Vinco
Ventures, Inc. and Subsidiaries
(f/k/a
Edison Nation, Inc.)
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
September
30,
2020
|
|
|
December
31,
2019
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
384,604
|
|
|
$
|
412,719
|
|
Accounts
receivable, net
|
|
|
3,145,530
|
|
|
|
2,108,099
|
|
Inventory
|
|
|
1,515,351
|
|
|
|
1,369,225
|
|
Prepaid
expenses and other current assets
|
|
|
1,529,709
|
|
|
|
917,433
|
|
Income
tax receivable
|
|
|
147,889
|
|
|
|
147,889
|
|
Total
current assets
|
|
|
6,723,083
|
|
|
|
4,955,365
|
|
Property
and equipment, net
|
|
|
1,012,375
|
|
|
|
931,968
|
|
Right
of use assets – operating leases, net
|
|
|
505,933
|
|
|
|
732,100
|
|
Intangible
assets, net
|
|
|
10,772,241
|
|
|
|
11,598,063
|
|
Goodwill
|
|
|
5,392,123
|
|
|
|
5,392,123
|
|
Total
assets
|
|
$
|
24,405,755
|
|
|
$
|
23,609,619
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and stockholders’ equity
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
3,024,689
|
|
|
$
|
7,397,650
|
|
Accrued
expenses and other current liabilities
|
|
|
1,620,230
|
|
|
|
1,594,669
|
|
Deferred
revenues
|
|
|
1,009,838
|
|
|
|
159,591
|
|
Current
portion of operating lease liabilities
|
|
|
279,719
|
|
|
|
272,215
|
|
Income
tax payable
|
|
|
8,151
|
|
|
|
22,919
|
|
Line
of credit, net of debt issuance costs of $0 and $15,573, respectively
|
|
|
1,616,668
|
|
|
|
456,995
|
|
Current
portion of convertible notes payable, net of debt issuance costs of $61,997 and $0, respectively
|
|
|
498,002
|
|
|
|
-
|
|
Current
portion of notes payable, net of debt issuance costs of $148,278 and $212,848, respectively
|
|
|
821,092
|
|
|
|
1,365,675
|
|
Current
portion of notes payable – related parties
|
|
|
1,214,698
|
|
|
|
1,686,352
|
|
Due
to related party
|
|
|
22,005
|
|
|
|
17,253
|
|
Total
current liabilities
|
|
|
10,115,092
|
|
|
|
12,973,319
|
|
Operating
lease liabilities, net of current portion
|
|
|
255,100
|
|
|
|
482,212
|
|
Convertible
notes payable – related parties, net of debt discount of $291,667 and $366,666 related to the conversion
feature, respectively
|
|
|
1,136,495
|
|
|
|
1,061,495
|
|
Notes
payable, net of current portion
|
|
|
821,271
|
|
|
|
42,492
|
|
Notes
payable – related parties, net of current portion
|
|
|
1,452,815
|
|
|
|
1,595,669
|
|
Total
liabilities
|
|
|
13,780,773
|
|
|
|
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 September 30, 2020 and December
31, 2019, respectively
|
|
$
|
-
|
|
|
$
|
-
|
|
Common
stock, $0.001 par value, 250,000,000 shares authorized; 11,893,291 and 8,015,756 shares issued and outstanding
as of September 30, 2020 and December 31, 2019, respectively
|
|
|
11,893
|
|
|
|
8,016
|
|
Additional
paid-in-capital
|
|
|
33,427,702
|
|
|
|
26,259,575
|
|
Accumulated
deficit
|
|
|
(21,684,394
|
)
|
|
|
(18,495,461
|
)
|
Total
stockholders’ equity attributable to Edison Nation, Inc.
|
|
|
11,755,201
|
|
|
|
7,772,130
|
|
Noncontrolling
interests
|
|
|
(1,130,219
|
)
|
|
|
(317,698
|
)
|
Total
stockholders’ equity
|
|
|
10,624,982
|
|
|
|
7,454,432
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
24,405,755
|
|
|
$
|
23,609,619
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
Vinco
Ventures, Inc. and Subsidiaries
(f/k/a
Edison Nation, Inc.)
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
For
the Three Months
Ended September 30,
|
|
|
For
the Nine Months
Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Revenues,
net
|
|
$
|
4,251,147
|
|
|
$
|
3,532,645
|
|
|
$
|
14,798,283
|
|
|
$
|
15,239,434
|
|
Cost of revenues
|
|
|
2,668,864
|
|
|
|
2,544,058
|
|
|
|
9,977,060
|
|
|
|
10,413,868
|
|
Gross
profit
|
|
|
1,582,283
|
|
|
|
988,587
|
|
|
|
4,821,223
|
|
|
|
4,825,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
3,474,844
|
|
|
|
3,296,323
|
|
|
|
10,438,487
|
|
|
|
9,738,107
|
|
Operating
loss
|
|
|
(1,892,561
|
)
|
|
|
(2,307,736
|
)
|
|
|
(5,617,264
|
)
|
|
|
(4,912,541
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income
|
|
|
25,704
|
|
|
|
25,704
|
|
|
|
77,111
|
|
|
|
77,111
|
|
Other income
|
|
|
-
|
|
|
|
-
|
|
|
|
4,911,760
|
|
|
|
-
|
|
Interest
expense
|
|
|
(1,004,626
|
)
|
|
|
(349,172
|
)
|
|
|
(2,575,737
|
)
|
|
|
(875,036
|
)
|
Total
other (expense) income
|
|
|
(978,922
|
)
|
|
|
(323,468
|
)
|
|
|
2,413,134
|
|
|
|
(797,925
|
)
|
Loss before income
taxes
|
|
|
(2,871,483
|
)
|
|
|
(2,631,204
|
)
|
|
|
(3,204,130
|
)
|
|
|
(5,710,466
|
)
|
Income tax expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
74,200
|
|
Net
loss
|
|
|
(2,871,483
|
)
|
|
|
(2,631,204
|
)
|
|
|
(3,204,130
|
)
|
|
|
(5,784,666
|
)
|
Net
income (loss) attributable to noncontrolling interests
|
|
|
(37,439
|
)
|
|
|
(49,103
|
)
|
|
|
(15,198
|
)
|
|
|
(31,858
|
)
|
Net
loss attributable to Vinco Ventures, Inc.
|
|
$
|
(2,834,044
|
)
|
|
$
|
(2,582,101
|
)
|
|
$
|
(3,188,932
|
)
|
|
$
|
(5,752,808
|
)
|
Net loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
basic and diluted
|
|
$
|
(0.30
|
)
|
|
$
|
(0.44
|
)
|
|
$
|
(0.29
|
)
|
|
$
|
(1.00
|
)
|
Weighted
average number of common shares outstanding – basic and diluted
|
|
|
9,324,023
|
|
|
|
5,834,167
|
|
|
|
10,853,242
|
|
|
|
5,733,379
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
Vinco
Ventures, Inc. and Subsidiaries
(f/k/a
Edison Nation, Inc.)
CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
|
|
For
the Three Months Ended September 30, 2020 and 2019
|
|
|
|
Common
Stock
|
|
|
Additional
Paid-in
|
|
|
Accumulated
|
|
|
Noncontrolling
|
|
|
Total
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Interest
|
|
|
Equity
(Deficit)
|
|
Balance,
July 1, 2020
|
|
|
9,618,401
|
|
|
$
|
9,618
|
|
|
$
|
30,802,083
|
|
|
$
|
(18,850,350
|
)
|
|
$
|
(1,020,849
|
)
|
|
$
|
10,940,502
|
|
Issuance
of common stock to note holders
|
|
|
763,266
|
|
|
|
763
|
|
|
|
1,502,087
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,502,850
|
|
Issuance
of common stock to employees
|
|
|
150,000
|
|
|
|
150
|
|
|
|
319,350
|
|
|
|
-
|
|
|
|
-
|
|
|
|
319,500
|
|
Issuance
of common stock to consultants
|
|
|
371,624
|
|
|
|
372
|
|
|
|
1,192,246
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,192,618
|
|
Stock-based
compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
(387,074
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(387,074
|
)
|
Issuance
of common stock cancellation of non-voting membership interest in Edison Nation Holdings, LLC
|
|
|
990,000
|
|
|
|
990
|
|
|
|
(990
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Distributions
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(71,931
|
)
|
|
|
(71,931
|
)
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,834,044
|
)
|
|
|
(37,439
|
)
|
|
|
(2,871,483
|
)
|
Balance, September
30, 2020
|
|
|
11,893,291
|
|
|
$
|
11,893
|
|
|
$
|
33,427,702
|
|
|
$
|
(21,684,394
|
)
|
|
$
|
(1,130,219
|
)
|
|
$
|
10,624,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, July 1, 2019
|
|
|
5,737,830
|
|
|
$
|
5,738
|
|
|
$
|
21,136,912
|
|
|
$
|
(8,736,463
|
)
|
|
$
|
968,821
|
|
|
$
|
13,375,008
|
|
Issuance
of common stock to note holders
|
|
|
201,005
|
|
|
|
201
|
|
|
|
136,279
|
|
|
|
-
|
|
|
|
-
|
|
|
|
136,480
|
|
Issuance
of common stock to employees and directors
|
|
|
3,000
|
|
|
|
3
|
|
|
|
8,847
|
|
|
|
|
|
|
|
|
|
|
|
8,850
|
|
Issuance
of common stock to vendors for services
|
|
|
92,000
|
|
|
|
92
|
|
|
|
252,908
|
|
|
|
-
|
|
|
|
-
|
|
|
|
253,000
|
|
Stock-based
compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
(86,666
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(86,666
|
)
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,582,101
|
)
|
|
|
(49,103
|
)
|
|
|
(2,631,204
|
)
|
Balance, September
30, 2019
|
|
|
6,033,835
|
|
|
$
|
6,034
|
|
|
$
|
21,448,280
|
|
|
$
|
(11,318,564
|
)
|
|
$
|
919,718
|
|
|
$
|
11,055,468
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
Vinco
Ventures, Inc. and Subsidiaries
(f/k/a
Edison Nation, Inc.)
CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
|
|
For
the Nine Months Ended September 30, 2020 and 2019
|
|
|
|
Common
Stock
|
|
|
Additional
Paid-in
|
|
|
Accumulated
|
|
|
Noncontrolling
|
|
|
Total
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Interest
|
|
|
Equity
(Deficit)
|
|
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
|
|
|
1,202,666
|
|
|
|
1,202
|
|
|
|
2,291,662
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,292,864
|
|
Return
of common stock from noteholder held as collateral
|
|
|
(153,005
|
)
|
|
|
(153
|
)
|
|
|
153
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Issuance
of common stock for divestiture
|
|
|
150,000
|
|
|
|
150
|
|
|
|
404,850
|
|
|
|
-
|
|
|
|
-
|
|
|
|
405,000
|
|
Issuance
of common stock to consultants
|
|
|
1,237,874
|
|
|
|
1,238
|
|
|
|
1,754,142
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,755,380
|
|
Issuance
of common stock to employees and directors
|
|
|
150,000
|
|
|
|
150
|
|
|
|
319,350
|
|
|
|
|
|
|
|
|
|
|
|
319,500
|
|
Stock-based
compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
681,306
|
|
|
|
-
|
|
|
|
-
|
|
|
|
681,306
|
|
Issuance
of common stock for Global Clean Solutions, LLC acquisition
|
|
|
300,000
|
|
|
|
300
|
|
|
|
698,700
|
|
|
|
-
|
|
|
|
-
|
|
|
|
699,000
|
|
Conversion
option
|
|
|
990,000
|
|
|
|
990
|
|
|
|
(990
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Issuance
of warrants- noteholders
|
|
|
-
|
|
|
|
-
|
|
|
|
1,018,953
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,018,953
|
|
Divestiture
of Cloud B
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(26,392
|
)
|
|
|
(26,392
|
)
|
Distributions
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(770,931
|
)
|
|
|
(770,931
|
)
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,188,932
|
)
|
|
|
(15,198
|
)
|
|
|
(3,204,130
|
)
|
Balance,
September 30, 2020
|
|
|
11,893,291
|
|
|
$
|
11,893
|
|
|
$
|
33,427,702
|
|
|
$
|
(21,684,394
|
)
|
|
$
|
(1,130,219
|
)
|
|
$
|
10,624,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
251,004
|
|
|
|
251
|
|
|
|
309,529
|
|
|
|
-
|
|
|
|
-
|
|
|
|
309,780
|
|
Issuance
of common stock to employees
|
|
|
3,000
|
|
|
|
3
|
|
|
|
8,847
|
|
|
|
|
|
|
|
|
|
|
|
8,850
|
|
Issuance
of common stock to vendors for services
|
|
|
125,000
|
|
|
|
125
|
|
|
|
394,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
394,125
|
|
Stock-based
compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
187,740
|
|
|
|
-
|
|
|
|
-
|
|
|
|
187,740
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,752,808
|
)
|
|
|
31,858
|
|
|
|
(5,784,666
|
)
|
Balance,
September 30, 2019
|
|
|
6,033,835
|
|
|
$
|
6,034
|
|
|
$
|
21,448,280
|
|
|
$
|
(11,318,654
|
)
|
|
$
|
919,718
|
|
|
$
|
11,055,468
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
Vinco
Ventures, Inc. and Subsidiaries
(f/k/a
Edison Nation, Inc.)
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
Nine
Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Cash Flow from Operating Activities
|
|
|
|
|
|
|
|
|
Net loss
attributable to Vinco Ventures, Inc.
|
|
$
|
(3,188,932
|
)
|
|
$
|
(5,752,808
|
)
|
Net loss attributable
to noncontrolling interests
|
|
|
(15,198
|
)
|
|
|
(31,858
|
)
|
Net loss
|
|
|
(3,204,130
|
)
|
|
|
(5,784,666
|
)
|
Adjustments to reconcile
net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
938,844
|
|
|
|
952,019
|
|
Amortization of
financing costs
|
|
|
2,015,422
|
|
|
|
658,126
|
|
Stock-based compensation
|
|
|
2,765,022
|
|
|
|
876,585
|
|
Amortization of
right of use asset
|
|
|
226,167
|
|
|
|
217,189
|
|
Gain on divestiture
|
|
|
(4,911,760
|
)
|
|
|
-
|
|
Changes in assets
and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(1,037,432
|
)
|
|
|
(12,355
|
)
|
Inventory
|
|
|
(146,126
|
)
|
|
|
(182,370
|
)
|
Prepaid expenses
and other current assets
|
|
|
(612,276
|
)
|
|
|
(667,836
|
)
|
Accounts payable
|
|
|
(367,355
|
)
|
|
|
1,413,425
|
|
Accrued expenses
and other current liabilities
|
|
|
1,237,169
|
|
|
|
549,072
|
|
Operating lease
liabilities
|
|
|
(219,608
|
)
|
|
|
-
|
|
Repayment of operating
lease liabilities
|
|
|
-
|
|
|
|
(199,589
|
)
|
Due
from related party
|
|
|
4,753
|
|
|
|
(117,786
|
)
|
Net
cash used in operating activities
|
|
|
(3,311,310
|
)
|
|
|
(2,298,186
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(193,429
|
)
|
|
|
(113,612
|
)
|
Net
cash used in investing activities
|
|
|
(193,429
|
)
|
|
|
(113,612
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
Borrowings under lines
of credit
|
|
|
1,144,100
|
|
|
|
249,370
|
|
Borrowings under convertible
notes payable
|
|
|
1,660,000
|
|
|
|
1,111,111
|
|
Borrowings under notes
payable
|
|
|
1,739,852
|
|
|
|
1,670,000
|
|
Repayments under lines
of credit
|
|
|
-
|
|
|
|
(340,766
|
)
|
Repayments under notes
payable
|
|
|
(947,127
|
)
|
|
|
(570,587
|
)
|
Repayments under notes
payable – related parties
|
|
|
(14,508
|
)
|
|
|
(82,612
|
)
|
Fees
paid for financing costs
|
|
|
(33,762
|
)
|
|
|
(463,146
|
)
|
Distributions
|
|
|
(71,931
|
)
|
|
|
-
|
|
Net
cash provided by financing activities
|
|
|
3,476,624
|
|
|
|
1,573,370
|
|
Net increase
(decrease) in cash and cash equivalents
|
|
|
(28,115
|
)
|
|
|
(838,428
|
)
|
Cash and cash
equivalents - beginning of period
|
|
|
412,719
|
|
|
|
2,052,731
|
|
Cash and cash
equivalents - end of period
|
|
$
|
384,604
|
|
|
|
1,214,303
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Cash Flow Information
|
|
|
|
|
|
|
|
|
Cash paid during the
period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
239,682
|
|
|
$
|
145,324
|
|
Income
taxes
|
|
$
|
235,275
|
|
|
$
|
-
|
|
Noncash investing
and financing activity:
|
|
|
|
|
|
|
|
|
Shares issued to
note holders
|
|
$
|
2,292,864
|
|
|
$
|
309,780
|
|
Shares issued for
the divestiture of Cloud B, Inc.
|
|
|
405,000
|
|
|
|
-
|
|
Conversions under
notes payable
|
|
|
1,524,000
|
|
|
|
-
|
|
Issuance
of warrants to note holders
|
|
|
1,018,953
|
|
|
|
-
|
|
Distribution
for issuance of shares to noncontrolling interest members of Global Clean Solutions, LLC
|
|
|
699,000
|
|
|
|
-
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
Vinco
Ventures, Inc. and Subsidiaries
(f/k/a
Edison Nation, Inc.)
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 September 30, 2020 and the results of operations, changes in stockholders’ equity, and cash flows for
the periods presented. The results of operations for the three and nine months ended September 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 as filed with
the Securities and Exchange Commission on May 29, 2020 and further amended on June 4, 2020. 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,” “Vinco Ventures” “we,” “us,” “our”
and similar refer to Vinco Ventures, Inc. (f/k/a 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. On November
5, 2020, the Company (the “Parent”) and its wholly owned subsidiary, Vinco Ventures, Inc. (the “Merger Sub”),
entered into an Agreement and Plan of Merger (the “Agreement”). Under the terms of the Agreement, the Merger Sub merged
with and into the Parent and the Parent became the surviving corporation of the Merger (the “Surviving Corporation”).
The name of the Surviving Corporation became Vinco Ventures, Inc. The transaction closed on November 10, 2020.
Vinco
Ventures is a vertically-integrated, end-to-end, consumer
product research and 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 September 30, 2020, Vinco Ventures 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. Vinco Ventures 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. This statement is the Company’s
opinion based on current information, but you are cautioned not to give undue weight to such statement as we cannot give assurances
about any future impacts of the pandemic.
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 nine months ended September 30, 2020, our operations lost $5,617,264, of which approximately $3,703,865 was
non-cash and approximately $554,741 was related to transaction costs and restructuring charges for payroll and rents.
At
September 30, 2020, we had total current assets of $6,723,083 and current liabilities of $10,115,092 resulting in
negative working capital of $3,392,009, of which $1,214,697 was related party notes payable and $219,396 was
accrued related party interest expense. At September 30, 2020, we had total assets of $24,405,755 and total liabilities
of $13,780,773 resulting in stockholders’ equity of $10,624,982.
Vinco
Ventures, Inc. and Subsidiaries
(f/k/a
Edison Nation, Inc.)
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The
foregoing factors raised initial concerns about the Company’s ability to continue as a going concern. 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 nine months ended September 30, 2020 included $3,703,865 related to depreciation,
amortization and stock-based compensation, respectively. In addition, $554,741 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:
|
●
|
Subsequent
to September 30, 2020, the Company received $125,000 through a receivables
financing agreement;
|
|
●
|
Raise
further capital through the sale of additional equity of between $5 to $10 million;
|
|
●
|
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 of $219,396;
|
|
●
|
Cost
saving initiatives related to synergies and the elimination of redundant costs of approximately
$1,500,000, of which approximately $168,000 impacted the three months ended September
30, 2020;
|
|
●
|
Possible
sale of certain brands to other customers or 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; and
|
|
●
|
Additional
headcount reductions.
|
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.
Vinco
Ventures, Inc. and Subsidiaries
(f/k/a
Edison Nation, Inc.)
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.
Reclassifications
Certain
reclassifications have been made to prior year amounts to conform to current year presentation.
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 $100,464 uninsured cash at September 30, 2020 of which $100,464 was
held in foreign bank accounts not covered by FDIC insurance limits as of September 30, 2020.
Accounts
Receivable
Accounts
and notes receivable consist of trade receivables from customers. The Company’s payment terms with customers are defined
within each customer’s invoice. All accounts receivables are considered current assets as the Company does not grant payment
terms greater than one year. Accounts receivable initially are recorded at the gross amount and are recorded after the Company
has an unconditional right to payment where only the passage of time is required before payment is received. The Company evaluates
the collectability of outstanding receivable balances and records an allowance for doubtful accounts representing an estimate
of future expected credit loss. Additions to the allowance for doubtful accounts are made by recording a charge to bad debt expense
reported in selling, general and administrative expenses. As of September 30, 2020, 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.
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 probable 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.
Vinco
Ventures, Inc. and Subsidiaries
(f/k/a
Edison Nation, Inc.)
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 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. 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 nine months ended September 30, 2019 and 2018 were as follows:
|
|
For
the Three Months
Ended September 30,
|
|
|
For
the Nine Months
Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
sales
|
|
$
|
4,137,254
|
|
|
$
|
3,499,116
|
|
|
$
|
14,593,266
|
|
|
$
|
14,982,117
|
|
Service
|
|
|
800
|
|
|
|
19,442
|
|
|
|
800
|
|
|
|
67,753
|
|
Licensing
|
|
|
113,093
|
|
|
|
14,087
|
|
|
|
204,217
|
|
|
|
189,564
|
|
Total
revenues, net
|
|
$
|
4,251,147
|
|
|
$
|
3,532,645
|
|
|
$
|
14,798,283
|
|
|
$
|
15,239,434
|
|
Vinco
Ventures, Inc. and Subsidiaries
(f/k/a
Edison Nation, Inc.)
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note
2 — Summary of Significant Accounting Policies — (Continued)
For
the three and nine months ended September 30, 2020 and 2019, the following customer represented more than 10% of total net revenues:
|
|
For
the Three Months
Ended September 30,
|
|
|
For
the Nine Months
Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Customer:
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
A
|
|
|
*
|
%
|
|
|
11
|
%
|
|
|
*
|
%
|
|
|
22
|
%
|
*
Customer did not represent greater than 10% of total net revenue.
For
the three and nine months ended September 30, 2020 and 2019, the following geographical regions represented more than 10% of total
net revenues:
|
|
For
the Three Months
Ended September 30,
|
|
|
For
the Nine Months
Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
|
|
79
|
%
|
|
|
86
|
%
|
|
|
89
|
%
|
|
|
78
|
%
|
Europe
|
|
|
17
|
%
|
|
|
*
|
|
|
|
10
|
%
|
|
|
15
|
%
|
*
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.
Vinco
Ventures, Inc. and Subsidiaries
(f/k/a
Edison Nation, Inc.)
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note
2 — Summary of Significant Accounting Policies — (Continued)
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 nine months ended September 30, 2020 and 2019 and the cumulative translation gains and losses
as of September 30, 2020 and December 31, 2019 were not material.
Vinco
Ventures, Inc. and Subsidiaries
(f/k/a
Edison Nation, Inc.)
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note
2 — Summary of Significant Accounting Policies — (Continued)
Net
Earnings or Loss per Share
Basic
net 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 September 30, 2020, 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.
|
|
September
30, 2020
|
|
|
September
30, 2019
|
|
Selling Agent Warrants
|
|
|
160,492
|
|
|
|
89,992
|
|
Shares reserved in exchange for the
cancellation of certain non-voting membership interest in Edison Nation Holdings, LLC
|
|
|
-
|
|
|
|
990,000
|
|
Options
|
|
|
80,000
|
|
|
|
290,000
|
|
Convertible shares under notes payable
|
|
|
558,803
|
|
|
|
285,632
|
|
Warrants for noteholders
|
|
|
625,000
|
|
|
|
-
|
|
Restricted stock units
|
|
|
120,000
|
|
|
|
-
|
|
Shares to be
issued
|
|
|
165,000
|
|
|
|
-
|
|
Total
|
|
|
1,709,295
|
|
|
|
1,655,624
|
|
Vinco
Ventures, Inc. and Subsidiaries
(f/k/a
Edison Nation, Inc.)
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note
2 — Summary of Significant Accounting Policies — (Continued)
Recent
Accounting Pronouncements
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.
In
August 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives
and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40)”. This ASU reduces the number of accounting
models for convertible debt instruments and convertible preferred stock. As well as amend the guidance for the derivatives scope
exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. In addition,
this ASU improves and amends the related EPS guidance. This guidance is effective for interim and annual reporting periods beginning
after December 15, 2021; Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including
interim periods within those fiscal years. Adoption is either a modified retrospective method or a fully retrospective method
of transition. The Company is currently assessing the impact the new guidance will have on our consolidated financial statements.
Vinco
Ventures, Inc. and Subsidiaries
(f/k/a
Edison Nation, Inc.)
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 8 and 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.
Vinco
Ventures, Inc. and Subsidiaries
(f/k/a
Edison Nation, Inc.)
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
|
|
Asset
Acquisition
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.
Please
see Note 11 — Subsequent Events for further information on acquisitions and divestitures.
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.
Vinco
Ventures, Inc. and Subsidiaries
(f/k/a
Edison Nation, Inc.)
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The
following table presents the carrying values of the assets and liabilities of entities that are VIEs and consolidated by the Company
at September 30, 2020:
|
|
September
30,
2020
|
|
|
December
31,
2019
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
114,875
|
|
|
$
|
6,234
|
|
Accounts
receivable, net
|
|
|
906,020
|
|
|
|
21,697
|
|
Inventory
|
|
|
249,896
|
|
|
|
51,090
|
|
Prepaid
expenses and other current assets
|
|
|
1,072,378
|
|
|
|
379,561
|
|
Total
current assets
|
|
|
2,343,169
|
|
|
|
458,582
|
|
Property
and equipment, net
|
|
|
19,671
|
|
|
|
32,661
|
|
Total
assets
|
|
$
|
2,362,840
|
|
|
$
|
491,243
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and stockholders’ equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
198,704
|
|
|
$
|
337,648
|
|
Accrued
expenses and other current liabilities
|
|
|
80,631
|
|
|
|
-
|
|
Deferred
revenues
|
|
|
857,500
|
|
|
|
-
|
|
Line
of credit, net of debt issuance costs of $0 and $15,573, respectively
|
|
|
1,153,800
|
|
|
|
-
|
|
Notes
payable, current
|
|
|
150,000
|
|
|
|
-
|
|
Due
to related party
|
|
|
315,666
|
|
|
|
315,666
|
|
Total
current liabilities
|
|
|
2,756,301
|
|
|
|
12,973,319
|
|
The
following table presents the operations of entities that are VIEs and consolidated by the Company at September 30, 2020:
|
|
For
the Three Months
Ended
September 30,
|
|
|
For
the Nine Months
Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Revenues,
net
|
|
$
|
184,715
|
|
|
$
|
80,120
|
|
|
$
|
1,459,192
|
|
|
$
|
285,542
|
|
Cost
of revenues
|
|
|
69,191
|
|
|
|
49,590
|
|
|
|
1,064,114
|
|
|
|
124,659
|
|
Gross
profit
|
|
|
115,524
|
|
|
|
30,530
|
|
|
|
395,078
|
|
|
|
160,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
91,114
|
|
|
|
100,961
|
|
|
|
294,676
|
|
|
|
192,699
|
|
Operating
income
|
|
|
24,410
|
|
|
|
(70,431
|
)
|
|
|
100,402
|
|
|
|
(31,816
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
(expense) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(73,840
|
)
|
|
|
-
|
|
|
|
(130,796
|
)
|
|
|
-
|
|
Total
other (expense) income
|
|
|
(73,840
|
)
|
|
|
-
|
|
|
|
(130,796
|
)
|
|
|
-
|
|
Loss
before income taxes
|
|
|
(49,430
|
)
|
|
|
(70,431
|
)
|
|
|
(30,394
|
)
|
|
|
(31,816
|
)
|
Income
tax expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net
(loss) income
|
|
$
|
(49,430
|
)
|
|
$
|
(70,431
|
)
|
|
$
|
(30,394
|
)
|
|
$
|
(31,816
|
)
|
Vinco
Ventures, Inc. and Subsidiaries
(f/k/a
Edison Nation, Inc.)
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
At
September 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 September 30, 2020 and December 31, 2019, accounts receivable consisted of the following:
|
|
September
30,
2020
|
|
|
December
31,
2019
|
|
Accounts
receivable
|
|
$
|
3,223,291
|
|
|
$
|
2,185,859
|
|
Less:
Allowance for doubtful accounts
|
|
|
(77,761
|
)
|
|
|
(77,760
|
)
|
Total
accounts receivable, net
|
|
$
|
3,145,530
|
|
|
$
|
2,108,099
|
|
Note
6 — Inventory
As
of September 30, 2020 and December 31, 2019, inventory consisted of the following:
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2020
|
|
|
2019
|
|
Raw
materials
|
|
$
|
34,737
|
|
|
$
|
49,232
|
|
Finished
goods
|
|
|
1,580,613
|
|
|
|
1,419,993
|
|
Reserve
for obsolescence
|
|
|
(100,000
|
)
|
|
|
(100,000
|
)
|
Total
inventory
|
|
$
|
1,515,351
|
|
|
$
|
1,369,225
|
|
Vinco
Ventures, Inc. and Subsidiaries
(f/k/a
Edison Nation, Inc.)
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note
7 — Debt
As
of September 30, 2020 and December 31, 2019, debt consisted of the following:
|
|
September
30,
2020
|
|
|
December
31,
2019
|
|
Line
of credit:
|
|
|
|
|
|
|
|
|
Secured
line of credit
|
|
$
|
1,153,800
|
|
|
$
|
-
|
|
Receivables
financing
|
|
|
462,868
|
|
|
|
472,567
|
|
Debt
issuance costs
|
|
|
-
|
|
|
|
(15,573
|
)
|
Total
lines of credit
|
|
|
1,616,668
|
|
|
|
456,995
|
|
|
|
|
|
|
|
|
|
|
Convertible
notes payable:
|
|
|
|
|
|
|
|
|
Senior
convertible notes payable – related parties
|
|
|
1,428,161
|
|
|
|
1,428,161
|
|
Convertible
notes payable
|
|
|
560,000
|
|
|
|
-
|
|
Debt
issuance costs
|
|
|
(353,664
|
)
|
|
|
(366,666
|
)
|
Total
convertible notes payable
|
|
|
1,634,497
|
|
|
|
1,061,495
|
|
Less:
current portion of long-term convertible notes payable
|
|
|
(498,002
|
)
|
|
|
-
|
|
Noncurrent
portion of long-term convertible notes payable
|
|
|
1,136,495
|
|
|
|
1,061,495
|
|
|
|
|
|
|
|
|
|
|
Notes
payable:
|
|
|
|
|
|
|
|
|
Notes
payable
|
|
|
1,790,641
|
|
|
|
1,621,015
|
|
Debt
issuance costs
|
|
|
(148,278
|
)
|
|
|
(212,848
|
)
|
Total
long-term debt
|
|
|
1,642,363
|
|
|
|
1,408,167
|
|
Less:
current portion of long-term debt
|
|
|
(821,092
|
)
|
|
|
(1,365,675
|
)
|
Noncurrent
portion of long-term debt
|
|
|
821,271
|
|
|
|
42,492
|
|
|
|
|
|
|
|
|
|
|
Notes
payable – related parties:
|
|
|
|
|
|
|
|
|
Notes
payable
|
|
|
2,667,513
|
|
|
|
3,282,021
|
|
Less:
current portion of long-term debt – related parties
|
|
|
(1,214,698
|
)
|
|
|
(1,686,352
|
)
|
Noncurrent
portion of long-term debt – related parties
|
|
$
|
1,452,815
|
|
|
$
|
1,595,669
|
|
Convertible
Notes Payable
On
January 23, 2020, 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.
Vinco
Ventures, Inc. and Subsidiaries
(f/k/a
Edison Nation, Inc.)
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note
7 — Debt — (Continued)
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 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 and 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. The Note is paid in full.
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. Please see Note 11 — Subsequent Events for further
information.
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.
On
July 29, 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 $224,000 ($24,000 OID). 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 29, 2020. 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 the 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. 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.
Vinco
Ventures, Inc. and Subsidiaries
(f/k/a
Edison Nation, Inc.)
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.
Vinco
Ventures, Inc. and Subsidiaries
(f/k/a
Edison Nation, Inc.)
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note
7 — Debt — (Continued)
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, the Company, 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 original maturity
date of the Ralls Note was 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 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
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 original maturity
date of the Solit Note was 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 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
January 17, 2020, the Company entered into a 5% Promissory Note Agreement with Richard O’Leary (“O’Leary”)
(“Lender”) 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 original maturity date of the O’Leary Note was July 17, 2020. On July
14, 2020, the Company entered into an Amendment to the O’Leary Note and O’Leary Warrant (the “Amendment”)
with Richard O’Leary. Under the terms of the Amendment, the parties amended the terms such that; (i) the maturity date of
the O’Leary Note 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.
Vinco
Ventures, Inc. and Subsidiaries
(f/k/a
Edison Nation, Inc.)
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. The PPP Loan is included in notes payable on the consolidated balance sheet.
Receivables
Financing
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. The balance at September 30, 2020 is $128,077.
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. The balance at September 30, 2020 is
$463,843.
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.
Vinco
Ventures, Inc. and Subsidiaries
(f/k/a
Edison Nation, Inc.)
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note
7 — Debt — (Continued)
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 balance at September 30, 2020 is $1,153,800.
The
scheduled maturities of the debt for the next five years as of December 31st, are as follows:
For
the Years Ended December 31,
|
|
Amount
|
|
2020 (excluding the nine
months ended September 30, 2020)
|
|
|
4,206,810
|
|
2021
|
|
|
206,760
|
|
2022
|
|
|
2,209,137
|
|
2023
|
|
|
1,440,275
|
|
Thereafter
|
|
|
-
|
|
|
|
|
8,062,982
|
|
Less: debt discount
|
|
|
(501,941
|
)
|
|
|
$
|
7,561,041
|
|
For
the three and nine months ended September 30, 2020, interest expense was $1,004,626 and $2,575,737, respectively
of which $74,736 and $227,062 were related party interest expense. For the three and nine months ended September
30, 2019, interest expense was $349,172 and $875,036, respectively, of which $78,475 and $238,111
was related party interest expense, respectively.
Vinco
Ventures, Inc. and Subsidiaries
(f/k/a
Edison Nation, Inc.)
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note
8 — Related Party Transactions
NL
Penn Capital, LP and SRM Entertainment Group LLC
As
of September 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 September 30, 2020 and December 31, 2019, the net amount due to related parties was $22,005 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. In addition, there was accounts receivable of approximately $104,000 due from SRM LLC
which was included as part of accounts receivable in the condensed consolidated balance sheet.
Vinco
Ventures, Inc. and Subsidiaries
(f/k/a
Edison Nation, Inc.)
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note
9 — 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 September 30, 2020, the Company recorded operating lease liabilities of $534,819 and right of use assets for
operating leases of $505,933. During the three and nine months ended September 30, 2020, operating cash outflows
relating to operating lease liabilities was $71,090 and $219,608, respectively, and the expense for right of use
assets for operating leases was $72,349 and $226,167, respectively. As of September 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 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 nine months ended September 30, 2020 was $116,183 and $332,492, respectively.
Total rent expense for the three and nine months ended September 30, 2019 was $128,256 and $410,759,
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 nine months ended September 30, 2020 and 2019 was both $25,704
and $77,111, 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 $284,249.
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. The court granted Edison Nation, Inc.’s motion to vacate the judgment. On November
9, 2020, Plaintiff filed an amended complaint against Edison Nation, Inc., et al.
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.
On October 27, 2020, Gerald Whitt,
Alexander Whitt, Matthew Whitt, Christopher Whitt, Deborah Milam and David Knecht, individually and in their personal capacities,
and derivatively on behalf of Cloud B, Inc. (together the “Plaintiffs”) filed a claim against the Company, CBAV1,
LLC, SRM Idea Lab, Inc., Christopher B. Ferguson, Linda Suh, Jeff Johnson, Richard Brenner, Phillip McFillin, Kevin Ferguson,
Brett Vroman and Does 1-100 (together the “Defendants”) and Cloud B, Inc., as a nominal defendant, alleging fraudulent
concealment, breach of fiduciary duty, breach of contract, breach of confidence, intentional misrepresentation, negligent misrepresentation,
unfair business practices and civil conspiracy requesting judgment in excess of $8,000,000 for compensatory damages, punitive
damages and attorneys’ fees.
Vinco
Ventures, Inc. and Subsidiaries
(f/k/a
Edison Nation, Inc.)
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note
10 — 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 September 30, 2020 and December
31, 2019, there were 0 shares of preferred stock issued and outstanding, respectively. Please see Note 11 —
Subsequent Events for further information.
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 Vinco Ventures, 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.
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.
The
following table summarizes stock option award activity for the nine months ended September 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, September
30, 2020
|
|
|
80,000
|
|
|
$
|
7.01
|
|
|
|
3.2
|
|
|
|
-
|
|
Exercisable,
September 30, 2020
|
|
|
80,000
|
|
|
$
|
7.01
|
|
|
|
3.2
|
|
|
|
-
|
|
As
of September 30, 2020, there were no unvested options to purchase shares of the Company’s common stock and there
was no unrecognized equity-based compensation expense that the Company expected to recognize over a remaining weighted-average
period.
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.
Vinco
Ventures, Inc. and Subsidiaries
(f/k/a
Edison Nation, Inc.)
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note
11 — Subsequent Events
On
September 29, 2020, the Company (as “Purchaser”) entered into a Purchase and Sale Agreement (the “Agreement”)
with Graphene Holdings, LLC, Mercury FundingCo, LLC, Ventus Capital, LLC and Jetco Holdings, LLC (together the “Sellers”)
to acquire all outstanding Membership Units (the “Units”) of TBD Safety, LLC (“TBD”). Collectively, the
Sellers own all outstanding Units of TBD. Under the terms of the Agreement, the Company is to issue a total of Two Million Two
Hundred Ten Thousand Three Hundred Eighty-Two (2,210,382) shares of the Company’s common stock and a total of Seven Hundred
Sixty Four Thousand Six Hundred Eighteen (764,618) shares of a newly designated Preferred Stock (the “Preferred”).
In addition, the Company and Sellers shall enter into a Registration Rights Agreement (the “Registration Rights Agreement”)
in favor of the Sellers obligating the Company to register such Common Stock and shares of Common Stock to be issued upon conversion
of the Preferred within 120 days after the Closing. The Sellers shall have an Earn Out Consideration - At such time as the Assets
purchased in the Agreement achieve cumulative revenue of $10,000,000, the Sellers shall earn a total of One Hundred Twenty-Five
Thousand (125,000) shares of Common Stock. The Closing of the transaction occurred on October 16, 2020.
On
October 7, 2020, the Company (the “Borrower”) and Jefferson Street Capital, LLC (the “Holder”) entered
into a Forbearance Agreement (the “Agreement”) against the Note issued by the Borrower to the Holder dated April 7,
2020. Under the terms of the Agreement, the Borrower has requested and the Holder has agreed to temporarily forebear, until the
earlier of (i) December 9, 2020 or (ii) at such time as a default shall occur under and pursuant to the Purchase Agreement, the
Note or the Agreement, from exercising its right to convert amounts due under the Note into Common Stock of the Borrower, in exchange
for a one time cash payment forbearance fee equal to $12,500 paid upon execution of the Agreement.
On
October 8, 2020, the Company issued 1,132,209 shares of common stock to Mercury FundingCo, LLC, representing a 8.05% ownership
in the Company, valued at $1,890,956 as per the terms of the Purchase and Sale Agreement dated September 29, 2020 for the purchase
of TBD Safety, LLC.
On
October 8, 2020, the Company issued 1,078,073 shares of common stock to Ventus Capital, LLC, representing a 7.64% ownership in
the Company, valued at $1,800,382 as per the terms of the Purchase and Sale Agreement dated September 29, 2020 for the purchase
of TBD Safety, LLC.
On
October 12, 2020, the Company issued 125,000 shares of common stock to Ralls, valued at $250,000, related to the exercise of the
Common Stock Purchase Warrant dated January 10, 2020.
On
October 16, 2020, the Company filed a Certificate of Designation (the “Designation”) with the Secretary of State of
Nevada, which designates 1,000,000 shares of the Company’s preferred stock, par value $0.001 per share, as Series B Convertible
Preferred Stock (“Series B”). Pursuant to the terms of the Designation, holders of the Series B shall be entitled
to dividends, a liquidation preference and shall have conversion rights. Each share of Series B shall be convertible into 1 share
of Common Stock, on or after the twelve month anniversary of the Original Issue Date at the option
of the Holder thereof, for a total not to exceed 1,000,000 shares of Common Stock. The holders of the Series B shall have no voting
rights.
On
October 27, 2020, Gerald Whitt, Alexander Whitt, Matthew Whitt, Christopher Whitt, Deborah Milam and David Knecht, individually
and in their personal capacities, and derivatively on behalf of Cloud B, Inc. (together the “Plaintiffs”) filed a
claim against the Company, CBAV1, LLC, SRM Idea Lab, Inc., Christopher B. Ferguson, Linda Suh, Jeff Johnson, Richard Brenner,
Phillip McFillin, Kevin Ferguson, Brett Vroman and Does 1-100 (together the “Defendants”) and Cloud B, Inc., as a
nominal defendant, alleging fraudulent concealment, breach of fiduciary duty, breach of contract, breach of confidence, intentional
misrepresentation, negligent misrepresentation, unfair business practices and civil conspiracy requesting judgment in excess of
$8,000,000 for compensatory damages, punitive damages and attorneys’ fees.
On
October 29, 2020, the Company, along with its subsidiaries, Edison Nation, LLC and Ferguson Containers, Inc., entered into a Futures
Receivables Sale Agreement (the “Agreement”) with Itria Ventures, LLC whereby the Company agreed to the sale
of $155,000 of receivables for $125,000. 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 Agreement.
On
October 30, 2020, Edison Nation, Inc. (the “Company”) received a letter of intent from a prospective purchaser dated
October 22, 2020 setting forth the terms of an offer to purchase Cloud b assets from CBAV1, LLC (“CBAV1”), the Company’s
wholly owned subsidiary (the “LOI”). The Cloud b assets include but are not limited to intellectual property, know
how, brand names, trade names, patents, models, internet websites, domains, social network assets, production facilities, including
the molds of all products, and inventory (“Cloud b Assets”).
On
November 4, 2020, the Company filed Articles of Incorporation in the State of Nevada for a new wholly owned subsidiary, Vinco
Ventures, LLC.
On
November 4, 2020, the Company, through its new wholly owned subsidiary, Vinco Ventures, Inc. (“Vinco”), filed Articles
of Formation in the State of Nevada for Honey Badger Media, LLC (“Honey Badger”). Honey Badger will become a wholly
owned subsidiary of Vinco.
On
November 5, 2020, the Company (the “Parent”) and its wholly owned subsidiary, Vinco Ventures, Inc. (the “Merger
Sub”), entered into an Agreement and Plan of Merger (the “Agreement”). Under the terms of the Agreement, the
Merger Sub merged with and into the Parent and the Parent became the surviving corporation of the Merger (the “Surviving
Corporation”). The name of the Surviving Corporation is Vinco Ventures, Inc. The transaction closed on November 10, 2020.
The Articles of Merger were filed with the Secretary of State of the State of Nevada on November 11, 2020. Effective November
12, 2020, the Company’s common stock, which trades on the Nasdaq Capital Market, ceased trading under the ticker symbol
“EDNT” and commenced trading under the new ticker symbol “BBIG.” Along with the ticker change, the Company’s
common stock was assigned a new CUSIP number of 927330100.
On
November 10, 2020, the Company, through its wholly owned subsidiary, Honey Badger Media, LLC, entered into a series of transactions
with Honey Badger Media, LLC, a Delaware limited liability company:
On
November 10, 2020, under the terms of the Asset Purchase Agreement (the “Agreement”), the Company (the “Buyer”)
agreed to purchase from Honey Badger Media, LLC (the “Seller”) all of the Seller’s rights, title and interest
in and to the Internet Websites, Domain Names, and all of the respective content (the “Domains”), and any other rights
associated with the domains, including, without limitation, any intellectual property rights, all related Domains, logos, customer
lists and agreements, email lists, passwords, usernames and trade names; and all of the related social media accounts including
but not limited to, Instagram, Twitter, Facebook, Instagram, and Pinterest at closing (collectively the “Purchased Assets”).
In consideration for the sale of the Purchased Assets, the Buyer agreed to pay the Seller the amount of Three Hundred Thousand
Dollars (US $300,000).
On
November 10, 2020, under the terms of the Platform License Agreement (the “License Agreement”), Honey Badger Media,
LLC (the “Licensor”) granted the Company (the “Licensee”) a perpetual, exclusive, worldwide license (the
“License”) to implement and commercialize the assets connected with the Platform, including, but not limited
to, the right to use all of Licensor’s intellectual property rights comprising the Platform, owned by or licensed to Licensor
that are utilized as part of the Platform (“Licensed Related Assets”). In consideration for the License, the
Licensee agreed to pay to the Licensor a fee equal to thirty percent (30%) of the
Net Profits generated from Licensee’s clients through the Platform and Licensed Related Assets and the Licensee’s
parent company agreed to issue the Licensor 750,000 shares of common stock.
On
November 10, 2020, under the terms of the Employment Agreement (the Employment Agreement”), Laurie Argall (the “Executive”)
retained the role of Vice President of Digital Commerce. The initial term of the Employment Agreement is for a period commencing
on November 10, 2020 and ending on the two (2) year anniversary of the Employment Agreement. The Executive shall receive a base
salary of Sixty Thousand Dollars ($60,000) per year. Executive shall be entitled to three (3) weeks of comprehensive paid time
off (includes vacation, sick and personal days) each year.
On
November 17, 2020, the Company, through its subsidiary, Edison Nation, LLC (the “Vendor”), entered into an Inventory
Management Agreement (the “Agreement”) with the Forever 8 Fund, LLC (“F8”), an entity which our President
holds a 45% ownership interest. Under the terms of the Agreement, F8 desires to maintain inventory of and sell to Vendor certain
Products pursuant to the terms and conditions set forth in the Agreement. As consideration for the inventory management services
provided under this Agreement, Vendor agrees to pay F8 a fee for each unit of each Product sold on a Platform determined in accordance
with the fee schedule set forth in the applicable Product Schedule (the “Fee Schedule”) based on the Age of
Inventory Sold set forth on the Fee Schedule (the “F8 Fees”). Prior to the signing of the agreement, F8 advanced
the Vendor $239,283 that was utilized to pay for deposits with the Vendors factories. This Agreement shall commence on the Effective
Date and shall continue in full force and effect until January 31, 2022 (the “Initial Term”), unless terminated
earlier as provided in this Agreement.
On
November 19, 2020, the Company issued 40,000 shares of common stock valued at $59,600 to a note holder for conversion of a restricted
stock unit into shares of common stock.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
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. On November 5, 2020, the
Company (the “Parent”) and its wholly owned subsidiary, Vinco Ventures, Inc. (the “Merger Sub”), entered
into an Agreement and Plan of Merger (the “Agreement”). Under the terms of the Agreement, the Merger Sub merged with
and into the Parent and the Parent became the surviving corporation of the Merger (the “Surviving Corporation”). The
name of the Surviving Corporation became Vinco Ventures, Inc. The transaction closed on November 10, 2020.
Vinco
Ventures 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 Vinco Ventures 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, Vinco Ventures maintains
a consumer-facing online presence whereby innovators can submit ideas for consideration by us. If an idea is successfully chosen,
Vinco Ventures 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.
Vinco Ventures 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, Vinco Ventures 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.
Vinco
Ventures 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 Vinco Ventures 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.
Currently, we maintain a logistics center in Clearwater, FL. 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.
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:
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Furloughing a significant portion of our employees; and
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Implementing 20% salary reductions across our executive team and other members of upper level management; and
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Executing reductions in operating expenses, planned inventory levels and non-product development capital expenditures; and
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Proactively managing working capital, including reducing incoming inventory to align with anticipated sales.
Business
Model
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.
Vinco
Ventures’ business model is designed to take advantage
of online marketplace and crowdfunding momentum for our future growth, in order to mitigate new product development risk while
allowing for optimized product monetization based on a product’s likelihood to succeed.
To
that end, Vinco Ventures 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
Vinco Venture New Product Development & Commercialization Platform
Indeed,
the cornerstone of Vinco Ventures’ competitive advantage is its proprietary and web-enabled new product development
(“NPD”) and commercialization platform. The 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.
The
Company’s web-enabled NPD platform 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. This unique set
of resources and capabilities have proven to be a reliable catalyst for sales success.
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.
Product
Submission Aggregation
Interested
innovators enter the Vinco Ventures 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,
ask and seek answers to common questions, engage in member chats, and stay informed of the latest happenings at Vinco Ventures.
They can also track the review progress of ideas they submit through their dashboard.
Vinco
Ventures 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. Vinco Ventures
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 Vinco Ventures’ premium level of membership. Insiders receive feedback on all their ideas submitted
and gain access to online features that are not 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.
Insiders
also have access to the Insider Licensing Program (the “ILP”). The primary benefit of the ILP is having the Vinco
Ventures 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 Vinco Ventures files on the member’s behalf after the idea has been selected.
In
addition to the above member programs, the Vinco Ventures ASOTV (“As Seen on TV”) Team hosts a search
for new products suitable for marketing via DRTV 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 NPD 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. Vinco Ventures’ 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 NPD Licensing Team based on nine key factors: competing products, uniqueness, retail pricing, liability
& safety, marketability, manufacturing cost, patentability, consumer relevant features and benefits, and commercial-ability.
The
time required to review ideas depends upon different variables, such as: the number of searches concurrently running on the Vinco
Ventures platform, idea volume and complexity of the search, how many presentation dates to licensees are pending, and the
date an idea is submitted.
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
Insider Licensing Program (ILP program) incorporates a four-stage process:
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Stage
#1 — Preliminary Review: The NPD 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.
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Stage
#2 — Preparation: The NPD licensing team performs a best partner review. Vinco Ventures’ 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.
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Stage
#3 — Pitching: At this phase, an idea can become a “Finalist.” The NPD 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.
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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.
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Due
to the public nature of licensing, Vinco Ventures 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 Insider Licensing Program is $100, and
a member must be an “Insider” to be considered.
The
Vinco Ventures 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.
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 Vinco Ventures. In either case, Vinco Ventures 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.
One
Company Initiative
During
the first quarter of 2019, Vinco Ventures began the process to consolidate all operating companies’ businesses
into distinct business units of Edison Nation, which allows the Company to focus on growing sales and leveraging operations. The
units consist of:
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Innovate. The Vinco Ventures Platform. Responsible for the innovation platform that helps
innovators go from idea to reality. This is accomplished by optimizing new product election processes through deeper analytics
to predict success on platforms like crowdfunding and web market places like Amazon, while simultaneously driving brand awareness
of the platform by producing content for innovators and innovators on media platforms including our own Everyday Edison’s
television show.
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Build and launch. Consolidating our teams of product designers and developers who take the product
from the concept to the consumers’ hand. These are distributed by geography, industry skillset and expertise in the
development process to ensure efficient product build and launch. The bulk of 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.
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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 Vinco Ventures. The team seeks to a find a mutually beneficial transaction to accomplish that goal.
Product
Design and Development
With
product design, product prototyping and creation of marketing assets all resourced with expert Vinco Ventures in-house
capabilities, we have made protracted, high-cost, high-risk research and development models obsolete.
Vinco
Ventures 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, Vinco Ventures’ 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, like Enventys Partners, and category-specific expert resources within select manufacturers.
Paths
to Market
After
an innovator’s idea has been selected and then developed, Vinco Ventures’ NPD and commercialization platform
- powered by team of experienced licensing experts and backed by our scalable manufacturing and fulfillment supply chain infrastructure
- provides innovators with a clear and unencumbered set of paths to market.
Matching
the Innovation with the Licensing Community
Vinco
Ventures partners with many of the biggest and most well-known
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.
Each
potential licensee of an innovator’s idea publishes an exclusive page on the Vinco Ventures web site
with innovation goals and a timeline for their search. Appropriate new product ideas are submitted in 100% confidence with all
intellectual property safely guarded.
Once the
search concludes, Vinco Ventures 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
Vinco Ventures 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.
Manufacturing,
Materials and Logistics
Once
a product’s path to market is successfully identified, Vinco Ventures produces and commercializes the product either
through (1) licensing partnerships, or (2) through a direct-to-market path via ecommerce or traditional retail distribution.
To
provide greater flexibility in the manufacturing and delivery of products, and as part of a continuing effort to reduce manufacturing
costs, Vinco Ventures 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.
Vinco
Ventures’ contracted manufacturing base continues to
expand, from two major facilities to 4 to-date. These include two 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.
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. The team
seeks to a find a mutually beneficial transaction to accomplish that goal.
Vinco
Ventures’ 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 Vinco Ventures’ portfolio of consumer products.
In
order to expand the Company’s universe of registered innovators and entrepreneurs submitting ideas on the Vinco Ventures
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 aggressively pursues the following three sources of sales volume:
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Our
branded products sold through traditional retail channels of distribution and other channels of business to business distribution.
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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.
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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)
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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.
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Product
principals: We work with innovators directly, providing such innovators direct access to all of Vinco Ventures’
resources. Depending on case-by-case factors, innovators may receive a range of up to 35% - 50% of profits.
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Market
Overview
The
process for developing and launching consumer products has changed significantly in recent years. Previously, Fortune 500 and
specialty consumer product companies funded multimillion-dollar NPD divisions to develop and launch products. These products were
sold primarily on “big box” retail shelves supported by large marketing investments.
The
emergence of ecommerce giants, including Amazon and Walmart.com, has disrupted traditional NPD and commercialization paths and
has accelerated a consumer shift away from “brick and mortar” retailers. The result has been the bankruptcy or downsizing
of many iconic retailers, including Toys R Us, JC Penney, Macy’s, Sears, Kmart, Office Depot, Family Dollar, and K-B Toys,
with a commensurate loss of shelf space and accessible locations.
Moreover,
crowdfunding sites, like Kickstarter and Indiegogo, have also disrupted NPD process cycles and are now “mainstream.”
In fact, as of October 2018, Kickstarter’s cumulative pledged funding exceeded $3.9 billion according to Kickstarter published
data. Statista.com estimates that crowdfunded sales of products will exceed $18.9 billion by 2021.
These
crowdfunding sites have enabled individual innovators and entrepreneurs to design, prototype and market unique products to millions
of potential customers with significantly lower acquisition costs when compared to the capital and time required by legacy NPD
processes.
Leveraging
Evolving Market Opportunities for Growth
The
Company believes that its anticipated growth will be driven by five macro factors including:
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The
significant growth of ecommerce (14% CAGR, estimated to reach $4.9 trillion by 2021 (eMarketer 2018);
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The
increasing velocity of “brick and mortar” retail closures, now surpassing Great Recession levels (Cushman &
Wakefield / Moody’s Analytics 2018);
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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;
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The
rapid adoption of crowdsourcing to expedite successful new product launches; and
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Utilizing
the opportunities to market products over the internet, rather than through traditional, commercial channels, to reach a much
broader, higher qualified target market for brands and products.
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In
addition, we believe that by leveraging our expertise in helping companies launch thousands of new products and our ability to
create unique, customized packaging, we intend to acquire 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. In addition, 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 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 is Cloud B (www.cloudb.com), a leading manufacturer of products and accessories that help parents and children sleep better.
The Company distributes its products nationally and in over 100 countries worldwide.
Founded
in 2002 and acquired by Vinco Ventures in October 2018, Cloud B’s highly regarded, award-winning products are developed
in consultation with an Advisory Board of pediatricians and specialists. The Company 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 on-line (through its own ecommerce site and other online e-tailers), in specialty boutiques,
gift stores, and worldwide at major retailers including Barnes & Noble, Bloomingdales, Dillard’s, Nordstrom, Von Maur,
Harrods of London, and FNAC in France.
Immediate
synergies from the Company’s acquisition of Cloud B include expanding Vinco Ventures’ West coast footprint
by leveraging Cloud B’s sizeable distribution, sales and fulfillment operations. In addition, Cloud B is leveraging the
Vinco Ventures proprietary NPD platform, Hong Kong-based manufacturer sourcing and management capabilities, and marketing
and packaging resources.
The
Company’s primary focus since the Cloud B acquisition has been to optimize existing product performance, while helping to
develop new product lines leveraging the Vinco Ventures NPD platform.
Factors
Which May Influence Future Results of Operations
The
following is a description of factors that may influence our future results of operations, and which we believe are important
to an understanding of our business and results of operations.
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.
Cloud
B, Inc. Transaction
On
October 29, 2018, the Company entered into a Stock Purchase Agreement with the Cloud B Sellers. 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 (“CB1”),
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, CB1, 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 for further information.
Impairment
For
the year end December 31, 2019, 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 Uber Mom, LLC
On
November 6, 2019, the Company acquired the assets of Uber Mom, LLC for $52,352, which was the approximate value of Uber Mom, LLC
inventory, and 22,500 shares of our common stock.
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.
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 was 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 and cash
compensation was made on July 1, 2020.
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.
Acquisition
of TBD Safety, LLC
On
September 29, 2020, the Company (as “Purchaser”) entered into a Purchase and Sale Agreement (the “Agreement”)
with Graphene Holdings, LLC, Mercury FundingCo, LLC, Ventus Capital, LLC and Jetco Holdings, LLC (together the “Sellers”)
to acquire all outstanding Membership Units (the “Units”) of TBD Safety, LLC (“TBD”). Collectively, the
Sellers own all outstanding Units of TBD. Under the terms of the Agreement, the Company is to issue a total of Two Million Two
Hundred Ten Thousand Three Hundred Eighty-Two (2,210,382) shares of the Company’s common stock and a total of Seven Hundred
Sixty Four Thousand Six Hundred Eighteen (764,618) shares of a newly designated Preferred Stock (the “Preferred”).
In addition, the Company and Sellers shall enter into a Registration Rights Agreement (the “Registration Rights Agreement”)
in favor of the Sellers obligating the Company to register such Common Stock and shares of Common Stock to be issued upon conversion
of the Preferred within 120 days after the Closing. The Sellers shall have an Earn Out Consideration - At such time as the Assets
purchased in the Agreement achieve cumulative revenue of $10,000,000, the Sellers shall earn a total of One Hundred Twenty-Five
Thousand (125,000) shares of Common Stock. The Closing of the transaction occurred on October 16, 2020.
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 Medical 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.
COVID-19
has created both opportunity and a considerable amount of uncertainty across many markets including the sourcing and sale of Personal
Protective Equipment. While we were initially excited regarding the confirmed orders that we received, we have realized that the
supply side of the industry is unable to keep up with the current global demand. In response, we have adjusted our corporate guidance
in the PPE space from fiscal year 2020 to include the initial two quarters of 2021 to allow sufficient time for delivery. While
we still remain confident in our confirmed demand and ability to supply the products required, we have taken a different approach
moving forward due to the uncertainty of timing of production and transportation which has caused the additional time added to
our initial guidance.
Receivables
Financing
On
November 17, 2020, the Company, through its subsidiary, Edison Nation, LLC (the “Vendor”), entered into an Inventory
Management Agreement (the “Agreement”) with the Forever 8 Fund, LLC (“F8”), an entity which our Chief
Executive Officer holds a 45% ownership interest. Under the terms of the Agreement, F8 desires to maintain inventory of and sell
to Vendor certain Products pursuant to the terms and conditions set forth in the Agreement. As consideration for the inventory
management services provided under this Agreement, Vendor agrees to pay F8 a fee for each unit of each Product sold on a Platform
determined in accordance with the fee schedule set forth in the applicable Product Schedule (the “Fee Schedule”)
based on the Age of Inventory Sold set forth on the Fee Schedule (the “F8 Fees”). This Agreement shall commence
on the Effective Date and shall continue in full force and effect until January 31, 2022 (the “Initial Term”),
unless terminated earlier as provided in this Agreement.
On
October 29, 2020, the Company, along with its subsidiaries, Edison Nation, LLC and Ferguson Containers, Inc., entered into a Futures
Receivables Sale Agreement (the “Agreement”) with Itria Ventures, LLC whereby the Company agreed to the sale
of $155,000 of receivables for $125,000. 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 Agreement.
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.
Tiburon
Loan Agreement
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.
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.
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 October 12, 2020, the Company issued 125,000 shares of common stock to Ralls, valued at $250,000, related
to the exercise of the Ralls Warrant.
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 (the “Borrower”) 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 October 7, 2020, the Borrower
and Investor entered into a Forbearance Agreement (the “Agreement”) against the Note issued by the Borrower to the
Holder dated April 7, 2020. Under the terms of the Agreement, the Borrower has requested and the Holder has agreed to temporarily
forebear, until the earlier of (i) December 9, 2020 or (ii) at such time as a default shall occur under and pursuant to the Purchase
Agreement, the Note or the Agreement, from exercising its right to convert amounts due under the Note into Common Stock of the
Borrower, in exchange for a one time cash payment forbearance fee equal to $12,500.00 paid upon execution of 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.
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.
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 the date of this filing, 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.
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 Quarterly Report on Form 10-Q.
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.
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.
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 September 30, 2020 versus Three Months Ended September 30, 2019
The
following table sets forth information comparing the components of net (loss) income for the three months ended September 30,
2020 and 2019:
|
|
Three
Months Ended
September
30,
|
|
|
Period
over
Period
Change
|
|
|
|
2020
|
|
|
2019
|
|
|
$
|
|
|
%
|
|
Revenues, net
|
|
$
|
4,251,147
|
|
|
$
|
3,532,645
|
|
|
$
|
718,502
|
|
|
|
20.34
|
%
|
Cost of revenues
|
|
|
2,668,864
|
|
|
|
2,544,058
|
|
|
|
124,806
|
|
|
|
4.91
|
%
|
Gross profit
|
|
|
1,582,283
|
|
|
|
988,587
|
|
|
|
593,696
|
|
|
|
60.06
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general
and administrative
|
|
|
3,474,844
|
|
|
|
3,296,323
|
|
|
|
178,521
|
|
|
|
5.42
|
%
|
Operating loss
|
|
|
(1,892,561
|
)
|
|
|
(2,307,736
|
)
|
|
|
415,175
|
|
|
|
-17.99
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income
|
|
|
25,704
|
|
|
|
25,704
|
|
|
|
-
|
|
|
|
0.00
|
%
|
Interest expense
|
|
|
(1,004,626
|
)
|
|
|
(349,172
|
)
|
|
|
(655,454
|
)
|
|
|
187.72
|
%
|
Total expense
|
|
|
(978,922
|
)
|
|
|
(323,468
|
)
|
|
|
(655,454
|
)
|
|
|
202.63
|
%
|
Loss before income
taxes
|
|
|
(2,871,483
|
)
|
|
|
(2,631,204
|
)
|
|
|
(240,279
|
)
|
|
|
9.13
|
%
|
Income tax expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.00
|
%
|
Net loss
|
|
|
(2,871,483
|
)
|
|
|
(2,631,204
|
)
|
|
|
(240,279
|
)
|
|
|
9.13
|
%
|
Net loss attributable
to noncontrolling interests
|
|
|
(37,439
|
)
|
|
|
(49,103
|
)
|
|
|
11,664
|
|
|
|
-23.75
|
%
|
Net loss attributable
to Vinco Ventures, Inc.
|
|
$
|
(2,834,044
|
)
|
|
$
|
(2,582,101
|
)
|
|
$
|
(251,943
|
)
|
|
|
9.76
|
%
|
Revenue
For
the three months ended September 30, 2020, revenues increased by $718,502 or 20.34%, as compared to
the three months ended September 30, 2019. The increase was primarily attributable to the increases in the
Company’s revenue through its Ferguson Containers subsidiary and Cloud B branded products compared to the prior year.
Cost
of Revenues
For
the three months ended September 30, 2020, cost of revenues increased by $124,806 or 4.91%, as compared
to the three months ended September 30, 2019. The increase was primarily attributable to the increase in
total consolidated revenues.
Gross
Profit
For
the three months ended September 30, 2020, gross profit increased by $593,696, or 60.06%, as compared
to the three months ended September 30, 2019. The increase was primarily a result of the increase in revenues.
For the three months ended September 30, 2020, gross profit percentage increased to 37.2%, as compared to 28.0%
for the three months ended September 30, 2019. The increase in gross margin was due to the increase in the Ferguson
Containers business and fixed costs included in cost of goods sold that did not increase with the revenue increase. In addition,
the Company had favorable product mix of goods sold to customers related to increased sales in our higher margin Cloud B branded
business.
Operating
Expenses
Selling,
general and administrative expenses were $3,474,828 and $3,296,323 for the three months ended September 30, 2020
and 2019, respectively, representing an increase of $178,521, or 5.42%. The largest increases included an
increase of stock-based compensation of approximately $1,008,000 and approximately $329,000 selling expense offset by wages and
benefits of approximately $318,000, general expense of approximately $244,000, investor relations of approximately $157,000, legal
of approximately $155,000, professional fees of approximately $222,000, and travel of approximately $96,000.
Rental
Income
Rental
income was $25,704 for both the three months ended September 30, 2020 and 2019.
Interest
expense
Interest
expense was $1,004,626 for the three months ended September 30, 2020 versus $349,172 in the previous three
months ended September 30, 2019. The increase in interest expense was related to increased borrowings of debt during 2020.
Income
tax expense
There
was no income tax expense for the three months ended
September 30, 2020 and September 30, 2019.
Nine
Months Ended September 30, 2020 versus Nine Months Ended September 30, 2019
The
following table sets forth information comparing the components of net (loss) income for the nine months ended September 30, 2020
and 2019:
|
|
Nine
Months Ended
September
30,
|
|
|
Period
over
Period
Change
|
|
|
|
2020
|
|
|
2019
|
|
|
$
|
|
|
%
|
|
Revenues, net
|
|
$
|
14,798,283
|
|
|
$
|
15,239,434
|
|
|
$
|
(441,151
|
)
|
|
|
-2.89
|
%
|
Cost of revenues
|
|
|
9,977,060
|
|
|
|
10,413,868
|
|
|
|
(436,808
|
)
|
|
|
-4.19
|
%
|
Gross
profit
|
|
|
4,821,223
|
|
|
|
4,825,566
|
|
|
|
(4,343
|
)
|
|
|
-0.09
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
10,438,487
|
|
|
|
9,738,107
|
|
|
|
700,380
|
|
|
|
7.19
|
%
|
Operating loss
|
|
|
(5,617,264
|
)
|
|
|
(4,912,541
|
)
|
|
|
(704,723
|
)
|
|
|
14.35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income
|
|
|
77,111
|
|
|
|
77,111
|
|
|
|
-
|
|
|
|
0.00
|
%
|
Other income
|
|
|
4,911,760
|
|
|
|
-
|
|
|
|
4,911,760
|
|
|
|
100.00
|
%
|
Interest
expense
|
|
|
(2,575,737
|
)
|
|
|
(875,036
|
)
|
|
|
(1,700,701
|
)
|
|
|
194.36
|
%
|
Total
other expense
|
|
|
2,413,134
|
|
|
|
(797,925
|
)
|
|
|
3,211,059
|
|
|
|
-402.43
|
%
|
Loss
before income taxes
|
|
|
(3,204,130
|
)
|
|
|
(5,710,466
|
)
|
|
|
2,506,336
|
|
|
|
-43.89
|
%
|
Income tax expense
|
|
|
-
|
|
|
|
74,200
|
|
|
|
(74,200
|
)
|
|
|
-100.00
|
%
|
Net loss
|
|
|
(3,204,130
|
)
|
|
|
(5,784,666
|
)
|
|
|
2,580,536
|
|
|
|
-44.61
|
%
|
Net
income attributable to noncontrolling interests
|
|
|
(15,198
|
)
|
|
|
(31,858
|
)
|
|
|
16,660
|
|
|
|
-52.29
|
%
|
Net
loss attributable to Vinco Ventures, Inc.
|
|
$
|
(3,188,932
|
)
|
|
$
|
(5,752,808
|
)
|
|
$
|
2,563,876
|
|
|
|
-44.57
|
%
|
Revenue
For
the nine months ended September 30, 2020, revenues decreased by $441,151 or 2.89%, as compared to
the nine months ended September 30, 2019. The decrease was primarily the result of lower revenues from our amusement
park business offset by increases in our Edison Medical business.
Cost
of Revenues
For
the nine months ended September 30, 2020, cost of revenues decreased by $436,808 or 4.19%, as compared
to the nine months ended September 30, 2019. The decrease was primarily attributable to the decrease in total
consolidated revenues.
Gross
Profit
For
the nine months ended September 30, 2020, gross profit decreased by $4,343, or 0.09%, as compared
to the nine months ended September 30, 2019. The decrease was primarily a result of the decrease in revenues.
For the nine months ended September 30, 2020, gross profit percentage increased to 32.6%, as compared to 31.7%
for the nine months ended September 30, 2019. The increase in gross margin was due to the increase in the Ferguson
Containers business and fixed costs included in cost of goods sold that did not increase with the revenue increase.
Operating
Expenses
Selling,
general and administrative expenses were $10,438,487 and $9,738,107 for the nine months ended September 30, 2020
and 2019, respectively, representing an increase of $700,380, or 7.19%. The largest increases included an
increase of stock-based compensation of approximately $1,900,00 and approximately $900,000 selling expense offset by wages and
benefits of approximately $143,000, general expenses of approximately $233,000, investor relations of approximately $209,000,
legal of approximately $128,000, professional fees of approximately $950,000 and travel of approximately $214,000.
Rental
Income
Rental
income was $77,111 for both the nine months ended September 30, 2020 and 2019.
Interest
expense
Interest
expense was $2,575,737, an increase of 194.36%, for the nine months ended September 30, 2020 versus $875,036
in the previous nine months ended September 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 nine months ended September 30, 2020, a decrease of $74,200 or 100.0%,
compared to $74,200 for the nine months ended September 30, 2019. The decrease was primarily due to the decrease
in income from our foreign operations as well as net operating losses for our domestic operations.
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 nine months ended September 30, 2020 and 2019, EBITDA and Adjusted EBITDA consisted of the following:
|
|
Three
Months
Ended September 30,
|
|
|
Nine
Months
Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Net (loss) income
|
|
$
|
(2,871,483
|
)
|
|
$
|
(2,631,204
|
)
|
|
$
|
(3,204,130
|
)
|
|
$
|
(5,784,666
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
1,004,624
|
|
|
|
349,172
|
|
|
|
2,575,735
|
|
|
|
875,036
|
|
Income tax expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
74,200
|
|
Depreciation and
amortization
|
|
|
326,437
|
|
|
|
318,449
|
|
|
|
938,843
|
|
|
|
952,019
|
|
EBITDA
|
|
|
(1,540,422
|
)
|
|
|
(1,963,583
|
)
|
|
|
310,448
|
|
|
|
(3,883,411
|
)
|
Stock-based compensation
|
|
|
1,176,595
|
|
|
|
168,097
|
|
|
|
2,765,022
|
|
|
|
876,585
|
|
Restructuring and severance costs
|
|
|
168,074
|
|
|
|
153,182
|
|
|
|
599,219
|
|
|
|
324,164
|
|
Transaction and acquisition costs
|
|
|
-
|
|
|
|
224,370
|
|
|
|
82,736
|
|
|
|
447,908
|
|
Other non-recurring costs
|
|
|
13,109
|
|
|
|
100,772
|
|
|
|
53,969
|
|
|
|
724,137
|
|
Gain on divestiture
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,911,760
|
)
|
|
|
-
|
|
Adjusted EBITDA
|
|
$
|
(182,644
|
)
|
|
$
|
(1,317,162
|
)
|
|
$
|
(1,100,366
|
)
|
|
$
|
(1,510,617
|
)
|
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.
Liquidity
and Capital Resources
For
the nine months ended September 30, 2020, our operations lost $5,617,264, of which approximately $3,703,865 was non-cash and approximately
$544,741 was related to transaction costs and restructuring charges for payroll and rents.
At
September 30, 2020, we had total current assets of $6,723,083 and current liabilities of $10,115,092 resulting in negative working
capital of $3,392,009, of which $1,214,698 was related party notes payable and $219,396 was accrued related party interest expense.
At September 30, 2020, we had total assets of $24,405,755 and total liabilities of $13,780,773 resulting in stockholders’
equity of $10,624,982.
The
foregoing factors raised initial concerns about the Company’s ability to continue as a going concern. 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 three and nine months ended September 30, 2020 included $3,703,865 and related to depreciation,
amortization and stock-based compensation, respectively. In addition, approximately $554,741 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:
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Subsequent
to September 30, 2020, the Company received $125,000 through a receivables financing
agreement;
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Raise
further capital through the sale of additional equity of between $5 to $10 million;
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Borrow
money under debt securities;
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The
deferral of payments to related party debt holders for both principal of $2,667,513 and
related interest expense of $219,396;
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Cost
saving initiatives related to synergies and the elimination of redundant costs of approximately
$1,500,000, of which approximately $168,000 impacted the three months ended September
30, 2020;
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Possible
sale of certain brands to other customers or manufacturers;
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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;
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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; and
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Additional
headcount reductions.
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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 nine months ended September 30, 2020 and 2019, our sources and uses of cash were as follows:
Cash
Flows from Operating Activities
Net
cash used in operating activities for the nine months ended September 30, 2020 was $3,311,310, which included a net loss
of $3,204,130. The net loss included $1,140,875 of cash used by changes in operating assets and liabilities which
was offset by stock-based compensation of $2,765,022 and amortization of debt issuance costs of $2,015,422. Net
cash used in operating activities for the nine months ended September 30, 2019 was $2,298,186, which included a net loss of $5,784,666.
That net loss included $782,561 of cash provided by changes in operating assets and liabilities, which were offset by stock-based
compensation of $876,585, depreciation and amortization of $952,019, amortization of debt issuance costs of $658,126 and amortization
of right of use assets of $217,189.
Cash
Flows from Investing Activities
Cash
used in investing activities for the nine months ended September 30, 2020 was $193,429 which related to the purchase of
property and equipment of $193,429. Cash used in investing activities for the nine months ended September 30, 2019 was
$113,612 which related to the purchase of property and equipment.
Cash
Flows from Financing Activities
Cash
provided by financing activities for the nine months ended September 30, 2020 was $3,476,624 which related to borrowings
under lines of credit, convertible notes payable and notes payable. Cash provided by financing activities for the nine
months ended September 30, 2019 was $1,573,370 which related mostly to net cash received borrowings under new debt instruments
offset by repayments.
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.