of December 31, 2019 and 2018, inventory consisted of the following:

 

    December 31,     December 31,  
    2019     2018  
Raw materials   $ 49,232     $ 48,576  
Finished goods     1,319,993       875,131  
Total inventory   $ 1,369,225     $ 923,707  

v3.20.2
Prepaid Expenses and Other Current Assets (Tables)
12 Months Ended
Dec. 31, 2019
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]  
Schedule of Accrued Expenses and Other Current Liabilities

As of December 31, 2019 and 2018, accrued expenses and other current liabilities consisted of the following:

 

    December 31,     December 31,  
    2019     2018  
Deposits on inventory   $ 680,792     $ 133,073  
Deposits     11,409       66,862  
Prepaid insurance     46,848       59,892  
Accrued revenue     18,966       36,657  
Prepaid consulting fees     137,328       251,000  
Other     22,090       64,211  
Total prepaid expenses and other current assets   $ 917,433     $ 611,695  

v3.20.2
Property and Equipment, Net (Tables)
12 Months Ended
Dec. 31, 2019
Property, Plant and Equipment [Abstract]  
Schedule of Property and Equipment

As of December 31, 2019 and 2018, property and equipment consisted of the following:

 

    December 31,     December 31,  
    2019     2018  
Land   $ 79,100     $ 79,100  
Buildings – rental property     445,635       427,704  
Building improvements     766,859       760,017  
Equipment and machinery     3,917,080       3,929,332  
Furniture and fixtures     387,836       322,157  
Computer software     23,518       23,518  
Molds     4,651,889       4,589,153  
Vehicles     521,962       502,960  
      10,793,879       10,633,941  
Less: accumulated depreciation     (9,861,911 )     (9,635,078 )
Total property and equipment, net   $ 931,968     $ 998,863  

v3.20.2
Goodwill (Tables)
12 Months Ended
Dec. 31, 2019
Goodwill and Intangible Assets Disclosure [Abstract]  
Schedule of Goodwill

The changes in the carrying amount of goodwill for the year ended December 31, 2019 consisted of the following:

 

    Total  
Balance, January 1, 2018   $ -  
Acquisitions     9,736,510  
Balance, January 1, 2019   $ 9,736,510  
Acquisition of Uber Mom     98,613  
Impairment     (4,443,000 )
Balance, December 31, 2019   $ 5,392,123  

v3.20.2
Intangible Assets, Net (Tables)
12 Months Ended
Dec. 31, 2019
Goodwill and Intangible Assets Disclosure [Abstract]  
Schedule of Intangible Assets

As of December 31, 2019, intangible assets consisted of the following:

 

                      Gross               Net  
                      Carrying       Accumulated       Carrying  
                      Amount       Amortization       Amount  
Finite lived intangible assets:                                        
Customer relationships     15 years       13.8 years     $ 4,270,000     $ 339,556     $ 3,930,444  
Developed technology     7 years       5.7 years       3,800,000       697,619       3,102,381  
Membership network     7 years       5.7 years       1,740,000       331,429       1,408,571  
Non-compete agreements     2 years       .7 years       50,000       33,333       16,667  
Total finite lived intangible assets                   $ 9,860,000     $ 1,401,937      $ 8,458,063  
                                         
Indefinite lived intangible assets:                                        
Trademarks and tradenames     Indefinite             $ 3,140,000     $ -     $ 3,140,000  
Total indefinite lived intangible assets                   $ 3,140,000     $ -     $ 3,140,000  
Total intangible assets                   $ 13,000,000      $ 1,401,937     $ 11,598,063  

 

As of December 31, 2018, intangible assets consisted of the following:

 

                Gross           Net  
                Carrying     Accumulated     Carrying  
                Amount     Amortization     Amount  
Finite lived intangible assets:                                        
Customer relationships     15 years       14.8 years     $ 4,270,000     $ 61,555     $ 4,208,445  
Developed technology     7 years       6.7 years       3,800,000       159,524       3,640,476  
Membership network     7 years       6.7 years       1,740,000       82,857       1,657,143  
Non-compete agreements     2 years       1.7 years       50,000       8,333       41,667  
Total finite lived intangible assets                   $ 9,860,000     $ 312,269     $ 9,547,731  
                                         
Indefinite lived intangible assets:                                        
Trademarks and tradenames     Indefinite             $ 3,140,000     $ -     $ 3,140,000  
Total indefinite lived intangible assets                   $ 3,140,000     $ -     $ 3,140,000  
Total intangible assets                   $ 13,000,000     $ 312,269     $ 12,687,731  

Schedule of Estimated Future Amortization of Intangibles

The estimated future amortization of intangibles subject to amortization at December 31, 2019 was as follows:

 

For the Years Ended December 31,     Amount  
2020   $ 1,092,762  
2021     1,076,095  
2022     1,076,095  
2023     1,076,095  
2024     1,076,095  
Thereafter   $ 3,060,921  

v3.20.2
Accrued Expenses and Other Current Liabilities (Tables)
12 Months Ended
Dec. 31, 2019
Payables and Accruals [Abstract]  
Schedule of Accrued Expenses and Other Current Liabilities

As of December 31, 2019 and 2018, accrued expenses and other current liabilities consisted of the following:

 

    December 31,     December 31,  
    2019     2018  
Accrued taxes - other   $ 261,396     $ 259,559  
Accrued payroll and benefits     482,719       175,336  
Accrued professional fees     201,318       133,261  
Customer deposits     13,212       35,094  
Accrued interest     341,559       269,782  
Accrued legal contingencies     240,105       -  
Other     54,359       262,519  
Total accrued expenses and other current liabilities   $ 1,594,668     $ 1,135,551  

v3.20.2
Debt (Tables)
6 Months Ended 12 Months Ended
Jun. 30, 2020
Dec. 31, 2019
Debt Disclosure [Abstract]    
Schedule of Debt

As of June 30, 2020 and December 31, 2019, debt consisted of the following:

 

    June 30, 2020     December 31, 2019  
Line of credit:                
Secured line of credit   $ 1,690,945     $ -  
Receivables financing     460,163       472,567  
Debt issuance costs     -       (15,573 )
Total lines of credit     2,151,108       456,995  
                 
Convertible notes payable:                
Senior convertible notes payable – related parties     1,428,161       1,428,161  
Senior convertible notes payable     1,100,000       -  
Convertible notes payable     336,000       -  
Debt issuance costs     (851,901 )     (366,666 )
Total convertible notes payable     2,012,260       1,061,495  
Less: current portion of long-term convertible notes payable     (900,765 )     -  
Noncurrent portion of long-term convertible notes payable     1,111,495       1,061,495  
                 
Notes payable:                
Notes payable     1,882,064       1,621,015  
Debt issuance costs     (86,350 )     (212,848 )
Total long-term debt     1,795,714       1,408,167  
Less: current portion of long-term debt     (970,710 )     (1,365,675 )
Noncurrent portion of long-term debt     825,004       42,492  
                 
Notes payable – related parties:                
Notes payable     2,667,513       3,282,021  
Less: current portion of long-term debt – related parties     (1,166,365 )     (1,686,352 )
Noncurrent portion of long-term debt – related parties   $ 1,501,148     $ 1,595,669

As of December 31, 2019 and December 31, 2018, debt consisted of the following:

 

    December 31,     December 31,  
    2019     2018  
Line of credit:                
Asset backed line of credit   $ 472,567     $ 561,804  
Debt issuance costs     (15,573 )     (30,000 )
Total line of credit     456,995       531,804  
                 
Senior convertible notes payable:                
Senior convertible notes payable     1,428,161       1,428,161  
Debt issuance costs     (366,666 )     (466,667 )
Total long-term senior convertible notes payable     1,061,495       961,494  
Less: current portion of long-term notes payable     -       -  
Noncurrent portion of long-term convertible notes payable     1,061,495       961,494  
                 
Notes payable:                
Notes payable     1,621,015       370,250  
Debt issuance costs     (212,848 )     -  
Total long-term debt     1,408,167       370,250  
Less: current portion of long-term debt     (1,365,675 )     (313,572 )
Noncurrent portion of long-term debt     42,492       56,678  
                 
Notes payable – related parties:                
Notes payable     3,282,021       3,464,191  
Less: current portion of long-term debt – related parties     (1,686,352 )     (932,701 )
Noncurrent portion of long-term debt – related parties   $ 1,595,669     $ 2,531,490  

Schedule of Maturities of Long-term Debt

The scheduled maturities of the debt for the next five years as of December 31, 2019, are as follows:

 

For the Years Ended December 31,   Amount  
2020 (excluding the six months ended June 30, 2020)     3,737,443  
2021     206,760  
2022     1,419,285  
2023     1,440,278  
2024     -  
Thereafter     -  
      6,803,766  
Less: debt discount     (595,088 )
    $ 6,208,678

The scheduled maturities of the debt for the next five years as of December 31, 2019, are as follows:

 

For the Years Ended December 31,   Amount  
2020   $ 3,737,443  
2021     206,760  
2022     1,419,285  
2023     1,440,278  
2024     -  
Thereafter     -  
    $ 6,803,766  
Less: debt discount     (595,088 )
    $ 6,208,678  

v3.20.2
Income Taxes (Tables)
6 Months Ended 12 Months Ended
Jun. 30, 2020
Dec. 31, 2019
Income Tax Disclosure [Abstract]    
Schedule of Income Before Income Tax, Domestic and Foreign  

United States and foreign components of income before income taxes were as follows:

 

   

For the Years

Ended December 31,

 
    2019     2018  
United States   $ (14,210,716 )   $ (5,828,261 )
Foreign     (7,811 )     788,159  
Income before income taxes   $ (14,218,527 )   $ (5,040,102 )

Schedule of Deferred Tax Assets and Liabilities  

The tax effects of temporary differences that give rise to deferred tax assets or liabilities are presented below:

 

   

For the Years

Ended December 31,

 
    2019     2018  
Deferred tax assets:                
Stock-based compensation   $ 987,747     $ 682,115  
Goodwill and intangible assets     -       19,410  
Operating lease liabilities     158,430       -  
Net operating loss carryforwards     2,324,863       493,063  
Less: valuation allowance     (2,424,196 )     (1,194,587 )
Net deferred tax assets   $ 1,046,844     $ -  
                 
Deferred tax liabilities:                
Right of use assets     (153,741 )     -  
Goodwill and intangible assets     (811,000 )     -  
Property and equipment   $ (82,103 )   $ 341  
Net deferred tax liabilities   $ (1,046,844 )   $ 341  
Net deferred tax liabilities   $ -     $ 341  

Schedule of Components of Income Tax Expense (Benefit)  

The income tax provision (benefit) consists of the following:

 

   

For the Years

Ended December 31,

 
    2019     2018  
Current:            
Federal   $ -     $ 10,185  
Foreign     3,166       292,491  
State and local     (22,372 )     35,107  
Total current   $ (19,206 )   $ 337,783  
                 
Deferred:                
Federal   $ (896,468 )   $ (722,975 )
Foreign     (341 )     (2,316 )
State and local     (333,141     (10,102 )
Less: valuation allowance     1,229,609       701,525  
Total deferred   $ (341 )   $ (33,868 )
Income tax provision (benefit)   $ 19,547     $ 303,915  

Schedule of Effective Income Tax Rate Reconciliation

A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows:

 

   

For the Six Months

Ended June 30,

 
    2020     2019  
Tax at federal statutory rate     21.0 %     21.0 %
U.S. income subject to valuation allowance     -21.0 %     -21.0 %
Foreign tax     0.0 %     -1.7 %
Effective income tax rate     0.0 %     -1.7 %

A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows:

 

   

For the Years

Ended December 31,

 
    2019     2018  
Tax at federal statutory rate     21.0 %     21.0 %
Effect of U.S. tax law change     0.0 %     0.0 %
U.S. income attributable to pass-through entity     0.0 %     0.0 %
U.S. income subject to valuation allowance     -14.6 %     -20.5 %
State and local income taxes     0.2 %     0.0 %
Foreign income not subject to U.S. federal tax     0.0 %     0.0 %
Foreign tax     0.0 %     -6.3 %
Nondeductible expenses     -6.5 %     0.0 %
Other     0.0 %     -0.2 %
Effective income tax rate     0.1 %     -6.0 %

v3.20.2
Commitments and Contingencies (Tables)
12 Months Ended
Dec. 31, 2019
Commitments and Contingencies Disclosure [Abstract]  
Schedule of Reconciliation of Future Undiscounted Cash Flows

The following is a reconciliation of future undiscounted cash flows to the operating liabilities, and the related right of use assets, included in our Condensed Consolidated Balance Sheets as of December 31, 2019:

 

   

December 31,

2019

 
2020     315,660  
2021     267,249  
2022     96,288  
2023     78,648  
2024     52,432  
2025 and thereafter     -  
Total future lease payments     810,277  
Less: imputed interest     (55,850 )
Present value of future operating lease payments     754,427  
Less: current portion of operating lease liabilities     (272,215 )
Operating lease liabilities, net of current portion     482,212  
Right of use assets – operating leases, net     732,100  

v3.20.2
Stockholders' Equity (Tables)
6 Months Ended 12 Months Ended
Jun. 30, 2020
Dec. 31, 2019
Equity [Abstract]    
Schedule of Share-based Compensation, Stock Options, Activity

The following table summarizes stock option award activity for the six months ended June 30, 2020:

 

    Shares    

Weighted

Average

Exercise

Price

   

Remaining

Contractual

Life in

Years

   

Aggregate

Intrinsic Value

 
Balance, January 1, 2020     80,000     $ 7.01       3.7       -  
Granted     -       -       -       -  
Balance, June 30, 2020     80,000     $ 7.01       3.5       -  
Exercisable, June 30, 2020     53,333     $ 7.01       3.5       -

The following table summarizes stock option award activity during 2019:

 

    Shares    

Weighted

Average

Exercise

Price

   

Remaining

Contractual

Life in

Years

   

Aggregate

Intrinsic Value

 
Balance, January 1, 2019     290,000     $ 5.55       4.2       -  
Granted     -       -       -       -  
Forfeited     (210,000     5.00       -       -  
Balance, December 31, 2019     80,000       7.01       3.7       -  
Exercisable, December 31, 2019     53,333       7.01       3.7       -  

Schedule of Stock Compensation Expense by Award Type  

The exercise price of stock options are equal to the fair market value of the underlying Company common stock on the date of grant.

 

    For the Twelve Months
Ended December 31,
 
    2019     2018  
Stock option awards   $ 175,675     $ 304,745  
Non-employee awards     1,564,670       2,329,874  
Restricted stock unit awards     447,300       559,499  
Phantom stock awards     112,270       54,048  
    $ 2,299,915     $ 3,248,166  

v3.20.2
Basis of Presentation and Nature of Operations (Details Narrative) - USD ($)
3 Months Ended 6 Months Ended 12 Months Ended
Jun. 30, 2020
Jun. 27, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Dec. 31, 2019
Dec. 31, 2018
Mar. 31, 2020
Mar. 31, 2019
Dec. 31, 2017
Reduction in salary percentage 20.00%     20.00%            
Operating income (loss) $ (780,688)   $ (1,348,593) $ (3,724,703) $ (2,604,805) $ (13,026,228) $ (4,641,696)      
Operating income loss from non cash activities       2,200,000   8,064,101        
Operating income loss from non recurring items       $ 366,000   $ 364,320        
Common stock, par value $ 0.001     $ 0.001   $ 0.001 $ 0.001      
Assets, current $ 8,071,961     $ 8,071,961   $ 4,955,365 $ 5,465,484      
Liabilities, current 11,317,275     11,317,275   12,973,319 8,878,936      
Working capital 3,245,314     3,245,314   (8,017,954)        
Related party note payables 1,166,365     1,166,365   1,686,352 932,701      
Assets 26,021,906     26,021,906   23,609,619 28,888,588      
Liabilities 15,081,404     15,081,404   16,155,187 12,948,949      
Stockholders' equity 10,940,502   13,375,008 10,940,502 13,375,008 $ 7,454,432 15,939,639 $ 11,229,321 $ 14,872,261 $ (232,630)
Debt interest expense $ 847,154   $ 401,170 $ 2,667,513 $ 525,864   $ 501,221      
Description of cost cutting initiatives       Annual cost saving initiatives related to synergies and the elimination of redundant costs of approximately $1,500,000.            
Related Party Debt Holders [Member]                    
Debt interest expense       $ 1,166,365            
Loan Agreement [Member]                    
Proceeds form loan   $ 200,000                
Proceeds from exercise of warrants   $ 250,000                
Related to Depreciation, Amortization and Stock-based Compensation                    
Operating income (loss)       3,600,000            
Related to Transaction Costs and Restructuring Charges [Member]                    
Operating income (loss)       $ 366,000            
Best Party Concepts [Member]                    
Business acquisition, percentage of voting interests acquired 50.00%     50.00%     50.00%      
Global Clean Solutions, LLC [Member]                    
Business acquisition, percentage of voting interests acquired 50.00%     50.00%            
v3.20.2
Basis of Presentation and Nature of Operations (Details Narrative) (10-K) - USD ($)
1 Months Ended 3 Months Ended 6 Months Ended 12 Months Ended
Nov. 06, 2019
Oct. 02, 2019
May 13, 2019
Oct. 31, 2019
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Dec. 31, 2019
Dec. 31, 2018
Mar. 31, 2020
Aug. 23, 2019
Mar. 31, 2019
Oct. 29, 2018
Dec. 31, 2017
Stock issued during the period, value                 $ 2,039,303 $ 5,315,176          
Value of shares issued to acquire assets                   3,384,285          
Operating income (loss)         $ (780,688) $ (1,348,593) $ (3,724,703) $ (2,604,805) (13,026,228) (4,641,696)          
Operating income loss from non cash activities             2,200,000   8,064,101            
Operating income loss from non recurring items             366,000   364,320            
Assets, current         8,071,961   8,071,961   4,955,365 5,465,484          
Liabilities, current         11,317,275   11,317,275   12,973,319 8,878,936          
Working capital         3,245,314   3,245,314   (8,017,954)            
Trade payables unsecured                 4,015,484            
Assets         26,021,906   26,021,906   23,609,619 28,888,588          
Liabilities         15,081,404   15,081,404   16,155,187 12,948,949          
Total stockholders' equity         10,940,502 $ 13,375,008 10,940,502 $ 13,375,008 7,454,432 15,939,639 $ 11,229,321   $ 14,872,261   $ (232,630)
Depreciation, amortization and stock-based compensation                 3,621,101            
Restructuring and related cost, incurred cost                 2,414,799            
Unsecured creditor in amount                 4,015,484            
Unpaid balance of debt                 900,000            
Outstanding balances under notes payable         $ 970,710   $ 970,710   1,365,675 $ 313,572          
Total liabilities in consolidation                 7,100,000            
Liabilities to be eliminated due to foreclosure                 1,700,000            
Net liabilities in consolidation                 $ 5,400,000            
Common stock, par or stated value per share         $ 0.001   $ 0.001   $ 0.001 $ 0.001          
Proceeds from issuance of common stock       $ 2,039,303         $ 2,048,562 $ 5,315,176          
Sale of stock, consideration received per transaction       2,350,000                      
Payments for placement agent and lawyers fees       $ 310,697                      
Payments of related party debt                 455,099            
Elimination of redundant costs                 $ 1,500,000            
Placement Agent Warrants [Member]                              
Number of warrants to purchase shares of common stock       70,500                      
Warrants, exercise price       $ 2.50                      
PIPE Purchase Agreement [Member] | Accredited Investors [Member]                              
Stock issued during period, shares   1,175,000                          
Common stock, par or stated value per share   $ 0.001                          
Share price   $ 2.00                          
Debt instrument, convertible, conversion price     $ 2.00                        
Debt conversion, converted instrument, shares issued     560,185                        
Uber Mom, LLC [Member]                              
Stock issued during the period, value $ 22,500                            
Value of shares issued to acquire assets $ 52,352                            
Alexander Capital, LP [Member]                              
Payments for placement agent commission       $ 141,000                      
Payments for placement agent debt restructuring fee       64,208                      
Payments for placement agent debt conversion fee       15,889                      
Payments for placement agent fees       $ 33,600                      
Cloud B, Inc. [Member]                              
Business acquisition, percentage of voting interests acquired                 72.15%         72.15%  
Senior secured position on promissory note                 $ 2,270,000            
Outstanding balances under notes payable                 $ 1,700,000            
Best Party Concepts [Member]                              
Business acquisition, percentage of voting interests acquired         50.00%   50.00%     50.00%          
Ed Roses, LLC [Member]                              
Business acquisition, percentage of voting interests acquired                 50.00%            
Ownership percentage                       50.00%      
Cloud B UK [Member]                              
Ownership percentage                 100.00%            
4Keeps Roses, Inc [Member]                              
Ownership percentage                       50.00%      
v3.20.2
Summary of Significant Accounting Policies (Details Narrative) - USD ($)
Jun. 30, 2020
Dec. 31, 2019
Cash, FDIC insured amount $ 928,000 $ 178,485
Foreign Bank Accounts [Member]    
Cash, FDIC insured amount $ 113,000  
v3.20.2
Summary of Significant Accounting Policies (Details Narrative) (10-K) - USD ($)
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Jun. 30, 2020
Cash, uninsured amount $ 178,485    
Cash, fdic insured amount 178,485   $ 928,000
Long lived assets impairment charges $ 4,443,000  
Geographic Concentration Risk [Member]      
Concentration risk, percentage 10.00% 10.00%  
Software Development [Member]      
Property, plant and equipment, useful life 5 years    
Molds [Member]      
Property, plant and equipment, useful life 5 years    
Buildings - Rental Property [Member]      
Property, plant and equipment, useful life 40 years    
Minimum [Member] | Office Equipment [Member]      
Property, plant and equipment, useful life 3 years    
Minimum [Member] | Furniture and Fixtures [Member]      
Property, plant and equipment, useful life 5 years    
Minimum [Member] | Machinery and Equipment [Member]      
Property, plant and equipment, useful life 6 years    
Minimum [Member] | Building Improvements [Member]      
Property, plant and equipment, useful life 10 years    
Minimum [Member] | Vehicles [Member]      
Property, plant and equipment, useful life 5 years    
Maximum [Member] | Office Equipment [Member]      
Property, plant and equipment, useful life 5 years    
Maximum [Member] | Furniture and Fixtures [Member]      
Property, plant and equipment, useful life 7 years    
Maximum [Member] | Machinery and Equipment [Member]      
Property, plant and equipment, useful life 10 years    
Maximum [Member] | Building Improvements [Member]      
Property, plant and equipment, useful life 15 years    
Maximum [Member] | Vehicles [Member]      
Property, plant and equipment, useful life 7 years    
Accounts Receivable [Member]      
Concentration risk, percentage 10.00%    
Sales Revenue, Net [Member]      
Concentration risk, percentage 10.00% 10.00%  
v3.20.2
Summary of Significant Accounting Policies - Schedule of Concentration of Risk of Accounts Receivable (Details)
6 Months Ended
Jun. 30, 2020
Customer A [Member]  
Concentration risk, percentage 14.00%
v3.20.2
Summary of Significant Accounting Policies - Schedule of Disaggregation of Revenue (Details) - USD ($)
3 Months Ended 6 Months Ended 12 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Dec. 31, 2019
Dec. 31, 2018
Revenue from Contract with Customer, Excluding Assessed Tax $ 6,880,026 $ 5,968,255 $ 10,547,136 $ 11,706,789 $ 19,629,062 $ 16,502,209
Product Sales [Member]            
Revenue from Contract with Customer, Excluding Assessed Tax 6,829,111 5,845,651 10,456,012 11,483,001 19,184,428 16,037,221
Service [Member]            
Revenue from Contract with Customer, Excluding Assessed Tax 22,714 48,311    
Licensing [Member]            
Revenue from Contract with Customer, Excluding Assessed Tax $ 50,915 $ 99,890 $ 91,124 $ 175,477    
Service Revenues [Member]            
Revenue from Contract with Customer, Excluding Assessed Tax         197,068
Licensing Revenues [Member]            
Revenue from Contract with Customer, Excluding Assessed Tax         $ 444,634 $ 267,920
v3.20.2
Summary of Significant Accounting Policies - Schedules of Concentration of Risk, by Risk Factor (Details) (10-K)
3 Months Ended 6 Months Ended 12 Months Ended
Jun. 30, 2020
[1]
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Dec. 31, 2019
Dec. 31, 2018
Sales Revenue, Net [Member]            
Concentration Risk, Percentage         10.00% 10.00%
Customer A [Member]            
Concentration Risk, Percentage 27.00% 25.00% 14.00% 21.00%
Customer A [Member] | Sales Revenue, Net [Member]            
Concentration Risk, Percentage         14.00% 21.00%
[1] Customer did not represent greater than 10% of total net revenue.
v3.20.2
Summary of Significant Accounting Policies - Schedule of Revenue from External Customers and Long-Lived Assets, by Geographical Areas (Details)
3 Months Ended 6 Months Ended 12 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Dec. 31, 2019
Dec. 31, 2018
North America [Member]            
Concentration Risk, Percentage 98.00% 73.00% 93.00% 75.00% 76.00% 80.00%
Europe [Member]            
Concentration Risk, Percentage [1] 18.00% 18.00% [1] 15.00% 7.00%
Asia-Pacific [Member]            
Concentration Risk, Percentage         9.00% 13.00%
Customer A [Member]            
Concentration Risk, Percentage [1] 27.00% 25.00% 14.00% 21.00%
Customer B [Member]            
Concentration Risk, Percentage 11.00% [1] [1] [1]    
Customer C [Member]            
Concentration Risk, Percentage 11.00% [1] [1] [1]    
[1] Customer did not represent greater than 10% of total net revenue.
v3.20.2
Summary of Significant Accounting Policies - Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share (Details) - shares
6 Months Ended 12 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Dec. 31, 2019
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount 3,296,528 1,651,258 2,188,624
Edison Nation Holdings, LLC [Member]      
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount 990,000 990,000 990,000
Warrant [Member]      
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount 160,492 65,626 160,492
Options [Member]      
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount 80,000 290,000 80,000
Convertible Shares Under Notes Payable[Member]      
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount 999,536 285,632 285,632
Warrants for Noteholders [Member]      
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount 750,000 50,000
Restricted Stock Units [Member]      
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount 270,000  
Shares to be Issued [Member]      
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount 46,500 20,000  
Restricted Stock Units [Member]      
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount     210,000
Shares to be Issued to Consultants [Member]      
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount     412,500
v3.20.2
Summary of Significant Accounting Policies - Schedule of Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation (Details) (10-K) - Fair Value, Measurements, Recurring [Member] - Fair Value, Inputs, Level 3 [Member] - Contingent consideration [Member]
12 Months Ended
Dec. 31, 2019
USD ($)
Balance, Beginning $ (520,000)
Change in fair value 520,000
Balance, Ending
v3.20.2
Summary of Significant Accounting Policies - Schedule of Cumulative Effect of Initially Applying the New Lease Accounting Standard (Details) (10-K) - USD ($)
Jun. 30, 2020
Dec. 31, 2019
Jan. 02, 2019
Dec. 31, 2018
Right of use assets - operating leases $ 578,280 $ 732,100
Current portion of operating lease liabilities 279,427 272,215
Operating lease liabilities, net of current portion $ 326,482 $ 482,212
Accounting Standards Update201602 [Member]        
Right of use assets - operating leases     943,997  
Current portion of operating lease liabilities     261,866  
Operating lease liabilities, net of current portion     682,131  
Restatement Adjustment [Member]        
Right of use assets - operating leases     943,997  
Current portion of operating lease liabilities     261,866  
Operating lease liabilities, net of current portion     $ 682,131  
v3.20.2
Acquisitions and Divestitures (Details Narrative) - USD ($)
6 Months Ended 12 Months Ended
Jul. 02, 2020
Apr. 15, 2020
Mar. 11, 2020
Feb. 17, 2020
Feb. 17, 2020
Jun. 30, 2020
Dec. 31, 2018
Dec. 31, 2019
Business Acquisition [Line Items]                
Common stock, shares outstanding           9,618,401 5,654,830 8,015,756
Value of shares issued to acquire assets             $ 3,384,285  
Subsequent Event [Member]                
Business Acquisition [Line Items]                
Stock issued during period, shares   12,500            
HMNRTH, LLC [Member]                
Business Acquisition [Line Items]                
Number of shares issued for acquisition of assets     238,750          
HMNRTH, LLC [Member] | Subsequent Event [Member]                
Business Acquisition [Line Items]                
Number of shares issued for acquisition of assets, value $ 70,850              
Purchase Agreement [Member] | Pearl 33 Holdings, LLC [Member] | Subsequent Event [Member]                
Business Acquisition [Line Items]                
Stock issued during period, shares       150,000        
Ownership percentage       72.15% 72.15%      
Common stock, shares outstanding       110,964 110,964      
Purchase Agreement [Member] | Cloud B Shares [Member]                
Business Acquisition [Line Items]                
Stock issued during period, shares         80,065      
Share issued price per share       $ 1.00 $ 1.00      
Ownership percentage       72.15% 72.15%      
Common stock, shares outstanding       110,964 110,964      
Indemnification Agreement [Member] | Pearl 33 Holdings, LLC [Member]                
Business Acquisition [Line Items]                
Number of shares issued to acquire assets           150,000    
Value of shares issued to acquire assets           $ 405,000    
v3.20.2
Acquisitions and Divestitures (Details Narrative) (10-K) - USD ($)
1 Months Ended 3 Months Ended 6 Months Ended 12 Months Ended
Nov. 06, 2019
Dec. 31, 2018
Sep. 04, 2018
Oct. 29, 2018
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Dec. 31, 2019
Dec. 31, 2018
Aug. 23, 2019
Business Acquisition [Line Items]                      
Payments to acquire businesses, net of cash acquired                 $ 772,581  
Debt instrument interest rate, percent   5.00%             5.00% 5.00%  
Debt instrument, term                 5 years 5 years  
Debt instrument, unamortized discount         $ 595,088   $ 595,088   $ 595,088    
Net income (loss), including portion attributable to non-controlling interest         $ (1,602,139) $ (1,775,065) $ (332,647) $ (3,153,462) (14,198,980) $ (5,344,017)  
Fair value of contingent consideration   $ 520,000             520,000  
Value of shares issued to acquire assets                   3,384,285  
Uber Mom, LLC [Member]                      
Business Acquisition [Line Items]                      
Number of shares issued to acquire assets 45,000                    
Value of shares issued to acquire assets $ 52,352                    
Edison Nation Holdings, LLC [Member]                      
Business Acquisition [Line Items]                      
Business combination, consideration transferred                 11,776,696 11,776,696  
Debt conversion, converted instrument, shares issued     557,084                
Debt conversion, converted instrument, amount     $ 3,760,317                
Revenues                 267,920    
Net income (loss), including portion attributable to non-controlling interest                 197,485    
Fair value of contingent consideration                  
Ownership percentage     100.00%                
Edison Nation Holdings, LLC [Member] | New Convertible Notes [Member]                      
Business Acquisition [Line Items]                      
Business combination, consideration transferred     $ 12,820,978                
Payments to acquire businesses, net of cash acquired     $ 950,000                
Debt instrument interest rate, percent     4.00%                
Debt instrument, term     5 years                
Convertible debt     $ 1,428,161                
Debt instrument, unamortized discount     $ 500,000                
Debt conversion, converted instrument, shares issued     285,632                
Business acquisition, equity interest issued or issuable, number of shares     990,000                
Cloud B Inc. [Member]                      
Business Acquisition [Line Items]                      
Business combination, consideration transferred                 2,664,200 2,664,200  
Revenues                 1,512,328    
Net income (loss), including portion attributable to non-controlling interest                 $ 44,408    
Business acquisition, percentage of voting interests acquired       72.15%         72.15%    
Business acquisition, description                 On October 29, 2018, the Company completed the acquisition of 72.15% of the outstanding capital stock of Cloud B, Inc. 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 annual gross sales of Cloud B, as reduced by the total gross sales generated by Cloud B in 2018.    
Business acquisition number of shares acquired       489,293              
Fair value of contingent consideration   520,000   $ 0         $ 520,000 520,000  
Pirasta LLC [Member]                      
Business Acquisition [Line Items]                      
Business combination, consideration transferred   470,000               470,000  
Fair value of contingent consideration                  
Best Party Concepts, LLC [Member]                      
Business Acquisition [Line Items]                      
Business combination, consideration transferred                   $ 500,000  
Business acquisition, percentage of voting interests acquired   50.00%               50.00%  
Fair value of contingent consideration                  
Business combination settlement of related party                   $ 500,000  
Ed Roses, LLC [Member]                      
Business Acquisition [Line Items]                      
Business acquisition, percentage of voting interests acquired                 50.00%    
Ownership percentage                     50.00%
v3.20.2
Acquisitions and Divestitures - Schedule of Business Combination of Assets and Liabilities (Details)
Feb. 17, 2020
USD ($)
Business Combinations [Abstract]  
Accounts payable $ 4,005,605
Accrued Expenses 370,289
Income Tax Payable 14,473
Notes Payable 900,000
Non-Controlling Interest 26,393
Shares to be issued to Buyer (405,000)
Gain on divestiture $ 4,911,760
v3.20.2
Acquisitions and Divestitures - Summary of the Aggregate Purchase Price Consideration Paid (Details) (10-K) - USD ($)
12 Months Ended
Dec. 31, 2018
Dec. 31, 2019
Dec. 31, 2018
Oct. 29, 2018
Fair value of contingent consideration $ 520,000 $ 520,000  
Uber Mom [Member]        
Cash paid   52,352    
Fair value of issued shares   98,613    
Purchase consideration   150,965    
Edison Nation Holdings, LLC [Member]        
Cash paid     950,000  
Fair value of issued shares 3,384,285   3,384,285  
Fair value of reserved shares 6,014,250   6,014,250  
Issuance of debt 1,428,161   1,428,161  
Settlement of due from related party    
Fair value of contingent consideration    
Purchase consideration   11,776,696 11,776,696  
Cloud B Inc. [Member]        
Cash paid      
Fair value of issued shares 2,664,200   2,664,200  
Fair value of reserved shares    
Issuance of debt    
Settlement of due from related party    
Fair value of contingent consideration 520,000 520,000 520,000 $ 0
Adjustment to purchase price - earnout (520,000)   (520,000)  
Purchase consideration   $ 2,664,200 2,664,200  
Pirasta, LLC [Member]        
Cash paid      
Fair value of issued shares    
Fair value of reserved shares    
Issuance of debt    
Settlement of due from related party 470,000   470,000  
Fair value of contingent consideration    
Adjustment to purchase price - earnout    
Purchase consideration 470,000   470,000  
Best Party Concepts, LLC [Member]        
Cash paid      
Fair value of issued shares    
Fair value of reserved shares    
Issuance of debt    
Settlement of due from related party 500,000   500,000  
Fair value of contingent consideration    
Adjustment to purchase price - earnout    
Purchase consideration     $ 500,000  
v3.20.2
Acquisitions and Divestitures - Summary of Preliminary Purchase Price Allocation of Fair Values of the Assets Acquired and Liabilities Assumed (Details) (10-K) - USD ($)
Jun. 30, 2020
Feb. 17, 2020
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Goodwill $ 5,392,123   $ 5,392,123 $ 9,736,510
Accounts payable   $ 4,005,605      
Edison Nation Holdings, LLC [Member]          
Cash and cash equivalents       68,681  
Accounts receivable       15,958  
Inventory        
Other assets       39,691  
Property and equipment       1,852  
Goodwill       5,497,242  
Intangible assets       6,400,000  
Total assets acquired       12,023,424  
Debt        
Accounts payable       227,025  
Accrued expenses and other liabilities       19,703  
Total liabilities assumed       246,728  
Noncontrolling interest        
Distribution to shareholder        
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Net       11,776,696  
Cloud B Inc. [Member]          
Cash and cash equivalents       104,744  
Accounts receivable       636,755  
Inventory       566,500  
Other assets       172,747  
Property and equipment       53,345  
Goodwill       3,364,432  
Intangible assets       6,600,000  
Total assets acquired       11,498,523  
Debt       1,400,000  
Accounts payable       5,748,797  
Accrued expenses and other liabilities       527,526  
Total liabilities assumed       7,676,323  
Noncontrolling interest       1,158,000  
Distribution to shareholder        
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Net       2,664,200  
Pirasta, LLC [Member]          
Cash and cash equivalents       3,629  
Accounts receivable       7,696  
Inventory       36,537  
Other assets        
Property and equipment        
Goodwill       354,836  
Intangible assets        
Total assets acquired       402,698  
Debt        
Accounts payable       2,052  
Accrued expenses and other liabilities       119,198  
Total liabilities assumed       121,250  
Noncontrolling interest        
Distribution to shareholder       (188,552)  
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Net       470,000  
Best Party Concepts, LLC [Member]          
Cash and cash equivalents       365  
Accounts receivable       6,906  
Inventory       139,918  
Other assets       4,356  
Property and equipment       10,931  
Goodwill        
Intangible assets        
Total assets acquired       162,476  
Debt        
Accounts payable       34,041  
Accrued expenses and other liabilities       513,502  
Total liabilities assumed       547,543  
Noncontrolling interest       (192,534)  
Distribution to shareholder       (692,533)  
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Net       $ 500,000  
Uber Mom [Member]          
Inventory     52,352    
Goodwill     98,613    
Total assets acquired     150,965    
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Net     $ 150,965    
v3.20.2
Acquisitions and Divestitures - Schedule of Pro Forma Information (Details) (10-K) - Edison Nation Holdings, LLC [Member]
12 Months Ended
Dec. 31, 2018
USD ($)
$ / shares
shares
Business Acquisition [Line Items]  
Revenues, net $ 20,988,594
Cost of revenues 13,566,605
Gross profit 7,421,989
Selling, general and administrative 13,144,691
Operating (loss) income (5,722,702)
Other (expense) income (398,406)
(Loss) income before income taxes (6,121,108)
Income tax expense 304,298
Net (loss) income (6,425,406)
Net (loss) income attributable to noncontrolling interests (415,466)
Net (loss) income attributable to Edison Nation, Inc. $ (6,009,940)
Net (loss) income per share - basic and diluted | $ / shares $ (1.09)
Weighted average number of common shares outstanding - basic and diluted | shares 5,513,706
v3.20.2
Variable Interest Entities (Details Narrative) - USD ($)
6 Months Ended 12 Months Ended
May 20, 2020
Jun. 30, 2020
Dec. 31, 2019
Dec. 31, 2018
Common stock, par value   $ 0.001 $ 0.001 $ 0.001
Stock issued during the period, value     $ 2,039,303 $ 5,315,176
Interest rate     5.00% 5.00%
Share Exchange Agreement [Member] | Graphene Holdings, LLC [Member]        
Stock issued during period, shares 50,000      
Fair value of treated distribution $ 699,000      
Stock issued during the period, value $ 200,000      
Share Exchange Agreement [Member] | Graphene Holdings, LLC [Member] | Minimum [Member]        
Stock issued during period, shares 1,000,000      
Share Exchange Agreement [Member] | Restricted Common Stock [Member] | Graphene Holdings, LLC [Member]        
Stock issued during the period, value $ 125,000      
Share Exchange Agreement [Member] | Restricted Common Stock [Member] | Graphene Holdings, LLC [Member] | Minimum [Member]        
Stock issued during period, shares 25,000,000      
Share Exchange Agreement [Member] | PPE Brickell Supplies, LLC [Member]        
Number of units purchased 25      
Purchase units, description 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 Solutions, 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").      
Share Exchange Agreement [Member] | PPE Brickell Supplies, LLC [Member] | Restricted Common Stock [Member]        
Stock issued during period, shares 250,000      
Common stock, par value $ 0.001      
Stock issued during the period, value $ 100,000      
Share Exchange Agreement [Member] | PPE Brickell Supplies, LLC [Member] | Restricted Common Stock [Member] | Minimum [Member]        
Stock issued during period, shares 10,000,000      
Amended Limited Liability Company Agreement of Global [Member] | Graphene Holdings, LLC [Member]        
Ownership percentage   25.00%    
Amended Limited Liability Company Agreement of Global [Member] | PPE Brickell Supplies, LLC [Member]        
Ownership percentage   25.00%    
Amended Limited Liability Company Agreement of Global [Member] | Edison Nation Holdings, LLC [Member]        
Ownership percentage   50.00%    
Secured Line of Credit Agreement [Member]        
Revolving credit loan amount   $ 2,500,000    
Debt interest description   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").    
Secured Line of Credit Agreement [Member] | Global Clean Solutions, LLC and PPE Brickell Supplies, LLC [Member]        
Interest rate 3.00%      
Debt maturity date description Maturity date of six (6) months      
Debt interest description 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").      
Secured Line of Credit Agreement [Member] | Global Clean Solutions, LLC and PPE Brickell Supplies, LLC [Member] | Minimum [Member]        
Revolving credit loan amount $ 2,500,000      
Security Agreement [Member] | PPE Brickell Supplies, LLC [Member] | Borrower [Member]        
Common stock placed for reverse shares 1,800,000      
v3.20.2
Variable Interest Entities - Schedule of Variable Interest Entities (Details) - USD ($)
3 Months Ended 6 Months Ended 12 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Dec. 31, 2019
Dec. 31, 2018
Cash and cash equivalents $ 1,762,337   $ 1,762,337   $ 412,719 $ 2,052,731
Accounts receivable, net 3,086,195   3,086,195   2,108,099 1,877,351
Inventory 1,190,998   1,190,998   1,369,225 923,707
Prepaid expenses and other current assets 1,884,542   1,884,542   917,433 611,695
Total current assets 8,071,961   8,071,961   4,955,365 5,465,484
Property and equipment, net 932,027   932,027   931,968 998,863
Total assets 26,021,906   26,021,906   23,609,619 28,888,588
Accounts payable 3,047,197   3,047,197   7,397,650 5,519,159
Accrued expenses and other current liabilities 1,704,484   1,704,484   1,594,669 1,135,551
Deferred revenues 1,061,989   1,061,989   159,591 175,956
Line of credit, net of debt issuance costs of $0 and $15,573, respectively 2,151,108   2,151,108   456,995 531,804
Notes payable, current 900,765   900,765    
Due to related party 26,784   26,784   17,253 140,682
Total current liabilities 11,317,275   11,317,275   12,973,319 8,878,936
Revenues, net 6,880,026 $ 5,968,255 10,547,136 $ 11,706,789 19,629,062 16,502,209
Cost of revenues 4,889,784 3,924,252 7,308,196 7,869,810 12,822,450 11,425,619
Gross profit 1,990,242 2,044,003 3,283,940 3,836,979 6,806,612 5,076,590
Selling, general and administrative 2,770,930 3,392,596 6,963,643 6,441,784 15,909,840 9,718,286
Operating income (780,688) (1,348,593) (3,724,703) (2,604,805) (13,026,228) (4,641,696)
Total other (expense) income (821,451) (375,467) 3,392,056 (474,457) (1,192,299) (398,406)
Loss before income taxes (1,602,139) (1,724,060) (332,647) (3,079,262) (14,218,527) (5,040,102)
Income tax expense 51,005 74,200 (19,547) 303,915
Net loss (1,602,139) (1,775,065) (332,647) (3,153,462) (14,198,980) $ (5,344,017)
Variable Income Interest Rate [Member]            
Cash and cash equivalents 802,033   802,033   6,234  
Accounts receivable, net 955,246   955,246   21,697  
Inventory 20,623   20,623   51,090  
Prepaid expenses and other current assets 1,412,728   1,412,728   379,561  
Total current assets 3,190,630   3,190,630   458,582  
Property and equipment, net 24,001   24,001   32,661  
Total assets 3,214,631   3,214,631   491,243  
Accounts payable 194,738   194,738   337,648  
Accrued expenses and other current liabilities 15,806   15,806    
Deferred revenues 907,500   907,500    
Line of credit, net of debt issuance costs of $0 and $15,573, respectively 1,690,945   1,690,945    
Notes payable, current 150,000   150,000    
Due to related party 315,666   315,666   315,666  
Total current liabilities 3,274,655   3,274,655   $ 12,973,319  
Revenues, net 1,051,945 80,120 1,274,477 285,542    
Cost of revenues 789,000 49,590 994,923 124,659    
Gross profit 262,945 30,530 279,554 160,883    
Selling, general and administrative 136,648 100,961 203,562 192,699    
Operating income 126,297 (70,431) 75,992 (31,816)    
Interest expense (21,331) (56,956)    
Total other (expense) income (21,331) (56,956)    
Loss before income taxes 104,966 (70,431) 19,036 (31,816)    
Income tax expense    
Net loss $ 104,966 $ (70,431) $ 19,036 $ (31,816)    
v3.20.2
Variable Interest Entities - Schedule of Variable Interest Entities (Details) (Parenthetical) - USD ($)
Jun. 30, 2020
Dec. 31, 2019
Dec. 31, 2018
Line of Credit [Member]      
Debt issuance costs $ 0 $ 15,573 $ 30,000
v3.20.2
Accounts Receivable - Schedule of Accounts Receivable (Details) - USD ($)
Jun. 30, 2020
Dec. 31, 2019
Dec. 31, 2018
Credit Loss [Abstract]      
Accounts receivable $ 3,163,956 $ 2,185,859 $ 1,889,112
Less: Allowance for doubtful accounts (77,761) (77,760) (11,761)
Total accounts receivable, net $ 3,086,195 $ 2,108,099 $ 1,877,351
v3.20.2
Inventory - Schedule of Inventory (Details) - USD ($)
Jun. 30, 2020
Dec. 31, 2019
Dec. 31, 2018
Inventory Disclosure [Abstract]      
Raw materials $ 25,648 $ 49,232 $ 48,576
Finished goods 1,265,350 1,419,993 875,131
Reserve for obsolescence (100,000) (100,000)  
Total inventory $ 1,190,998 $ 1,369,225 $ 923,707
v3.20.2
Prepaid Expenses and Other Current Assets - Schedule of Accrued Expenses and Other Current Liabilities (Details Narrative) (10-K) - USD ($)
Jun. 30, 2020
Dec. 31, 2019
Dec. 31, 2018
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]      
Deposits on inventory   $ 680,792 $ 133,073
Deposits   11,409 66,862
Prepaid insurance   46,848 59,892
Accrued revenue   18,966 36,657
Prepaid consulting fees   137,328 251,000
Other   22,090 64,211
Total prepaid expenses and other current assets $ 1,884,542 $ 917,433 $ 611,695
v3.20.2
Property and Equipment, Net (Details Narrative) (10-K) - USD ($)
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Property, Plant and Equipment [Abstract]    
Depreciation $ 231,518 $ 175,609
v3.20.2
Property and Equipment, Net - Schedule of Property and Equipment (Details) (10-K) - USD ($)
Jun. 30, 2020
Dec. 31, 2019
Dec. 31, 2018
Property and Equipment, gross   $ 10,793,879 $ 10,633,941
Less: accumulated depreciation   (9,861,911) (9,635,078)
Total property and equipment, net $ 932,027 931,968 998,863
Land [Member]      
Property and Equipment, gross   79,100 79,100
Buildings - Rental Property [Member]      
Property and Equipment, gross   445,635 427,704
Building Improvements [Member]      
Property and Equipment, gross   766,859 760,017
Equipment and Machinery [Member]      
Property and Equipment, gross   3,917,080 3,929,332
Furniture and Fixtures [Member]      
Property and Equipment, gross   387,836 322,157
Computer Software [Member]      
Property and Equipment, gross   23,518 23,518
Molds [Member]      
Property and Equipment, gross   4,651,889 4,589,153
Vehicles [Member]      
Property and Equipment, gross   $ 521,962 $ 502,960
v3.20.2
Goodwill (Details Narrative) (10-K)
12 Months Ended
Dec. 31, 2019
USD ($)
Goodwill and Intangible Assets Disclosure [Abstract]  
Impairment $ (4,443,000)
v3.20.2
Goodwill - Schedule of Goodwill (Details) (10-K) - USD ($)
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Goodwill and Intangible Assets Disclosure [Abstract]    
Beginning Balance $ 9,736,510
Acquisitions   9,736,510
Acquisition of Uber Mom 98,613  
Impairment (4,443,000)  
Ending Balance $ 5,392,123 $ 9,736,510
v3.20.2
Intangible Assets, Net (Details Narrative) (10-K) - USD ($)
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Goodwill and Intangible Assets Disclosure [Abstract]    
Amortization of Intangible Assets $ 1,089,668 $ 312,269
v3.20.2
Intangible Assets, Net - Schedule of Intangible Assets (Details) (10-K) - USD ($)
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Jun. 30, 2020
Gross Carrying Amount $ 13,000,000 $ 13,000,000  
Net Amount 9,547,730    
Indefinite Lived Intangible Assets Accumulated Amortization 312,269 312,269  
Intangible Assets, Net (Excluding Goodwill) 11,598,063 12,687,731 $ 11,047,515
Trademarks and Trade Names [Member]      
Gross Carrying Amount 3,140,000 3,140,000  
Indefinite Lived Intangible Assets Accumulated Amortization  
Intangible Assets, Net (Excluding Goodwill) 3,140,000 3,140,000  
Indefinite-lived Intangible Assets [Member]      
Gross Carrying Amount 3,140,000 3,140,000  
Indefinite Lived Intangible Assets Accumulated Amortization  
Intangible Assets, Net (Excluding Goodwill) $ 3,140,000 $ 3,140,000  
Customer Relationships [Member]      
Useful Life 15 years 15 years  
Weighted Average Remaining Life 14 years 9 months 18 days 14 years 9 months 18 days  
Gross Carrying Amount $ 4,270,000 $ 4,270,000  
Accumulated Amortization 61,555 61,555  
Net Amount $ 4,208,445 $ 4,208,444  
Developed Technology [Member]      
Useful Life 7 years 7 years  
Weighted Average Remaining Life 6 years 8 months 12 days 6 years 8 months 12 days  
Gross Carrying Amount $ 3,800,000 $ 3,800,000  
Accumulated Amortization 159,524 159,524  
Net Amount $ 3,640,476 $ 3,640,476  
Membership Network [Member]      
Useful Life 7 years 7 years  
Weighted Average Remaining Life 6 years 8 months 12 days 6 years 8 months 12 days  
Gross Carrying Amount $ 1,740,000 $ 1,740,000  
Accumulated Amortization 82,857 82,857  
Net Amount $ 1,657,143 $ 1,657,143  
Noncompete Agreements [Member]      
Useful Life 2 years 2 years  
Weighted Average Remaining Life 1 year 8 months 12 days 1 year 8 months 12 days  
Gross Carrying Amount $ 50,000 $ 50,000  
Accumulated Amortization 8,333 8,333  
Net Amount 41,667 41,667  
Finite-Lived Intangible Assets [Member]      
Gross Carrying Amount 9,860,000 9,860,000  
Accumulated Amortization 312,269 312,269  
Net Amount $ 9,547,731 $ 9,547,731  
v3.20.2
Intangible Assets, Net - Schedule of Estimated Future Amortization of Intangibles (Details) (10-K)
Dec. 31, 2019
USD ($)
Goodwill and Intangible Assets Disclosure [Abstract]  
2020 $ 1,092,762
2021 1,076,095
2022 1,076,095
2023 1,076,095
2024 1,076,095
Thereafter $ 3,060,921
v3.20.2
Accrued Expenses and Other Current Liabilities - Schedule of Accrued Expenses and Other Current Liabilities (Details) (10-K) - USD ($)
Jun. 30, 2020
Dec. 31, 2019
Dec. 31, 2018
Payables and Accruals [Abstract]      
Accrued taxes - other   $ 261,396 $ 259,559
Accrued payroll and benefits   482,719 175,336
Accrued professional fees   201,318 133,261
Customer deposits   13,212 35,094
Accrued interest   341,559 269,782
Accrued legal contingencies   240,105
Other   54,359 262,519
Total accrued expenses and other current liabilities $ 1,704,484 $ 1,594,669 $ 1,135,551
v3.20.2
Debt (Details Narrative)
1 Months Ended 3 Months Ended 4 Months Ended 6 Months Ended 12 Months Ended
May 28, 2020
USD ($)
shares
May 19, 2020
USD ($)
Apr. 24, 2020
USD ($)
$ / shares
shares
Apr. 15, 2020
USD ($)
Apr. 07, 2020
USD ($)
Integer
$ / shares
shares
Feb. 21, 2020
USD ($)
Jan. 29, 2020
USD ($)
shares
Jan. 24, 2020
USD ($)
Jan. 24, 2020
USD ($)
shares
Jan. 23, 2020
USD ($)
$ / shares
shares
Jan. 17, 2020
USD ($)
shares
Jan. 15, 2020
USD ($)
shares
Jan. 10, 2020
USD ($)
shares
Jan. 02, 2020
USD ($)
shares
Dec. 04, 2019
USD ($)
$ / shares
shares
Nov. 18, 2019
USD ($)
Nov. 12, 2019
USD ($)
Aug. 26, 2019
USD ($)
shares
Apr. 30, 2019
Jul. 31, 2019
shares
Jun. 30, 2020
USD ($)
shares
Jun. 30, 2019
USD ($)
shares
Apr. 30, 2019
Jun. 30, 2020
USD ($)
shares
Jun. 30, 2019
USD ($)
shares
Dec. 31, 2019
USD ($)
shares
Dec. 31, 2018
USD ($)
shares
Mar. 06, 2019
USD ($)
shares
Proceeds from convertible notes payable                                               $ 1,436,000 $ 1,111,111 $ 1,111,111  
Beneficial conversion option                                         $ 588,690 $ 99,200   790,014 173,300 387,280 167,500  
Debt instrument, unamortized discount                                         $ 595,088     595,088   595,088    
Stock issued during the period, value                                                   2,039,303 5,315,176  
Proceeds from notes                                               1,767,352 1,110,000 $ 2,482,500 $ 718,559  
Debt instrument interest rate, percent                                                   5.00% 5.00%  
Payment of debt                                               $ 143,479 427,411 $ 581,496 $ 99,444  
Common stock, shares, issued | shares                                         9,618,401     9,618,401   8,015,756 5,654,830  
Common stock, value, issued                                         $ 9,618     $ 9,618   $ 8,016 $ 5,655  
Debt instrument term                                                   5 years 5 years  
Interest expense                                         847,154 401,170   2,667,513 525,864   $ 501,221  
Interest expense, related party                                         75,692 79,374   152,326 159,636 $ 1,298,168 $ 320,781  
Maximum [Member]                                                        
Receivables sold           $ 1,250,000                                            
Receivables borrowing, percentage           85.00%                                 80.00%          
Fee percentage of invoices financed           2.00%                                 2.00%          
Minimum [Member]                                                        
Fee percentage of invoices financed           1.00%                         1.00%                  
12% Convertible Promissory Note [Member]                                                        
Debt instrument, face amount                                   $ 560,000                    
Proceeds from convertible notes payable                 $ 588,366                                      
Stock issued during period, shares | shares                                   181,005                    
Debt instrument, maturity date                                   Feb. 26, 2020                    
Debt instrument, unamortized discount                                   $ 60,000                    
12% Convertible Promissory Note [Member] | Investor [Member]                                                        
Stock issued during period, shares | shares                 100,000                                      
Senior Convertible Promissory Note [Member]                                                        
Debt instrument, face amount                                                       $ 560,000
Debt instrument, unamortized discount                                                       $ 60,000
Payment of debt               $ 588,366                                        
Debt effective interest rate                                                       2.00%
Common stock, shares, issued | shares                                                       15,000
Common stock, value, issued                                                       $ 74,100
Common Stock [Member]                                                        
Stock issued during period, shares | shares                                                   1,175,000 1,312,520  
Beneficial conversion option                                         $ 279 $ 35   $ 439 $ 50 $ 286 $ 33  
Beneficial conversion option, shares | shares                                         279,400 35,000   439,400 50,000 286,005 33,500  
Stock issued during the period, value                                                   $ 1,175 $ 1,313  
Common stock, shares, issued | shares                                                   8,015,756 5,654,930  
Common Stock [Member] | 12% Convertible Promissory Note [Member]                                                        
Stock issued during period, shares | shares                 60,000                                      
Greentree Financial Group, Inc. [Member] | Investor [Member]                                                        
Warrants purchase | shares             550,000                                          
Warrants description             Loan Agreement, the Note, and the Warrant to: (i) correct the effective date set forth in the Loan Agreement, Note and Warrant to January 23, 2020 and the due date to October 23, 2020, (ii) clarify the terms of the registration right provision in the Loan Agreement such that the Company was required to register a total of 1,500,000 shares of Common Stock, which such amount of shares is the sum of 550,000 shares of Common Stock issuable upon conversion of the Note, 550,000 Warrant Shares, the 100,000 Origination Shares, and 300,000 shares of Common Stock to account for changes to the conversion and/or exercise price under the Note and Warrant, and (iii) to ensure that the total number of shares of Common Stock issued pursuant to the Loan Agreement, the Note, and/or the Warrant, each as amended, does not exceed 17.99% of the Company's issued and outstanding Common Stock as of January 23, 2020. The Company is subject to a $35,000 penalty on a monthly basis if a registration statement is not effective after 105 days from January 23, 2020.                                          
Debt instrument, maturity date             Oct. 23, 2020                                          
Beneficial conversion option             $ 586,785                                          
Beneficial conversion option, shares | shares             550,000                                          
Debt instrument, unamortized discount             $ 296,891                                          
Debt penalty             35,000                                          
Greentree Financial Group, Inc. [Member] | Warrant shares [Member] | Investor [Member]                                                        
Stock issued during the period, value             550,000                                          
Greentree Financial Group, Inc. [Member] | Origination and Advisory Shares [Member] | Investor [Member]                                                        
Debt instrument, unamortized discount             201,324                                          
Stock issued during the period, value             $ 160,000                                          
32 Entertainment LLC [Member] | Senior Secured Note [Member]                                                        
Warrants purchase | shares                             50,000                          
Warrants price | $ / shares                             $ 1.50                          
Warrants description                             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.                          
Warrants expiration date                             Dec. 04, 2024                          
Debt instrument, face amount                             $ 250,000                          
Stock issued during period, shares | shares                             10,000                          
Debt instrument, maturity date                             Dec. 04, 2020                          
Proceeds from notes                             $ 250,000                          
Debt instrument, description                             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.                          
Debt discount rate                             20.00%                          
32 Entertainment LLC [Member] | Subordinate Secured Note [Member]                                                        
Debt instrument, face amount   $ 200,000                                                    
Debt instrument, maturity date   May 21, 2021                                                    
Debt instrument interest rate, percent   16.00%                                                    
Debt periodic payment, principal $ 50,000                                                      
Debt periodic payment, interest 6,250                                                      
Debt periodic payment $ 56,250                                                      
32 Entertainment LLC [Member] | Subordinate Secured Note [Member] | Restricted Stock Units [Member]                                                        
Stock issued during period, shares | shares 40,000                                                      
Loan Agreement [Member]                                                        
Debt instrument interest rate, percent                           1.50%                            
Loans payable                           $ 400,000                            
Loan Agreement [Member] | Greentree Financial Group, Inc. [Member]                                                        
Convertible notes payable                   $ 1,100,000                                    
Investor purchase percent                   10.00%                                    
Debt instrument, conversion price | $ / shares                   $ 2.00                                    
Debt instrument, face amount                   $ 1,100,000                                    
Loan Agreement [Member] | Greentree Financial Group, Inc. [Member] | Subsequent Pricing Period [Member]                                                        
Warrants description                   In the event that the average of the 15 lowest closing prices for the Company's common stock on NASDAQ or other primary trading market for the Company's common stock (the average of such lowest closing prices being herein referred to, the "True-up Price") during the period beginning on the effective date of the Registration Statement and ending on the 90th day after the effective date of the Registration Statement (the "Subsequent Pricing Period") is less than $2.00 per share, then the Company will issue the Lender additional shares of the Company's common stock (the "True-up Shares") within three days. No value has been assigned to the True-up Shares due to the contingency of an effective Registration Statement.                                    
Debt instrument, conversion price | $ / shares                   $ 2.00                                    
Loan Agreement [Member] | Greentree Financial Group, Inc. [Member] | Warrant [Member]                                                        
Warrants purchase | shares                   550,000                                    
Warrants price | $ / shares                   $ 0.001                                    
Warrants description                   The Note 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 Note. The Note reiterates the registration rights set forth in the Loan Agreement and the Warrant. There is no prepayment penalty on the Note. If the Note is not prepaid by the 90th day after the effective date of the Registration Statement, the Investor is required to convert the entire amount of principal and interest outstanding on the Note at that time, at a price of $2.00 per share, unless an event of default (as such events are described in the Note) under the Note has occurred, in which case the 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 Note mandatorily converts. In the event that the average of the 15 lowest closing prices for the Company's common stock on NASDAQ or other primary trading market for the Company's common stock (the average of such lowest closing prices being herein referred to, the "True-up Price") during the period beginning on the effective date of the Registration Statement and ending on the 90th day after the effective date of the Registration Statement (the "Subsequent Pricing Period") is less than $2.00 per share, then the Company will issue the Lender additional shares of the Company's common stock (the "True-up Shares") within three days. No value has been assigned to the True-up Shares due to the contingency of an effective Registration Statement. The warrant has an exercise price of $2.00 per share, subject to certain adjustments to the exercise price set forth in the Warrant. The 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 Warrant is greater than $2.00 per share, the Warrant may be exercised cashlessly, based on a cashless exercise formula. The Warrant reiterates the registration rights set forth in the Loan Agreement and the Note. The Warrant also contains a repurchase provision, which at any time after the Registration Statement is effective and the 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 Warrant at a price of $1.00 per share                                    
Warrants expiration date                   Jan. 23, 2023                                    
Loan Agreement [Member] | Ed Roses, LLC [Member] | Sook Hyun Lee [Member]                                                        
Warrants expiration date                           Apr. 15, 2020                            
Debt instrument interest rate, percent                           15.00%                            
Loans payable                           $ 150,000                            
Common stock in reserve | shares                           75,000                            
Commitment fee                           $ 30,000                            
Loan Agreement [Member] | Edison Nation Inc. [Member] | Paycheck Protection Program [Member]                                                        
Debt instrument, maturity date       Apr. 15, 2022                                                
Debt instrument interest rate, percent       1.00%                                                
Proceeds from loan       $ 789,852                                                
Securities Purchase Agreement [Member]                                                        
Stock issued during period, shares | shares                                       20,000                
Securities Purchase Agreement [Member] | Jefferson Street Capital, LLC [Member] | Investor [Member]                                                        
Debt instrument, conversion price | $ / shares         $ 2.05                                              
Debt instrument, face amount         $ 168,000                                              
Stock issued during period, shares | shares         10,700                                              
Debt instrument, unamortized discount         $ 18,000                                              
Proceeds from notes         $ 150,000                                              
Debt instrument, description         The Note has a term of six (6) months, is due on October 7, 2020 and has a one-time interest charge of 2%.                                              
Debt conversion description         Upon an Event of Default, the Conversion Price shall equal the Alternate Conversion Price (as defined herein) (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower's securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The "Alternate Conversion Price" shall equal the lesser of (i) 80% multiplied by the average of the three lowest daily volume weighted average prices ("VWAP") during the previous twenty (20) Trading Days (as defined below) before the Issue Date of this Note (representing a discount rate of 20%) or (ii) 80% multiplied by the Market Price (as defined herein) (representing a discount rate of 20%). "Market Price" means the average of the three lowest daily VWAPs for the Common Stock during the twenty (20) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date.                                              
Trading days | Integer         20                                              
Securities Purchase Agreement [Member] | BHP Capital NY Inc [Member] | Investor [Member]                                                        
Debt instrument, conversion price | $ / shares         $ 2.05                                              
Debt instrument, face amount         $ 168,000                                              
Stock issued during period, shares | shares         10,700                                              
Debt instrument, unamortized discount         $ 18,000                                              
Proceeds from notes         $ 150,000                                              
Debt instrument, description         The Note has a term of six (6) months, is due on October 7, 2020 and has a one-time interest charge of 2%.                                              
Debt conversion description         Upon an Event of Default, the Conversion Price shall equal the Alternate Conversion Price (as defined herein) (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower's securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The "Alternate Conversion Price" shall equal the lesser of (i) 80% multiplied by the average of the three lowest daily volume weighted average prices ("VWAP") during the previous twenty (20) Trading Days (as defined below) before the Issue Date of this Note (representing a discount rate of 20%) or (ii) 80% multiplied by the Market Price (as defined herein) (representing a discount rate of 20%). "Market Price" means the average of the three lowest daily VWAPs for the Common Stock during the twenty (20) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date.                                              
Trading days | Integer         20                                              
Debt discount rate         20.00%                                              
Debt Conversion Agreement [Member]                                                        
Debt instrument, conversion price | $ / shares     $ 2.00                                                  
Debt instrument, face amount     $ 424,000                                                  
Share issued price per share | $ / shares     $ 2.08                                                  
Stock issued for restricted common stock | shares     212,000                                                  
5% Promissory Note Agreement [Member] | Ralls Note [Member]                                                        
Warrants purchase | shares                         125,000                              
Warrants expiration date                         Jul. 10, 2020                              
Debt instrument, face amount                         $ 267,000                              
Debt instrument, unamortized discount                         17,000                              
Payment of debt                         250,000                              
Issuance of warrants purchase value                         $ 86,725                              
Incentive shares | shares                         33,000                              
Incentive shares, value                         $ 79,860                              
5% Promissory Note Agreement [Member] | Solit Note [Member]                                                        
Warrants purchase | shares                       50,000                                
Warrants expiration date                       Jul. 15, 2020                                
Debt instrument, face amount                       $ 107,000                                
Debt instrument, unamortized discount                       7,000                                
Payment of debt                       100,000                                
Issuance of warrants purchase value                       $ 31,755                                
Incentive shares | shares                       13,000                                
Incentive shares, value                       $ 30,420                                
5% Promissory Note Agreement [Member] | 'O'Leary Note [Member]                                                        
Warrants purchase | shares                     25,000                                  
Warrants expiration date                     Jul. 17, 2020                                  
Debt instrument, face amount                     $ 53,500                                  
Debt instrument, unamortized discount                     3,500                                  
Payment of debt                     50,000                                  
Issuance of warrants purchase value                     $ 16,797                                  
Incentive shares | shares                     6,500                                  
Incentive shares, value                     $ 15,535                                  
Receivables Purchase Agreement [Member]                                                        
Receivables sold                               $ 337,500 $ 250,000                      
Proceeds from receivables                               $ 250,000 $ 200,000                      
Secured Line of Credit Agreement [Member]                                                        
Debt instrument, face amount                                         $ 2,500,000     $ 2,500,000        
Debt instrument, description                                               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").        
Debt discount rate                                         3.00%     3.00%        
Debt instrument term                                               6 months        
v3.20.2
Debt (Details Narrative) (10-K) - USD ($)
1 Months Ended 3 Months Ended 6 Months Ended 12 Months Ended
Apr. 15, 2020
Apr. 15, 2020
Mar. 16, 2020
Jan. 24, 2020
Jan. 23, 2020
Dec. 04, 2019
Nov. 18, 2019
Nov. 12, 2019
Aug. 26, 2019
Jun. 17, 2019
Jun. 14, 2019
May 16, 2019
May 13, 2019
Mar. 06, 2019
Sep. 30, 2018
Sep. 07, 2018
Sep. 04, 2018
Dec. 01, 2016
Jul. 31, 2019
Apr. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Dec. 31, 2019
Dec. 31, 2018
Jan. 02, 2020
Dec. 27, 2018
Apr. 24, 2014
Line of credit                                                 $ 472,567 $ 561,804   $ 1,000,000  
Line of credit facility, interest rate                                                 8.50%        
Debt instrument interest rate, percent                                                 5.00% 5.00%      
Debt instrument, unamortized discount                                         $ 595,088   $ 595,088   $ 595,088        
Long term debt                                         6,208,678   6,208,678   $ 6,208,678        
Debt term                                                 5 years 5 years      
Stock issued during the period, value                                                 $ 2,039,303 $ 5,315,176      
Interest expense related parties                                         75,692 $ 79,374 152,326 $ 159,636 1,298,168 320,781      
Interest expense debt                                         847,154 $ 401,170 2,667,513 $ 525,864   501,221      
Subsequent Event [Member]                                                          
Stock issued during period, shares 12,500                                                        
Stock issued during the period, value $ 12,500   $ 477,500                                                    
SRM and Fergco Acquisition [Member]                                                          
Debt instrument interest rate, percent                             6.00%                            
Business combination, consideration transferred, notes payable issued                             $ 2,996,500                            
Debt effective interest rate                             6.00%                            
NL Penn Capital, L.P [Member]                                                          
Debt instrument, maturity date                             Dec. 01, 2020                            
Debt instrument, face amount                             $ 2,120,000                            
Debt instrument, periodic payment terms, balloon payment to be paid                             $ 677,698                            
Stockholders of Fergco [Member]                                                          
Debt instrument, maturity date                             Dec. 01, 2020                            
Debt instrument, face amount                             $ 876,500                            
Debt instrument, periodic payment terms, balloon payment to be paid                             $ 1,249,043                            
Loan Agreement [Member]                                                          
Debt instrument interest rate, percent                                                     1.50%    
Loan Agreement [Member] | Subsequent Event [Member]                                                          
Debt instrument, maturity date   Apr. 15, 2022     Jan. 23, 2023                                                
Warrants to purchase shares         550,000                                                
Warrants, exercise price         $ 2.00                                                
Debt effective interest rate 1.00% 1.00%                                                      
Loan Agreement [Member] | Cloud B Inc. [Member]                                                          
Debt instrument, maturity date                                   Dec. 31, 2017                      
Long term debt                                   $ 300,000                      
Debt term                                   6 months                      
Loan Agreement [Member] | Tiburon Opportunity Fund [Member]                                                          
Debt instrument interest rate, percent                     1.50%                                    
Debt instrument, maturity date                     Dec. 27, 2019                                    
Long term debt                     $ 250,000                                    
Loan Agreement [Member] | Tiburon Opportunity Fund [Member] | Subsequent Event [Member]                                                          
Debt instrument, face amount                                                     $ 400,000    
Debt effective interest rate                                                     1.50%    
Senior Secured Note Agreement [Member] | 32 Entertainment LLC [Member]                                                          
Debt instrument interest rate, percent           10.00%                                              
Debt instrument, maturity date           Dec. 04, 2020                                              
Stock issued during period, shares           10,000                                              
Long term debt           $ 250,000                                              
Warrants to purchase shares           50,000                                              
Securities Purchase Agreement [Member]                                                          
Stock issued during period, shares                                     20,000                    
Financing Arrangement [Member]                                                          
Financing receivable description                                       The agreement allows for borrowings up to 80% of the outstanding receivable based on the credit quality of the customer. The fee is between 1% and 2% of the total invoices financed.                  
Receivables Purchase Agreement [Member]                                                          
Financing receivable               $ 225,000                                          
Payments to acquire financing receivables               $ 200,000                                          
Future Purchase Agreement [Member]                                                          
Financing receivable             $ 337,500                                            
Payments to acquire financing receivables             $ 250,000                                            
Linda Suh [Member] | Loan Agreement [Member] | Cloud B Inc. [Member]                                                          
Debt instrument interest rate, percent                                                         7.00%
Long term debt                                                         $ 100,000
Debt effective interest rate                                                         8.00%
John Royan [Member] | Loan Agreement [Member] | Cloud B Inc. [Member]                                                          
Debt instrument interest rate, percent                                                         7.00%
Long term debt                                                         $ 500,000
Debt effective interest rate                                                         8.00%
Senior Convertible Notes Payable [Member]                                                          
Convertible notes payable                                 $ 1,428,161       $ 2,012,260   $ 2,012,260   1,061,495 $ 961,494      
Debt instrument interest rate, percent                                 4.00%                        
Debt conversion price per share                                 $ 5.00                        
Debt instrument, maturity date                                 Sep. 04, 2023                        
Debt instrument, unamortized discount                                 $ 500,000                        
Debt instrument, beneficial conversion feature                                 The Company recorded a debt discount of $500,000 related to the beneficial conversion feature that will be amortized over five (5) years to interest expense.                        
February 2018 and March 2018 Notes [Member]                                                          
Notes payable                                                 $ 645,000        
February 2018 and March 2018 Notes [Member] | Note Holder One [Member]                                                          
Stock issued during period, shares                                                 20,000        
Interest expense related parties                                                 $ 167,500        
February 2018 and March 2018 Notes [Member] | Note Holder Two [Member]                                                          
Stock issued during period, shares                                                 13,500        
Commercial Delivery Vehicle Borrowings [Member]                                                          
Debt instrument interest rate, percent                               4.50%                          
Debt instrument, maturity date                               Sep. 06, 2023                          
Long term debt                               $ 73,559                          
Debt instrument, periodic payment                               1,371                          
Debt instrument, collateral amount                               $ 75,000                          
Promissory Note [Member]                                                          
Debt instrument, unamortized discount                       $ 50,000                         $ 62,000        
Notes payable                       $ 300,000                                  
Stock issued during period, shares                       20,000                                  
12% Convertible Promissory Note [Member]                                                          
Debt instrument, maturity date                 Feb. 26, 2020                                        
Debt instrument, unamortized discount                 $ 60,000                                        
Stock issued during period, shares                 181,005                                        
Debt instrument, face amount                 $ 560,000                                        
Number of shares returned                 153,005                                        
12% Convertible Promissory Note [Member] | Subsequent Event [Member]                                                          
Number of shares returned       153,005                                                  
Number of reserved shares canceled       875,000                                                  
FirstFire Note [Member] | Accredited Investor [Member] | Securities Purchase Agreement [Member]                                                          
Debt instrument, unamortized discount                           $ 60,000                              
Stock issued during period, shares                           15,000                              
Debt instrument, face amount                           $ 560,000                              
Stock issued during the period, value                           $ 74,100                              
FirstFire Note [Member] | Accredited Investor [Member] | Settlement Agreement [Member]                                                          
Stock issued during period, shares                   15,000                                      
Repayments of convertible notes                   $ 566,000                                      
May 2019 Notes [Member] | Accredited Investor [Member] | Securities Purchase Agreement [Member]                                                          
Debt instrument, maturity date                         Nov. 13, 2019                                
Debt instrument, unamortized discount                         $ 111,111                                
Debt instrument, face amount                         $ 1,111,111                                
Debt conversion description                         The per share conversion price into which the principal amount and interest under the May 2019 Notes may be converted is equal to 80% multiplied by the lowest traded price of our common stock during the 20 consecutive trading days preceding the date of conversion. The conversion price may be adjusted in connection with certain material corporate events, and the Company is subject to cash penalties in the event that the Company fails to timely deliver certificates for shares of common stock issuable upon conversion of May 2019 Notes. The May 2019 Notes contain a cap, such that the total number of shares of Common Stock issuable under the May 2019 Notes are limited to 19.99% of the Company's outstanding shares of common stock as of May 13, 2019. The Company issued 20,000 shares of its common stock to the note holders as additional consideration for the purchase of the notes in July 2019. So long as an Event of Default has not occurred under the terms of the May 2019 Notes, the Company may prepay the May 2019 Notes at any time, given not less than three trading days' notice. If the Company exercises its right to prepay the May 2019 Notes at any time within the initial 180 days following May 13, 2019, the prepayment amount to be paid by the Company shall be an amount in cash equal to the sum of 115% multiplied by the principal on the May 2019 Notes then outstanding, plus all accrued and unpaid interest, including unpaid default interest, if any.                                
2% Senior Secured Convertible Promissory Notes [Member]                                                          
Warrants to purchase shares                         24,366                                
Warrants, exercise price                         $ 2.85                                
Stock issued during the period, value                         $ 560,185                                
v3.20.2
Debt - Schedule of Debt (Details) - USD ($)
Jun. 30, 2020
Dec. 31, 2019
Dec. 31, 2018
Dec. 27, 2018
Sep. 04, 2018
Lines of credit   $ 472,567 $ 561,804 $ 1,000,000  
Debt issuance costs (15,573) (30,000)    
Total line of credit 2,151,108 456,995 531,804    
Less: current portion of long-term notes payable 900,765      
Total long-term debt 6,208,678 6,208,678      
Less: current portion of long-term debt (900,765)      
Noncurrent portion of long-term debt 825,004 42,492 56,688    
Notes payable 2,667,513 3,282,021 3,464,191    
Less: current portion of long-term debt - related parties (1,166,365) (1,686,352) (932,701)    
Noncurrent portion of long-term debt - related parties 1,501,148 1,595,669 2,531,490    
Senior Convertible Notes Payable [Member]          
Senior convertible notes payable 1,100,000 1,428,161 1,428,161    
Debt issuance costs (851,901) (366,666) (466,667)    
Total long-term senior convertible notes payable 2,012,260 1,061,495 961,494   $ 1,428,161
Less: current portion of long-term notes payable      
Noncurrent portion of long-term convertible notes payable 1,111,495 1,061,495 961,494    
Notes Payable [Member]          
Debt issuance costs        
Debt issuance costs (86,350) (212,848) 0    
Notes payable 1,882,064 1,621,015 370,250    
Total long-term debt   1,108,433 370,250    
Less: current portion of long-term debt (970,710) (1,365,675) (313,572)    
Noncurrent portion of long-term debt   42,492 $ 56,688    
Secured Line of Credit [Member]          
Lines of credit 1,690,945      
Receivables Financing [Member]          
Lines of credit $ 460,163 $ 472,567      
v3.20.2
Debt - Schedule of Maturities of Long-term Debt (Details) - USD ($)
Jun. 30, 2020
Dec. 31, 2019
Debt Disclosure [Abstract]    
2020 (excluding the six months ended June 30, 2020) $ 3,737,443
2020 3,737,443
2021 206,760 206,760
2022 1,419,285 1,419,285
2023 1,440,278 1,440,278
2024
Thereafter
Long-term Debt, Gross 6,803,766 6,803,766
Less: debt discount (595,088) (595,088)
Long-term Debt $ 6,208,678 $ 6,208,678
v3.20.2
Income Taxes (Details Narrative) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Income Tax Disclosure [Abstract]        
Gain on divestiture $ 4,911,760
Operating loss carryforwards $ 1,030,000   $ 1,030,000  
v3.20.2
Income Taxes (Details Narrative) (10-K) - USD ($)
Jun. 30, 2020
Dec. 31, 2019
Dec. 31, 2018
Operating loss carryforwards $ 1,030,000    
Deferred tax assets   $ 3,471,040 $ 1,194,587
Deferred tax assets, valuation allowance   2,424,196 1,194,587
Federal [Member]      
Operating loss carryforwards   9,675,770 2,223,498
State [Member]      
Operating loss carryforwards   $ 7,532,274 $ 0
v3.20.2
Income Taxes - Schedule of Income Before Income Tax, Domestic and Foreign (Details) (10-K) - USD ($)
3 Months Ended 6 Months Ended 12 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Dec. 31, 2019
Dec. 31, 2018
Income Tax Disclosure [Abstract]            
United States         $ (14,210,716) $ (5,828,261)
Foreign         (7,811) 788,159
Income before income taxes $ (1,602,139) $ (1,724,060) $ (332,647) $ (3,079,262) $ (14,218,527) $ (5,040,102)
v3.20.2
Income Taxes - Schedule of Deferred Tax Assets and Liabilities (Details) (10-K) - USD ($)
Dec. 31, 2019
Dec. 31, 2018
Income Tax Disclosure [Abstract]    
Stock-based compensation $ 987,747 $ 682,115
Goodwill and intangible assets 19,410
Operating lease liabilities 158,430  
Net operating loss carryforwards 2,324,863 493,063
Less: valuation allowance (2,424,196) (1,194,587)
Net deferred tax assets 1,046,844
Right of use assets (153,741)
Goodwill and intangible assets (811,000)
Property and equipment (82,103) 341
Net deferred tax liabilities (1,046,844) 341
Net deferred tax liabilities $ 341
v3.20.2
Income Taxes - Schedule of Components of Income Tax Expense (Benefit) (Details) (10-K) - USD ($)
3 Months Ended 6 Months Ended 12 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Dec. 31, 2019
Dec. 31, 2018
Income Tax Disclosure [Abstract]            
Current: Federal         $ 10,185
Current: Foreign         3,166 292,491
Current: State and local         (22,372) 35,107
Total current         (19,206) 337,783
Deferred: Federal         (896,468) (722,975)
Deferred: Foreign         (341) (2,316)
Deferred: State and local         (333,141) (10,102)
Less: valuation allowance         1,229,609 701,525
Total deferred         (341) (33,868)
Income tax provision (benefit) $ 51,005 $ 74,200 $ (19,547) $ 303,915
v3.20.2
Income Taxes - Schedule of Effective Income Tax Rate Reconciliation (Details)
6 Months Ended 12 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Dec. 31, 2019
Dec. 31, 2018
Income Tax Disclosure [Abstract]        
Tax at federal statutory rate 21.00% 21.00% 21.00% 21.00%
Effect of U.S. tax law change     0.00% 0.00%
U.S. income attributable to pass-through entity     0.00% 0.00%
U.S. income subject to valuation allowance (21.00%) (21.00%) (14.60%) (20.50%)
State and local income taxes     0.20% 0.00%
Foreign income not subject to U.S. federal tax     0.00% 0.00%
Foreign tax 0.00% (1.70%) 0.00% (6.30%)
Nondeductible expenses     (6.50%) 0.00%
Other     0.00% (0.20%)
Effective income tax rate 0.00% (1.70%) (0.10%) (6.00%)
v3.20.2
Related Party Transactions (Details Narrative) - USD ($)
Jun. 30, 2020
Dec. 31, 2019
Dec. 31, 2018
Due to related parties, current $ 26,784 $ 17,253 $ 140,682
SRM LLC and NL Penn Capital, LP. [Member]      
Due to related parties, current $ 57,784 $ 17,253 $ 140,682
v3.20.2
Related Party Transactions (Details Narrative) (10-K) - USD ($)
12 Months Ended
Aug. 01, 2018
Dec. 31, 2019
Jun. 30, 2020
Dec. 31, 2018
Due to related parties, current   $ 17,253 $ 26,784 $ 140,682
Enventys Partners, LLC [Member]        
Related party fee related to services $ 15,000 97,500    
Enventys Partners, LLC [Member] | Website Development [Member]        
Related party fee related to services   10,000    
NL Penn Capital, LP [Member]        
Due from related parties, current       470,000
Best Party Concepts, LLC [Member]        
Due from related parties, current       $ 500,000
Business acquisition, voting membership interest percentage       50.00%
SRM LLC and NL Penn Capital, LP. [Member]        
Due to related parties, current   $ 17,253 $ 57,784 $ 140,682
v3.20.2
Commitments and Contingencies (Details Narrative) - USD ($)
3 Months Ended 6 Months Ended 12 Months Ended
Apr. 14, 2020
Feb. 12, 2020
Jul. 15, 2019
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Dec. 31, 2019
Dec. 31, 2018
Jan. 02, 2019
Operating lease, liability       $ 326,482   $ 326,482   $ 754,427    
Right of use assets - operating leases, net       578,280   578,280   732,100
Operating cash outflows relating to operating lease liabilities       81,105   164,091        
Operating lease expense       $ 75,997   $ 153,818        
Operating lease, weighted average remaining lease term       3 years 8 months 12 days   3 years 8 months 12 days        
Operating lease, weighted average discount rate, percent       4.50%   4.50%        
Operating leases, rent expense       $ 122,943 $ 138,070 $ 269,709 $ 282,503 451,711 343,253  
Rental income       $ 25,703 $ 25,703 $ 51,407 $ 51,407 $ 102,815 $ 102,815  
Legal settlement amount     $ 1,100              
Oceanside Traders, LLC [Member]                    
Legal settlement amount $ 443,383                  
Settlement costs 284,249                  
Oceanside Traders, LLC [Member] | Plaintiff for Goods Sold [Member]                    
Legal settlement amount 141,007                  
Oceanside Traders, LLC [Member] | Overpayments [Member]                    
Legal settlement amount 138,180                  
Oceanside Traders, LLC [Member] | Lost Profits [Member]                    
Legal settlement amount $ 279,187                  
Rosenberg Fortuna & Laitman LLP [Member]                    
Legal settlement amount   $ 50,000                
Settlement costs   $ 50,000                
v3.20.2
Commitments and Contingencies (Details Narrative) (10-K) - USD ($)
3 Months Ended 6 Months Ended 12 Months Ended
Apr. 14, 2020
Apr. 14, 2020
Feb. 12, 2020
Sep. 12, 2019
Jul. 15, 2019
Jul. 01, 2019
Nov. 01, 2018
Oct. 01, 2018
Aug. 08, 2018
Jun. 06, 2018
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Dec. 31, 2019
Dec. 31, 2018
Apr. 15, 2020
Operating leases, rent expense                     $ 122,943 $ 138,070 $ 269,709 $ 282,503 $ 451,711 $ 343,253  
Operating leases, rent expense, sublease rentals                             102,815 102,815  
Compensation of common stock, value                             $ 8,850 $ 559,499  
Legal settlement amount         $ 1,100                        
Consulting Agreements [Member]                                  
Compensation of common stock       50,000                          
Agreement term       1 year                          
Compensation of common stock, value       $ 33,333                          
Minimum bonus       $ 100,000                          
Consulting Agreements [Member] | Six-month Anniversary of Agreement [Member]                                  
Compensation of common stock       50,000                          
Consulting Agreements [Member] | 90 Day Anniversary [Member]                                  
Compensation of common stock       300,000                          
Agreement term       5 years                          
Consulting Agreements [Member] | Party After 3-Year Anniversary [Member]                                  
Agreement term       3 years                          
Winter Park, Florida [Member]                                  
Lease expiration date               Sep. 30, 2020                  
Operating leases, rent expense, minimum rentals               $ 1,887                  
Operating leases, future minimum payments due               $ 45,288                  
Bethlehem, Pennsylvania [Member]                                  
Lease expiration date           Jul. 31, 2020                      
Operating leases, rent expense, minimum rentals           $ 2,415                      
Operating leases, future minimum payments due           $ 89,000                      
Best Party Concepts, LLC [Member]                                  
Lease expiration date                   May 30, 2020              
Operating leases, rent expense, minimum rentals                   $ 1,880              
Operating leases, future minimum payments due                   $ 22,560              
SRM Entertainment Ltd. [Member]                                  
Lease expiration date                 Aug. 07, 2020                
Operating leases, rent expense, minimum rentals                 $ 6,400                
Operating leases, future minimum payments due                 $ 154,000                
Cloud B, Inc. [Member]                                  
Lease expiration date             Oct. 31, 2021                    
Operating leases, rent expense, minimum rentals             $ 16,175                    
Operating leases, future minimum payments due             $ 582,300                    
Oceanside Traders, LLC [Member]                                  
Legal settlement amount $ 443,383                                
Settlement costs 284,249 $ 284,249                              
Oceanside Traders, LLC [Member] | Subsequent Event [Member]                                  
Legal settlement amount   443,383                              
Settlement costs                                 $ 190,105
Oceanside Traders, LLC [Member] | Plaintiff for Goods Sold [Member]                                  
Legal settlement amount 141,007                                
Oceanside Traders, LLC [Member] | Plaintiff for Goods Sold [Member] | Subsequent Event [Member]                                  
Legal settlement amount   141,007                              
Oceanside Traders, LLC [Member] | Overpayments [Member]                                  
Legal settlement amount 138,180                                
Oceanside Traders, LLC [Member] | Overpayments [Member] | Subsequent Event [Member]                                  
Legal settlement amount   138,180                              
Oceanside Traders, LLC [Member] | Lost Profits [Member]                                  
Legal settlement amount $ 279,187                                
Oceanside Traders, LLC [Member] | Lost Profits [Member] | Subsequent Event [Member]                                  
Legal settlement amount   $ 279,187                              
Rosenberg Fortuna & Laitman LLP [Member]                                  
Legal settlement amount     $ 50,000                            
Settlement costs     50,000                            
Rosenberg Fortuna & Laitman LLP [Member] | Subsequent Event [Member]                                  
Legal settlement amount     50,000                            
Settlement costs     $ 50,000                            
v3.20.2
Commitments and Contingencies - Schedule of Reconciliation of Future Undiscounted Cash Flows (Details) (10-K) - USD ($)
Jun. 30, 2020
Dec. 31, 2019
Jan. 02, 2019
Dec. 31, 2018
Commitments and Contingencies Disclosure [Abstract]        
2020   $ 315,660    
2021   267,249    
2022   96,288    
2023   78,648    
2024   52,432    
2025 and thereafter      
Total future lease payments   810,277    
Less: imputed interest   (55,850)    
Present value of future operating lease payments $ 326,482 754,427    
Less: current portion of operating lease liabilities (279,427) (272,215)
Operating lease liabilities, net of current portion 326,482 482,212
Right of use assets - operating leases, net $ 578,280 $ 732,100
v3.20.2
Stockholders' Equity (Details Narrative) - USD ($)
6 Months Ended 12 Months Ended
Jun. 30, 2020
Dec. 31, 2018
Dec. 31, 2019
Feb. 09, 2018
Preferred stock, par value $ 0.001   $ 0.001  
Preferred stock, shares authorized 30,000,000   30,000,000  
Preferred stock, shares issued 0   0  
Preferred stock, shares outstanding 0   0  
Share-based compensation arrangement by share-based payment award, options, nonvested, number of shares 26,667   26,667  
Employee service share-based compensation, nonvested awards, compensation not yet recognized, stock options $ 15,535   $ 46,605  
Employee service share-based compensation, nonvested awards, compensation cost not yet recognized, period for recognition 1 year 1 year    
Omnibus Incentive Plan [Member]        
Share-based compensation arrangement by share-based payment award, number of shares authorized       1,764,705
v3.20.2
Stockholders' Equity (Details Narrative) (10-K) - USD ($)
1 Months Ended 3 Months Ended 6 Months Ended 12 Months Ended
Oct. 02, 2019
May 13, 2019
Oct. 31, 2019
Mar. 31, 2019
Aug. 30, 2018
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Dec. 31, 2019
Dec. 31, 2018
Aug. 16, 2019
Feb. 09, 2018
Stock issued during period, value                 $ 2,039,303 $ 5,315,176    
Proceeds from issuance of common stock     $ 2,039,303           $ 2,048,562 $ 5,315,176    
Common stock, shares, issued             9,618,401   8,015,756 5,654,830    
Common stock, shares, outstanding             9,618,401   8,015,756 5,654,830    
Common stock, par value             $ 0.001   $ 0.001 $ 0.001    
Preferred stock, authorized             30,000,000   30,000,000      
Preferred stock, shares Issued             0   0      
Preferred stock, shares outstanding             0   0      
Share-based compensation arrangement by share-based payment award, options, nonvested, number of shares             26,667   26,667      
Employee service share-based compensation, nonvested awards, compensation not yet recognized, stock options             $ 15,535   $ 46,605      
Employee service share-based compensation, nonvested awards, compensation cost not yet recognized, period for recognition             1 year     1 year    
Share-based compensation             $ 1,588,427 $ 708,490 $ 2,299,915 $ 3,386,493    
Gross proceeds from the PIPE transaction     2,350,000                  
Payments for placement agent and lawyers fees     310,697                  
Consultants [Member]                        
Stock issued during period, shares, issued for services       10,500                
PIPE Purchase Agreement [Member]                        
Common stock, par value $ 0.001                      
Purchase price per share $ 2.00                      
SRM Entertainment Ltd. [Member] | Consultants [Member]                        
Stock issued during period, shares, issued for services                   50,000    
Alexander Capital, LP [Member]                        
Placement agent commission     141,000                  
Payments for placement agent debt restructuring fee     64,208                  
Placement agent debt conversion fee     15,889                  
Placement agent fees     $ 33,600                  
Consulting Agreements [Member]                        
Share-based compensation                   $ 1,721,250    
PIPE Purchase Agreement [Member] | Accredited Investors [Member]                        
Stock issued during period, shares 1,175,000                      
Common stock, par value $ 0.001                      
Purchase price per share $ 2.00                      
Percentage the entity is obligated to pay on total purchase price per month 1.00%                      
Maximum percentage the entity is obligated to pay on total purchase price in aggregate 8.00%                      
Debt conversion, converted instrument, shares   560,185                    
Debt instrument, convertible, conversion price   $ 2.00                    
Selling Agent Agreement [Member] | Selling Agent Warrants [Member]                        
Number of warrants to purchase common stock                     65,626  
Warrant, exercise price                 $ 6.00      
Value of warrants issued, percentage                 6.00%      
Percentage of exercise price of shares issued                 125.00%      
Description of stock on transaction                 The Company agreed to issue to the selling agent in the IPO, warrants to purchase a number of shares of the common stock equal to 5.0% of the total shares of common stock sold in any closing of the IPO, excluding shares purchased by investors sourced via alternative funding platforms (the "Selling Agent Warrants").      
Class of warrant or right expiration period                 5 years      
Class of warrant or right exercise price percentage threshold                 20.00%      
Class of warrant or right, outstanding                     65,626  
Common Stock [Member]                        
Stock issued during period, shares                 1,175,000 1,312,520    
Stock issued during period, value                 $ 1,175 $ 1,313    
Common stock, shares, issued                 8,015,756 5,654,930    
Common stock, shares, outstanding                 8,015,756 5,654,930    
Stock issued during period, shares, issued for services           22,500   33,000 291,736 158,797    
Placement Agent Warrants [Member]                        
Number of warrants to purchase common stock     70,500                  
Warrant, exercise price     $ 2.50                  
Omnibus Incentive Plan [Member]                        
Share-based compensation arrangement by share-based payment award, number of shares authorized                       1,764,705
IPO [Member]                        
Stock issued during period, shares         1,312,520              
Public offering price per share         $ 5.00              
Stock issued during period, value         $ 6,562,600              
Proceeds from issuance of common stock         5,315,176              
Underwriter commissions and expenses         714,802              
Legal fees         157,358              
Escrow closing fees         4,000              
Deferred offering costs         $ 1,204,030              
Private Placement [Member] | PIPE Purchase Agreement [Member]                        
Stock issued during period, shares 1,175,000                      
v3.20.2
Stockholders' Equity - Schedule of Share-based Compensation, Stock Options, Activity (Details) - USD ($)
6 Months Ended 12 Months Ended
Jun. 30, 2020
Dec. 31, 2019
Equity [Abstract]    
Shares, Balance, January 1, 2020 80,000 290,000
Shares, Granted
Shares, Forfeited   (210,000)
Shares, Balance, March 31, 2020 80,000 80,000
Shares, Exercisable, Balance, March 31, 2020 53,333 53,333
Weighted Average Exercise Price, Balance, January 1, 2020 $ 7.01 $ 5.55
Weighted Average Exercise Price, Granted
Weighted Average Exercise Price, Forfeited   5.00
Weighted Average Exercise Price, Balance, March 31, 2020 7.01 7.01
Weighted Average Exercise Price, Exercisable, Balance, March 31, 2020 $ 7.01 $ 7.01
Remaining Contractual Life in Years, Balance, January 1, 2020 3 years 8 months 12 days 4 years 2 months 12 days
Remaining Contractual Life in Years, Granted 0 years 0 years
Remaining Contractual Life in Years, Forfeited   0 years
Remaining Contractual Life in Years, Balance, March 31, 2020 3 years 6 months 3 years 8 months 12 days
Remaining Contractual Life in Years, Exercisable, Balance, March 31, 2020 3 years 6 months 3 years 8 months 12 days
Aggregate Intrinsic Value, Balance, January 1, 2020
Aggregate Intrinsic Value, Granted
Aggregate Intrinsic Value, Forfeited  
Aggregate Intrinsic Value, Balance, March 31, 2020
Aggregate Intrinsic Value, Exercisable, Balance, March 31, 2020
v3.20.2
Stockholders' Equity - Schedule of Stock Compensation Expense by Award Type (Details) (10-K) - USD ($)
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Allocated Share-based Compensation Expense $ 2,299,915 $ 3,248,166
Stock Option Awards [Member]    
Allocated Share-based Compensation Expense 175,675 304,745
Non-Employee Awards [Member]    
Allocated Share-based Compensation Expense 1,564,670 2,329,874
Restricted Stock Unit Awards [Member]    
Allocated Share-based Compensation Expense 447,300 559,499
Phantom Stock Awards [Member]    
Allocated Share-based Compensation Expense $ 112,270 $ 54,048
v3.20.2
Subsequent Events (Details Narrative) - USD ($)
1 Months Ended 3 Months Ended 6 Months Ended 12 Months Ended
Aug. 19, 2020
Aug. 12, 2020
Aug. 04, 2020
Aug. 03, 2020
Jul. 29, 2020
Jul. 24, 2020
Jul. 23, 2020
Jul. 14, 2020
Jul. 06, 2020
Jul. 02, 2020
May 21, 2020
May 17, 2020
Apr. 24, 2020
Apr. 15, 2020
Mar. 16, 2020
Mar. 31, 2019
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Dec. 31, 2019
Dec. 31, 2018
Jan. 29, 2020
Sep. 04, 2018
Stock issued during period, incentive shares value                                 $ 88,625   $ 141,125 $ 738,300 $ 801,000    
Original issue discount                                   $ 595,088   $ 595,088      
Common stock, shares, outstanding                                   9,618,401   8,015,756 5,654,830    
Proceeds from notes                                   $ 1,767,352 $ 1,110,000 $ 2,482,500 $ 718,559    
Stock issued during period, value                                       $ 2,039,303 $ 5,315,176    
Edison Nation Holdings, LLC [Member]                                              
Ownership percentage                                             100.00%
Consultants [Member]                                              
Stock issued during the period, incentive shares                               10,500              
Greentree Financial Group, Inc. [Member] | Investor [Member]                                              
Original issue discount                                           $ 296,891  
Subsequent Event [Member]                                              
Stock issued during period, shares                           12,500                  
Stock issued during period, value                           $ 12,500 $ 477,500                
Subsequent Event [Member] | Edison Nation Holdings, LLC [Member]                                              
Stock issued during period, shares 990,000                                            
Stock issued during period, value $ 3,168,000                                            
Subsequent Event [Member] | Purchase of Inventory and Repurchase Agreement [Member]                                              
Stock issued during period, shares                       10,000                      
Commitment fee   $ 13,053                                          
Agreement description   Under the terms of the Amendment, (i) the repurchase date is extended to December 10, 2020; and (ii) the Company agreed to pay the Purchaser-Assignee a commitment fee of $13,053, and (iii) the Company agreed to pay the Purchaser-Assignee 2% per month for extension                                          
Subsequent Event [Member] | Consultant [Member]                                              
Stock issued during the period, incentive shares                 25,000   50,000                        
Stock issued during period, incentive shares value                 $ 61,000   $ 114,000                        
Subsequent Event [Member] | Richard O'Leary [Member] | Note Agreement [Member] | Warrant [Member]                                              
Extended maturity date of agreement               Jan. 17, 2021                              
Original issue discount               $ 7,000                              
Additional incentive shares               6,500                              
Expiration date of warrant               Jun. 30, 2021                              
Additional incentive shares, value               $ 24,570                              
Subsequent Event [Member] | Paul J. Solit and Julie B. Solit [Member] | Note Agreement [Member] | Warrant [Member]                                              
Stock issued during the period, incentive shares               13,000                              
Extended maturity date of agreement               Dec. 15, 2020                              
Original issue discount               $ 14,000                              
Additional incentive shares               13,000                              
Additional incentive shares, value               $ 49,140                              
Subsequent Event [Member] | Note Holder [Member]                                              
Stock issued during the period, incentive shares             320,000                                
Stock issued during period, incentive shares value             $ 1,158,400                                
Subsequent Event [Member] | Consultant One [Member]                                              
Stock issued during the period, incentive shares           113,312                                  
Stock issued during period, incentive shares value           $ 379,595                                  
Subsequent Event [Member] | Consultant Two [Member]                                              
Stock issued during the period, incentive shares           113,312                                  
Stock issued during period, incentive shares value           $ 379,595                                  
Subsequent Event [Member] | Consultants [Member]                                              
Stock issued during the period, incentive shares     20,000 30,000                                      
Stock issued during period, incentive shares value     $ 75,400 $ 116,700                                      
Subsequent Event [Member] | O'Leary Financing [Member]                                              
Stock issued during the period, incentive shares                   6,500                          
Stock issued during period, incentive shares value                   $ 15,535                          
Subsequent Event [Member] | Equity Trust Company [Member] | Note Agreement [Member] | Warrant [Member]                                              
Stock issued during the period, incentive shares               33,000                              
Extended maturity date of agreement               Jan. 10, 2021                              
Original issue discount               $ 34,000                              
Additional incentive shares               33,000                              
Additional incentive shares, value               $ 124,740                              
Common stock, shares, outstanding               191,000                              
Class of warrant or right, outstanding               125,000                              
Subsequent Event [Member] | Greentree Financial Group, Inc. [Member]                                              
Principal amount     740,000       360,000                                
Interest             $ 131,889                                
Proceeds from notes     $ 370,000                                        
Stock issued during period, shares     1,394,900                                        
Subsequent Event [Member] | Jefferson Street Capital, LLC [Member]                                              
Stock issued during period, shares                         10,700                    
Stock issued during period, value                         $ 18,725                    
Subsequent Event [Member] | Jefferson Street Capital, LLC [Member] | Investor [Member]                                              
Original issue discount         $ 24,000                                    
Principal amount         224,000                                    
Proceeds from notes         $ 200,000                                    
Debt instrument description         The Note has a term of six (6) months, is due on January 29, 2021 and has a one-time interest charge of 2%.                                    
Stock issued during period, shares         14,266                                    
Debt instrument, conversion price         $ 2.05                                    
v3.20.2
Subsequent Events (Details Narrative) (10-K)
1 Months Ended 3 Months Ended 6 Months Ended 12 Months Ended
Aug. 04, 2020
USD ($)
shares
Jul. 29, 2020
USD ($)
$ / shares
shares
Jul. 06, 2020
USD ($)
shares
May 28, 2020
USD ($)
shares
May 22, 2020
USD ($)
shares
May 21, 2020
USD ($)
shares
May 19, 2020
USD ($)
May 17, 2020
shares
May 07, 2020
USD ($)
Apr. 24, 2020
USD ($)
$ / shares
shares
Apr. 15, 2020
USD ($)
shares
Apr. 15, 2020
USD ($)
Apr. 07, 2020
USD ($)
$ / shares
shares
Mar. 16, 2020
USD ($)
shares
Mar. 11, 2020
USD ($)
shares
Feb. 17, 2020
$ / shares
shares
Feb. 07, 2020
USD ($)
shares
Jan. 29, 2020
Jan. 29, 2020
Jan. 24, 2020
USD ($)
shares
Jan. 24, 2020
USD ($)
Jan. 23, 2020
USD ($)
Integer
$ / shares
shares
Jan. 17, 2020
USD ($)
shares
Jan. 15, 2020
USD ($)
shares
Jan. 13, 2020
USD ($)
shares
Jan. 10, 2020
USD ($)
shares
Jan. 02, 2020
USD ($)
Aug. 26, 2019
USD ($)
shares
Jun. 14, 2019
Jul. 31, 2019
shares
Jun. 30, 2019
USD ($)
Jun. 30, 2020
USD ($)
$ / shares
shares
Jun. 30, 2019
USD ($)
Dec. 31, 2019
USD ($)
$ / shares
shares
Dec. 31, 2018
USD ($)
$ / shares
shares
Jul. 23, 2020
USD ($)
May 20, 2020
May 13, 2020
Mar. 25, 2020
$ / shares
shares
Value of shares issued during period for service rendered                                                             $ 88,625   $ 141,125 $ 738,300 $ 801,000        
Common stock, par value | $ / shares                                                               $ 0.001   $ 0.001 $ 0.001        
Proceeds from convertible promissory note                                                               $ 1,436,000 $ 1,111,111 $ 1,111,111        
Stock issued during period, value                                                                   $ 2,039,303 $ 5,315,176        
Common stock, shares, outstanding | shares                                                               9,618,401   8,015,756 5,654,830        
Preferred stock, par value | $ / shares                                                               $ 0.001   $ 0.001          
Preferred stock, authorized | shares                                                               30,000,000   30,000,000          
Repurchase inventory                                                               $ 1,190,998   $ 1,369,225 $ 923,707        
12% Convertible Promissory Note [Member]                                                                              
Debt instrument, face amount                                                       $ 560,000                      
Debt instrument, maturity date                                                       Feb. 26, 2020                      
Proceeds from convertible promissory note                                       $ 588,366                                      
Number of shares returned | shares                                                       153,005                      
Stock issued during period, shares | shares                                                       181,005                      
Investor [Member] | 12% Convertible Promissory Note [Member]                                                                              
Stock issued during period, shares | shares                                       100,000                                      
Greentree Financial Group, Inc. [Member] | Investor [Member]                                                                              
Debt instrument, maturity date                                     Oct. 23, 2020                                        
Loan Agreement [Member] | Tiburon Opportunity Fund [Member]                                                                              
Debt instrument, maturity date                                                         Dec. 27, 2019                    
Loan Agreement [Member] | Greentree Financial Group, Inc. [Member]                                                                              
Debt instrument, face amount                                           $ 1,100,000                                  
Debt conversion price per share | $ / shares                                           $ 2.00                                  
Debt Conversion Agreement [Member]                                                                              
Debt instrument, face amount                   $ 424,000                                                          
Debt conversion price per share | $ / shares                   $ 2.00                                                          
Securities Purchase Agreement [Member]                                                                              
Stock issued during period, shares | shares                                                           20,000                  
Securities Purchase Agreement [Member] | BHP Capital NY Inc. [Member] | Investor [Member]                                                                              
Debt instrument, face amount                         $ 168,000                                                    
Debt conversion price per share | $ / shares                         $ 2.05                                                    
Debt conversion description                         Upon an Event of Default, the Conversion Price shall equal the Alternate Conversion Price (as defined herein) (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower's securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The "Alternate Conversion Price" shall equal the lesser of (i) 80% multiplied by the average of the three lowest daily volume weighted average prices ("VWAP") during the previous twenty (20) Trading Days (as defined below) before the Issue Date of this Note (representing a discount rate of 20%) or (ii) 80% multiplied by the Market Price (as defined herein) (representing a discount rate of 20%). "Market Price" means the average of the three lowest daily VWAPs for the Common Stock during the twenty (20) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date.                                                    
Stock issued during period, shares | shares                         10,700                                                    
Securities Purchase Agreement [Member] | Jefferson Street Capital, LLC. [Member] | Investor [Member]                                                                              
Debt instrument, face amount                         $ 168,000                                                    
Debt conversion price per share | $ / shares                         $ 2.05                                                    
Debt conversion description                         Upon an Event of Default, the Conversion Price shall equal the Alternate Conversion Price (as defined herein) (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower's securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The "Alternate Conversion Price" shall equal the lesser of (i) 80% multiplied by the average of the three lowest daily volume weighted average prices ("VWAP") during the previous twenty (20) Trading Days (as defined below) before the Issue Date of this Note (representing a discount rate of 20%) or (ii) 80% multiplied by the Market Price (as defined herein) (representing a discount rate of 20%). "Market Price" means the average of the three lowest daily VWAPs for the Common Stock during the twenty (20) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date.                                                    
Stock issued during period, shares | shares                         10,700                                                    
Subsequent Event [Member]                                                                              
Stock issued during period, shares | shares                     12,500                                                        
Stock issued during period, value                     $ 12,500     $ 477,500                                                  
Preferred stock, par value | $ / shares                                                                             $ 0.001
Preferred stock, authorized | shares                                                                             30,000,000
Subsequent Event [Member] | 12% Convertible Promissory Note [Member]                                                                              
Number of shares returned | shares                                       153,005                                      
Number of reserved shares canceled | shares                                       875,000                                      
Subsequent Event [Member] | Consultant [Member]                                                                              
Stock issued during period, shares, issued for services | shares     25,000     50,000                                                                  
Value of shares issued during period for service rendered     $ 61,000     $ 114,000                                                                  
Subsequent Event [Member] | Ridgewood LLC [Member]                                                                              
Stock issued during period, shares, issued for services | shares                                                 50,000                            
Value of shares issued during period for service rendered                                                 $ 100,000                            
Subsequent Event [Member] | Greentree Financial Group, Inc. [Member]                                                                              
Debt instrument, face amount $ 740,000                                                                     $ 360,000      
Description on amendment agreement                                   (i) correct the effective date set forth in the Loan Agreement, Note and Warrant to January 23, 2020, (ii) clarify the terms of the registration right provision in the Loan Agreement, and (iii) to ensure that the total number of shares of Common Stock issued pursuant to the Loan Agreement, the Note, and/or the Warrant, each as amended, does not exceed 17.99% of the Company's issued and outstanding Common Stock as of January 23, 2020.                                          
Stock issued during period, shares | shares 1,394,900                                                                            
Subsequent Event [Member] | MZHCI, LLC [Member]                                                                              
Stock issued during period, shares | shares                                 15,000                                            
Stock issued during period, value                                 $ 40,350                                            
Subsequent Event [Member] | Caro Partners, LLC [Member]                                                                              
Stock issued during period, value                     $ 31,625                                                        
Subsequent Event [Member] | BHP Capital NY Inc. [Member]                                                                              
Stock issued during period, shares | shares                   10,700                                                          
Stock issued during period, value                   $ 18,725                                                          
Subsequent Event [Member] | Jefferson Street Capital, LLC. [Member]                                                                              
Stock issued during period, shares | shares                   10,700                                                          
Stock issued during period, value                   $ 18,725                                                          
Subsequent Event [Member] | Jefferson Street Capital, LLC. [Member] | Investor [Member]                                                                              
Debt instrument, face amount   $ 224,000                                                                          
Debt conversion price per share | $ / shares   $ 2.05                                                                          
Stock issued during period, shares | shares   14,266                                                                          
Subsequent Event [Member] | 32 Entertainment, LLC [Member] | Amended Subordinate Secured Note [Member]                                                                              
Debt instrument, face amount       $ 56,250     $ 200,000                                                                
Debt instrument, interest rate, effective percentage             16.00%                                                                
Debt return amount       $ 6,250                                                                      
Number of shares issued during period of restricted stock | shares       40,000                                                                      
Debt instrument, maturity date             May 21, 2020                                                                
Prepay of debt principal amount       $ 50,000                                                                      
Subsequent Event [Member] | PPE Brickell Supplies, LLC [Member]                                                                              
Stock issued during period, shares | shares           200,000                                                                  
Stock issued during period, value           $ 456,000                                                                  
Subsequent Event [Member] | Graphene Holdings, LLC [Member]                                                                              
Stock issued during period, shares, issued for services | shares         200,000                                                                    
Value of shares issued during period for service rendered         $ 466,000                                                                    
Stock issued during period, shares | shares           50,000                                                                  
Stock issued during period, value           $ 114,000                                                                  
Subsequent Event [Member] | Loan Agreement [Member]                                                                              
Debt instrument, interest rate, effective percentage                     1.00% 1.00%                                                      
Number of warrants to purchase common stock | shares                                           550,000                                  
Debt instrument, maturity date                       Apr. 15, 2022                   Jan. 23, 2023                                  
Warrant, exercise price | $ / shares                                           $ 2.00                                  
Proceeds from loan                       $ 789,852                                                      
Subsequent Event [Member] | Loan Agreement [Member] | 10% Convertible Promissory Note [Member]                                                                              
Debt instrument, face amount                                           $ 1,100,000                                  
Debt instrument, interest rate, effective percentage                                           10.00%                                  
Debt conversion price per share | $ / shares                                           $ 2.00                                  
Number of warrants to purchase common stock | shares                                           550,000                                  
Debt instrument, maturity date                                           Oct. 23, 2020                                  
Warrant, exercise price | $ / shares                                           $ 2.00                                  
Common stock, par value | $ / shares                                           $ 0.001                                  
Proceeds from convertible promissory note                                           $ 1,100,000                                  
Debt conversion description                                           The Note reiterates the registration rights set forth in the Loan Agreement and the Warrant. There is no prepayment penalty on the Note. If the Note is not prepaid by the 90th day after the effective date of the Registration Statement, the Investor is required to convert the entire amount of principal and interest outstanding on the Note at that time, at a price of $2.00 per share, unless an event of default (as such events are described in the Note) under the Note has occurred, in which case the 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 Note mandatorily converts. The Note also contains a conversion limitation provision, which prohibits the Investor from converting the 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 the Investor with 61 days prior notice, and (ii) the Investor cannot waive the conversion limitation if conversion of the Note would result in the Investor having beneficial ownership of greater than 9.9% of the total issued and outstanding shares of Common Stock.                                  
Debt instrument, convertible, threshold percentage of stock price                                           50.00%                                  
Debt instrument, convertible, threshold trading days | Integer                                           10                                  
Warrant expiration date                                           Jan. 23, 2023                                  
Shares sold price per share | $ / shares                                           $ 3.00                                  
Consecutive threshold trading days | Integer                                           20                                  
Unexercised portion of warrants, price per share | $ / shares                                           $ 1.00                                  
Subsequent Event [Member] | Loan Agreement [Member] | 10% Convertible Promissory Note [Member] | Minimum [Member]                                                                              
Warrant, exercise price | $ / shares                                           $ 2.00                                  
Subsequent Event [Member] | Loan Agreement [Member] | Investor [Member]                                                                              
Stock issued during period, shares, issued for services | shares                                           100,000                                  
Additional shares issued for advisory services | shares                                           60,000                                  
Legal fees                                           $ 15,000                                  
Subsequent Event [Member] | Loan Agreement [Member] | Tiburon Opportunity Fund [Member]                                                                              
Debt instrument, face amount                                                     $ 400,000                        
Debt instrument, interest rate, effective percentage                                                     1.50%                        
Subsequent Event [Member] | Loan Agreement [Member] | ED Roses, LLC [Member]                                                                              
Debt instrument, face amount                                                     $ 150,000                        
Debt instrument, interest rate, effective percentage                                                     1.50%                        
Debt return amount                                                     $ 180,000                        
Debt return amount, principal                                                     150,000                        
Debt return amount, interest                                                     $ 30,000                        
Subsequent Event [Member] | Loan Agreement [Member] | Labrys Fund, LP [Member] | 12% Convertible Promissory Note [Member]                                                                              
Debt instrument, interest rate, effective percentage                                       12.00% 12.00%                                    
Proceeds from convertible promissory note                                         $ 588,366                                    
Subsequent Event [Member] | Debt Conversion Agreement [Member]                                                                              
Debt instrument, face amount                   424,000                                                          
Debt converted amount                   $ 400,000                                                          
Debt conversion price per share | $ / shares                   $ 2.00                                                          
Number of shares issued during period of restricted stock | shares                   200,000                                                          
Subsequent Event [Member] | 5% Promissory Note Agreement [Member] | Rawleigh Ralls [Member]                                                                              
Debt instrument, face amount                                                   $ 267,000                          
Debt instrument, interest rate, effective percentage                                                   5.00%                          
Value of shares purchased                                                   $ 250,000                          
Number of warrants to purchase common stock | shares                                                   125,000                          
Debt instrument, maturity date                                                   Jul. 10, 2020                          
Subsequent Event [Member] | 5% Promissory Note Agreement [Member] | Richard O'Leary [Member]                                                                              
Debt instrument, face amount                                             $ 53,500                                
Debt instrument, interest rate, effective percentage                                             5.00%                                
Value of shares purchased                                             $ 50,000                                
Number of warrants to purchase common stock | shares                                             25,000                                
Number of shares issued for incentive | shares                                             6,500 13,000   33,000                          
Debt instrument, maturity date                                             Jul. 17, 2020 Jul. 15, 2020                              
Subsequent Event [Member] | 5% Promissory Note Agreement [Member] | Paul J. Solit and Julie B. Solit [Member]                                                                              
Debt instrument, face amount                                               $ 107,000                              
Debt instrument, interest rate, effective percentage                                               5.00%                              
Value of shares purchased                                               $ 100,000                              
Number of warrants to purchase common stock | shares                                               50,000                              
Subsequent Event [Member] | Purchase Agreement [Member] | Pearl 33 Holdings, LLC [Member]                                                                              
Shares sold price per share | $ / shares                               $ 1.00                                              
Stock issued during period, shares | shares                               150,000                                              
Number of shares sold during period | shares                               80,065                                              
Ownership percentage                               72.15%                                              
Common stock, shares, outstanding | shares                               110,964                                              
Subsequent Event [Member] | Asset Purchase Agreement [Member] | Common Stock One [Member]                                                                              
Purchased assets achieve cumulative revenue                             $ 2,500,000                                                
Stock issued during period, shares, purchase of assets | shares                             125,000                                                
Subsequent Event [Member] | Asset Purchase Agreement [Member] | Common Stock Two [Member]                                                                              
Purchased assets achieve cumulative revenue                             $ 5,000,000                                                
Stock issued during period, shares, purchase of assets | shares                             125,000                                                
Subsequent Event [Member] | Asset Purchase Agreement [Member] | Scalematix, LLC [Member]                                                                              
Number of shares issued during period of restricted stock | shares                             238,750                                                
Value of shares issued during period of restricted stock                             $ 70,850                                                
Subsequent Event [Member] | Consulting Agreement [Member]                                                                              
Consultant transaction description                   Under the terms of the Agreement, the Consultant is to provide business development services and consultation related to potential trade financing opportunities. The Agreement has a term of six (6) months. The Consultant is to be compensated ten thousand (10,000) shares of common stock upon execution of the Agreement and then shall receive six (6) additional monthly payments of eight thousand (8,000) shares of restricted common stock per month beginning on May 24, 2020 and ending on October 24, 2020.                                                          
Subsequent Event [Member] | Consulting Agreement [Member] | Consultant [Member]                                                                              
Stock issued during period, shares | shares                           300,000                                                  
Stock issued during period, value                           $ 600,000                                                  
Subsequent Event [Member] | Consulting Agreement One [Member] | Consultant [Member]                                                                              
Stock issued during period, shares | shares                           50,000                                                  
Stock issued during period, value                           $ 100,000                                                  
Subsequent Event [Member] | Securities Purchase Agreement [Member] | BHP Capital NY Inc. [Member]                                                                              
Debt instrument, interest rate, effective percentage                         2.00%                                                    
Debt conversion price per share | $ / shares                         $ 2.05                                                    
Debt instrument, maturity date                         Oct. 07, 2020                                                    
Proceeds from convertible promissory note                         $ 150,000                                                    
Debt conversion description                         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.                                                    
Stock issued during period, shares | shares                         10,700                                                    
Convertible promissory note                         $ 168,000                                                    
Debt instrument, original issue discount                         $ 18,000                                                    
Subsequent Event [Member] | Securities Purchase Agreement [Member] | Jefferson Street Capital, LLC. [Member]                                                                              
Debt instrument, interest rate, effective percentage                         2.00%                                                    
Debt conversion price per share | $ / shares                         $ 2.05                                                    
Debt instrument, maturity date                         Oct. 07, 2020                                                    
Proceeds from convertible promissory note                         $ 150,000                                                    
Debt conversion description                         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.                                                    
Stock issued during period, shares | shares                         10,700                                                    
Convertible promissory note                         $ 168,000                                                    
Debt instrument, original issue discount                         $ 18,000                                                    
Subsequent Event [Member] | Purchase of Inventory and Repurchase Agreement [Member]                                                                              
Stock issued during period, shares | shares               10,000                                                              
Repurchase date               Jun. 30, 2020                                                              
Subsequent Event [Member] | Purchase of Inventory and Repurchase Agreement [Member] | Fergco Bros, LLC [Member]                                                                              
Payment for assets                 $ 100,000                                                            
Repurchase inventory                 $ 105,000                                                            
Repurchase date                 Jun. 30, 2020                                                            
Subsequent Event [Member] | Distributor Agreement [Member] | Marrone Bio Innovations, LLC [Member]                                                                              
Debt instrument, interest rate, effective percentage                                                                           15.00%  
Subsequent Event [Member] | Share Exchange Agreement [Member]                                                                              
Percentage of issued and outstanding units                                                                         50.00%    
Ownership percentage                                                                         50.00%    
Subsequent Event [Member] | Amended Limited Liability Company Agreement [Member]                                                                              
Ownership percentage                                                                         50.00%    
Subsequent Event [Member] | Amended Limited Liability Company Agreement [Member] | PPE Brickell Supplies, LLC [Member]                                                                              
Ownership percentage                                                                         25.00%    
Subsequent Event [Member] | Amended Limited Liability Company Agreement [Member] | Graphene Holdings, LLC [Member]                                                                              
Ownership percentage                                                                         25.00%