Annual report pursuant to Section 13 and 15(d)

Acquisition

v3.19.1
Acquisition
12 Months Ended
Dec. 31, 2018
Disclosure Text Block Supplement [Abstract]  
Business Acquisition, Integration, Restructuring and Other Related Costs [Text Block]
Note 3 — Acquisition
 
On September 30, 2017,
the Company completed the acquisitions of SRM and Fergco in exchange for an aggregate
of
3,000,000
shares of the Company common stock and notes payable
aggregating $
2,996,500
.
This transaction between entities under common control resulted in a change in reporting entity and required retrospective combination of the entities for all periods presented, as if the combination had been in effect since the inception of common control. Accordingly, the consolidated financial statements of the Company reflect the accounting of the combined acquired subsidiaries at historical carrying values, except that equity reflects the equity of the
Company.
 
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 acquisition date to December 31, 2018 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.
 
The activity of Cloud B, Inc. included in the Company’s consolidated statements of operations from the acquisition date to December 31, 2018 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 acquisition date 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.
 
The activity of Best Party Concepts, LLC included in the Company’s consolidated statements of operations from the acquisition date to December 31, 2018 was not material
 
The following table summarizes the aggregate purchase price consideration paid:
 
 
 
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
 
 
 
-
 
 
 
-
 
Purchase consideration
 
 
11,776,696
 
 
 
3,184,200
 
 
 
470,000
 
 
 
500,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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:
 
 
 
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
 
 
 
3,884,432
 
 
 
354,836
 
 
 
-
 
Intangible assets
 
 
6,400,000
 
 
 
6,600,000
 
 
 
-
 
 
 
-
 
Total assets acquired
 
 
12,023,424
 
 
 
12,018,523
 
 
 
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
 
 
 
3,184,200
 
 
 
470,000
 
 
 
500,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The
noncontrolling
interest was valued based on the fair value of consideration paid to the Cloud B Sellers.
 
The following 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 and 2017:
 
 
 
Years Ended December 31,
 
 
 
2018
 
 
2017
 
 
 
 
 
 
 
 
Revenues, net   
 
$
20,988,594
 
 
$
24,402,376
 
Cost of revenues   
 
 
13,566,605
 
 
 
16,289,352
 
Gross profit   
 
 
7,421,989
 
 
 
8,113,024
 
 
 
 
 
 
 
 
 
 
Operating expenses:   
 
 
 
 
 
 
 
 
Selling, general and administrative   
 
 
13,144,691
 
 
 
8,890,638
 
Operating (loss) income   
 
 
(5,722,702
)
 
 
(777,614
)
 
 
 
 
 
 
 
 
 
Other (expense) income:   
 
 
 
 
 
 
 
 
Other (expense) income
 
 
(398,406
)
 
 
(325,017
)
(Loss) income before income taxes
 
 
(6,249,968
)
 
 
(452,597
)
Income tax expense
 
 
304,298
 
 
 
135,570
 
Net (loss) income
 
$
(6,554,266
)
 
$
(588,167
)
Net (loss) income attributable to noncontrolling interests
 
 
(415,466
)
 
 
(506,616
)
Net (loss) income attributable to Edison Nation, Inc.
 
 
(6,138,801
)
 
 
(81,551
)
Net (loss) income per share - basic and diluted
 
$
(1.09
)
 
$
(0.02
)
Weighted average number of common shares outstanding – basic and diluted
 
 
5,654,930
 
 
 
4,046,377
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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.