Annual report pursuant to Section 13 and 15(d)

Acquisition

v3.20.1
Acquisition
12 Months Ended
Dec. 31, 2019
Business Combinations [Abstract]  
Acquisition

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.