Exhibit 99.3

 

EDISON NATION, INC. AND SUBSIDIARIES

UNAUDITED COMBINED FINANCIAL STATEMENTS OF OPERATIONS

 

On September 4, 2018, Edison Nation, Inc. (the “Company”) completed the acquisition of Edison Nation Holdings, LLC ("ENH"), based in Charlotte, North Carolina. Edison Nation Holdings, LLC acquires intellectual property rights from private inventors and the commercializes that intellectual property. In order to acquire intellectual property rights, the Company operates a website where inventors submit their innovative product ideas. The intellectual property rights acquired through these various sources is then either licensed to manufactures and retailers. In certain instances, the Company develops the intellectual property into innovative products and in other cases the intellectual property is licensed “as is”. In certain other instances the Company develops the intellectual property into products for the Direct Response Television (DRTV) market. For these products, the Company develops and tests infomercials, and then, for those with positive test results, licenses the products to strategic partners in the DRTV industry. The inventors of the intellectual property are paid a percentage of the Company’s revenue from its commercialization. This percentage varies with the Company’s investment in the development of the intellectual property.

 

The transaction strengthens the Company's position to deliver and develop new and innovative consumer product goods to the consumer market. The Company acquired ENH on September 4, 2018 for $12,320,978. The purchase price was financed with a combination of cash on hand, the issuance of senior convertible notes, the issuance of shares of common stock of the Company and the reservation of shares of the Company that may be issued in exchange for the redemption of certain non-voting membership interests of ENH. See Note 2 — Preliminary purchase price allocation.

 

The unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2018 are presented as if the acquisition had occurred on January 1, 2018 and are based upon the unaudited condensed consolidated statements of operations of the Company for the six months ended June 30, 2018 (as filed with the SEC in its Quarterly Report on Form 10-Q for the period ended June 30, 2018) and the unaudited condensed consolidated statements of operations of ENH for the six months ended June 30, 2018 (attached as Exhibit 99.2 in this Current Report on Form 8-K/A).

 

 

 

 

The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2017 are presented as if the acquisition had occurred on January 1, 2017 and are based upon the audited consolidated statement of operations of the Company for the year ended December 31, 2017 (as filed with the SEC in its Annual Report on Form 10-K for the year ended December 31, 2017) and the audited consolidated statement of operations of ENH for the year ended December 31, 2017 (attached as Exhibit 99.1 in this Current Report on Form 8-K/A).

 

The financial statements of the Company and ENH have been adjusted in the unaudited pro forma condensed combined financial statements to give effect to events that are directly attributable to the acquisition, are factually supportable and are expected to have a continuing impact on the combined company. The unaudited pro forma condensed combined financial statements have been presented for informational purposes only. The unaudited pro forma condensed combined financial statements are not necessarily indicative of what the combined company’s financial position or results of operations actually would have been had the acquisition been completed as of the dates indicated. In addition, the unaudited pro forma condensed combined financial statements do not purport to project the future financial position or operating results of the combined company. There were no transactions between the Company and ENH for the periods presented in the unaudited pro forma condensed combined financial statements that would need to be eliminated.

 

The unaudited pro forma condensed combined financial statements have been prepared using the acquisition method of accounting under generally accepted accounting principles in the United States (“GAAP”). Assumptions and estimates underlying the pro forma adjustments are described in the accompanying notes and should be read in conjunction with the unaudited pro forma condensed combined financial statements.

 

Acquisition accounting is preliminary and dependent upon fair value estimates that are based on a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions. The judgments used to determine the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact the Company’s results of operations. The pro forma adjustments related to the acquisition are based upon available information and certain assumptions that management believes are reasonable under the circumstances and have been made solely for the purpose of preparing the unaudited pro forma condensed combined financial statements included in this Form 8-K/A. Differences between these preliminary estimates and the final acquisition accounting could occur and these differences could have a material impact on the unaudited pro forma condensed combined financial statements and the combined company’s future results of operations and financial position.

 

The unaudited pro forma condensed combined financial statements should be read in conjunction with the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2018, the audited consolidated financial statements of ENH for the years ended December 31, 2017 and 2016 and the unaudited condensed consolidated financial statements of ENH for the period ended June 30, 2018. The unaudited pro forma condensed combined financial statements do not reflect any cost savings from operating efficiencies or revenue enhancements that the combined company may achieve as a result of the acquisition and the effects of the foregoing items could, individually or in the aggregate, materially impact the unaudited pro forma condensed combined financial statements.

 

 

 

 

EDISON NATION, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA COMBINED BALANCE SHEET

June 30, 2018

 

   

Edison

Nation, Inc.

   

Edison

Nation Holdings, LLC

     

Pro Forma

Adjustments

   

Edison

Nation, Inc.

Combined

 
                           
Assets                                  
Current Assets:                                  
Cash and cash equivalents   $ 3,930,844     $ 25,850   (a)   $ (9,250 )   $ 3,947,444  
Accounts receivable, net     1,654,502       10,648   (a)     (1,775 )     1,663,375  
Inventory     227,630       370         -       228,000  
Prepaid expenses and other current assets     1,159,731       34,752         -       1,194,483  
Loan held for investment     500,000       -         -       500,000  
Due from related party     1,250,959       -         -       1,250,959  
Total current assets     8,723,666       71,620         (11,025 )     8,784,261  
Property and equipment, net     915,104       2,387         -       917,491  
Goodwill     -       -   (b)     12,785,855       12,785,855  
Intangible assets     -       75,833   (a)     (21,080 )     54,753  
Total assets   $ 9,638,770     $ 149,840       $ 12,753,750     $ 22,542,360  
                                   
Liabilities and Stockholders’ Equity (Deficit)                                  
Current Liabilities:                                  
Current portion of notes payable   $ -     $ 1,720,575   (c)   $ (1,720,575 )   $ -  
Current portion of notes payable, related parties     264,896       4,458,556   (c)     (4,458,556 )     264,896  
Accounts payable     1,283,748       1,013,882   (a) (d)     (865,607 )     1,432,023  
Accrued expenses and other current liabilities     386,182       183,056   (a)     (165,426 )     403,812  
Deferred revenues     -       298         -       298  
Total current liabilities     1,934,826       7,376,367         (7,210,164 )     2,101,029  
Notes payable, related parties     2,653,011       1,345,225   (e)     82,935       4,081,171  
Notes payable     -       -         -       -  
Derivative liability     -       -   (f)     6,682,500       6,682,500  
Deferred tax liability     34,209       -         -       34,209  
Total liabilities   $ 4,622,046     $ 8,721,592       $ (444,728 )   $ 12,898,910  
Commitments and Contingencies                                  
Stockholders’ Equity (Deficit)                                  
Common stock $0.0001 par value, 250,000,000 shares authorized; 3,000,000 shares issued and outstanding as of December 31, 2017   $ 4,369     $ -       $ -     $ 4,369  
Additional paid-in capital / members’ deficit     7,551,951       (9,064,893 )       13,691,619       12,178,677  
Noncontrolling interest     -       493,141   (g)     (493,141 )     -  
Retained earnings accumulated (deficit)     (2,539,596 )     -         -       (2,539,596 )
Total stockholders’ equity (deficit)     5,016,724       (8,571,752 )       13,198,478       (9,643,450 )
Total liabilities and stockholders’ equity (deficit)   $ 9,638,770     $ 149,840       $ 12,753,750     $ 22,542,360  

 

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

 

 

 

 

EDISON NATION, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS

For the Six Months Ended June 30, 2018

 

   

Edison

Nation, Inc.

   

Edison

Nation Holdings, LLC

     

Pro Forma

Adjustments

   

Edison

Nation, Inc.

Combined

 
                           
Revenues, net   $ 7,818,527     $ 39,338       $ -     $ 7,857,865  
Cost of revenues     5,453,215       26,455         -       5,479,670  
Gross profit     2,365,312       12,883         -       2,378,195  
                                   
Other operating revenues:                                  
Royalty and licensing     -       285,770   (h)     (29,553 )     256,217  
Live product search sponsorship and submission fees     -       26,942         -       26,942  
Website subscription fees     -       31,925         -       31,925  
Other     -       -         -       -  
Total other operating revenues     -       344,637         (29,553 )     315,084  
                                   
Operating expenses:                                  
Selling, general and administrative     2,183,925       451,269   (h) (i)     (83,017 )     2,552,177  
Selling, general and administrative - stock-based compensation expense     2,027,250       -         -       2,027,250  
Total operating expenses     4,211,175       451,269         (83,017 )     4,579,427  
Operating loss     (1,845,863 )     (93,749 )       53,464       (1,886,148 )
                                   
Other (expense) income:                                  
Rental income     51,407       -         -       51,407  
Interest (expense) income     (365,137 )     (263,356 ) (j)     234,806       (393,687 )
Total other (expense) income     (313,730 )     (263,356 )       234,806       (342,280 )
Loss before income taxes     (2,159,593 )     (357,105 )       288,270       (2,228,428 )
Income tax expense     144,373       -         -       144,373  
Combined Net loss   $ (2,303,966 )   $ (357,105 )     $ 288,270     $ (2,372,801 )
Net loss attributable to the noncontrolling interest     -       (73 ) (k)     73       -  
Net loss attributable to Edison Nation Holdings, LLC     (2,303,966 )     (357,032 )       (73 )     (2,372,801 )
Combined Net loss income per share                                  
- basic and diluted   $ (0.66 )                     $ (0.59 )
Weighted average number of common shares outstanding – basic     3,468,617                 557,084       4,025,701  

 

 

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

 

 

 

 

EDISON NATION, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS

For the Year Ended December 31, 2017

 

   

Edison

Nation, Inc.

   

Edison

Nation Holdings, LLC

     

Pro Forma

Adjustments

   

Edison

Nation, Inc.

Combined

 
                           
Revenues, net   $ 14,960,450     $ 153,765       $ -     $ 15,114,215  
Cost of revenues     11,017,625       156,265         -       11,173,890  
Gross profit     3,942,825       (2,500 )       -       3,940,325  
                                   
Other operating revenues:                                  
Royalty and licensing     -       968,482   (h)     (2,816 )     965,666  
Live product search sponsorship and submission fees     -       78,200   (h)     (75 )     78,125  
Website subscription fees     -       71,841   (h)     (1,667 )     70,174  
Other     -       135,099   (h)     (15,099 )     120,000  
Total other operating revenues     -       1,253,622         (19,657 )     1,233,965  
                                   
Operating expenses:                                  
Selling, general and administrative     2,383,104       2,332,193   (h) (i)     (1,275,889 )     3,439,408  
Operating (loss) income     1,559,721       (1,081,071 )       1,256,232       1,734,882  
                                   
Other (expense) income:                                  
Rental income     102,815       -         -       102,815  
Other income     -       5,150   (h)     (5,150 )     -  
Interest (expense) income     4,000       (466,865 ) (j)     409,765       (53,100 )
Total other (expense) income     106,815       (461,715 )       404,615       49,715  
(Loss) income before income taxes     1,666,536       (1,542,786 )       1,660,847       1,784,597  
Income tax expense     133,105       -         -       133,105  
Combined net (loss) income   $ 1,533,431     $ (1,542,786 )     $ 1,660,847     $ 1,651,492  
Net loss attributable to the noncontrolling interest     -       (21,947 ) (k)     21,947       -  
Net loss attributable to Edison Nation Holdings, LLC     1,533,431       (1,520,839 )       1,638,900       1,651,492  
Combined net (loss) income per share                                  
- basic and diluted   $ 0.51                       $ 0,46  
Weighted average number of common shares outstanding – basic     3,000,000                 557,084       3,557,084  

 

  

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

 

 

 

 

Note 1 — Basis of presentation

 

The unaudited pro forma condensed combined financial statements are based on Edison Nation, Inc.’s and Edison Nation Holdings, LLC’s historical consolidated financial statements as adjusted to give effect to the acquisition of Edison Nation, LLC and the equity and debt issuance necessary to finance the acquisition. The unaudited pro forma combined statements of operations for the six months ended June 30, 2018 and the year ended December 31, 2017 give effect to the Edison Nation, LLC acquisition as if it had occurred on January 1, 2018. The unaudited pro forma combined balance sheet as of June 30, 2018 and December 31, 2017 gives effect to the Edison Nation Holdings, LLC acquisition as if it had occurred on January 1, 2017.

 

Note 2 — Preliminary purchase price allocation

 

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 $12,320,978 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 of the Company’s common stock in satisfaction of the indebtedness represented by promissory notes payable by EN to Venture Six, LLC and Wesley Jones with a total principal balance of $4,127,601.94 as of the date of the Purchase Agreement. The following table summarizes the aggregate purchase price consideration paid to acquire Edison Nation Holdings, LLC:

 

   September 4, 
   2018 
Cash paid to members of Edison Nation Holdings, LLC  $700,000 
Repayment of debt and related obligations   250,000 
Issuance of 4%, 5-year senior convertible notes to satisfy indebtedness and related obligations   1,428,161 
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   6,682,500 
Issuance of 557,084 shares of the Company’s common stock to satisfy indebtedness  and related obligations   3,760,317 
   $12,820,978 

 

 

 

 

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

 

   September 4, 
   2018 
Cash and cash equivalents  $68,682 
Accounts receivable   15,259 
Other current assets   40,204 
Property and equipment   1,852 
      
Patents   53,750 
Goodwill   12,785,855 
Total assets acquired   12,965,602 
      
Accounts payable   75,711 
Accrued expenses and other current liabilities   68,913 
Total liabilities assumed   144,624 
   $12,820,978 

 

The Company has preliminarily allocated the majority of the purchase price to goodwill due to the EN entities generating only minimal historical cash flows and therefore minimal identifiable intangible assets. The Company anticipates the goodwill will be tax deductible.

 

Note 3 — Pro forma adjustments

 

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

 

Adjustments to the pro forma condensed combined balance sheet

a)Reflects the removal of assets and liabilities related to the operations of Edison Nation Medical, LLC and Access Innovation, LLC which were not acquired in the transaction by Edison Nation, Inc.
b)Reflects the preliminary estimate of goodwill, which represents the excess of the purchase price over the fair value of Edison Nation Holdings, LLC's identifiable assets acquired and liabilities assumed as shown in Note 2 — Preliminary purchase price allocation.
c)Reflects the satisfaction and release of the outstanding notes payable with related parties and unrelated parties prior to the acquisition of Edison Nation Holdings, LLC by Edison Nation, Inc.
d)Reflects the elimination of the contract labor payable for two former members of Edison Nation Holdings, LLC and aged consulting fees payable to Enventys.
e)Reflects the convertible note issuance of $1,428,161 necessary to finance the acquisition
f)Reflects the fair value of the derivative liability related to the reservation of 990,000 shares of the Company’s common stock related to the acquisition of Edison Nation Medical, LLC.
g)Reflects the elimination of the noncontrolling interest related to Access Innovation, LLC which was not acquired by Edison Nation, Inc. in the transaction.

 

Adjustments to the pro forma condensed statements of operations

h)Reflects the removal of revenues and expenses related to the operations of Edison Nation Medical, LLC and Access Innovation, LLC which were not acquired in the transaction by Edison Nation, Inc.
i)Reflects the elimination of the contract labor expense for two former members of Edison Nation Holdings, LLC.
j)Reflects the interest expense related to the convertible note issuance of $1,428,161 necessary to finance the acquisition
k)Reflects the elimination of the noncontrolling interest related to Access Innovation, LLC which was not acquired by Edison Nation, Inc. in the transaction.
l)Reflects the issuance of 557,084 shares of the Company common stock to former members of Edison Nation Holdings, LLC.