Live Feed

Feed to the latest filings at the SEC

 

VINCO VENTURES, INC. C/O INCORP SERVICES

Date Filed : Feb 05, 2021

S-11forms-1.htm

 

As filed with the Securities and ExchangeCommission on February 5, 2021

 

RegistrationStatement No.                

 

 

 

UNITEDSTATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORMS-1
REGISTRATION STATEMENT UNDER THE

SECURITIESACT OF 1933

 

 

VINCOVENTURES, INC.

(f/k/aEdison Nation, Inc.)

(Exactname of registrant as specified in its charter)

 

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

 

VincoVentures, Inc.
1 West Broad Street, Suite 1004

Bethlehem,Pennsylvania 18018

(866)900-0992

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

 

ChristopherB. Ferguson

ChiefExecutive Officer

VincoVentures, Inc.
1 West Broad Street, Suite 1004

Bethlehem,Pennsylvania 18018

(866)900-0992

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

 

Copiesto:

 

JosephLucosky, Esq. 

LucoskyBrookman LLP

101 Wood Avenue South, 5th Floor

Woodbridge, NJ 08830

(732)395-4400

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

CALCULATIONOF REGISTRATION FEE

 

Title of Each Class of Securities To Be Registered   Amount to
be
Registered
(1)
    Proposed
Maximum
Offering
Price Per
Security
(2)
    Proposed
Maximum
Aggregate
Offering
Price
(2)
    Amount of
Registration
Fee
(3)
 
Common Stock, $0.001 par value per share, issued in connection with the Hudson Bay Senior Convertible Note (the “Hudson Bay financing”) (defined below)     6,000,000       3.74       22,440,000       2,448.20  
Common Stock, $0.001 par value per share, underlying Warrant issued in connection with the Hudson Bay financing (defined below)     15,000,000       3.74       56,100,000       6,120.51  
Common Stock, $0.001 par value per share, issued in connection with the BHP Capital Securities Purchase Agreement (the “BHP financing”) (defined below)     1,500,000       3.74       5,610,000       612.05  
Common Stock, $0.001 par value per share, underlying Warrant issued in connection with the BHP financing (defined below)     1,500,000       3.74       5,610,000       612.05  
Common Stock, $0.001 par value per share, underlying Placement Agent Warrants issued in connection with the Hudson Bay financing     480,000       3.74       1,795,200       195.86  
Total     24,480,000     $ 3.74     $ 91,555,200     $ 9,988.67  

 

(1) Pursuant to Rule 416 under the Securities Act, the shares registered hereby also include an indeterminate number of additional shares as may from time to time become issuable by reason of stock splits, distributions, recapitalizations or other similar transactions.
(2) Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(c) under the Securities Act, on the basis of the average high and low sales price of the Registrant’s common stock as reported by The Nasdaq Capital Market on February 4, 2021. The shares offered hereunder may be sold by the Selling Shareholders from time to time in the open market, through privately negotiated transactions, or a combination of these methods at market prices prevailing at the time of sale or at negotiated prices.
(3) The fee is calculated by multiplying the aggregate offering amount by 0.0001091 pursuant to Section 6(b) of the Securities Act.

 

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

 

 

 

 

 

 

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

 

PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED February 5, 2021

 

 

VincoVentures, Inc.

 

24,480,000Shares of Common Stock

 

Pursuantto this prospectus, the selling shareholders identified herein (each a “Selling Shareholder” and, collectively, the“Selling Shareholders”) are offering on a resale basis, up to 24,480,000 shares of common stock, par value$0.001 per share (the “common stock”) of Vinco Ventures, Inc. (the “Company,” “Vinco Ventures,”“we,” “our” or “us”). These shares include: (i) 6,000,000 shares of common stockunderlying a senior convertible note issued in the Hudson Bay financing, and (ii) 15,000,000 shares of common stockunderlying a warrant issued in connection with the Hudson Bay financing, and (iii) 1,500,000 shares of common stock issued inconnection with the BHP Securities Purchase Agreement, and (iv) 1,500,000 shares of common stock underlying a warrant issued inconnection with the BHP financing, and (v) 480,000 shares of common stock underlying a warrant issued in connection with the placementof the Hudson Bay financing. We are not selling any shares under this prospectus, and we will not receive any proceeds fromthe sales of shares by the Selling Shareholders. We will, however, receive the exercise price of the Warrants, if and when suchWarrants are exercised for cash by the holders of such Warrants.

 

Theshares included in this prospectus may be offered and sold directly by the Selling Shareholders in accordance with one or moreof the methods described in the “Plan of Distribution,” which begins on page 33 of this prospectus. To theextent the Selling Shareholders decide to sell their shares, we will not control or determine the price at which the shares aresold.

 

Ourcommon stock is listed on The Nasdaq Capital Market under the symbol “BBIG.” On February 4, 2021, thelast reported sale price of our common stock was $3.74 per share.

  

Thisoffering will terminate on the earlier of (i) the date when all of the shares have been sold pursuant to this prospectus or Rule144 under the Securities Act of 1933, as amended (the “Securities Act”), and (ii) the date that all of the securitiesmay be sold pursuant to Rule 144 without volume or manner-of-sale restrictions, unless we terminate it earlier.

 

Weare an “emerging growth company” as defined under U.S. federal securities laws and, as such, we have elected to complywith certain reduced public company reporting requirements for this prospectus and future filings. See “Prospectus Summary— Implications of Being an Emerging Growth Company.”

 

Investingin our common stock involves a high degree of risk. See “Risk Factors” beginning on page 18 of this prospectusfor a discussion of the risks that you should consider in connection with an investment in our securities.

  

Neitherthe Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities ordetermined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

Thedate of this prospectus is February 5, 2021.

 

 1 
   

 

TABLEOF CONTENTS

 

   Page
Cautionary Note Regarding Forward-Looking Statements  4
Prospectus Summary  5
Summary of the Offering  16
Risk Factors  18
Use of Proceeds  31
Private Placement of Equity Securities  31
Dividend Policy  32
Determination of Offering Price  32
Market for Common Equity and Related Shareholder Matters  32
Plan of Distribution  33
Selling Shareholders for Whose Accounts We Are Registering Shares  34
Management’s Discussion and Analysis of Financial Condition and Results of Operations  36
Business  46
Management  53
Executive Compensation  59
Certain Relationships and Related Party Transactions  63
Principal Shareholders  64
Description of Capital Stock  66
Legal Matters  68
Experts  68
Where You Can Find Additional Information  68
Incorporation of Certain Information by Reference  68
Index to Consolidated Financial Statements  F-1

 

Nodealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus.You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares of commonstock offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information containedin this prospectus is current only as of its date.

 

ABOUTTHIS PROSPECTUS

 

Thisprospectus is part of a registration statement that we filed on behalf of the Selling Shareholders with the United States Securitiesand Exchange Commission (the “SEC”) to permit the Selling Shareholders to sell the shares described in this prospectusin one or more transactions. The Selling Shareholders and the plan of distribution of the shares being offered by them are describedin this prospectus under the headings “Selling Shareholders” and “Plan of Distribution.”

 

Youshould rely only on the information contained in this document and any free writing prospectus we provide to you. Neither we northe Selling Shareholders have authorized anyone to provide any information or to make any representations other than those containedin this prospectus or in any free writing prospectuses we have prepared. We and the Selling Shareholders take no responsibilityfor and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus isan offer to sell only the common stock offered hereby, but only under circumstances and in jurisdictions where it is lawful todo so. The information contained in this prospectus is current only as of its date.

 

 2 
   

 

Useof Industry and Market Data

 

Thisprospectus includes market and industry data that we have obtained from third-party sources, including industry publications,as well as industry data prepared by our management on the basis of its knowledge of and experience in the industries in whichwe operate (including our management’s estimates and assumptions relating to such industries based on that knowledge). Managementhas developed its knowledge of such industries through its experience and participation in these industries. While our managementbelieves the third-party sources referred to in this prospectus are reliable, neither we nor our management have independentlyverified any of the data from such sources referred to in this prospectus or ascertained the underlying economic assumptions reliedupon by such sources. Furthermore, internally prepared and third-party market prospective information, in particular, are estimatesonly and there will usually be differences between the prospective and actual results, because events and circumstances frequentlydo not occur as expected, and those differences may be material. Also, references in this prospectus to any publications, reports,surveys or articles prepared by third parties should not be construed as depicting the complete findings of the entire publication,report, survey or article. The information in any such publication, report, survey or article is not incorporated by referencein this prospectus.

 

Trademarks,Trade Names and Service Marks

 

“VincoVentures” and other trademarks or service marks of VincoVentures, Inc. appearing in this prospectus are the property of Vinco Ventures, Inc. The other trademarks, trade namesand service marks appearing in this prospectus are the property of their respective owners. Solely for convenience, the trademarksand trade names in this prospectus are referred to without the ® and ™ symbols, but such references shouldnot be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, theirrights thereto.

 

 3 
   

 

CAUTIONARYNOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Thisprospectus contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 andSection 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements relate to futureevents including, without limitation, the terms, timing and closing of our proposed acquisitions or our future financial performance.We have attempted to identify forward-looking statements by using terminology such as “anticipates,” “believes,”“expects,” “can,” “continue,” “could,” “estimates,” “expects,”“intends,” “may,” “plans,” “potential,” “predict,” “should,”“will,” or the negative of these terms or other comparable terminology. These statements are only predictions; uncertaintiesand other factors may cause our actual results, levels of activity, performance, or achievements to be materially different fromany future results, levels or activity, performance, or achievements expressed or implied by these forward-looking statements.Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee futureresults, levels of activity, performance, or achievements. Our expectations are as of the date this prospectus is filed, and wedo not intend to update any of the forward-looking statements after the date this prospectus is filed to confirm these statementsto actual results, unless required by law.

 

Youshould not place undue reliance on forward looking statements. The cautionary statements set forth in this prospectus identifyimportant factors which you should consider in evaluating our forward-looking statements. These factors include, among other things:

 

  Our ability to effectively execute our business plan;

 

  Our ability to manage our expansion, growth and operating expenses;
     
  Our ability to protect our brands and reputation;
     
  Our ability to repay our debts;
     
  Our ability to rely on third-party suppliers outside of the United States;
     
  Our ability to evaluate and measure our business, prospects and performance metrics;
     
  Our ability to compete and succeed in a highly competitive and evolving industry;
     
  Our ability to respond and adapt to changes in technology and customer behavior;
     
  Risks in connection with completed or potential acquisitions, dispositions and other strategic growth opportunities and initiatives;
     
  Risks related to the anticipated timing of the closing of any potential acquisitions;
     
  Risks related to the integration with regards to potential or completed acquisitions;
     
  Various risks related to health epidemics, pandemics and similar outbreaks, such as the coronavirus disease 2019 (“COVID-19”) pandemic, which may have material adverse effects on our business, financial position, results of operations and/or cash flows; and
     
  Our ability to take advantage of opportunities under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, and the potential impact of the CARES Act on our business, results of operations, financial condition or liquidity.

 

Thisprospectus also contains estimates and other statistical data made by independent parties and by us relating to market size andgrowth and other industry data. This data involves a number of assumptions and limitations, and you are cautioned not to giveundue weight to such estimates. We have not independently verified the statistical and other industry data generated by independentparties and contained in this prospectus and, accordingly, we cannot guarantee their accuracy or completeness, though we do generallybelieve the data to be reliable. In addition, projections, assumptions, and estimates of our future performance and the futureperformance of the industries in which we operate are necessarily subject to a high degree of uncertainty and risk due to a varietyof factors. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons,including, but not limited to, the possibility that we may fail to preserve our expertise in consumer product development; thatexisting and potential distribution partners may opt to work with, or favor the products of, competitors if our competitors offermore favorable products or pricing terms; that we may be unable to maintain or grow sources of revenue; that we may be unablemaintain profitability; that we may be unable to attract and retain key personnel; or that we may not be able to effectively manage,or to increase, our relationships with customers; and that we may have unexpected increases in costs and expenses. These and otherfactors could cause results to differ materially from those expressed in the estimates made by the independent parties and byus.

 

 4 
   

 

PROSPECTUSSUMMARY

 

Thissummary highlights selected information contained elsewhere in this prospectus. This summary does not contain all of the informationthat you should consider before deciding to invest in our common stock. You should read the entire prospectus carefully, includingthe “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”and our combined financial statements and the related notes thereto that are included elsewhere in this prospectus, before makingan investment decision.

 

Unlessthe context requires otherwise, “Vinco Ventures,” the “Company,” “we,” “us,”and “our,” refer to Vinco Ventures, Inc. and its subsidiaries.

 

Overview

 

OurCompany 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 September7, 2018 we filed an Amendment to our Articles of Incorporation changing the name to Edison Nation, Inc. On November 5, 2020, theCompany (the “Parent”) and its wholly owned subsidiary, Vinco Ventures, Inc. (the “Merger Sub”), enteredinto an Agreement and Plan of Merger (the “Agreement”). Under the terms of the Agreement, the Merger Sub merged withand into the Parent and the Parent became the surviving corporation of the Merger (the “Surviving Corporation”). Thename of the Surviving Corporation became Vinco Ventures, Inc. The transaction closed on November 10, 2020.

 

VincoVentures seeks to be involved with every step of the consumerproduct life cycle- from ideation, to research and development, manufacturing, sales, packaging and fulfillment. The Company alsoseeks to raise awareness of the Vinco Ventures brand name as a diversified consumer products business through a numberof media channels.

 

Thefirst stage of development for any consumer product is the impetus to turn an idea into a salable commodity. Considered to bethe “go-to” resource for independent innovators with great consumer product invention ideas, Vinco Venturesmaintains a consumer-facing online presence whereby innovators can submit ideas for consideration by us. If an idea is successfullychosen, Vinco Ventures will apply its proprietary, web-enabled new product development (“NPD”) and commercializationplatform that can take a product from idea through e-commerce final sale in a matter of months versus a year or more for capitalintensive 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 interestedin accessing the Company’s NPD platform to bring innovative, new products to market focusing on high-interest, high-velocityconsumer categories. The Company generates revenue from its web presence by charging a fee for each idea submission, and alsothrough subscription-based plans for innovators that wish to submit high volumes of ideas.

 

Sinceits inception, Vinco Ventures has received over 200,000 idea submissions, with products selling in excess of $250 millionat 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 includemany of the largest manufacturers and retailers in the world including Amazon, Bed Bath and Beyond, HSN, Rite Aid, P&G, andBlack & Decker. The Company generates revenue from licensing agreements with such manufacturers and retailers, which suchagreements are entered into when innovators submit their ideas through Vinco Ventures’ web portal. Occasionally,the Company also generates revenue from innovators that wish to use the Company’s product development resources, but licenseor distribute products themselves.

 

VincoVentures has a number of internally developed brands “ENBrands” which act as a launchpad for new innovative items that have matriculated through the innovation portal. These ENBrands include Cloud B, Pirasta, Uber Mom, Best Party Concepts, Lily and Grey, Sol and Salud, Trillion Trees, Eco Quest, SmarterSpecs, Barkley Lane, and Ngenious Fun. Additionally, the Company offers a partnership model for entrepreneurs and businesses thatare 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 developmentof new item that enhance the brands overall image and consumer adoption,

 

Inaddition to developing products for its EN Brands, the Company develops and manufactures products for well-known brands in theentertainment and theme park industry. For over 20 years, the Company has developed, manufactured and supplied the entertainmentand amusement park industry with exclusive products that are often only available to consumers inside venues such as Disney Parksand Resorts, Disney Stores, Universal Resorts, Sea World, Sesame Place, Busch Gardens, Merlin Entertainment, and Madison SquareGarden. For the customers listed above, the Company has developed products for core brands such as Harry Potter, Frozen, Marvel,and Star Wars.

 

Oncemost consumer products are ideated, developed, manufactured, and possibly even licensed, they must be packaged and distributed.Therefore, we lease a packaging and logistics center in Alpha, New Jersey. The Company generates revenue from the sale of custompackaging for many of the products that have run through our NPD or in-house product development process. The Company also sellspackaging products to a number of other entities that are not related to the Company’s product development process, includingpharmaceutical and e-commerce companies. When packaging of products is complete, we typically ship products using our own trucksrather than relying on a common carrier. For packaging products, the Company does not have long-term agreements with customers,and instead manufactures and sells its packaging products subject to purchase orders from its customers.

 

 5 
   

 

Oncea product is ready for distribution, consumer awareness must be raised in order to the sell the product. Accordingly, the Companyhas begun to pursue a three-prong media strategy. First, the Company is seeking to re-release episodes of the ‘EverydayEdisons’ television program, while simultaneously seeking a distribution partner for forthcoming episodes. The Company intendsto 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-learningplatform through the sale of subscription-based plans. Third, the Company is seeking to expand its web presence by acquiring orcreating other innovator-facing internet media properties. The Company intends to generate revenue from such internet media throughthe display of paid advertisements on its properties.

 

COVID-19

 

COVID-19has caused and continues to cause significant loss of life and disruption to the global economy, including the curtailment ofactivities 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.

 

Asa result of the pandemic, we have experienced, and continue to experience, weakened demand for our traditional products. Manyof our customers have been unable to sell our products in their stores and theme parks due to government-mandated closures andhave deferred or significantly reduced orders for our products. We expect these trends to continue until such closures are significantlycurtailed or lifted. In addition, the pandemic has reduced foot traffic in the stores where our products are sold that remainopen, and the global economic impact of the pandemic has temporarily reduced consumer demand for our products as they focus onpurchasing essential goods.

 

Inthe United States and Asia, many of our key accounts remain closed or are operating at significantly reduced volumes. As a result,we have made the strategic decision to expand our operations through our Edison Nation Medical (“Ed Med”) division.Through Ed Med, the Company wholesales Personal Protective Equipment (“PPE”) products through an online portal forhospitals, government agencies and distributors.

 

Giventhese factors, the Company anticipates that the greatest impact from the COVID-19 pandemic in fiscal 2020 occurred in thefirst quarter of 2020 which resulted in a significant net sales decline as compared to the first quarter of 2019. TheCompany was able to recover in the second quarter and third quarter of 2020 related to sales of personal protective equipmentand a rebound of some of our legacy product business.

 

Inaddition, some of our suppliers and the manufacturers of certain 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 areable to find alternate sources for such products, they may cost more and cause delays in our supply chain, which could adverselyimpact our profitability and financial condition.

 

Wehave taken actions to protect our employees in response to the pandemic, including closing our corporate offices and requiringour office employees to work from home. At our distribution centers, certain practices are in effect to safeguard workers, includinga 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.

 

Asa result of the impact of COVID-19 on our financial results, and the anticipated future impact of the pandemic, we have implementedcost control measures and cash management actions, including:

 

●Terminating 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.

 

MarketStrategy

 

Theprocess for developing and launching consumer products has changed significantly in recent years. Previously, Fortune 500 andother companies maintained multimillion-dollar research and development divisions to develop and launch products to be sold primarilyon retail shelves and supported by large television and print advertising investment. The emergence of e-commerce giants, includingAmazon.com, has caused retail shelf space to no longer be a requirement to launch a new product. Crowdfunding sites like Kickstarterenable solo entrepreneurs to inexpensively produce an advertising video and quickly introduce a new product to many millions ofpotential customers, and to quickly gain those customers for a low cost of acquisition relative to the cost and time requiredin prior years as expensive advertising investment is no longer required to gain market awareness. For example, according to Statista.com,crowdfunded sales of products will exceed $18.9 billion in 2021. The consumer shift away from brick and mortar retailers towarde-commerce has resulted in the bankruptcy or downsizing of many iconic retailers which sold toys, including Toys R Us, Sears,Kmart, and K-B Toys, with the resultant loss in shelf space and available locations helping to drive our market opportunity. Byutilizing the opportunities to market products over the internet, rather than through traditional, commercial channels, we believewe can reach a much broader market for our brands and products.

 

LeveragingEvolving Market Opportunities for Growth

 

TheCompany believes that its anticipated growth will be driven by five macroeconomic factors:

 

The significant growth of ecommerce (14% compound annual growth rate, estimated to reach $4.9 trillion by 2021 (eMarketer 2018));
The increasing velocity of “brick and mortar” retail closures, now surpassing Great Recession levels (Cushman & Wakefield/Moody’s Analytics 2018);
Product innovation and immediate delivery gratification driving consumer desire for next-generation products with distinctive sets of features and benefits without a reliance on brand awareness and familiarity;
The marriage of media-based entertainment and consumer goods;
The rapid adoption of crowdsourcing to expedite successful new product launches; and
The opportunity to market products over the internet and television, rather than through traditional, commercial channels, to reach a much broader, higher qualified target market for brands, and products.

 

Inaddition, we intend to acquire more small brands that have achieved approximately $1 million in retail sales over the trailingtwelve-month period with a track record of generating free cash flow. By leveraging our expertise in helping companies launchthousands of new products and our ability to create unique, customized packaging, we will seek to elevate the value of these acquiredbrands by improving each part of their launch process, based on our own marketing methodologies.

 

Webelieve our acquisition strategy will allow us to acquire small brands using a combination of shares of our common stock, cashand other consideration, such as earn-outs. We intend to use our acquisition strategy in order to acquire up to ten or more smallbrands per year for the next three years. In situations where we deem that a brand is not a “fit” for acquisitionor partnership, we may provide the brand with certain manufacturing or consulting services that will assist the brand to achieveits goals.

 

Oneexample of a brand that we have recently acquired is Cloud B, Inc. (“Cloud B”), a leading manufacturer of productsand accessories that help parents and children sleep better. Cloud B distributes its products nationally and in over 100 countriesworldwide.

 

Foundedin 2002 and acquired by Vinco Ventures in October 2018, Cloud B’s highly regarded, award-winning products are developedin consultation with an advisory board of pediatricians and specialists. Cloud B recently won the Toy of the Year award from TheToy Association. Cloud B’s best-known products are Twilight Turtle™ and Sleep Sheep™.

 

CloudB’s products can be purchased online (through its own e-commerce site and other online retailers), in specialty boutiques,gift stores, and worldwide at major retailers including Barnes & Noble, Bloomingdale’s, Dillard’s, Nordstrom,Von Maur, Harrods, and Fnac in France.

 

Immediatesynergies include expanding Vinco Ventures’ West Coast footprint by leveraging Cloud B’s sizable distribution,sales and fulfillment operations. The initial focus for Cloud B has been to optimize existing product performance while helpingto develop new product lines leveraging the Vinco Ventures NPD platform. In addition, Cloud B is leveraging Vinco Ventures’Hong Kong-based manufacturer sourcing and management capabilities, as well as the Company’s marketing and packagingresources.

 

 6 
   

 

Summaryof Risk Factors

 

Ourbusiness is subject to numerous risks and uncertainties, including those in the section captioned “Risk Factors”beginning on page 18 and elsewhere in this prospectus. These risks include, but are not limited to, the following:

 

our limited operating history and may not be able to operate our business successfully or generate sufficient revenue to make or sustain distributions to our shareholders;

 

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

 

our financial statements may be materially affected if our estimates prove to be inaccurate as a result of our limited experience in making critical accounting estimates;

 

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

 

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

 

our growth strategy includes pursuing opportunistic acquisitions of additional brands, and we may not find suitable acquisition candidates or successfully operate or integrate any brands that we may acquire;

 

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

 

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

 

we have debt financing arrangements, which could have a material adverse effect on our financial health and our ability to obtain financing in the future and may impair our ability to react quickly to changes in our business; and
   
 Various risks related to health epidemics, pandemics and similar outbreaks, such as the coronavirus disease 2019 (“COVID-19”) pandemic, which may have material adverse effects on our business. Due to the continued uncertainties and the fluid impacts of COVID-19, expectations could be affected by heightened effects from the pandemic.

 

RecentDevelopments

 

HudsonBay Financing

 

OnJanuary 25, 2021 (the “Effective Date”), the Company consummated the closing of a private placement offering (the“Offering”) whereby pursuant to the Securities Purchase Agreement (the “Purchase Agreement”) entered intoby the Company on January 21, 2021 with Hudson Bay Master Fund, Ltd (the “Investor”), the Company issued a SeniorConvertible Note for the purchase price of $12,000,000 (the “Note”) and a five (5) year warrant (the “Warrant”)to purchase shares of the Company’s common stock, par value $0.001 per share (“Common Stock”).

 

TheNote carries an interest rate of 6% per annum and matures on the 12-month anniversary of the Issuance Date (as defined in theNote). The Note contains a voluntary conversion mechanism whereby the Noteholder may convert at any time after the Issuance Date,in whole or in part, the outstanding balance of the Note into shares of the Common Stock at a conversion price of $2.00 per share(the “Conversion Shares”). The Note shall be a senior obligation of the Company and its subsidiaries. The Note containscustomary events of default (each an “Event of Default”). If an Event of Default occurs, interest under the Note willaccrue at a rate of twelve percent (12%) per annum and the outstanding principal amount of the Note, plus accrued but unpaid interest,liquidated damages and other amounts owing with respect to the Note will become, at the Note holder’s election, immediatelydue and payable in cash. Upon completion of a Change of Control (as defined in the Note), the Note’s holder may requirethe Company to purchase any outstanding portion of the Note in cash at a price in accordance with the terms of the Note.

 

Pursuantto the Purchase Agreement, the Investor received a Warrant in an amount equal to 250% of the shares of Common Stock initiallyissuable to each Investor pursuant to the Investor’s Note. The Warrant contains an exercise price of $2.00 per share. Inconnection with the closing of the Offering, the Warrant was issued to purchase an aggregate of 15,000,000 shares of Common Stock(the “Warrant Shares”).

 

TheCompany also entered into a Registration Rights Agreement with the Investor (the “Registration Rights Agreement”).The Registration Rights Agreement provides that the Company shall (i) file with the Securities and Exchange Commission (the “Commission”)a Registration Statement by 30 days following the Closing Date to register the Conversion Shares and Warrant Shares (the “RegistrationStatement”); and (ii) use all commercially reasonable efforts to have the Registration Statement declared effective by theCommission within 60 days following the Closing Date or at the earliest possible date, or 75 days following the Closing Date ifthe Registration Statement receives comments from the Commission.

 

PalladiumCapital Group, LLC (the “Placement Agent”) acted as placement agent for the Offering. The Placement Agent receivedcash compensation of $1,080,000 (8% of the gross proceeds to the Company plus an additional 1% of the gross proceeds to the Companyfor non-accountable expenses). The Placement Agent also received a Warrant in an amount equal to 8% of the shares of Common Stockinitially issuable to each Investor pursuant to the Investor’s Note.

 

BHPFinancing

 

OnJanuary 28, 2021 (the “Effective Date”), the Company consummated the closing of a private placement offering (the“Offering”) whereby pursuant to the Securities Purchase Agreement (the “SPA”) entered into by the Companyon January 28, 2021 with BHP Capital NY Inc (the “Investor”), the Company issued 1,500,000 shares of restricted commonstock and a five (5) year warrant (the “Warrant”) to purchase shares of the Company’s common stock, par value$0.001 per share (“Common Stock”).

 

Pursuantto the SPA, the Investor received a Warrant in an amount equal to 100% of the shares of Common Stock issued to the Investor underthe SPA. The Warrant contains an exercise price of $2.20 per share. In connection with the closing of the Offering, the Warrantwas issued to purchase an aggregate of 1,500,000 shares of Common Stock (the “Warrant Shares”).

 

TheCompany also entered into a Registration Rights Agreement with the Investor (the “Registration Rights Agreement”).The Registration Rights Agreement provides that the Company shall (i) file with the Securities and Exchange Commission (the “Commission”)a Registration Statement by 30 days following the Closing Date to register the Conversion Shares and Warrant Shares (the “RegistrationStatement”); and (ii) use all commercially reasonable efforts to have the Registration Statement declared effective by theCommission within 60 days following the Closing Date or at the earliest possible date, or 75 days following the Closing Date ifthe Registration Statement receives comments from the Commission.

 

Agreement to Complete a Merger withZash Global Media and Entertainment Corporation

 

On January 20, 2021, the Company, and itsnewly formed wholly owned subsidiary, Vinco Acquisition Corporation (the “Merger Sub”), entered into an Agreementto Complete a Plan of Merger (the “Agreement to Complete”) with ZASH Global Media and Entertainment Corporation (“ZASH”).

 

The Agreement contemplates a reverse triangularmerger of Merger Sub with and into ZASH in a transaction intended to qualify as a tax-free reorganization under Sections 368(a)(l)(A)and 368(a)(2)(E) of the Code. Under the terms of the Agreement to Complete, ZASH’s holders of common stock, par value $0.001,shall receive shares of Common Stock of the Company in exchange for all issued and outstanding ZASH shares of common stock. ZASHwill then become an indirect wholly-owned subsidiary of the Company. The Company will engage a third-party valuation firm to performa valuation of ZASH and to issue a Transaction Fairness Opinion. The valuation report is expected by February 11, 2021 and willset the resulting post-closing ownership ratio. Upon completion of the closing, ZASH will be the controlling entity.

 

The certificate of incorporation of theCompany will be amended and restated at and as of the Effective Time, in substantial conformance with the certificate of incorporationof ZASH immediately prior to the closing, and the name of the Company will be changed to “ZASH Global Media and EntertainmentCorporation.” The bylaws of the Company will be amended and restated at and as of the Closing to become the equivalent ofthe bylaws of ZASH immediately prior to the closing. At the closing, certain officers and directors of the Company and the MergerSub immediately prior to the Effective Time shall resign and the officers and directors of ZASH immediately prior to the closingwill be appointed as officers and directors of the Company and the surviving corporation, in each case until their respectivesuccessors are duly elected or appointed and qualified; provided, however that the Company shall have the right to appoint two(2) person to serve as a member of the Board of Directors of the surviving corporation and ZASH shall have the right to appointthree (3) persons to serve as members of the Board of Directors of the surviving company.

 

ContributionAgreement with Zash Global Media and Entertainment Corporation

 

OnJanuary 19, 2021, Vinco Ventures, Inc. (“Vinco Ventures”), ZVV Media Partners, LLC (the “Company”) andZash Global Media and Entertainment Corporation (“ZASH”) entered into a Contribution Agreement (the “Agreement”).Vinco Ventures and ZASH desire to establish the newly formed Company in order to engage in the development and production of consumerfacing content and related activities.

 

Underthe terms of the Agreement, Vinco Ventures and ZASH shall contribute certain assets (the “Contributed Assets”) tothe Company. At Closing, Vinco Ventures and ZASH shall enter into a limited liability operating agreement of the Company and acontent distribution agreement with American Syndication Media Corporation (“ASMC”). The Company shall not assumeany liabilities of either Vinco Ventures or ZASH except those liabilities arising in or specifically relating to periods, eventsor occurrences happening with respect to the Contributed Assets on or after the Closing Date. In consideration of the ContributedAssets, the Company shall issue to Vinco Ventures and ZASH 5,000 Units. The transaction closed on January 19, 2021.

 

StockExchange Agreement for Sale of SRM Entertainment, LTD

 

OnNovember 30, 2020, the Company (the “Seller”) and its wholly owned subsidiary, SRM Entertainment, LTD (“SRM”)entered into a Stock Exchange Agreement (the “Exchange Agreement”) with Jupiter Wellness, Inc. (“Jupiter”)(the“Buyer”). Under the terms of the Exchange Agreement, the Buyer agreed to purchase all outstanding shares of commonstock (the “Exchange Shares”) issued by SRM from the Seller. As consideration for the purchase of the Exchange Shares,the Buyer agreed to exchange 200,000 shares of its restricted common stock (the “Consideration Shares”), symbol JUPWas listed on NASDAQ Capital Markets.

 

Uponclosing, Jupiter delivered 150,000 of the Consideration Shares and held 50,000 of the Consideration Shares in escrow (“EscrowShares”). Jupiter shall release the Escrow Shares upon SRM generating $200,000 in cash receipts and revenue prior to January15, 2021. As of the date of the Registration Statement, the Company has received all Exchange Shares.

 

Asa performance based incentive, the Buyer shall pay to the Seller two percent (2%) of gross sales of Jupiter’s private labelsun care products if such gross sales are in excess of twelve million dollars ($12,000,000) earned during the 2021 calendar year.

 

AtClosing, the Company (as “Stockholder”) and Jupiter entered into a Leak Out Agreement, whereby the Company was limitedin the sales of the Consideration Shares upon the following terms: (i) As such time as the Stockholder is able to resell the ConsiderationShares in accordance with the provisions of Rule 144 of the Securities Act (the “Expiration of the Holding Period”),the Stockholder agrees to limit the resales of such Shares in the public market as follows:

 

  a. No shares in any one day more than ten percent (10%) of the average of the daily trading volume on all trading markets on which the Consideration Shares are then quoted or listed for the five trading days preceding the sale of the Consideration Shares, and;
     
  b. Any permitted resales by the Stockholder shall be at the then current bid price of the Common Stock.

 

EdisonNation Holdings, LLC Transaction

 

OnSeptember 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 whichwas subsequently used to purchase the membership interests of Access Innovation, LLC, which membership interests were then distributedto the Members), and $250,000 in cash used to pay off a portion of the indebtedness owed by EN to holders of certain senior convertibledebt), (ii) the assumption of the remaining balance of EN’s senior convertible debt through the issuance of new 4%, 5-yearsenior 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, 2018as $1,436,159 due to final adjustments for principal and accrued interest), which are convertible into 285,632 shares of the Company’scommon stock, at the option of the holder of the New Convertible Notes, (iii) the reservation of 990,000 shares of the Company’scommon stock that may be issued in exchange for the redemption of certain non-voting membership interests of EN, and (iv) theissuance of 557,084 shares of the Company’s common stock in satisfaction of the indebtedness represented by promissory notespayable by EN with a total principal balance of $4,127,602. On August 19, 2020, the Company issued the 990,000 shares of commonstock to the members of EN, resulting in the Company owning 100% of EN.

 

 7 
   

 

Letterof Intent for Sale of Assets of CBAV1, LLC

 

OnOctober 30, 2020, the Company received a letter of intent from a prospective purchaser dated October 22, 2020 setting forth theterms 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, tradenames, patents, models, internet websites, domains, social network assets, production facilities, including the molds of all products,and inventory (“Cloud b Assets”).

 

Byway of background, the Cloud b Assets were pledged as collateral (“Collateral”) to secure a promissory note from EastWest Bank dated in or around May 25, 2011, along with amendments and modifications to the loan agreement (“Secured Note”).On June 4, 2018, CBAV1 acquired the Secured Note in accordance with the Cloud B Assignment of Loan and Security Agreement fromEast West Bank. On October 30, 2018, pursuant to the Stock Purchase Agreement, the Company became the beneficial owner of 72.16%of Cloud b, Inc.’s shares of common stock. CBAV1 provided Notification of Disposition of Collateral (pursuant to its noticeof default dated August 7, 2018 to Cloud b, Inc.) and scheduled a Public Sale of the Collateral to the highest qualified bidderfor February 11, 2019 (“Public Sale”). CBAV1 submitted the highest bid for the Collateral at the Public Sale and inuredto the benefit of the Cloud b Assets. On February 17, 2020, the Company entered into the Agreement for The Purchase and Sale ofCommon Stock of Cloud b, Inc. and pursuant therewith, sold its ownership interest in Cloud b, Inc. to the buyer.

 

Toeffectuate the sale of the Cloud b assets to the prospective purchaser, the Company has determined that it is in the best interestsof the company and its shareholders for CBAV1 and the prospective buyer to utilize the jurisdiction and protections of the bankruptcycourt to effectuate the sale of the Cloud b Assets free and clear of any obligations.

 

Thecurrent assets of CBAV1 were estimated to be in excess of $2,000,000 and the current liabilities were estimated to be less than$100,000.

 

Byutilizing the jurisdiction of the bankruptcy court, the Cloud b Assets can be transferred to the prospective purchaser free andclear of liens and obligations. Any unsecured creditors or minority shareholders of Cloud b, Inc. will have the opportunity toassert any claims or actions within the sale proceeding under the jurisdiction of the bankruptcy court.

 

CloudB, Inc. Transaction

 

OnOctober 29, 2018, the Company entered into a Stock Purchase Agreement with a majority of the shareholders (the “Cloud BSellers”) of Cloud B, Inc., a California corporation (“Cloud B”). Pursuant to the terms of such Stock PurchaseAgreement, the Company purchased 72.15% of the outstanding capital stock of Cloud B in exchange for 489,293 shares of restrictedcommon stock of the Company. In addition, the Company entered into an Earn Out Agreement with the Cloud B Sellers, whereby, beginningin 2019, the Company will pay the Cloud B Sellers an annual amount equal to 8% multiplied by the incremental gross sales of CloudB over its 2018 gross sales level. The Earn Out Agreement expires on December 31, 2021. CBAV1, LLC, a wholly-owned subsidiaryof Edison Nation, Inc., owns the senior secured position on the promissory note to Cloud B, Inc. in the amount of $2,270,000.In February 2019, CBAV1, LLC, pursuant to an Article 9 foreclosure action, perfected its secured UCC interest in all the assetsof Cloud B, Inc. to partially satisfy the outstanding balance on the note and thereby making any payments of such Cloud B tradepayables and notes unlikely in the future.

 

OnFebruary 17, 2020, the Company divested its Cloud B, Inc. subsidiary and entered into an Agreement for the Purchase and Sale ofCloud B, Inc.(the “Purchase Agreement”), with Pearl 33 Holdings, LLC (the “Buyer”), pursuant to whichthe Buyer purchased from the Company (and the Company sold and assigned) 80,065 shares of common stock of Cloud B (the “CloudB Shares”) for $1.00, constituting a 72.15% ownership interest in Cloud B, based on 110,964 shares of Cloud B’s commonstock outstanding as of February 17, 2020. In accordance with the agreement, all of the liabilities of Cloud B were assumed byPearl 33.

 

OnFebruary 17, 2020, the Company entered into an indemnification agreement with Pearl 33 Holdings, LLC in connection with the divestitureof Cloud B, Inc., whereby pursuant to such agreement the Company is limited to the issuance of 150,000 shares of the Company’scommon stock to the Buyer for indemnification of claims against Cloud B Inc. Please see Note 3 — Acquisitions andDivestitures within the Company’s financial statements for the nine months ended September 30, 2020 forfurther information.

 

Impairment

 

Forthe year end December 31, 2029, the Company recorded an impairment charge of $4,443,000 related to our annual impairment assessment.The impairment was a result of decreased profitability as compared to anticipated profitability in our businesses acquired in2018. The Company utilized the simplified test for goodwill impairment. The amount recognized for impairment is equal to the differencebetween the carrying value and the asset’s fair value. The valuation methods used in the quantitative fair value assessmentwas a discounted cash flow method and required management to make certain assumptions and estimates regarding certain industrytrends and future profitability of our reporting units.

 

Non-EmployeeDirector Compensation

 

OnSeptember 26, 2018, the Compensation Committee of the board of directors approved the terms of compensation to be paid to non-employeedirectors for fiscal year 2018. Compensation for non-employee directors includes an annual retainer of $15,000, an annual committeemeeting fee of $5,000, if such director chairs a committee of the board of directors, and an award of options to purchase 20,000shares of the Company’s common stock (the “Options”). The restricted stock underlying such Options were to vestone 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 20,000shares which vested immediately. In addition, on November 15, 2019, the Company granted each non-employee director restrictedstock units of 30,000 shares, which vested on January 1, 2020.

 

Acquisitionof Pirasta, LLC

 

OnDecember 31, 2018, the Company completed the acquisition of all of the voting membership interest of Pirasta, LLC from NL PennCapital, LP in exchange for the satisfaction of $470,000 due from related party. NL Penn Capital, LP is owned by Christopher B.Ferguson, our Chairman and Chief Executive Officer. Accordingly, the consolidated financial statements of the Company reflectthe accounting of the combined acquired subsidiary at historical carrying values, except that equity reflects a distribution forthe excess of consideration paid over the net carrying amount of assets.

 

Acquisitionof Best Party Concepts, LLC

 

OnDecember 31, 2018, the Company completed the acquisition of 50% of the voting membership interest of Best Party Concepts, LLCfrom NL Penn Capital, LP in exchange for the satisfaction of $500,000 due from related party. NL Penn Capital, LP is owned byChristopher B. Ferguson, our Chairman and Chief Executive Officer. Accordingly, the consolidated financial statements of the Companyreflect the accounting of the combined acquired subsidiary at historical carrying values, except that equity reflects a distributionfor the excess of consideration paid over the net carrying amount of assets.

 

FirstFireSecurities Purchase Agreement

 

OnMarch 6, 2019, the Company entered into a securities purchase agreement (the “FirstFire SPA”) with an accredited investor(the “Investor”) pursuant to which the Investor purchased a 2% unsecured, senior convertible promissory note (the“FirstFire Note”) from the Company. The Company issued 15,000 shares of its common stock to the Investor as additionalconsideration for the purchase of the FirstFire Note. Under the terms of the FirstFire SPA, the Investor had piggyback registrationrights 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 rightof first refusal in respect of participation in any debt or equity financings undertaken by the Company during the 18 months followingMarch 6, 2019. The Company was also subject to certain customary negative covenants under the FirstFire SPA, including but notlimited to, the requirement to maintain its corporate existence and assets subject to certain exceptions, and to not to make anyoffers or sales of any security under circumstances that would have the effect of establishing rights or otherwise benefittingother investors in a manner more favorable in any material respect than those rights and benefits established in favor of theInvestor under the terms of the FirstFire SPA and the FirstFire Note. The maturity date of the Note was six months from March6, 2019. All principal amounts and the interest thereon were convertible into shares common stock only in the event that an Eventof Default occurred (as such term was defined in the FirstFire Note).

 

OnJune 17, 2019, the Company entered into that certain Settlement and Release Agreement with the Investor (the “SettlementAgreement”) whereby the Company and the Investor agreed to terminate the FirstFire SPA, FirstFire Note, and all other documentsentered into in connection therewith. Pursuant to the terms of the Settlement Agreement, the Company paid $566,000 and issued15,000 shares of restricted common stock to the Investor (the “Settlement Amount”). Upon receipt of the SettlementAmount, the Investor and the Company have agreed to terminate the FirstFire SPA, FirstFire Note, and all other documents enteredinto in connection therewith, and to release, waive, and forever discharge the other party from, including, but not limited to,any claim, right, or legal action, whether past, current, or future, which may arise directly or indirectly out of such documents.

 

 8 
   

 

TiburonLoan Agreement

 

OnJune 14, 2019, the Company entered into that certain Loan Agreement (the “Loan Agreement”) with Tiburon OpportunityFund (the “Lender”), dated June 14, 2019 (the “Loan”). Pursuant to the terms of the Loan Agreement, theLender agreed to loan the Company $250,000. The Loan bore interest at the rate of 1.5% per month through the term of the Loan.Additionally, the Loan Agreement provided that the Company would pay the Lender the entire unpaid principal and all accrued interestupon thirty days’ notice to the Company, but in any event, the notice shall not be sooner than August 11, 2019. The Loanproceeds were used to fund general working capital needs of the Company. If the Company defaulted on the performance of any obligationunder the Loan Agreement, the Lender would have declared the principal amount of the Loan owing under the Loan Agreement at thetime of default to be immediately due and payable. Furthermore, the Loan Agreement granted the Lender a collateral interest incertain accounts receivable of SRM Entertainment Ltd. (“SRM”), a subsidiary of the Company. The outstanding principaland interest on the note were repaid on December 27, 2019.

 

OnJanuary 2, 2020, the Company entered into that certain Loan Agreement (the “Second Loan Agreement”) with Tiburon OpportunityFund (the “Lender”), dated January 2, 2020 (the “Second Loan”). Pursuant to the terms of the Second LoanAgreement, the Lender agreed to loan the Company $400,000. The Second Loan bears interest at the rate of 1.5% per month throughthe term of the Second Loan. Additionally, the Second Loan Agreement provides that the Company shall pay the Lender the entireunpaid principal and all accrued interest upon thirty days’ notice to the Company, but in any event, the notice shall notbe sooner than June 1, 2020. The Second Loan proceeds are being used to fund general working capital needs of the Company. Ifthe Company defaults on the performance of any obligation under the Second Loan Agreement, the Lender may declare the principalamount 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, theCompany and Lender entered into a Debt Conversion Agreement whereby the Lender was given the right and elected to exercise thatright 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 pershare for a total of 212,000 shares of restricted common stock issued by the Company.

 

LabrysSecurities Purchase Agreement

 

OnAugust 26, 2019, the Company entered into a securities purchase agreement (the “Labrys SPA”) with Labrys Fund, LP(“Labrys”) pursuant to which Labrys purchased a 12% Convertible Promissory Note (the “Labrys Note”) fromthe Company. Unless there is a specific Event of Default (as such term is defined in the Labrys Note) or the Labrys Note remainsunpaid by the Maturity Date, then Labrys shall not have the ability to convert the principal and interest under the Labrys Notesinto shares of common stock. The per share conversion price into which the principal amount and interest under the Labrys Notemay be converted is equal to the lesser of (i) 80% multiplied by the lowest Trade Price (as such term is defined in the LabrysNote) of our common stock during the 20 consecutive trading days ending on the latest complete trading day prior to the date ofissuance of the Labrys Note, and (ii) 80% multiplied by the lowest Market Price (as such term is defined in the Labrys Note) ofour common stock during the 20 trading day period ending on the latest complete trading day prior to the Conversion Date (as suchterm is defined in the Labrys Note).

 

Pursuantto the Labrys SPA, the Company agreed to issue and sell to Labrys the Note, in the principal amount of $560,000, with an originalissue discount in the amount of $60,000. The Labrys Note is due and payable February 26, 2020 (the “Maturity Date”).Additionally, the Company issued 181,005 shares of common stock to Labrys as a commitment fee, of which 153,005 shares of commonstock must be returned to the Company in the event the Labrys Note is fully paid and satisfied prior to the Maturity Date. Theproceeds from the Labrys Note were used for general working capital and to fund new product launches.

 

TheCompany is also subject to certain customary negative covenants under the Labrys SPA, including but not limited to, the requirementto maintain its corporate existence and assets subject to certain exceptions, and to not to make any offers or sales of any securityunder circumstances that would have the effect of establishing rights or otherwise benefitting other investors in a manner morefavorable in any material respect than those rights and benefits established in favor of the Investor under the terms of the LabrysSPA and the Labrys Notes. The Company agreed at all times to have authorized and reserved two times the number of shares of commonstock that are issuable upon full conversion of the Labrys Note. Initially, the Company instructed its transfer agent to reserve700,000 shares of common stock in the name of Labrys for issuance upon conversion.

 

OnJanuary 24, 2020, the Company repaid the Labrys Note in full. Upon repayment of the Labrys Note, Labrys returned to the Companyfor cancellation the 153,005 shares of Common Stock that had been originally issued to as a portion of the commitment fee paidin connection with the Labrys Note and allowed the Company to cancel the reservation of the 875,000 shares of Common Stock thathad been reserved pursuant to the Labrys SPA and Labrys Note. 

 

32EFinancing

 

OnDecember 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 proceedsfrom the 32E Note was used for general working capital needs of the Company and the repayment of debt related to Horberg Enterprises.

 

Pursuantto the terms of the 32E Note, on December 4, 2019, the Company also issued 32E a Common Stock Purchase Warrant (the “32EWarrant”) to purchase 50,000 shares of common stock at an exercise price of $1.50 per share. The 32E Warrant expires onDecember 4, 2024. The 32E Warrant contains price protection provisions, as well as a provision allowing 32E to purchase the numberof shares that 32E could have acquired if it held the number of shares of common stock acquirable upon complete exercise of the32E Warrant, in the event that the Company grants, issues or sells common stock, common stock equivalents, rights to purchasecommon stock, warrants, securities or other property pro rate to holders of any class of the Company’s securities. If thereis no effective registration statement registering the resale of the shares of common stock underlying the 32E Warrant, then the32E Warrant may be exercised cashlessly, based on a cashless exercise formula. The 32E Warrant also contains a conversion limitationprovision, which prohibits 32E from exercising the 32E Warrant in an amount that would result in the beneficial ownership of greaterthan 4.9% of the total issued and outstanding shares of common stock, provided that (i) such exercise limitation may be waivedby 32E with 61 days prior notice, and (ii) 32E cannot waive the exercise limitation if conversion of the 32E Warrant would resultin 32E having beneficial ownership of greater than 9.9% of the total issued and outstanding shares of common stock.

 

Inconnection with the sale of the 32E Note, also on December 4, 2019, the Company entered into a registration rights agreement wherebythe Company agreed to register the 10,000 shares of common stock issued to 32E as an inducement on a registration statement onForm S-1 with the SEC. The Company was required to have such registration statement declared effective by the SEC within 90 calendardays (or 180 calendar days in the event of a “full review” by the SEC) following the earlier of 30 days from December4, 2019 or the filing date of the registration statement on Form S-1, which such registration statement has not been filed ortimely declared effective. If the registration statement is not filed or declared effective within the timeframe set forth inthe registration rights agreement, the Company was supposed to be obligated to pay to 32E a monthly amount equal to 1% of thetotal subscription amount paid by 32E until such failure is cured. The Company has not made any such payment 32E. The registrationrights agreement also contains mutual indemnifications by the Company and each investor, which the Company believes are customaryfor transactions of this type.

 

OnMay 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 theprincipal plus interest in the amount of $6,250 for a total of $56,250. 32E shall also receive 40,000 restricted stock units andsurrender the warrant issued to it in the December 4, 2019 financing transaction. The Company accounted for the Amendment as amodification.

 

 9 
   

 

PIPEFinancing

 

OnOctober 2, 2019, the Company entered into a Share Purchase Agreement (the “PIPE Purchase Agreement”) with certainaccredited investors for the private placement of 1,050,000 shares of the Company’s common stock at a purchase price of$2.00 per share (the “PIPE Financing”). In a series of four closings, the Company sold a total of 1,175,000 sharesof common stock at a purchase price of $2.00 per share (the “PIPE Shares”), for an aggregate amount sold in the PIPEFinancing of $2,350,000. The PIPE Purchase Agreement contains certain closing conditions relating to the sale of securities, representationsand warranties by the Company and the applicable investors, as well as covenants of the Company and the investors (including indemnificationsfrom the Company in the event of breaches of its representations and warranties), all of which the Company believes are customaryfor transactions of this type of transaction. The PIPE Purchase Agreement contains a prohibition on equity sales by the Company,which prohibition was violated by the Greentree Financing (defined below). As of August 27, 2020, none of the investors in thePIPE Financing have taken adverse action as a result of such prohibition.

 

Inconnection with the sale, the Company entered into a registration rights agreement whereby the Company agreed to register allPIPE Shares and file this registration statement on a Form S-1 with the SEC. The Company was required to have such registrationstatement declared effective by the SEC within 90 calendar days (or 120 calendar days in the event of a “full review”by the SEC) following the applicable closing date of the PIPE Financing, which such registration statement has not been timelydeclared effective. If the registration statement is not filed or declared effective within the timeframe set forth in the registrationrights agreement, the Company was supposed to be obligated to pay the investors in the PIPE Financing an amount equal to 1% ofthe total purchase price of the common stock per month (up to a maximum of 8% in the aggregate) until such failure is cured. TheCompany has not made any such payment to the investors in the PIPE Financing. As of August 27, 2020, none of the investors inthe PIPE Financing, have taken adverse action as a result of this delay. The registration rights agreement also contains mutualindemnifications by the Company and each investor, which the Company believes are customary for transactions of this type.

  

Furthermore,the Company issued warrants to the placement agent in the PIPE Financing of a value equal to six percent (6%) of the aggregatenumber of PIPE Shares, whereby the exercise price is 125% of the price at which the shares were issued in such offering. For additionalinformation regarding the PIPE Financing, see “Private Placement of Securities” on page 31.

 

Acquisitionof HMNRTH, LLC Assets

 

OnMarch 11, 2020, the Company and its wholly owned subsidiary, Scalematix, LLC (together the “Buyer”), entered intoan 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 healthwellness industry and related consumer products industry. Under the terms of the Agreement, Buyer is to remit $70,850 via wiretransfer at Closing and shall issue to a representative of the Selling Parties Two Hundred Thirty-Eight Thousand Seven Hundredand Fifty (238,750) shares of restricted common stock. The shares were issued on March 16, 2020 and valued at $477,500.

 

Inaddition, the Selling Parties shall have the right to additional earn out compensation based upon the following metrics: (i) atsuch time as the purchased assets achieve cumulative revenue of $2,500,000, the Selling Parties shall earn One Hundred Twenty-FiveThousand (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 March11, 2020.

 

GlobalClean Solutions Agreement and Plan of Share Exchange

 

OnMay 20, 2020 (the “Effective Date”), Edison Nation, Inc. (the “Company”) entered into an Agreement andPlan of Share Exchange (the “Share Exchange Agreement”) with PPE Brickell Supplies, LLC, a Florida limited liabilitycompany (“PPE”), and Graphene Holdings, LLC, a Wyoming limited liability company (“Graphene”, and togetherwith PPE, the “Sellers”), whereby the Company purchased 25 membership units of Global Clean Supplies, LLC, a Nevadalimited liability company (“Global”) from each of PPE and Graphene, for a total of fifty (50) units, representingfifty percent (50%) of the issued and outstanding units of Global (the “Purchase Units”). The Company issued 250,000shares of its restricted common stock, $0.001 par value per share (the “Common Stock”) to PPE, and 50,000 shares ofCommon Stock to Graphene, in consideration for the Purchase Units.

 

Pursuantto the terms of the Share Exchange Agreement, the Sellers may earn additional shares of Common Stock upon Global realizing thefollowing revenue targets: (i) In the event that Global’s total orders equal or exceed $1,000,000, Graphene shall receive200,000 shares of Common Stock; (ii) In the event that Global’s total orders equal or exceed $10,000,000, PPE shall receive100,000 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 managersto the Board of Managers of Global.

 

AmendedLimited Liability Company Agreement

 

Onthe Effective Date, the Company entered into an Amended Limited Liability Company Agreement of Global (the “Amended LLCAgreement”). 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%.

 

 10 
   

 

SecuredLine of Credit Agreement

 

Onthe Effective Date, the Company (as “Guarantor”) entered into a Secured Line of Credit Agreement (the “CreditAgreement”) with Global and PPE. Under the terms of the Credit Agreement, PPE is to make available to Global a revolvingcredit loan in a principal aggregate amount at any one time not to exceed $2,500,000. Upon each drawdown of funds against thecredit line, Global shall issue a Promissory Note (the “Note”) to PPE. The Note shall accrue interest at 3% per annumand have a maturity date of six (6) months. In the event of a default, any and all amounts due to PPE by Global, including principaland accrued but unpaid interest, shall increase by forty (40%) percent and the interest shall increase to five (5%) percent (the“Default Interest”).

 

SecurityAgreement

 

Onthe 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 sharesof Common Stock (the “Reserve Shares”) in reserve with its transfer agent in the event of default under the CreditAgreement. In the event of a default that is not cured by the defined cure period, the PPE may liquidate the Reserve Shares untilthe Global’s principal, interest and associated expenses are recovered. The number of Reserve Shares may be increased throughthe issuance of True-Up shares in the event the original number of Reserve Shares is insufficient.

 

Acquisitionof TBD Safety, LLC

 

OnSeptember 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, theSellers own all outstanding Units of TBD. Under the terms of the Agreement, the Company is to issue a total of Two Million TwoHundred Ten Thousand Three Hundred Eighty-Two (2,210,382) shares of the Company’s common stock and a total of Seven HundredSixty-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 conversionof the Preferred within 120 days after the Closing. The Sellers shall have an Earn Out Consideration - At such time as the Assetspurchased in the Agreement achieve cumulative revenue of $10,000,000, the Sellers shall earn a total of One Hundred Twenty-FiveThousand (125,000) shares of Common Stock. The Closing of the transaction occurred on October 16, 2020.

 

EdisonNation Medical Operations

 

EdisonNation Holdings, LLC formed Edison Nation Medical (“EN Medical”) in May of 2012. It was a partnership between EdisonNation 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.

 

ENMedical built out a separate platform, leveraging the Edison Nation model to look for ideas that improved patient care and loweredcosts. Over the past three years, EN Medical collected some great ideas, but the market shifted and EN found that the licensingmodel 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 Medicalhas continued to explore opportunities in the health and wellness space for products that do not require FDA approval. Examplesof product lines in the health wellness space that are currently being evaluated include an organic skin care line, essentialoils, supplements for breast feeding, and an all-natural nutritional supplement.

 

Basedupon the emergence of COVID 19 and the increased demand for certain medical supplies, hand sanitizers and personal protectiveequipment, Edison Nation made the strategic decision to have EN Medical develop an online portal granting hospitals, governmentagencies and distributors access to its catalog of medical supplies and hand sanitizers. EN Medical’s website is locatedat www.edisonnationmedical.com. For purposes of this business description, the activities of EN Medical are inclusiveof Global Clean Solutions (“Global”) as well.

 

ENMedical is focused primarily on its proprietary brand of hand sanitizer, Purple Mountain Clean, that is being produced and soldby 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 sizesand pumps for Purple Mountain Clean and recently initiated the production of sanitizer stands that can be customized with a customer’slogo or other promotional artwork. The launching of our EN Medical’s brand of sanitizer did delay certain shipments forthe second quarter in 2020 as EN Medical needed to develop EN Medical’s specific formulas and packaging for Purple MountainClean.

 

Asa secondary focus, EN Medical offers medical supplies and personal protective equipment to government agencies, counties, municipalitiesand business customers, Since March 2020, EN Medical has established a network of more than thirty suppliers located both domesticallyand abroad. EN Medical primarily utilizes approximately six core suppliers and has flexibility with its terms based on the specificterms and conditions of the respective purchase orders for the respective end customers. The product lines that have receivedthe highest amount of interest from customers include but are not limited to face coverings, gloves, medical grade gowns, andwipes.

 

Thecompetitive landscape for sanitizer and personal protective equipment is frequently changing. Recently the FDA announced the recallof numerous hand sanitizer brands. Additionally, many suppliers of personal protective equipment have failed to complete deliveriesand failed to meet order specifications for the specific products. EN Medical has benefited from successfully fulfilling ordersfor government agencies and large business customers that have provided referrals on behalf of EN Medical which has assisted theCompany in winning other business opportunities. Due to the high demand for items related to the pandemic, pricing of productscan change relatively quickly and customer expectations for delivery times are often aggressive. EN Medical works diligently withits core suppliers to meet these challenges and satisfy all customer requirements in a timely fashion.

 

ENMedical verifies all FDA certificates of the Company’s suppliers and all compliance documents for our manufacturers andimporters. For certain product lines, EN Medical may consider applying for its own FDA certifications, and the Company closelymonitors the updates with respect to the regulation of personal protective equipment and hand sanitizers.

 

 11 
   

 

OtherFinancing Notes

 

OnJanuary 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, andthe Company issued to Ralls a warrant (the “Ralls Warrant”) to purchase 125,000 shares of the Company’s commonstock valued at $86,725 estimated using the Black-Scholes option-valuation model. The proceeds from the Ralls Note will be usedfor general working capital needs of the Company. The Company will also issue 33,000 incentive shares to Ralls valued at $79,860based on the closing stock price on January 10, 2020. The fair value of the warrants and incentive shares have been recorded asdebt discount. The maturity date of the Ralls Note is July 10, 2020. On July 14, 2020, the Company entered into an Amendment toNote Agreement and Common Stock Purchase Warrant (the “Amendment”) with Equity Trust Company, a Custodian FBO: RawleighH. 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 toJanuary 10, 2021, (ii) the Original Issuer Discount (“OID”) shall be increased to $34,000, (iii) the Lender shallbe issued 33,000 Additional Incentive Shares and (iv) the Company shall prepare and file with the United States Securities andExchange Commission a registration statement on Form S-1 within 30 days of the Effective Date of the Amendment, that registersa total of 191,000 shares of Common Stock, which such amount of shares is the sum of 125,000 Warrant Shares, the 33,000 IncentiveShares, and 33,000 Additional Incentive Shares. On July 14, 2020, the Company issued the 33,000 Additional Incentive Shares valuedat $124,740. On October 12, 2020, Ralls fully exercised the Ralls Warrant. The Company paid all outstanding principal and interestin January 2021. As of the date of this filing, the Ralls Note is paid in full.

 

OnJanuary 15, 2020, the Company entered into a 5% Promissory Note Agreement with Paul J. Solit & Julie B. Solit (“Solits”)(“SolitFinancing”) for an aggregate principal amount of $107,000 (the “Solit Note”), pursuant to which the Solits purchasedthe Solit Note from the Company for $100,000 and an original issue discount of $7,000, and the Company issued to the Solits awarrant (the “Solit Warrant”) to purchase 50,000 shares of the Company’s common stock valued at $31,755 estimatedusing the Black-Scholes option-valuation model. The proceeds from the Solit Note will be used for general working capital needsof the Company. The Company will also issue 13,000 incentive shares to the Solits valued at $30,420 based on the closing stockprice on January 15, 2020. The fair value of the warrants and incentive shares have been recorded as debt discount. The maturitydate of the Solit Note is July 15, 2020. On July 14, 2020, the Company entered into an Amendment to Note Agreement and CommonStock 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 OriginalIssuer Discount (“OID”) shall be increased to $14,000 and (iii) the Lender shall be issued 13,000 Additional IncentiveShares. On July 14, 2020, the Company issued the 13,000 Additional Incentive Shares valued at $49,140. The Company made a paymentof $25,000 in December 2020 towards the outstanding principal, with the balance of all remaining principal and interest paid inJanuary 2021. As of the date of this filing, this Solit Note is paid in full. On January 22, 2021, the Solits fully exercisedthe Solit Warrant.

 

OnJanuary 17, 2020, the Company entered into a 5% Promissory Note Agreement with Richard O’Leary (“O’Leary”)(“O’LearyFinancing”) for an aggregate principal amount of $53,500 (the “O’Leary Note”), pursuant to which O’Learypurchased the O’Leary Note from the Company for $50,000 and an original issue discount of $3,500, and the Company issuedto O’Leary a warrant (the “O’Leary Warrant”) to purchase 25,000 shares of the Company’s common stockvalued at $16,797 estimated using the Black-Scholes option-valuation model. The proceeds from the O’Leary Note will be usedfor 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 recordedas debt discount. The maturity date of the O’Leary Note is July 17, 2020. On July 14, 2020, the Company entered into anAmendment to Note Agreement and Common Stock Purchase Warrant (the “Amendment”) with Richard O’Leary. Underthe 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 toJanuary 17, 2021, (ii) the Original Issuer Discount (“OID”) shall be increased to $7,000, (iii) the Lender shall beissued 6,500 Additional Incentive Shares and (iv) the expiration date of the Warrant shall be extended to June 30, 2021. On July14, 2020, the Company issued the 6,500 Additional Incentive Shares valued at $24,570. The Company paid all outstanding principaland interest in January 2021. As of the date of this filing, this O’Leary Note is paid in full.

 

OnApril 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”) inthe amount of $168,000 ($18,000 OID). The $150,000 of proceeds from the Note will be used for general working capital purposesThe 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 Companyis to issue the Investor 10,700 shares of Common Stock (the “Origination Shares”) as an origination fee. The transactionclosed on April 9, 2020. The Investor shall have the right at any time to convert all or any part of the outstanding and unpaidprincipal, interest, fees, or any other obligation owed pursuant to this Note into fully paid and non-assessable shares of CommonStock at a conversion price equal to $2.05 per share.

 

OnApril 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 purposesThe 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 Companyis to issue the Investor 10,700 shares of Common Stock (the “Origination Shares”) as an origination fee. The transactionclosed on April 9, 2020. The Investor shall have the right at any time to convert all or any part of the outstanding and unpaidprincipal, interest, fees, or any other obligation owed pursuant to this Note into fully paid and non-assessable shares of CommonStock at a conversion price equal to $2.05 per share. On October 7, 2020, the Company and Investor entered into a ForbearanceAgreement (the “Forbearance Agreement”). Under the terms of the Forbearance Agreement, the Company requested and theInvestor agreed to temporarily forebear, until the earlier of (i) December 9, 2020 or (ii) at such time as a default shall occurunder and pursuant to the Purchase Agreement, the Note or the Agreement, from exercising its right to convert amounts due underthe Note into Common Stock of the Company, in exchange for a one time cash payment forbearance fee equal to $12,500 paid uponexecution of the Agreement. On December 23, 2020, the Investor submitted a Notice of Conversion for $45,000 in principal and $750in fees. On December 29, 2020, the Company issued 41,730 shares to satisfy the conversion obligation. On January 15, 2021, theInvestor submitted a Notice of Conversion for $26,766 in principal and $750 in fees. On January 20, 2021, the Company issued 27,415shares to satisfy the conversion obligation. As of the date of this filing, the Note is paid in full.

 

 12 
   

 

OnJuly 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 Agreemententered into by the parties. The $200,000 of proceeds from the Note will be used for general working capital purposes The Notehas 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 issuedthe Investor 14,266 shares of Common Stock (the “Origination Shares”) as an origination fee. The transaction closedon July 31, 2020. With regard to conversion of the Note, the Investor shall not have the right to convert the Note into sharesprior to 180 calendar days from the Issue Date. Provided that the Note remains unpaid, the Investor may elect to convert all orany part of the outstanding and unpaid principal, interest, fees, or any other obligation owed pursuant to this Note into fullypaid and non-assessable shares of Common Stock at a conversion price equal to $2.05 per share after 180 calendar Days from theIssue Date. On January 28, 2021, the Company paid all outstanding principal and interest in the amount of $260,233. As of thedate of this filing, the Note is paid in full.

 

PaycheckProtection Program

 

OnApril 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”) administeredby the United States Small Business Administration (“SBA”). The Company received proceeds of $789,852 from the PPPLoan. In accordance with the requirements of the PPP, the Company intends to use proceeds from the PPP Loan primarily for payrollcosts, rent and utilities. The PPP Loan has a 1.00% interest rate per annum and matures on April 15, 2022 and is subject to theterms and conditions applicable to loans administered by the SBA under the PPP. Under the terms of the PPP, certain amounts ofthe PPP Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act.

 

GreentreeFinancing

 

OnJanuary 23, 2020, the Company entered into a financing transaction (the “Greentree Financing”) by executing a loanagreement (the “Greentree Loan Agreement”) with Greentree Financial Group, Inc. (“Greentree”), pursuantto 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’scommon stock. The $1,100,000 in proceeds from the Greentree Note will be used for general working capital needs of the Companyand for the repayment of debt. On January 24, 2020, the Company used $588,366 of the proceeds from the Greentree Note to pay offin full the Labrys Note.

 

OnJanuary 29, 2020, the Company and the Greentree entered into an Amendment Agreement, amending the Greentree Loan Agreement, theGreentree Note, and the Greentree Warrant to: (i) correct the effective date set forth in the Greentree Loan Agreement, GreentreeNote, and Greentree Warrant to January 23, 2020, (ii) clarify the terms of the registration right provision in the Greentree LoanAgreement, 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 outstandingcommon stock as of January 23, 2020. The Amendment Agreement also contains a liquated damages provision which requires the Companyto pay Greentree an amount in cash equal to $2.50 per share for any amount of shares that Greentree would have received pursuantto the Greentree Loan Agreement, the Greentree Note, and/or the Greentree Warrant, but does not so receive such shares as a resultof the 17.99% cap described above.

 

 13 
   

 

GreentreeLoan Agreement

 

Uponexecution of the Greentree Loan Agreement, the Company issued to Greentree 100,000 shares of common stock (the “GreentreeOrigination Shares”) as an origination fee, plus an additional 60,000 shares of common stock as consideration for advisoryservices.

 

Pursuantto the Greentree Loan Agreement, the Company agreed to pay certain costs of Greentree, including $15,000 for Greentree’slegal fees and transfer agent fees resulting from conversion of the Note. The Greentree Loan Agreement also contains representationsand 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 alsocustomary for transactions of this type.

 

TheGreentree Loan Agreement, as amended, also contains a registration rights provision, pursuant to which the Company is requiredto prepare and file a registration statement with the SEC under the Securities Act of 1933, as amended, registering a total of1,200,000 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 LoanAgreement (which, as amended, is January 23, 2020) and declared effective by the SEC within 105 calendar days following the effectivedate of the Greentree Loan Agreement. If the Company fails to file or have declared effective the registration statement withinthe 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 theregistration rights granted to Greentree, the Greentree Loan Agreement contains a “true up” provision, which requiresthe Company to issue Greentree additional shares of common stock during the period beginning on the effective date of the registrationstatement until the 90th day after the effective date of the registration statement, if the average of the 15lowest daily closing prices of the Company’s common stock is less than $2.00.

 

GreentreeNote

 

Pursuantto the Greentree Loan Agreement, the Company agreed to issue and sell to Greentree the Greentree Note, in the principal amountof $1,100,000. The Greentree Note, as amended, is due and payable October 23, 2020, and is convertible at any time at a priceof $2.00 per share, subject to certain adjustments to the conversion price set forth in the Greentree Note. The Greentree Notereiterates the registration rights set forth in the Greentree Loan Agreement and the Greentree Warrant. There is no prepaymentpenalty on the Greentree Note. If the Greentree Note is not prepaid by the 90th day after the effective date of the RegistrationStatement, the Greentree is required to convert the entire amount of principal and interest outstanding on the Greentree Noteat that time, at a price of $2.00 per share, unless an event of default (as such events are described in the Greentree Note) underthe Greentree Note has occurred, in which case the Greentree Note would be mandatorily converted at a price equal to 50% of thelowest trading price of the common stock for the last 10 trading days immediately prior to, but not including, the date that theGreentree Note mandatorily converts. The Greentree Note also contains a conversion limitation provision, which prohibits Greentreefrom converting the Greentree Note in an amount that would result in the beneficial ownership of greater than 4.9% of the totalissued and outstanding shares of common stock, provided that (i) such conversion limitation may be waived by Greentree with 61days prior notice, and (ii) Greentree cannot waive the conversion limitation if conversion of the Greentree Note would resultin Greentree having beneficial ownership of greater than 9.9% of the total issued and outstanding shares of common stock. On July23, 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 ofcommon stock to Greentree Financial Group, Inc.in satisfaction of $740,000 principal against a note issued on January 23, 2020.As of August 27, 2020, the Greentree Note was paid in full.

 

GreentreeWarrant

 

Pursuantto the Greentree Loan Agreement, the Company also issued Greentree a warrant to purchase 550,000 shares of common stock at anexercise price of $2.00 per share, subject to certain adjustments to the exercise price set forth in the Greentree Warrant. TheGreentree Warrant, as amended, expires on January 23, 2023. If the closing price per share of the common stock reported on theday immediately preceding an exercise of the Greentree Warrant is greater than $2.00 per share, the Greentree Warrant may be exercisedcashlessly, based on a cashless exercise formula. The Greentree Warrant reiterates the registration rights set forth in the GreentreeLoan Agreement and the Greentree Note. The Greentree Warrant also contains a repurchase provision, which at any time after theCompany’s registration statement is effective and the Company’s common stock has traded at a price over $3.00 sharefor 20 consecutive days, gives the Company a 30-day option to repurchase any unexercised portion of the Greentree Warrant at aprice of $1.00 per share. On January 19, 2021, Greentree partially exercised the Greentree Warrant for 200,000 shares of commonstock. On January 21, 2021, Greentree exercised the balance of the Greentree warrant.

 

 14 
   

 

CorporateInformation

 

Ourprincipal executive offices are located at 1 West Broad Street, Suite 1004, Bethlehem, Pennsylvania 18018. Our telephone numberis (866) 900-0992. The address of our website is www.vincoventures.com. The inclusion of our website address inthis prospectus does not include or incorporate by reference the information on our website into this prospectus.

 

Implicationsof Being an Emerging Growth Company

 

Weare an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”).The Company has elected not to use the extended transition period for complying with any new or revised financial accountingstandards. For as long as we are an emerging growth company, unlike public companies that are not emerging growth companiesunder the JOBS Act, we will not be required to:

 

  provide an auditor’s attestation report on management’s assessment of the effectiveness of our system of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002 (the “Sarbanes Oxley Act”);
  provide more than two years of audited financial statements and related management’s discussion and analysis of financial condition and results of operations, prior to the filing of the Emerging Growth Company’s initial Form 10-K;
  provide certain disclosure regarding executive compensation required of larger public companies or hold shareholder advisory votes on the executive compensation required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”); or
  obtain shareholder approval of any golden parachute payments not previously approved.

 

Wewill cease to be an emerging growth company upon the earliest of the:

 

  last day of the fiscal year in which we have $1.07 billion or more in annual revenues;
  date on which we become a “large accelerated filer” (the fiscal year-end on which the total market value of our common equity securities held by non-affiliates is $700 million or more as of June 30);
  date on which we issue more than $1.0 billion of non-convertible debt over a three-year period; or
  last day of the fiscal year following the fifth anniversary of our initial public offering.

 

Inaddition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition periodprovided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. However, we havenot elected to take advantage of such extended transition period for complying with new or revised accounting standards.

 

 15 
   

 

SUMMARYOF THE OFFERING

 

Thisoffering involves a total of 24,480,000 shares of our common stock, which includes: (i) 6,000,000 shares of common stockunderlying the Hudson Bay Senior Convertible Note, and (ii) 15,000,000 shares of common stock underlying a warrant issued in connectionwith the Hudson Bay financing, and (iii) 1,500,000 shares of common stock issued in connection with the BHP Securities PurchaseAgreement, and (iv) 1,500,000 shares of common stock underlying a warrant issued in connection with the BHP financing, and (v)480,000 shares of common stock underlying a warrant issued in connection with the placement of the Hudson Bay Senior ConvertibleNote.

 

Common stock offered by the Selling Shareholders   24,480,000 shares (1)
     
Selling Shareholders   See “Selling Shareholders for Whose Accounts We Are Registering Shares” beginning on page 34.
     
Offering prices   The shares offered by this prospectus may be offered and sold at prevailing market prices or such other prices as the Selling Shareholders may determine.
     
Common stock outstanding before this offering   18,952,514 shares (3)
     
Common stock outstanding after this offering   43,432,514 shares (1)(2)
     
Terms of Offering   The Selling Shareholders will determine when and how they sell the shares offered in this prospectus, as described in “Plan of Distribution” beginning on page 33.
     
Use of proceeds   We are not selling any of the shares of common stock being offered by this prospectus and will receive no proceeds from the sale of the shares by the Selling Shareholders. We will, however, receive the exercise price of the Hudson Bay Warrant, BHP Warrant and the placement agent Warrant, if and when such warrants are exercised for cash by the holders of such warrants. All of the proceeds from the sale of common stock offered by this prospectus will go to the Selling Shareholders at the time they offer and sell such shares. We will bear all costs associated with registering the shares of common stock offered by this prospectus. See “Use of Proceeds.”
     
Risk factors   See “Risk Factors” and the other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our common stock.
     
Market and Trading Symbol   Our shares of common stock are traded on The Nasdaq Capital Market under the symbol “BBIG.”
     
Transfer agent and registrar  

Nevada Agency & Transfer Company

  

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

 

  Includes 15,000,000 shares of common stock underlying a warrant issued in connection with the Hudson Bay financing,
  Includes 1,500,000 shares of common stock underlying a warrant issued in connection with the BHP financing; and
  Includes 480,000 shares of common stock underlying a warrant issued in connection with the placement of the Hudson Bay financing.

 

 16 
   

 

(2)The change in the number of shares of common stock outstanding before this offering and after this offering was a result of thefollowing issuances:

 

 

6,000,000 shares of common stock underlying the Hudson Bay Senior Convertible Note;

  15,000,000 shares of common stock underlying a warrant issued in connection with the Hudson Bay financing;
  1,500,000 shares of common stock underlying the BHP Securities Purchase Agreement;
  1,500,000 shares of common stock underlying a warrant issued in connection with the BHP financing; and
 

480,000 shares of common stock underlying a warrant issued in connection with the placement of the Hudson Bay financing.

 

(3)Shares of our common stock that will be outstanding after this offering is based on 18,952,514 shares of common stock outstandingas of February 4, 2021, but excludes:

 

  13,412 shares of common stock reserved for future issuance under the Vinco Ventures, Inc. Omnibus Incentive Plan (the “Plan”);
  1,263,705 shares of common stock reserved for future issuance under the Company’s Amended and Restated Vinco Ventures, Inc. Omnibus Incentive Plan (the “Amended Plan”) registered on Form S-8 on July 15, 2020;
 

80,000 shares issuable under an option granted to one of our executives as of February 3, 2021; and

  285,632 shares of common stock issuable upon conversion of the 4%, 5-year senior convertible notes in connection with the Edison Nation Holdings, LLC acquisition.

 

 17 
   

 

RISKFACTORS

 

Aninvestment in our common stock involves a high degree of risk. Investing in shares of our common stock involves risks. Beforemaking a decision to invest in shares of our common stock, you should carefully consider the risks that are described in thissection, in our most recent Annual Report on Form 10-K and in the other information that we file from time to time with the SECthat is incorporated by reference in this prospectus. You should also read the sections entitled “Cautionary Note RegardingForward-Looking Statements” on page 4 of this prospectus. The risks described in the documents incorporated by referencein this prospectus are not the only ones we face. Additional risks not presently known or that we currently deem immaterial couldalso materially and adversely affect us. You should consult your own financial and legal advisors as to the risks entailed byan investment in shares of our common stock and the suitability of investing in our shares in light of your particular circumstances.If any of the risks contained in or incorporated by reference in this prospectus develop into actual events, our assets, business,cash flows, condition (financial or otherwise), credit quality, financial performance, liquidity, long-term performance goals,prospects, and/or results of operations could be materially and adversely affected, the trading price of our common stock coulddecline and you may lose all or part of your investment. Some statements in this prospectus, including such statements in thefollowing risk factors, constitute forward-looking statements. See the section entitled “Cautionary Note Regarding Forward-LookingStatements.”

 

RisksRelated to Our Company

 

Wehave a limited operating history and may not be able to operate our business successfully or generate sufficient revenue to makeor sustain distributions to our shareholders.

 

Wewere incorporated on July 18, 2017, and therefore, have a relatively limited operating history. Despite the experience andtrack record of our management team in the entertainment and packaging industries, historical results are not indicative of, andmay be substantially different than, the results we achieve in the future. We cannot assure you that we will be able to operateour business successfully or implement our operating policies and strategies. The results of our operations depend on severalfactors, including the level and volatility of interest rates, our success in attracting and retaining motivated and qualifiedpersonnel, the availability of adequate short and long-term financing, conditions in the financial markets, and general economicconditions. In addition, our future operating results and financial data may vary materially from the historical operating resultsand financial data as well as the pro forma operating results and financial data because of a number of factors, includingcosts and expenses associated with being a public company.

 

Wehave a history of losses and we may never achieve profitability.

 

Forthe year ended December 31, 2019, our operations lost approximately $13,026,228 of which approximately $8,064,101 was non-cashand approximately $364,320 related to transaction costs and non-recurring items. For the nine months ended September30, 2020, our operations lost approximately $3,700,000, of which approximately $2,200,000 was non-cash and approximately $366,000was related to transaction costs and other non-recurring items. At December 31, 2019, we had total current assets of $4,955,365and current liabilities of $12,973,319 resulting in negative working capital of $8,017,954, of which approximately $4,015,484related to unsecured trade payables assumed in our Cloud B acquisition. In February 2019, our consolidating subsidiary, CBAV1,LLC, foreclosed on its promissory note it held that was secured by Cloud B, Inc.’s assets making any payments of the CloudB trade payables unlikely. At December 31, 2019, we had total assets of $23,609,619 and total liabilities of $16,155,187 resultingin stockholders’ equity of $7,454,432. At September 30, 2020, we had total current assets of approximately $8,071,961and current liabilities of approximately $11,317,275 resulting in negative working capital of approximately $3,245,314, of which$1,166,365 was related party notes payable. At September 30, 2020, we had total assets of $26,021,906 and total liabilitiesof $15,081,404 resulting in stockholders’ equity of $10,940,502. We may never achieve or sustain profitability.

 

Theloss of key personnel or the inability of replacements to quickly and successfully perform in their new roles could adverselyaffect our business.

 

Wedepend on the leadership and experience of our relatively small number of key executive management personnel, particularly ourChairman and Chief Executive Officer, Christopher B. Ferguson, our President and Treasurer, Kevin J. Ferguson, and our Chief FinancialOfficer, Brett Vroman. The loss of the services of any of these key executives or any of our executive management members couldhave a material adverse effect on our business and prospects, as we may not be able to find suitable individuals to replace suchpersonnel on a timely basis or without incurring increased costs, or at all. Furthermore, if we lose or terminate the servicesof one or more of our key employees or if one or more of our current or former executives or key employees joins a competitoror otherwise competes with us, it could impair our business and our ability to successfully implement our business plan. Additionally,if we are unable to hire qualified replacements for our executive and other key positions in a timely fashion, our ability toexecute our business plan would be harmed. Even if we can quickly hire qualified replacements, we would expect to experience operationaldisruptions and inefficiencies during any transition. We believe that our future success will depend on our continued abilityto attract and retain highly skilled and qualified personnel. There is a high level of competition for experienced, successfulpersonnel in our industry. Our inability to meet our executive staffing requirements in the future could impair our growth andharm our business.

 

Ourfinancial statements may be materially affected if our estimates prove to be inaccurate as a result of our limited experiencein making critical accounting estimates.

 

Financialstatements prepared in accordance with GAAP require the use of estimates, judgments, and assumptions that affect the reportedamounts. Actual results may differ materially from these estimates under different assumptions or conditions. These estimates,judgments, and assumptions are inherently uncertain, and, if they prove to be wrong, then we face the risk that charges to incomewill be required. In addition, because we have limited to no operating history and limited experience in making these estimates,judgments, and assumptions, the risk of future charges to income may be greater than if we had more experience in these areas.Any such charges could significantly harm our business, financial condition, results of operations, and the price of our securities.See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Criticalaccounting policies — Use of estimates” for a discussion of the accounting estimates, judgments, andassumptions that we believe are the most critical to an understanding of our business, financial condition, and results of operations.

 

 18 
   

 

Wemay require additional financing to sustain or grow our operations.

 

Ourgrowth will be dependent on our ability to access additional equity and debt capital. Moreover, part of our business strategymay involve the use of debt financing to increase potential revenues. Our inability in the future to obtain additional equitycapital or a corporate credit facility on attractive terms, or at all, could adversely impact our ability to execute our businessstrategy, which could adversely affect our growth prospects and future shareholder returns.

 

Ifwe fail to manage our growth, our business and operating results could be harmed.

 

Aswe seek to advance our product lines, we will need to expand our development, manufacturing, marketing, and sales capabilitiesor contract with third parties to provide these capabilities for us. We anticipate that a period of significant expansion willbe required to address potential growth and to handle licensing of additional product categories, such as more arts and craftsfocused items. This expansion will place a significant strain on our management, operational, and financial resources. To managethe expected growth of our operations and personnel, we must establish appropriate and scalable operational and financial systems,procedures, and controls and establish a qualified finance, administrative, and operations staff. As a public company, we willhave to implement internal controls to comply with government-mandated regulations. Our management may be unable to hire, train,retain, motivate, and manage the necessary personnel or to identify, manage, and exploit potential strategic relationships andmarket opportunities. Our failure to manage growth effectively could have a material and adverse effect on our business, resultsof operations, and financial condition.

 

Ourgrowth strategy includes pursuing opportunistic acquisitions of additional brands, and we may not find suitable acquisition candidatesor successfully operate or integrate any brands that we may acquire.

 

Aspart of our strategy, we intend to opportunistically acquire new brands and product concepts, just as we acquired Cloud B in October2018. Although we believe that opportunities for other, future acquisitions may be available from time to time, competition foracquisition candidates may exist or increase in the future. Consequently, there may be fewer acquisition opportunities availableto us as well as higher acquisition prices. There can be no assurance that we will be able to identify, acquire, manage, or successfullyintegrate additional companies, brands, or product concepts without substantial costs, delays, or operational or financial problems.In the event we are able to acquire additional companies, brands, or other product concepts, the integration and operation ofsuch acquisitions in addition to the on-going integration and operation of the Company may place significant demands on our management,which could adversely affect our ability to manage our business. We may be required to obtain additional financing to fund futureacquisitions. There can be no assurance that we will be able to obtain additional financing on acceptable terms or at all.

 

Wemay not realize the anticipated benefits of acquisitions or investments in joint ventures, or those benefits may be delayed orreduced in their realization.

 

Acquisitionsand investments have been a component of our growth and the development of our business, and that is likely to continue in thefuture. Acquisitions can broaden and diversify our brand holdings and product concepts and allow us to build additional capabilitiesand competencies around our brands. In reviewing potential acquisitions or investments, we target brands, assets or companiesthat we believe offer attractive products or offerings, the ability for us to leverage our offerings, opportunities to drive ourbrands, competencies, or other synergies.

 

Thecombination of two independent businesses is a complex, costly, and time-consuming process that will require significant managementattention and resources. The integration process may disrupt the businesses and, if implemented ineffectively, would limit theexpected benefits of the acquisition. The failure to meet the challenges involved in integrating businesses and realizing theanticipated benefits could cause an interruption of, or a loss of momentum in, our activities and could adversely affect our resultsof operations. The overall integration of the businesses may result in material unanticipated problems, expenses, liabilities,competitive responses, loss of customer and other business relationships, and diversion of management’s attention. The difficultiesof combining the operations of the companies include, among others:

 

  the diversion of management’s attention to integration matters;
  difficulties in achieving anticipated cost savings, synergies, business opportunities, and growth prospects from the combination;
  difficulties in the integration of operations and systems; and
  conforming standards, controls, procedures, accounting and other policies, business cultures, and compensation structures between the two companies.

 

Wecannot be certain that the products and offerings of companies we may acquire, or acquire an interest in, will achieve or maintainpopularity with consumers in the future or that any such acquired companies or investments will allow us to more effectively marketour products, develop our competencies or to grow our business. In some cases, we expect that the integration of the companiesthat we may acquire into our operations will create production, marketing and other operating, revenue or cost synergies whichwill produce greater revenue growth and profitability and, where applicable, cost savings, operating efficiencies and other advantages.However, we cannot be certain that these synergies, efficiencies and cost savings will be realized. Even if achieved, these benefitsmay be delayed or reduced in their realization. In other cases, we may acquire or invest in companies that we believe have strongand creative management, in which case we may plan to operate them more autonomously rather than fully integrating them into ouroperations. We cannot be certain that the key talented individuals at these companies would continue to work for us after theacquisition or that they would develop popular and profitable products, entertainment or services in the future. We cannot guaranteethat any acquisition or investment we may make will be successful or beneficial, and acquisitions can consume significant amountsof management attention and other resources, which may negatively impact other aspects of our business.

 

 19 
   

  

Aninability to develop and introduce products in a timely and cost-effective manner may damage our business.

 

Oursales and profitability depend on our ability to bring products to market and meet customer demands before they begin to loseinterest in a given product. There is no guarantee that we will be able to manufacture, source, and ship new or continuing productsin a timely manner and on a cost-effective basis to meet constantly changing consumer demands. This risk is heightened by ourcustomers’ increasingly compressed shipping schedules and the seasonality of our business. Moreover, unforeseen delays ordifficulties in the development process, significant increases in the planned cost of development, and manufacturing delays orchanges in anticipated consumer demand for our products and new brands may cause the introduction date for products to be laterthan anticipated. They may also reduce or eliminate the profitability of such products or, in some situations, may cause a productor new brand introduction to be discontinued.

 

Wehave debt financing arrangements, which could have a material adverse effect on our financial health and our ability to obtainfinancing in the future and may impair our ability to react quickly to changes in our business.

 

Ourexposure to debt financing could limit our ability to satisfy our obligations, limit our ability to operate our business, andimpair our competitive position. For example, it could:

 

  increase our vulnerability to adverse economic and industry conditions, including interest rate fluctuations, because a portion of our borrowings are at variable rates of interest;

 

  require us to dedicate future cash flows to the repayment of debt, thereby reducing the availability of cash to fund working capital, capital expenditures or other general corporate purposes;

 

  limit our flexibility in planning for, or reacting to, changes in our business and industry; and

 

  limit our ability to obtain additional debt or equity financing due to applicable financial and restrictive covenants contained in our debt agreements.

 

Wemay also incur additional indebtedness in the future, which could materially increase the impact of these risks on our financialcondition and results of operations.

 

Intimes of tough economic conditions, the Company has experienced significant distributor inventory corrections reflecting de-stockingof the supply chain associated with difficult credit markets. Such distributor de-stocking exacerbated sales volume declines pertainingto weak end user demand and the broader economic recession. The Company’s results may be adversely impacted in future periodsby such customer inventory adjustments. Further, the inability to continue to penetrate new channels of distribution may havea negative impact on the Company’s future results.

 

Ourability to repay our debt depends on many factors beyond our control. If we elect to raise equity capital in the future, our currentshareholders could be subjected to significant dilution. If we are unable to raise capital in the future, we may seek other avenuesto fund the business, including sale/leaseback arrangements or seeking to sell assets of all, or a portion of, our operations.

 

Paymentson our debt will depend on our ability to generate cash or secure additional financing in the future. This ability, to an extent,is subject to general economic, financial, competitive, legislative, regulatory, and other factors beyond our control. If ourbusiness does not generate sufficient cash flow from operations and sufficient future financing is not available to us, we maynot be able to repay our debt, operate our business or fund our other liquidity needs. If we cannot meet or refinance our obligationswhen they become due, we may be required to attempt to raise capital, reduce expenditures, or take other actions which we maybe unable to successfully complete or, even if successful, could have a material adverse effect on us. If such sources of capitalare not available or not available on sufficiently favorable terms, we may seek other avenues to fund the business, includingsale/leaseback arrangements or seeking to sell assets of all or a portion of our operations. If we decide to raise capital inthe equity markets or take other actions, our shareholders could incur significant dilution or diminished valuations, or if weare unable to raise capital, our ability to effectively operate our business could be impaired. In addition, if we are successfulin raising capital in the equity markets to repay our indebtedness or for any other purpose in the future, our shareholders couldincur significant dilution.

 

 20 
   

 

Oursuccess will depend on the reliability and performance of third-party distributors, manufacturers, and suppliers.

 

Wecompete with other companies for the production capacity of third-party suppliers for components. Certain of these competing companieshave substantially greater financial and other resources than we have, and we may be at a competitive disadvantage in seekingto procure production capacity. Our inability to contract with third-party manufacturers and suppliers to provide a sufficientsupply of our products on acceptable terms and on a timely basis could negatively impact our relationships with existing customersand cause us to lose revenue-generating opportunities with potential customers. We also rely on operators and distributors tomarket and distribute our products. If our operators or distributors are unsuccessful, we may miss revenue-generating opportunitiesthat might otherwise have been recognized.

 

Weare dependent on a small number of key suppliers and customers. Changes in our relationships with these parties or changes inthe economic environments in which they operate could have a material adverse effect on our business, financial condition, resultsof operations, and cash flows.

 

Ourrevenues are concentrated with a small number of customers. We do not have long-term agreements with our customers, and insteaddevelop our products on an item-by-item basis subject to purchase orders from customers. No assurances can be given that our customerswill continue to submit purchase orders for new products.

 

Tomanufacture our products, we purchase components from independent manufacturers, many of whom are located in Asia. An extendedinterruption in the supply of these products or suitable substitute inventory would disrupt our operations, which could have amaterial adverse effect on our business, financial condition, and results of operations.

 

Fora number of our key inventory components, we rely on two China-based suppliers, Pokar Industrial Ltd., and MJR Corporation. Thesesuppliers have discussed the possibility of entering into a joint venture at an undetermined time in the future, whereby theywould consolidate their operations and conduct such operations from a single location. As we are currently transitioning the manufacturingof more of our components to these suppliers, our increased dependence on them could have an adverse effect on our business, financialcondition, and operations if the consolidation of their operations results in a diminished capacity to timely produce our components.We cannot estimate with any certainty the length of time that would be required to establish alternative supply relationships,or whether the quantity or quality of materials that could be so obtained would be sufficient. Furthermore, we may incur additionalcosts in sourcing materials from alternative producers. The disruption of our inventory supply, even in the short term, couldhave a material adverse effect on our business, financial condition, and results of operations.

 

Inthe first quarter of 2020, the COVID-19 outbreak caused disruptions in our manufacturing operations, which resulted in delaysin the shipment of products to certain of our customers and ultimately, a suspension of our Asian operations in January 2020.A prolonged disruption or any further unforeseen delay in our operations of the manufacturing, delivery and assembly process withinany of our production facilities could continue to result in delays in the shipment of products to our customers, increased costsand reduced revenue.

 

Changesin customer preferences, the inability to maintain mutually beneficial relationships with large customers, inventory reductionsby customers, and the inability to penetrate new channels of distribution could adversely affect the Company’s business.

 

TheCompany has certain significant customers. For the period ended September 30, 2020, the Company’s largest customercomprised approximately 9% of net sales. The loss or material reduction of business, the lack of success of sales initiatives,or changes in customer preferences or loyalties for the Company’s products, related to any such significant customer couldhave a material adverse impact on the Company’s results of operations and cash flows. In addition, the Company’s majorcustomers are volume purchasers, a few of which are much larger than the Company and have strong bargaining power with suppliers.This limits the ability to recover cost increases through higher selling prices. Furthermore, unanticipated inventory adjustmentsby these customers can have a negative impact on net sales.

 

Ifcustomers are dissatisfied with services and switch to competitive services or disconnect for other reasons such as preferencefor digital technology products or other technology enhancements not then offered, the Company’s attrition rates may increase.In periods of increasing attrition rates, recurring revenue and results of operations may be materially adversely affected. Therisk is more pronounced in times of economic uncertainty, as customers may reduce amounts spent on the products and services theCompany provides.

 

Asignificant portion of our business is conducted with customers and suppliers located outside of the United States. Currency,economic, health related, and other risks associated with our international operations in China and Japan could adversely affectour operating results.

 

Ourinternational customers and suppliers are concentrated in China and Japan. Our revenues from international customers, and ourinventory costs from international suppliers are exposed to the potentially adverse effects of currency exchange rates, localeconomic conditions, health related conditions, and other risks associated with doing business in foreign countries. To the extentthat our revenues and purchases from international business partners increase in the future, our exposure to changes in foreigneconomic conditions and currency fluctuations will increase.

 

Forexample, the imposition of trade sanctions or other regulations upon China by the United States or the European Union, or theloss of “normal trade relations” status with China, could significantly increase our cost of products imported intothe United States or Europe and harm our business. In addition, the occurrence of a health-related crisis such as COVID-19, whichemerged in China where many of the Company’s suppliers and customers are located. COVID-19 has been expanding within Asiaand globally, such that the Company’s operations in Asia have been largely suspended since January 2020. Additionally, thesuspension of manufacturing operations by government inspectors in China could result in delays to us in obtaining product andmay have a material adverse effect on our ability to import products from China. Furthermore, Japanese economic policies are subjectto rapid change and the government of Japan may adopt policies which have the effect of hindering private economic activity andgreater economic decentralization. There is no assurance that the government of Japan will not significantly alter its policiesfrom time to time without notice in a manner which reduces or eliminates any benefits from its present policies of economic reform.

 

 21 
   

 

Besidesthe risks discussed above, our dependence on foreign customers and suppliers also means that we may be affected by changes inthe relative value of the U.S. Dollar to foreign currencies, including the Chinese Renminbi and Japanese Yen. Although our receiptsfrom foreign customers and our purchases of foreign products are principally negotiated and paid for in U.S. Dollars, a portionof our business is denominated in other currencies and changes in the applicable currency exchange rates might negatively affectthe profitability and business prospects of our customers and vendors. This, in turn, might cause such vendors to demand higherprices, delay shipments, or discontinue selling to us. This also might cause such customers to demand lower prices, delay, ordiscontinue purchases of our products or demand other changes to the terms of our relationships. These situations could in turnultimately reduce our revenues or increase our costs, which could have a material adverse effect on our business, financial condition,and results of operations.

 

Ouroperating results may fluctuate significantly as a result of a variety of factors, many of which are outside of our control, whichcould cause fluctuations in the price of our securities.

 

Weare subject to the following factors that may negatively affect our operating results:

 

  the announcement or introduction of new products by our competitors;

 

  our ability to upgrade and develop our systems and infrastructure to accommodate growth;

 

  our ability to attract and retain key personnel in a timely and cost-effective manner;

 

 22 
   

 

  technical difficulties;

 

  the amount and timing of operating costs and capital expenditures relating to the expansion of our business, operations, and infrastructure;

 

  our ability to identify and enter into relationships with appropriate and qualified third-party providers for necessary development and manufacturing services;

 

  regulation by federal, state, or local governments;

 

  general economic conditions, as well as economic conditions specific to the entertainment, theme park, party items, arts and crafts, and packaging industries;
     
  the announcement of our entrance into a business combination or acquisition of a second company that has a material effect on us; and

 

  Various risks related to health epidemics, pandemics and similar outbreaks, such as the coronavirus disease 2019 (“COVID-19”) pandemic, which may have material adverse effects on our business, financial position, results of operations and/or cash flows.

 

Asa result of our lack of any operating history and the nature of the markets in which we compete, it is difficult for us to forecastour revenues or earnings accurately. As a strategic response to changes in the competitive environment, we may from time to timemake certain decisions concerning expenditures, pricing, service, or marketing that could have a material and adverse effect onour business, results of operations, and financial condition. Due to the foregoing factors, our quarterly revenues and operatingresults are difficult to forecast.

 

TheCompany’s results of operations could be negatively impacted by inflationary or deflationary economic conditions, whichcould affect the ability to obtain raw materials, component parts, freight, energy, labor, and sourced finished goods in a timelyand cost-effective manner.

 

TheCompany’s products are manufactured using both ferrous and non-ferrous metals including, but not limited to, steel, zinc,copper, brass, aluminum, and nickel. Additionally, the Company uses other commodity-based materials for components and packagingincluding, but not limited to, plastics, resins, wood, and corrugated products. The Company’s cost base also reflects significantelements for freight, energy, and labor. The Company also sources certain finished goods directly from vendors. If the Companyis unable to mitigate any inflationary increases through various customer pricing actions and cost reduction initiatives, itsprofitability may be adversely affected.

 

Conversely,in the event there is deflation, the Company may experience pressure from its customers to reduce prices, and there can be noassurance that the Company would be able to reduce its cost base (through negotiations with suppliers or other measures) to offsetany such price concessions which could adversely impact results of operations and cash flows.

 

Further,as a result of inflationary or deflationary economic conditions, the Company believes it is possible that a limited number ofsuppliers may either cease operations or require additional financial assistance from the Company in order to fulfill their obligations.In a limited number of circumstances, the magnitude of the Company’s purchases of certain items is of such significancethat a change in established supply relationships with suppliers or increase in the costs of purchased raw materials, componentparts, or finished goods could result in manufacturing interruptions, delays, inefficiencies, or an inability to market products.Changes in value-added tax rebates, currently available to the Company or to its suppliers, could also increase the costs of theCompany’s manufactured products, as well as purchased products and components, and could adversely affect the Company’sresults.

 

Inaddition, many of the Company’s products incorporate battery technology. As other industries begin to adopt similar batterytechnology for use in their products, the increased demand could place capacity constraints on the Company’s supply chain.In addition, increased demand for battery technology may also increase the costs to the Company for both the battery cells aswell as the underlying raw materials. If the Company is unable to mitigate any possible supply constraints or related increasedcosts, its profitably and financial results could be negatively impacted.

 

Lowdemand for new products and the inability to develop and introduce new products at favorable margins could adversely impact theCompany’s performance and prospects for future growth.

 

TheCompany’s competitive advantage is due in part to its ability to develop and introduce new products in a timely manner atfavorable margins. The uncertainties associated with developing and introducing new products, such as market demand and costsof development and production, may impede the successful development and introduction of new products on a consistent basis. Introductionof new technology may result in higher costs to the Company than that of the technology replaced. That increase in costs, whichmay continue indefinitely or until increased demand and greater availability in the sources of the new technology drive down itscost, could adversely affect the Company’s results of operations. Market acceptance of the new products introduced in recentyears and scheduled for introduction in future years may not meet sales expectations due to various factors, such as the failureto accurately predict market demand, end-user preferences, evolving industry standards, or the emergence of new or disruptivetechnologies. Moreover, the ultimate success and profitability of the new products may depend on the Company’s ability toresolve technical and technological challenges in a timely and cost-effective manner, and to achieve manufacturing efficiencies.The Company’s investments in productive capacity and commitments to fund advertising and product promotions in connectionwith these new products could erode profits if those expectations are not met.

 

 23 
   

 

Weare increasingly dependent on information technology, and potential cyberattacks, security problems, or other disruption and expandingsocial media vehicles present new risks.

 

Werely on information technology networks and systems, including the internet, to process, transmit, and store electronic information,and to manage or support a variety of business processes, including financial transactions and records, billing, and operatingdata. We may purchase some of our information technology from vendors, on whom our systems will depend, and we rely on commerciallyavailable systems, software, tools, and monitoring to provide security for processing, transmission, and storage of confidentialoperator and other customer information. We depend upon the secure transmission of this information over public networks. Ournetworks and storage applications could be subject to unauthorized access by hackers or others through cyberattacks, which arerapidly evolving and becoming increasingly sophisticated, or by other means, or may be breached due to operator error, malfeasanceor other system disruptions. In some cases, it will be difficult to anticipate or immediately detect such incidents and the damagethey cause. Any significant breakdown, invasion, destruction, interruption, or leakage of information from our systems could harmour reputation and business.

 

Inaddition, the use of social media could cause us to suffer brand damage or information leakage. Negative posts or comments aboutus on any social networking website could damage our or our brands’ reputations. Employees or others might disclose non-publicsensitive information relating to our business through external media channels, including through the use of social media. Thecontinuing evolution of social media will present us with new challenges and risks.

 

Changesin laws or regulations governing our operations, changes in the interpretation thereof or newly enacted laws or regulations andany failure by us to comply with these laws or regulations, could require changes to certain of our business practices, negativelyimpact our operations, cash flow, or financial condition, impose additional costs on us, or otherwise adversely affect our business.

 

Weare subject to regulation by laws and regulations at the local, state, and federal levels. These laws and regulations, as wellas their interpretation, may change from time to time, and new laws and regulations may be enacted. Accordingly, any change inthese laws or regulations, changes in their interpretation, or newly enacted laws or regulations and any failure by us to complywith these laws or regulations, could require changes to certain of our business practices, negatively impact our operations,cash flow or financial condition, impose additional costs on us, or otherwise adversely affect our business.

 

ArticleXIII of our Amended and Restated Articles of Incorporation designates the courts of the State of Nevada as the sole and exclusiveforum for certain types of actions and proceedings that may be initiated by our shareholders, and therefore may limit our shareholders’ability to choose a forum for disputes with us or our directors, officers, employees, or agents.

 

ArticleXIII of our Amended and Restated Articles of Incorporation provide that, to the fullest extent permitted by law, and unless weconsent to the selection of an alternative forum, the courts of the State of Nevada shall be the sole and exclusive forum for(a) any derivative action or proceeding brought on behalf of the Company, (b) any action or proceeding asserting a claim of breachof a fiduciary duty owed by any director or officer of the Company to the Company or the Company’s shareholders, (c) anyaction or proceeding asserting a claim against the Company arising pursuant to any provision of the Nevada Revised Statutes orthe Company’s amended and restated articles of incorporation or Second Amended and Restated Bylaws (as either might be amendedfrom time to time), or (d) any action or proceeding asserting a claim against the Company governed by the internal affairs doctrine.

 

Webelieve the choice-of-forum provision in our Amended and Restated Articles of Incorporation provide will help provide for theorderly, efficient, and cost-effective resolution of Nevada-law issues affecting us by designating courts located in the Stateof Nevada (our state of incorporation) as the exclusive forum for cases involving such issues. However, this provision may limita shareholder’s ability to bring a claim in a judicial forum that it believes to be favorable for disputes with us or ourdirectors, officers, employees, or agents, which may discourage such actions against us and our directors, officers, employees,and agents. While there is no Nevada case law addressing the enforceability of this type of provision, Nevada courts have on prioroccasion found persuasive authority in Delaware case law in the absence of Nevada statutory or case law specifically addressingan issue of corporate law. The Court of Chancery of the State of Delaware ruled in June 2013 that choice-of-forum provisions ofa type similar to those included in our Amended and Restated Articles of Incorporation provide are not facially invalid undercorporate law and constitute valid and enforceable contractual forum selection clauses. However, if a court were to find the choice-of-forumprovision in our Amended and Restated Articles of Incorporation provide inapplicable to, or unenforceable in respect of, one ormore of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters inother jurisdictions, which could adversely affect our business, financial condition, or results of operations.

 

 24 
   

 

Wecould face substantial competition, which could reduce our market share and negatively impact our net revenue.

 

Thereare a number of companies that manufacture and distribute products similar to ours. Many of our anticipated competitors are significantlylarger than we are and have considerably greater financial, technical, marketing, and other resources than we do. Some competitorsmay have a lower cost of funds and access to funding sources that are not available to us. We cannot assure you that the competitivepressures we face will not have a material adverse effect on our business, financial condition, and results of operations.

 

Ifwe fail to protect our intellectual property rights, competitors may be able to use our technology, which could weaken our competitiveposition, reduce our net revenue, and increase our costs.

 

Ourlong-term success will depend to some degree on our ability to protect the proprietary technology that we have developed or maydevelop or acquire in the future. Patent applications can take many years to issue, and we can provide no assurance thatany such patents would be issued. If we are denied any or all of these patents, we may not be able to successfully prevent ourcompetitors from imitating our products or using some or all of the processes that are the subject of such patent applications.Such imitation may lead to increased competition within the finite market for products such as ours. Even if our pending patentswere to be issued, our intellectual property rights may not be sufficiently comprehensive to prevent our competitors from developingsimilar competitive products. Although we may aggressively pursue anyone whom we reasonably believe is infringing upon our intellectualproperty rights, initiating and maintaining suits against third parties that may infringe upon our intellectual property rightswill require substantial financial resources, especially given our lack of patent registrations and applications. We may not havethe financial resources to bring such suits, and if we do bring such suits, we may not prevail. Regardless of our success in anysuch actions, we could incur significant expenses in connection with such suits.

 

Third-partyclaims of infringement against us could adversely affect our ability to market our products and require us to redesign our productsor seek licenses from third parties.

 

Especiallygiven that we produce products for licensed properties, we are susceptible to intellectual property lawsuits that could causeus to incur substantial costs, pay substantial damages, or prohibit us from distributing our products. Whether a product infringesa patent involves complex legal and factual issues, the determination of which is often uncertain. In addition, because patentapplications can take many years to issue, there may be applications now pending of which we are unaware, which later mayresult in issued patents that our products may infringe. If any of our products infringe a valid patent, we could be preventedfrom distributing that product unless and until we can obtain a license or redesign it to avoid infringement. A license may notbe available or may require us to pay substantial royalties. We also may not be successful in any attempt to redesign the productto avoid any infringement. Infringement and other intellectual property claims, with or without merit, can be expensive and time-consumingto litigate, and we may not have the financial and human resources to defend ourselves against any infringement suits that maybe brought against us.

 

Ourbrands are important assets of our businesses and violation of our trademark rights by imitators, or the failure of our licenseesor vendors to comply with our product quality, manufacturing requirements, marketing standards, and other requirements could negativelyimpact revenues and brand reputation.

 

Ourtrademarks have a reputation for quality and value and are important to our success and competitive position. Unauthorized useof our trademark rights may not only erode sales of our products, but may also cause significant damage to our brand name andreputation, interfere with our ability to effectively represent ourselves to our customers, contractors, suppliers, and/or licensees,and increase litigation costs. Similarly, failure by licensees or vendors to adhere to our standards of quality and other contractualrequirements could result in loss of revenue, increased litigation, and/or damage to our reputation and business. There can beno assurance that our ongoing efforts to protect our brand and trademark rights and ensure compliance with our licensing and vendoragreements will prevent all violations.

 

Defectsin our products could reduce our revenue, increase our costs, burden our engineering, and marketing resources, involve us in litigationand adversely affect us.

 

Oursuccess will depend on our ability to avoid, detect, and correct defects in our products. We may not be able to maintain productsthat are free from defects. Although we have taken steps to prevent defects, our products could suffer such defects. The occurrenceof such defects or malfunctions could result in physical harm to the patrons of our customers and the subsequent termination ofagreements, cancellation of orders, product returns, and diversion of our resources. Even if our customers do not suffer financiallosses, customers may replace our products if they do not perform according to expectations. Any of these occurrences could alsoresult in the loss of or delay in market acceptance of our products and/or loss of sales. In addition, the occurrence of defectsin our products may give rise to claims for lost revenues and related litigation by our customers and may subject us to investigationor other disciplinary action by regulatory authorities that could include suspension or revocation of our ability to do businessin certain jurisdictions.

 

 25 
   

 

Lowdemand for new products and the inability to develop and introduce new products at favorable margins could adversely impact ourperformance and prospects for future growth.

 

Ourcompetitive advantage is due in part to our ability to develop and introduce new products in a timely manner at favorable margins.The uncertainties associated with developing and introducing new products, such as market demand and costs of development andproduction, may impede the successful development and introduction of new products on a consistent basis. Introduction of newtechnology may result in higher costs to us than that of the technology replaced. That increase in costs, which may continue indefinitelyor until increased demand and greater availability in the sources of the new technology drive down its cost, could adversely affectour results of operations. Market acceptance of the new products introduced in recent years and scheduled for introduction infuture years may not meet sales expectations due to various factors, such as the failure to accurately predict market demand,end-user preferences, evolving industry standards, or the emergence of new or disruptive technologies. Moreover, the ultimatesuccess and profitability of the new products may depend on our ability to resolve technical and technological challenges in atimely and cost-effective manner, and to achieve manufacturing efficiencies. Our investments in productive capacity and commitmentsto fund advertising and product promotions in connection with these new products could erode profits if those expectations arenot met.

 

Ourproducts could be recalled.

 

TheConsumer Product Safety Commission or other applicable regulatory bodies may require the recall, repair or replacement of ourproducts if those products are found not to be in compliance with applicable standards or regulations. A recall could increasecosts and adversely impact our reputation.

 

Ourbusiness operations have been and may continue to be materially and adversely affected by the outbreak of the novel respiratoryillness coronavirus (“COVID-19”).

 

OnMarch 11, 2020, the World Health Organization declared the outbreak of the novel respiratory illness COVID-19 a pandemic. Thenew strain of COVID-19 is considered to be highly contagious and poses a serious public health threat. The outbreak of COVID-19emerged in China, where many of the Company’s suppliers and customers are located. COVID-19 has been expanding within Asiaand globally, such that the Company’s operations in Asia have been largely suspended since January 2020.

 

Anyoutbreak of such epidemic illness or other adverse public health developments may materially and adversely affect the global economy,our markets and our business. In the first quarter of 2020, the COVID-19 outbreak caused disruptions in our manufacturing operations,which resulted in delays in the shipment of products to certain of our customers and ultimately, a suspension of our Asian operationsin January 2020. A prolonged disruption or any further unforeseen delay in our operations of the manufacturing, delivery and assemblyprocess within any of our production facilities could continue to result in delays in the shipment of products to our customers,increased costs and reduced revenue.

 

Wecannot foresee whether the outbreak of COVID-19 will be effectively contained, nor can we predict the severity and duration ofits impact. If the outbreak of COVID-19 is not effectively and timely controlled, our business operations and financial conditionmay be materially and adversely affected as a result of the deteriorating market outlook for theme parks and consumer sales, theslowdown in regional and national economic growth, weakened liquidity and financial condition of our customers or other factorsthat we cannot foresee. Any of these factors and other factors beyond our control could have an adverse effect on the overallbusiness environment, cause uncertainties in the regions where we conduct business, cause our business to suffer in ways thatwe cannot predict and materially and adversely impact our business, financial condition and results of operations.

 

Weface potential business disruptions and related risks resulting from the recent outbreak of the novel coronavirus, which couldhave a material adverse effect on our business, financial condition and results of operations.

 

InDecember 2019, a novel strain of coronavirus, or COVID-19, was reported to have surfaced in Wuhan, China. The COVID-19 outbreakhas grown into a global pandemic that has impacted Asia, United States, Europe and other countries throughout the world. Financialmarkets have been experiencing extreme fluctuations that may cause a contraction in available liquidity globally as importantsegments of the credit markets react to the development. The pandemic may lead to a decline in business and consumer confidence.The global outbreak of COVID-19 continues to rapidly evolve. As a result, businesses have closed and limits have been placed ontravel. The extent to which COVID-19 may impact our business, such as the ultimate geographic spread of the disease, the durationof the outbreak, travel restrictions and social distancing in the United States and other countries, business closures or businessdisruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.

 

 26 
   

 

Weare monitoring the potential impact of the COVID-19 outbreak, and if COVID-19 continues to spread globally, including in the UnitedStates, we may experience disruptions that could severely impact the development of our product candidates, including:

 

  delays or difficulties in reopening of theme parks and water parks in the United States, Asia and Europe;
     
  the uncertainty that our contractors, suppliers, and other business partners may be prevented from conducting business activities for an unknown period of time;
     
  the impact of social distancing on theme parks;
     
  delays in receiving approval from local regulatory authorities to initiate our planned clinical trials;
     
  the undetermined costs to theme parks in reopening to remain within local, state and federal guidelines that may ultimately effect our sales;
     
  the majority of our retail customers have been unable to sell our products in their stores due to government-mandated closures and have temporarily reduced orders for our products;
     
  the pandemic has reduced foot traffic in the stores where our products are sold that remain open, and the global economic impact of the pandemic has reduced consumer demand for our products generally; and
     
  in the event a communicable illness, such as COVID-19, was contracted at, or that an outbreak of a communicable illness originated within, one of our customer theme parks, they may suffer reputational damage that could adversely affect guest attendance and ticket sales and adversely affect our results.

 

Quarantines,shelter-in-place and similar government orders, or the perception that such orders, shutdowns or other restrictions on the conductof business operations could occur, related to COVID-19 or other infectious diseases could impact personnel at third-party suppliersin the United States and other countries, or the availability or cost of materials, which would disrupt our supply chain. Anymanufacturing supply interruption of materials could adversely affect our ability to conduct ongoing and future research and testingactivities.

 

Thespread of COVID-19, which has caused a broad impact globally, may materially affect us economically. While the potential economicimpact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a widespread pandemic could result insignificant disruption of global financial markets, reducing our ability to access capital, which could in the future negativelyaffect our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affectour business and the value of our common stock.

 

RisksAssociated with an Investment in our Common Stock

 

Ourexecutive officers, directors, and principal shareholders maintain the ability to control substantially all matters submittedto shareholders for approval.

   

Asof February 4, 2021, our executive officers, directors, and shareholders who owned more than 5% of our outstandingcommon stock, in the aggregate, beneficially own 27,304,382 shares of common stock representing approximately 62.87%of our outstanding capital stock. As a result, if these shareholders were to choose to act together, they would be able tocontrol substantially all matters submitted to our shareholders for approval, as well as our management and affairs. For example,these persons, if they choose to act together, would control the election of directors and approval of any merger, consolidationor sale of all or substantially all of our assets. This concentration of voting power could delay or prevent an acquisition ofus on terms that other shareholders may desire.

  

Themarket price of our shares may fluctuate significantly.

 

Thecapital and credit markets have recently experienced a period of extreme volatility and disruption. The market price and liquidityof the market for shares may be significantly affected by numerous factors, some of which are beyond our control and may not bedirectly related to our operating performance. Some of the factors that could negatively affect the market price of our sharesinclude:

 

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

 

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

 

  loss of a major funding source;

 

  actual or anticipated accounting problems;

 

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

 

  changes in market valuations of similar companies;

 

  adverse market reaction to any indebtedness we incur in the future;
     
  the announcement of our entrance into a business combination or acquisition of a second company that has a material effect on us;

 

  speculation in the press or investment community;

 

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

 

  general market and economic conditions, trends including inflationary concerns, and the current state of the credit and capital markets;

 

 27 
   

 

  significant volatility in the market price and trading volume of securities of companies in our sector, which are not necessarily related to the operating performance of these companies;

 

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

 

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

 

  operating performance of companies comparable to us;

 

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

 

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

 

  concerns regarding the United Kingdom’s exit from the European Union.

 

Asnoted above, market factors unrelated to our performance could also negatively impact the market price of our shares. One of thefactors that investors may consider in deciding whether to buy or sell our shares is our distribution rate as a percentageof our share price relative to market interest rates. If market interest rates increase, prospective investors may demand a higherdistribution rate or seek alternative investments paying higher dividends or interest. As a result, interest rate fluctuationsand conditions in the capital markets can affect the market value of our shares. For instance, if interest rates rise, it is likelythat the market price of our shares will decrease as market rates on interest-bearing securities increase.

 

Shareseligible for future sale may have adverse effects on our share price.

 

Salesof substantial amounts of shares or the perception that such sales could occur may adversely affect the prevailing market pricefor our shares. We may issue additional shares in subsequent public offerings or private placements to make new investments orfor other purposes. We are not required to offer any such shares to existing shareholders on a preemptive basis. Therefore, itmay not be possible for existing shareholders to participate in such future share issuances, which may dilute the existing shareholders’interests in us.

 

Ifwe take advantage of specified reduced disclosure requirements applicable to an “emerging growth company” under theJOBS Act, the information that we provide to shareholders may be different than they might receive from other public companies.

 

Asa company with less than $1.07 billion in revenue during our last fiscal year, we qualify as an “emerging growth company”under the JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirementsthat are otherwise applicable generally to public companies. The Company has elected not to use the extended transition periodfor complying with new or revised financial accounting standards but does still have reduced reporting requirements. Theseprovisions include:

 

  only two years of audited financial statements in addition to any required unaudited interim financial statements with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure;

 

  reduced disclosure about our executive compensation arrangements;

 

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

 

  exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting.

 

Wemay take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growthcompany. We would cease to be an emerging growth company if we have more than $1.07 billion in annual revenues, we have morethan $700 million in market value of our stock held by non-affiliates, or we issue more than $1 billion of non-convertibledebt over a three-year period. We may choose to take advantage of some but not all of these reduced burdens. We may elect to takeadvantage of other reduced reporting requirements in future filings. As a result, the information that we provide to our shareholdersmay be different than you might receive from other public reporting companies in which you hold equity interests.

 

 28 
   

 

Ifwe fail to comply with the rules and regulations under the Sarbanes-Oxley Act, our operating results, our ability to operate ourbusiness and investors’ views of us may be harmed.

 

Section 404of the Sarbanes-Oxley Act requires public companies to conduct an annual review and evaluation of their internal controls andattestations of the effectiveness of internal controls by independent auditors. Ensuring that we have adequate internal financialand accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costlyand time-consuming effort that will need to be evaluated frequently. As of December 31, 2019, the Company’s Principal ExecutiveOfficer and Principal Financial and Accounting Officer have concluded that, as of the end of such period, the Company’sdisclosure controls and procedures were not effective to provide reasonable assurance that information that it is required todisclose in reports that the Company files with the SEC is recorded, processed, summarized, and reported within the time periodsspecified by the Exchange Act rules and regulations. Our failure to maintain the effectiveness of our internal controls in accordancewith the requirements of the Sarbanes-Oxley Act could have a material adverse effect on our business. We could lose investor confidencein the accuracy and completeness of our financial reports, which could have an adverse effect on the price of our common stock.In addition, our efforts to comply with the rules and regulations under the Sarbanes-Oxley or new or changed laws, regulations,and standards may differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice.Regulatory authorities may investigate transactions disclosed in our “Management’s Discussion and Analysis of FinancialCondition and Results of Operations,” and if legal proceedings are initiated against us, it may harm our business.

 

Wedo not anticipate paying any cash dividends on our capital stock in the foreseeable future.

 

Wecurrently intend to retain all of our future earnings to finance the growth and development of our business, and therefore, wedo not anticipate paying any cash dividends on our capital stock in the foreseeable future. We believe it is likely that our boardof directors will continue to conclude, that it is in the best interests of the Company and its shareholders to retain all earnings(if any) for the development of our business. In addition, the terms of any future debt agreements may preclude us from payingdividends. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeablefuture.

 

Therights of the holders of common stock may be impaired by the potential issuance of preferred stock.

 

Pursuantto the Articles of Merger, filed with the Nevada Secretary of State on September 7, 2019, our board of directors has the right,without shareholder approval, to issue preferred stock with voting, dividend, conversion, liquidation, or other rights which couldadversely affect the voting power and equity interest of the holders of common stock, which could be issued with the right tomore than one vote per share, and could be utilized as a method of discouraging, delaying, or preventing a change of control.The possible negative impact on takeover attempts as a result of the issuance of such preferred stock could also adversely affectthe price of our common stock.

 

OnOctober 16, 2020, the Company filed a Certificate of Designation (the “Designation”) with the Secretary of State ofNevada, which designates 1,000,000 shares of the Company’s preferred stock, par value $0.001 per share, as Series B ConvertiblePreferred Stock (“Series B”). Pursuant to the terms of the Designation, holders of the Series B shall be entitledto dividends, a liquidation preference and shall have conversion rights. Each share of Series B shall be convertible into 1 shareof Common Stock, on or after the twelve-month anniversary of the Original Issue Date at the option of the Holder thereof, fora total not to exceed 1,000,000 shares of Common Stock. The holders of the Series B shall have no voting rights.

 

OnFebruary 2, 2021, the Company filed an Amendment to the Certificate of Designation (the “Amendment”) for the Company’sSeries B Convertible Preferred Stock (“Preferred Stock”). Under the Amendment, eachshare of Preferred Stock shall entitle the holder thereof to vote on all matters voted on by the holders of Common Stock, votingtogether as a single class with other shares entitled to vote at all meetings of the stockholders of the Corporation. With respectto any such vote, each share of Preferred Stock shall entitle the holder thereof to cast the number of votes equal to the numberof whole shares of Common Stock into which such shares of Preferred Stock are then convertible (the “Conversion Shares”).Such right may be exercised at any annual meeting or special meeting, or pursuant to any written consent of stockholders.

 

Ifsecurities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, ourstock price, and trading volume could decline.

 

Thetrading market for our common stock will depend in part on the research and reports that securities or industry analysts publishabout us or our business. Securities and industry analysts do not currently, and may never, publish research on us. If no or toofew securities or industry analysts commence coverage of us, the trading price for our stock would likely be negatively impacted.In the event securities or industry analysts initiate coverage, if one or more of the analysts who cover us downgrade our stockor publish inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of theseanalysts cease coverage of us or fail to publish reports on us regularly, demand for our stock could decrease, which might causeour stock price and trading volume to decline.

 

RiskRelated to this Offering

 

Futuresales of additional shares of our common stock or securities convertible into shares of our common stock may dilute our shareholders’ownership in us and may adversely affect us or the trading price of our common stock.

 

Weare generally not restricted from issuing additional shares of our common stock up to the authorized number of shares set forthin our charter. We may issue additional shares of our common stock or securities convertible into our common stock in the futurepursuant to current or future employee stock incentive plans, employee stock grants, or in connection with future acquisitionsor financings. We cannot predict the size of any such future issuances or the effect, if any, that any such future issuances willhave on the trading price of our common stock. Any such future issuances of shares of our common stock or securities convertibleinto common stock may have a dilutive effect on the holders of our common stock and could have a material negative effect on thetrading price of our common stock.

 

Futuresales of shares of our common stock could lower the trading price of our common stock, and any additional capital raised by usthrough the sale of additional equity or convertible debt securities may dilute our shareholders’ ownership in us and mayadversely affect us or the trading price of our common stock.

 

Wemay issue additional shares of common stock or other securities in primary offerings and the Selling Shareholders may resell sharesof our common stock in subsequent secondary offerings. We cannot predict the size of additional issuances or future resales ofshares of our common stock or convertible securities, the offering price in any such issuance or resale or the effect, if any,that additional issuances or future resales will have on the trading price of our common stock. Additional issuances and resalesof substantial amounts of our common stock or convertible securities, or the perception that such additional issuances or resalescould occur, may adversely affect prevailing trading prices for our common stock.

 

 29 
   

 

Thetrading price of our common stock could be volatile.

 

Thetrading price of our common stock may be volatile and could be subject to wide fluctuations in price in response to various factors,some of which are beyond our control. In addition, if the market for stocks in our industry, or the stock market in general, experiencesa loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business and operations.If the foregoing occurs, it could cause our stock price to fall and may expose us to lawsuits that, even if unsuccessful, couldbe costly to defend and a distraction to management, which could materially adversely affect our assets, business, cash flows,condition (financial or otherwise), credit quality, financial performance, liquidity, long-term performance goals, prospects,and results of operations.

 

Becausethe risk factors referred to above, as well as other risks not mentioned above, could cause actual results or outcomes to differmaterially from those expressed in any forward-looking statements made by us, you should not place undue reliance on any suchforward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made. We undertakeno obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statementis made or reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for usto predict which ones will arise. In addition, we cannot assess the impact of each factor on our business or the extent to whichany factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-lookingstatements. 

 

 30 
   

 

USEOF PROCEEDS

 

Weare not selling any of the shares of common stock being offered by this prospectus and will receive no proceeds from the saleof the shares by the Selling Shareholders. We will, however, receive the exercise price of the Warrants, if and when such warrantsare exercised for cash by the holders of such warrants. All of the proceeds from the sale of common stock offered by this prospectuswill go to the Selling Shareholders at the time they offer and sell such shares.

 

Wewill pay the expenses of registration of the shares of our common stock covered by this prospectus, including legal and accountingfees.

 

PRIVATEPLACEMENT OF EQUITY SECURITIES

 

2021Hudson Bay Senior Convertible Note

 

InJanuary 2021, the Company sold a total of 6,000,000 shares of common stock at a purchase price of $2.00 per share (the “PIPEShares”) to an accredited investor (the “Investor). The aggregate amount sold in the private placement (the “PIPEFinancing”) was $12,000,000.

 

Asdiscussed further below, the Company issued a warrant to the placement agent of a value equal to eight percent (8%) of the sharesof Common Stock initially issuable to the Investor pursuant to the Investor’s Note. The warrant is exercisable at $2.00per share (100% of the offering price).

 

RegistrationRights

 

TheCompany also entered into a Registration Rights Agreement with the Investor (the “Registration Rights Agreement”).The Registration Rights Agreement provides that the Company shall (i) file with the Securities and Exchange Commission (the “Commission”)a Registration Statement by 30 days following the Closing Date to register the Conversion Shares and Warrant Shares (the “RegistrationStatement”); and (ii) use all commercially reasonable efforts to have the Registration Statement declared effective by theCommission within 60 days following the Closing Date or at the earliest possible date, or 75 days following the Closing Date ifthe Registration Statement receives comments from the Commission.

 

PlacementAgreement

 

PalladiumCapital Group, LLC (the “Placement Agent”) acted as placement agent for the Offering. The Placement Agent receivedcash compensation of $1,080,000 (8% of the gross proceeds to the Company plus an additional 1% of the gross proceeds to the Companyfor non-accountable expenses). The Placement Agent also received a Warrant in an amount equal to 8% of the shares of Common Stockinitially issuable to each Investor pursuant to the Investor’s Note.

 

2021BHP Securities Purchase Agreement

 

InJanuary 2021, the Company sold a total of 1,500,000 shares of common stock at a purchase price of $2.20 per share (the “SPAShares”) to an accredited investor (the “Investor). The aggregate amount sold in the private placement (the “SPAFinancing”) was $3,300,000.

 

RegistrationRights

 

TheCompany also entered into a Registration Rights Agreement with the Investor (the “Registration Rights Agreement”).The Registration Rights Agreement provides that the Company shall (i) file with the Securities and Exchange Commission (the “Commission”)a Registration Statement by 30 days following the Closing Date to register the Conversion Shares and Warrant Shares (the “RegistrationStatement”); and (ii) use all commercially reasonable efforts to have the Registration Statement declared effective by theCommission within 60 days following the Closing Date or at the earliest possible date, or 75 days following the Closing Date ifthe Registration Statement receives comments from the Commission.

 

 31 
   

 

DIVIDENDPOLICY

 

Wehave not historically declared dividends on our common stock, and we do not currently intend to pay dividends on our common stock.The declaration, amount, and payment of any future dividends on shares of our common stock, if any, will be at the sole discretionof our board of directors, out of funds legally available for dividends. As a Nevada corporation, we are not permitted to paydividends if, after giving effect to such payment, we would not be able to pay our debts as they become due in the usual courseof business or our total assets would be less than the sum of our total liabilities plus any amounts needed to satisfy any preferentialrights if we were dissolving.

 

Ourability to pay dividends to our shareholders in the future will depend upon our liquidity and capital requirements, as well asour earnings and financial condition, the general economic climate, contractual restrictions, our ability to service any equityor debt obligations senior to our common stock, and other factors deemed relevant by our board of directors.

 

DETERMINATIONOF OFFERING PRICE

 

Theprices at which the shares of common stock are covered by this prospectus may actually be sold will be determined by the prevailingpublic market price for shares of our common stock, by negotiations between the Selling Shareholders and buyers of our commonstock in private transactions or as otherwise described in “Plan of Distribution.”

 

MARKETFOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

 

MarketInformation

 

OnMay 3, 2018, our common stock began trading on The Nasdaq Capital Market under the symbol of “XSPL”, which was subsequentlychanged to “EDNT” on September 13, 2018 and ‘BBIG” on November 12, 2020.

 

Holdersof Record

 

TheCompany had approximately 762 holders of record of our common stock as of February 4, 2021.

 

SecuritiesAuthorized for Issuance under Equity Compensation Plans

 

Plan Category   Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
    Weighted-average
exercise price of
outstanding options,
warrants and rights
    Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
 
    (a)     (b)     (c)  

Equity compensation plans approved by shareholders (1)(2)(3)

    80,000     $               7.01       1,277,117  

Equity compensation plans not approved by shareholders (1)

    -     $ -       -  
Total     80,000     $ 7.01       1,277,117  

 

(1)

The information presented in this table is as of February 3, 2021.

 

(2)

We originally adopted the Vinco Ventures, Inc. Omnibus Incentive Plan (the “Plan”) in December 2017, which was amended on February 9, 2018, provides for up to 1,764,705 (13,412 remaining as of February 3, 2021) shares of common stock to be issued as stock-based incentives. Stock incentive awards under the Plan can be in the form of stock options, restricted stock units, performance awards, and restricted stock that are made to employees, directors, and service providers. Awards are subject to forfeiture until vesting conditions have been satisfied under the terms of the award. We believe awards to our executive officers help align the interests of management and our shareholders and reward our executive officers for improved Company performance.

   

(3)

On July 15, 2020, the Company filed a Registration Statement on Form S-8 registering 1,764,705 (1,263,705 remaining as of February 3, 2021) shares of common stock to be issued as stock-based incentives under the Company’s Amended and Restated Vinco Ventures, Inc. Omnibus Incentive Plan.

 

 32 
   

 

PLANOF DISTRIBUTION

 

EachSelling Shareholder and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all oftheir securities covered hereby on The Nasdaq Capital Market or any other stock exchange, market or trading facility on whichthe securities are traded or in private transactions. These sales may be at fixed or negotiated prices. The Company will not receiveany of the proceeds from the sale by the Selling Shareholders. A Selling Shareholder may use any one or more of the followingmethods when selling securities:

 

ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

 

block trades in which the broker-dealer will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction;

 

purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

 

an exchange distribution in accordance with the rules of the applicable exchange;

 

privately negotiated transactions;

 

settlement of short sales;

 

in transactions through broker-dealers that agree with the Selling Shareholders to sell a specified number of such securities at a stipulated price per security;

 

through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

 

a combination of any such methods of sale; or

 

any other method permitted pursuant to applicable law.

 

TheSelling Shareholders may also sell securities under Rule 144 or any other exemption from registration under the Securities Act,if available, rather than under this prospectus.

 

Broker-dealersengaged by the Selling Shareholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receivecommissions or discounts from the Selling Shareholders (or, if any broker-dealer acts as agent for the purchaser of securities,from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of anagency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of aprincipal transaction a markup or markdown in compliance with FINRA IM-2440.

 

Inconnection with the sale of the securities or interests therein, the Selling Shareholders may enter into hedging transactionswith broker-dealers or other financial institutions, which may in turn engage in short sales of the securities in the course ofhedging the positions they assume. The Selling Shareholders may also sell securities short and deliver these securities to closeout their short positions, or loan or pledge the securities to broker-dealers that in turn may sell these securities. The SellingShareholders may also enter into option or other transactions with broker-dealers or other financial institutions or create oneor more derivative securities which require the delivery to such broker-dealer or other financial institution of securities offeredby this prospectus, which securities such broker-dealer or other financial institution may resell pursuant to this prospectus(as supplemented or amended to reflect such transaction).

 

TheSelling Shareholders and any broker-dealers or agents that are involved in selling the securities may be deemed to be “underwriters”within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealersor agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discountsunder the Securities Act. Each Selling Shareholder has informed the Company that it does not have any written or oral agreementor understanding, directly or indirectly, with any person to distribute the securities.

 

TheCompany is required to pay certain fees and expenses incurred by the Company incident to the registration of the securities. TheCompany has agreed to indemnify the Selling Shareholders against certain losses, claims, damages and liabilities, including liabilitiesunder the Securities Act.

 

 33 
   

 

Weagreed to keep this prospectus effective until the earlier of (i) the date on which the securities may be freely resold bythe Selling Shareholders without registration and without regard to any volume or manner-of-sale limitations by reason of Rule144, without the requirement for the Company to be in compliance with the current public information under Rule 144 under theSecurities Act or any other rule of similar effect, or (ii) all of the securities have been sold pursuant to this prospectusor Rule 144 under the Securities Act or any other rule of similar effect, under circumstances in which any legend borne by suchsecurities relating to restrictions on transferability thereof, under the Securities Act or otherwise, is removed. The resalesecurities will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws.In addition, in certain states, the resale securities covered hereby may not be sold unless they have been registered or qualifiedfor sale in the applicable state or an exemption from the registration or qualification requirement is available and is compliedwith.

 

Underapplicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may notsimultaneously engage in market making activities with respect to the securities for the applicable restricted period, as definedin Regulation M, prior to the commencement of the distribution. In addition, the Selling Shareholders will be subject to applicableprovisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing ofpurchases and sales of the securities by the Selling Shareholders or any other person. We will make copies of this prospectusavailable to the Selling Shareholders and have informed them of the need to deliver a copy of this prospectus to each purchaserof the securities at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).

 

SELLINGSHAREHOLDERS FOR WHOSE ACCOUNTS WE ARE REGISTERING SHARES

 

Thisprospectus covers the resale from time to time by the selling shareholders and future shareholders identified in the table belowof up to 24,480,000 shares of our common stock, which were issued in various transactions exempt from registration underthe Securities Act, as follows:

 

  6,000,000 of the shares registered hereby for resale are common stock underlying the Hudson Bay Senior Convertible Note;
     
  15,000,000 shares of common stock underlying a warrant issued in connection with the Hudson Bay financing;
     
 

1,500,000 of the shares registered hereby for resale are common stock issued in connection with the BHP Securities Purchase Agreement;

     
 

1,500,000 shares of common stock underlying a warrant issued in connection with the BHP financing; and

     
  480,000 shares of common stock underlying a warrant issued in connection with the placement of the Hudson Bay Senior Convertible Promissory Note.

 

Theshares to be offered by the Selling Shareholders named in this prospectus are “restricted” securities under applicablefederal and state securities laws and are being registered under the Securities Act to give those Selling Shareholders the opportunityto publicly sell these shares, if they elect to do so. The registration of these shares does not require that any of the sharesbe offered or sold by the Selling Shareholders. We are registering the shares in order to permit the Selling Shareholders to offerthe shares for resale from time to time. For additional information regarding these shares, see “Private Placement ofSecurities” above.

 

This prospectus generally covers the maximumnumber of shares of Common Stock issuable upon exercise of the Warrants and convertible under the Hudson Bay Note, without regardto any limitations on the exercise of the of the Warrants or conversion of Hudson Bay Note.

 

Thetable below lists the Selling Shareholders and other information regarding the beneficial ownership of shares of common stockby each of the Selling Shareholders. The first column in the table below lists the name of each Selling Shareholder. The secondcolumn lists the number of shares of common stock beneficially owned by each Selling Shareholder, based on its ownership of theshares of common stock, as of February 4, 2021.

 

Thefourth column lists the shares of common stock being offered by this prospectus by the Selling Shareholders.

 

Inaccordance with the terms of a registration rights agreement between the Company and the Selling Shareholders, this prospectusgenerally covers the resale of all shares of common stock held by the Selling Shareholders. The fourth column assumes the saleof all of the shares offered by the Selling Shareholders pursuant to this prospectus.

 

TheSelling Shareholders may sell all, some or none of their shares in this offering. See “Plan of Distribution.”

 

 34 
   

 

Stockholder  

Beneficial Ownership Before Offering

(ii)

    Percentage of Common Stock Owned Before Offering (ii)    

Shares of Common Stock Included

in Prospectus

   

Beneficial Ownership After the Offering

(iii)

   

Percentage

of

Common Stock

Owned

After the Offering

(iii)

 

Hudson Bay Master Fund, Ltd (iv)

    21,000,000       48.35 %     21,000,000           0       0.00 %
BHP Capital NY Inc (v)     3,000,000       6.91 %     3,000,000       0       0.00 %

Palladium Capital Group, LLC (vi)

    480,000       1.11 %     480,000       0       0.00 %
TOTAL     24,480,000       56.36 %     24,480,000       0       0.00 %

 

*Less than 1%

 

(i)These columns represent the aggregate maximum number and percentage of shares that the selling stockholders can own at one time(and therefore, offer for resale at any one time).

 

(ii)Based on 18,952,514 shares of common stock outstanding as of February 4, 2021; and including (i) 6,000,000 shares of commonstock underlying a Senior Convertible Note issued in the Hudson Bay financing, and (ii) 15,000,000 shares of common stock issuableupon exercise of a warrant issued in connection with the Hudson Bay financing, and (iii) 1,500,000 shares of common stock issuedin connection with the BHP Securities Purchase Agreement, and (iv) 1,500,000 shares of common stock issuable upon exercise ofa warrant issued in connection with the BHP financing, and (v) 480,000 shares of common stock issuable upon exercise of a warrantissued in connection with the placement of the Hudson Bay financing; but excluding 80,000 shares issuable under an option grantedto one of our executives; 1,764,705 (13,412 remaining as of February 3, 2021) shares of our common stock reserved for future issuanceunder the Company’s Vinco Ventures, Inc. Omnibus Incentive Plan; 1,764,705 (1,263,705 remaining as of February 3, 2021)shares of our common stock reserved for future issuance under the Company’s Amended and Restated Vinco Ventures, Inc. OmnibusIncentive Plan and 285,632 shares of common stock issuable upon conversion of the 4%, 5-year senior convertible notes in connectionwith the EN acquisition.

 

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

 

(iv)Hudson Bay Capital Management LP, the investment manager of Hudson Bay Master Fund Ltd., has voting and investment power overthese securities. Sander Gerber is the managing member of Hudson Bay Capital GP LLC, which is the general partner of Hudson BayCapital Management LP. Each of Hudson Bay Master Fund Ltd. and Sander Gerber disclaims beneficial ownership over these securities.Includes 6,000,000 shares issuable upon conversion of the Hudson Bay Senior Convertible Note and 15,000,000,000 sharesissuable upon exercise of the Hudson Bay warrant.

 

(v)Bryan Pantofel is the President of BHP Capital NY Inc. and has voting and investment power over these securities. Includes1,500,000 shares issued in connection with the BHP Securities Purchase Agreement and 1,500,000,000 shares issuable upon exerciseof the BHP warrant.

 

(vi)Includes 480,000 shares of common stock issuable upon exercise of the placement agent warrant.

 

 35 
   

 

Relationshipwith Selling Shareholders

 

To our knowledge, none of the SellingShareholders had any position, office, or other material relationship with us or any of our affiliates within the past three years.

 

MANAGEMENT’SDISCUSSION AND ANALYSIS OF

FINANCIALCONDITION AND RESULTS OF OPERATIONS

 

Thefollowing discussion and analysis of our financial condition and results of operations for the three and nine months endedSeptember 30, 2020 and 2019 and years ended December 31, 2019 and 2018 should be read in conjunction with the informationincluded under “Business,” “Selected Consolidated Financial Data” and our consolidated financial statementsand the accompanying notes included elsewhere in this registration statement. The discussion and analysis below are based on comparisonsbetween our historical financial data for different periods and include certain forward-looking statements about our business,operations and financial performance. These forward-looking statements are subject to risks, uncertainties, assumptions and otherfactors described in “Risk Factors.” Our actual results may differ materially from those expressed in, or impliedby, those forward-looking statements. See “Special Note Regarding Forward-Looking Statements.”

 

Overview

 

Formedin July 2017 under the laws of the State of Nevada, Vinco Ventures, Inc. seeks to be involved with every step of the consumerproduct life cycle- from ideation, to research and development, manufacturing, sales, packaging and fulfillment. The Company alsoseeks to raise awareness of the Edison Nation brand name as a diversified consumer products business through a number of mediachannels.

 

Asof September 30, 2020, Vinco Ventures, Inc. had six wholly-owned subsidiaries: S.R.M. Entertainment Limited (“SRM”),Scalematix, LLC (“Scalematix”), Ferguson Containers, Inc. (“Fergco”), CBAV1, LLC (“CB1”),Pirasta, LLC (“Pirasta”) and Edison Nation Holdings, LLC. Vinco Ventures, Inc. owns 50% of Best Party Concepts,LLC and Global Clean Solutions, LLC. Edison Nation Holdings, LLC is the single member of Edison Nation, LLC and Everyday Edisons,LLC. Edison Nation, LLC is the single member of Safe TV Shop, LLC.

 

COVID-19

 

COVID-19has caused and continues to cause significant loss of life and disruption to the global economy, including the curtailment ofactivities 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.

 

Asa result of the pandemic, we have experienced, and continue to experience, weakened demand for our traditional products. Manyof our customers have been unable to sell our products in their stores and theme parks due to government-mandated closures andhave deferred or significantly reduced orders for our products. We expect these trends to continue until such closures are significantlycurtailed or lifted. In addition, the pandemic has reduced foot traffic in the stores where our products are sold that remainopen, and the global economic impact of the pandemic has temporarily reduced consumer demand for our products as they focus onpurchasing essential goods.

 

Inthe United States and Asia, many of our key accounts remain closed or are operating at significantly reduced volumes. As a result,we have made the strategic decision to expand our operations through our Edison Nation Medical (“Ed Med”) division.Through Ed Med, the Company wholesales Personal Protective Equipment (“PPE”) products through an online portal forhospitals, government agencies and distributors.

 

Giventhese factors, the Company anticipates that the greatest impact from the COVID-19 pandemic in fiscal 2020 occurred in the firstquarter of 2020 and resulted in a net sales decline as compared to the first quarter of 2019. The Company was able to recoverin the second quarter and third quarter of 2020 related to sales of personal protective equipment and a rebound of some of ourlegacy product business.

 

Inaddition, certain of our suppliers and the manufacturers of certain of our products were adversely impacted by COVID-19. As aresult, we faced delays or difficulty sourcing products, which negatively affected our business and financial results. Even ifwe are able to find alternate sources for such products, they may cost more and cause delays in our supply chain, which couldadversely impact our profitability and financial condition.

 

Wehave taken actions to protect our employees in response to the pandemic, including closing our corporate offices and requiringour office employees to work from home. At our distribution centers, certain practices are in effect to safeguard workers, includinga 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.

 

Asa result of the impact of COVID-19 on our financial results, and the anticipated future impact of the pandemic, we have implementedcost 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.

 

CriticalAccounting Policies and Significant Judgments and Estimates

 

Ourmanagement’s discussion and analysis of our financial condition and results of operations are based on our consolidatedfinancial statements, which have been prepared in accordance with accounting principles generally accepted in the United Statesof America, or GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptionsthat affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the dateof the consolidated financial statements as well as the reported expenses during the reporting periods. The accounting estimatesthat require our most significant, difficult and subjective judgments have an impact on revenue recognition, the determinationof share-based compensation and financial instruments. We evaluate our estimates and judgments on an ongoing basis. Actual resultsmay differ materially from these estimates under different assumptions or conditions.

 

Oursignificant accounting policies are more fully described in Note 2 to our consolidated financial statements included in ourDecember 31, 2019 annual financial statements and updated as necessary in our condensed consolidated financial statements forthe period ended September 30, 2020 and included elsewhere in this prospectus.

 

 36 
   

 

Componentsof our Results of Operations

 

Revenues

 

Wesell consumer products across a variety of categories, including toys, plush, homewares and electronics, to retailers, distributorsand manufacturers. We also sell consumer products directly to consumers through e-commerce channels. Our Edison Nation Medicaloperation sells Personal Protective Equipment (“PPE”) to governmental agencies, medical institutions and to distributors.

 

Costof Revenues

 

Ourcost of revenues includes inventory costs, materials and supplies costs, internal labor costs and related benefits, subcontractorcosts, depreciation, overhead and shipping and handling costs. Our Edison Nation Medical operation sells Personal Protective Equipment(“PPE”) to governmental agencies, medical institutions and to distributors.

 

Selling,General and Administrative Expenses

 

Selling,general and administrative expenses consist of selling, marketing, advertising, payroll, administrative, finance and professionalexpenses.

 

RentalIncome

 

Weearn rental income from a month-to-month lease on a portion of the building located in Washington, New Jersey that we own.

 

InterestExpense, Net

 

Interestexpense includes the cost of our borrowings under our debt arrangements.

 

Resultsof Operations 

 

ThreeMonths Ended September 30, 2020 versus Three Months Ended September 30, 2019

 

Thefollowing 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

 

Forthe three months ended September 30, 2020, revenues increased by $718,502 or 20.34%, as compared to the three months ended September30, 2019. The increase was primarily attributable to the increases in the Company’s revenue through its Ferguson Containerssubsidiary and Cloud B branded products compared to the prior year.

 

Costof Revenues

 

Forthe three months ended September 30, 2020, cost of revenues increased by $124,806 or 4.91%, as compared to the three months endedSeptember 30, 2019. The increase was primarily attributable to the increase in total consolidated revenues.

 

GrossProfit

 

Forthe three months ended September 30, 2020, gross profit increased by $593,696, or 60.06%, as compared to the three months endedSeptember 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 increasein gross margin was due to the increase in the Ferguson Containers business and fixed costs included in cost of goods sold thatdid not increase with the revenue increase. In addition, the Company had favorable product mix of goods sold to customers relatedto increased sales in our higher margin Cloud B branded business.

 

OperatingExpenses

 

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 expenseof approximately $244,000, investor relations of approximately $157,000, legal of approximately $155,000, professional fees ofapproximately $222,000, and travel of approximately $96,000.

 

RentalIncome

 

Rentalincome was $25,704 for both the three months ended September 30, 2020 and 2019.

 

Interestexpense

 

Interestexpense was $1,004,626 for the three months ended September 30, 2020 versus $349,172 in the previous three months ended September30, 2019. The increase in interest expense was related to increased borrowings of debt during 2020.

 

Incometax expense

 

Therewas no income tax expense for the three months ended September 30, 2020 and September 30, 2019.

 

 37 
   

 

NineMonths Ended September 30, 2020 versus Nine Months Ended September 30, 2019

 

Thefollowing table sets forth information comparing the components of net (loss) income for the nine months ended September 30, 2020and 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

 

Forthe nine months ended September 30, 2020, revenues decreased by $441,151 or 2.89%, as compared to the nine months ended September30, 2019. The decrease was primarily the result of lower revenues from our amusement park business offset by increases in ourEdison Medical business.

 

Cost of Revenues

 

Forthe nine months ended September 30, 2020, cost of revenues decreased by $436,808 or 4.19%, as compared to the nine months endedSeptember 30, 2019. The decrease was primarily attributable to the decrease in total consolidated revenues.

 

GrossProfit

 

Forthe nine months ended September 30, 2020, gross profit decreased by $4,343, or 0.09%, as compared to the nine months ended September30, 2019. The decrease was primarily a result of the decrease in revenues. For the nine months ended September 30, 2020, grossprofit percentage increased to 32.6%, as compared to 31.7% for the nine months ended September 30, 2019. The increase in grossmargin was due to the increase in the Ferguson Containers business and fixed costs included in cost of goods sold that did notincrease with the revenue increase.

 

OperatingExpenses

 

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 expensesof approximately $233,000, investor relations of approximately $209,000, legal of approximately $128,000, professional fees ofapproximately $950,000 and travel of approximately $214,000.

 

RentalIncome

 

Rentalincome was $77,111 for both the nine months ended September 30, 2020 and 2019.

 

Interestexpense

 

Interestexpense was $2,575,737, an increase of 194.36%, for the nine months ended September 30, 2020 versus $875,036 in the previous ninemonths ended September 30, 2019. The increase in interest expense was related to increased borrowings of debt during 2020.

 

Incometax expense

 

Incometax expense was $0 for the nine months ended September 30, 2020, a decrease of $74,200 or 100.0%, compared to $74,200 for thenine months ended September 30, 2019. The decrease was primarily due to the decrease in income from our foreign operations aswell as net operating losses for our domestic operations.

 

Resultsof Operation for the years ended December 31, 2019 versus December 31, 2018

 

Thefollowing table sets forth information comparing the components of net loss for the years ended December 31, 2019 and 2018:

 

   Years Ended December 31,   Period over Period Change 
   2019   2018   $   % 
Revenues, net  $19,629,062   $16,502,209   $3,126,853    18.95%
Cost of revenues   12,822,450    11,425,619    1,396,831    12.23%
Gross profit   6,806,612    5,076,590    1,730,022    34.08%
                     
Operating expenses:                    
Selling, general and administrative   15,909,840    9,718,286    6,191,554    63.71%
Impairment   4,443,000    -    4,443,000    100.00%
Gain on change in fair value of earnout liability   (520,000)   -    (520,000)   -100.00%
Total operating expenses   19,832,840    9,718,286    10,114,554    104.08%
Operating (loss) income   (13,026,228)   (4,641,696)   (8,384,532)   180.64%
                     
Other (expense) income:                    
Rental income   102,815    102,815    -    0.00%
Interest expense   (1,298,168)   (501,221)   (796,947)   159.00%
Other income   3,054    -    3,054    100.00%
Total other (expense) income   (1,192,299)   (398,406)   (793,893)   199.27%
(Loss) income before income taxes   (14,218,527)   (5,040,102)   (9,178,425)   182.11%
Income tax (benefit) expense   (19,547)   303,915    323,462    106.43%
Net loss  $(14,198,980)  $(5,344,017)  $(8,854,963)   165.70%
Net loss attributable to noncontrolling interests  $(1,269,274)  $(13,891)  $(1,255,383)   9,037.38%
Net loss attributable to Edison Nation, Inc.  $(12,929,706)  $(5,330,126)  $(7,599,580)   142.58%

 

Revenue

 

Forthe year ended December 31, 2019, revenues increased by $3,126,853 or 18.95%, as compared to the year ended December 31, 2018.The increase was primarily attributable to new business in connection with our acquisitions in 2018. The increase includes licensingrelated revenues of approximately $176,000 related to our acquisition of Edison Nation Holdings, LLC and product revenues of approximately$3,578,000 related to our acquisition of Cloud B, Inc.

 

Costof Revenues

 

Forthe year ended December 31, 2019, cost of revenues increased by $1,396,831 or 12.23%, as compared to the year ended December 31,2018. The increase was primarily attributable to the increase in total consolidated revenues. The percentage increase of costof revenues as compared to the revenue increase was lower due to higher margins on our licensing related revenues and Cloud Bbranded product revenues.

 

GrossProfit

 

Forthe year ended December 31, 2019, gross profit increased by $1,730,022, or 34.08%, as compared to the year ended December 31,2018. The increase was primarily a result of the increase in revenues and increased margins due to sales of Cloud B products withhigher product margins.

 

OperatingExpenses

 

Selling,general and administrative expenses were $15,909,840 and $9,718,065 for the year ended December 31, 2019 and 2018, respectively,representing an increase of $6,191,554, or 63.71%. The increase was primarily attributable to payroll and related costs of $1,905,342,travel of $219,793, freight and postage of 191,364, depreciation and amortization of 846,925, professional fees of $2,005,757,rent expense of $231,508, computer and internet expenses of 90,269, marketing and advertising of $144,886, insurance of $51,505,selling expense of $885,338 and trade show expense of $100,290. The expense was offset by a decrease in stock-based compensationexpense of $1,172,773.

 

Impairment

 

Impairmentcharges of $4,443,000 relate to an impairment charge related to our annual impairment assessment. The amount recognized for impairmentis equal to the difference between the carrying value and the asset’s fair value. The impairment was a result of decreasedprofitability as compared to anticipated profitability in our businesses acquired in 2018.

 

Gainon Change in Fair Value of Earnout

 

Again of $520,000 was recognized related to a change in fair value of the earnout liability. The decrease in the earnout is relatedto decreased revenues as compared to anticipated revenues in our Cloud B business in 2019 and going forward. 

 

RentalIncome

 

Rentalincome was $102,815 for both the years ended December 31, 2019 and 2018.

 

Interestexpense

 

Interestexpense was $1,298,168 for the year ended December 31, 2019 versus $501,221 in the previous year ended December 31, 2018. Theincrease in interest expense was related to increased borrowings of debt during 2019.

 

Incometax expense

 

Incometax benefit was $19,547 for the year ended December 31, 2019, an increase of $323,462 or 106.43%, compared to an expense of $303,915for the year ended December 31, 2018. The change from expense to benefit was primarily due to losses in our foreign operationsin fiscal 2019.

 

 38 
   

 

ProForma condensed combined financial statements

 

On November 30, 2020, the Company (the“Seller”) and its wholly owned subsidiary, SRM Entertainment, LTD (“SRM”) entered into a Stock ExchangeAgreement (the “Exchange Agreement”) with Jupiter Wellness, Inc. (“Jupiter”)(the “Buyer”).Under the terms of the Exchange Agreement, the Buyer agreed to purchase all outstanding shares of common stock (the “ExchangeShares”) issued by SRM from the Seller. The following unaudited pro forma condensed consolidated financial information shouldbe read together with the related notes and the section entitled “Recent Developments” included herein. The unauditedpro forma combined financial statements as of September 30, 2020 and for nine months ended September 30, 2020 and the year endedDecember 31, 2020 reflects the exchange as if it was effectuated as of January 1, 2019. The unaudited pro forma combines financialstatements do not include the effects of the actual sale and related consideration received.

 

VINCOVENTURES, INC. AND SUBSIDIARIES

UNAUDITEDPRO FORMA COMBINED BALANCE SHEET

September30, 2020

 

  

Vinco
Ventures, Inc
.

(As previously presented)

   Discontinued Operations  

Vinco
Ventures, Inc.

Proforma

 
             
Assets               
Current Assets:               
Cash and cash equivalents  $384,604   $100,464   $284,140 
Accounts receivable, net   3,145,530    400,092    2,745,438 
Inventory   1,515,351    154,699    1,360,652 
Prepaid expenses and other current assets   1,529,709    29,130    1,500,579 
Income tax receivable   147,889    147,889    - 
Total current assets   6,723,083    832,274    5,890,809 
                
Property and equipment, net   1,012,375    19,299    993,076 
Right of use assets – operating leases, net   505,933    -    505,933 
Goodwill   5,392,123    -    5,392,123 
Intangible assets   10,772,241    -    10,772,241 
Total assets  $24,405,755   $851,573   $23,554,182 
                
Liabilities and Stockholders’ Equity (Deficit)               
Current Liabilities:               
Accounts payable  $3,024,689   $958,235   $2,066,454 
Accrued expenses and other current liabilities   1,620,230    145,760    1,474,470 
Deferred revenues   1,009,838    -    1,009,838 
Current portion of operating lease liabilities   279,719    -    279,719 
Income tax payable   8,151    -    8,151 
Line of credit   1,616,668    -    1,616,668 
Current portion of convertible notes payable, related parties   498,002    -    498,002 
Current portion of notes payable   821,092    -    821,092 
Current portion of notes payable – related parties   1,214,698    -    1,214,698 
Due to related party   22,005    -    22,005 
Total current liabilities   10,115,092    1,103,995    9,011,097 
                
Operating lease liabilities, net of current portion   255,100    -    255,100 
Convertible notes payable – related parties   1,136,495    -    1,136,495 
Notes payable, net of current portion   821,271    -    821,271 
Notes payable – related parties, net of current portion   1,452,815    -    1,452,815 
Total liabilities  $13,780,773   $1,103,995   $12,676,778 
                
Commitments and Contingencies               
                
Stockholders’ Equity (Deficit)               
Preferred stock $0.001 par value, 30,000,000 shares authorized; 0 shares issued and outstanding as of September 30, 2020  $-   $-   $- 
Common stock $0.001 par value, 250,000,000 shares authorized; 3,000,000 shares issued and outstanding as of September 30, 2019   11,893    -    11,893 
Additional paid-in capital / members’ deficit   33,427,702    (252,422)   33,680,124 
Accumulated deficit   (21,684,394)   -    (21,684,394)
Total stockholders’ equity (deficit) attributable to Vinco Ventures, Inc.   11,755,201    (252,422)    12,007,623 
Noncontrolling interests   (1,130,219)   -    (1,130,219)
Total stockholders’ equity (deficit)   10,624,982    (252,422)    10,877,404 
Total liabilities and stockholders’ equity (deficit)  $24,405,755   $851,573   $23,554,182 

  

39

 

 

VINCOVENTURES, INC. AND SUBSIDIARIES

UNAUDITEDPRO FORMA COMBINED STATEMENTS OF OPERATIONS

Forthe Nine Months Ended September 30, 2020

 

   Vinco
Ventures, Inc.

(As previously presented)

   Discontinued Operations   Vinco Ventures,
Inc. Proforma
 
             
Revenues, net  $14,798,283   $2,419,401   $12,378,882 
Cost of revenues   9,977,060    1,968,890    8,008,170 
Gross profit   4,821,223    450,511    4,370,712 
                
Operating expenses:               
Selling, general and administrative   10,438,487    333,704    10,104,783 
Total operating expenses   10,438,487    333,704    10,104,783 
Operating loss   (5,617,264)   116,807    (5,734,071)
                
Other (expense) income:               
Rental income   77,111    -    77,111 
Other income   4,911,760    -    4,911,760 
Interest (expense) income   (2,575,737)   1    (2,575,738)
Total other (expense) income   2,413,134    1    2,413,133 
Loss before income taxes   (3,204,130)   116,808    (3,320,938)
Income tax expense   -    -    - 
Combined Net loss  $(3,204,130)  $116,808   $(3,320,938)
Net loss attributable to the noncontrolling interest   (15,198)   -    (15,198)
Net loss attributable to Vinco Ventures, Inc.   (3,188,932)   116,808    (3,305,740)
Combined Net (loss) income per share: - basic and diluted  $(0.29)  $    $(0.30)
Weighted average number of common shares outstanding – basic   10,853,242    -    10,853,242 

 

40

 

 

VINCOVENTURES, INC. AND SUBSIDIARIES

UNAUDITEDPRO FORMA COMBINED STATEMENTS OF OPERATIONS

Forthe Year Ended December 31, 2019

 

  

Vinco Ventures, Inc.

(As previously presented)

   Discontinued Operations   Vinco Ventures, Inc. Combined 
             
Revenues, net  $19,629,062   $7,105,630   $12,523,432 
Cost of revenues   12,822,450    5,289,781    7,532,669 
Gross profit   6,806,612    1,815,849    4,990,763 
                
Operating expenses:               
Selling, general and administrative   15,909,840    1,824,645    14,085,195 
Gain on change in fair value of earnout liability   (520,000)   -    (520,000)
Impairment of goodwill   4,443,000    -    4,443,000 
Total operating expenses   19,832,840    1,824,645    18,008,195 
Operating loss   (13,026,228)   (8,796)   (13,017,432)
                
Other (expense) income:               
Rental income   102,815    -    102,815 
Other income   3,054    -    3,054 
Interest (expense) income   (1,298,168)   985    (1,299,153)
Total other (expense) income   (1,192,292)   (7,811)   (1,184,481)
(Loss) income before income taxes   (14,218,527)   (7,811)   (14,210,706)
Income tax expense   (19,547)   -    (19,547)
Combined net (loss) income   (14,198,980)   (7,811)   (14,191,169)
Net loss attributable to the noncontrolling interest   (1,269,274)   -    (1,269,274)
Net loss attributable to Vinco Ventures, Inc.  $(12,929,706)  $(7,811)  $(12,921,895)
Combined net (loss) income per share: - basic and diluted  $(2.36)       $(2.14)
Weighted average number of common shares outstanding – basic   6,026,049    -    6,026,049 

 

41

 

 

Non-GAAPMeasures

 

EBITDAand Adjusted EBITDA

 

TheCompany defines EBITDA as net loss before interest, taxes and depreciation and amortization. The Company defines Adjusted EBITDAas EBITDA, further adjusted to eliminate the impact of certain non-recurring items and other items that we do not consider inour 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 theCompany does not believe reflects the underlying business performance.

 

Forthe 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 )

 

Forthe years ended December 31, 2019 and 2018, EBITDA and Adjusted EBITDA consisted of the following:

 

  

For the Years Ended

December 31,

 
   2019   2018 
Net (loss) income  $(14,198,980)  $(5,344,017)
Interest expense, net   1,298,168    501,221 
Income tax (benefit) expense   (19,547)   303,915 
Depreciation and amortization   1,321,186    487,878 
EBITDA   (11,599,173)   (4,050,990)
Stock-based compensation   2,299,915    2,025,994 
Other noncash stock-based charges   -    1,222,172 
Impairment   4,443,000    - 
Restructuring and severance costs   446,114    148,167 
Transaction and acquisition costs   447,908    689,103 
Other non-recurring costs   1,520,777    62,686 
Adjusted EBITDA  $(2,441,459)  $97,132 

 

EBITDAand Adjusted EBITDA is a financial measure that is not calculated in accordance with accounting principles generally acceptedin the United States of America (“U.S. GAAP”). Management believes that because Adjusted EBITDA excludes (a) certainnon-cash expenses (such as depreciation, amortization and stock-based compensation) and (b) expenses that are not reflective ofthe Company’s core operating results over time (such as restructuring costs, litigation or dispute settlement charges orgains, and transaction-related costs), this measure provides investors with additional useful information to measure the Company’sfinancial performance, particularly with respect to changes in performance from period to period. The Company’s managementuses 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. TheCompany’s presentation of EBITDA and Adjusted EBITDA are not necessarily comparable to other similarly titled captions ofother companies due to different methods of calculation and should not be used by investors as a substitute or alternative tonet income or any measure of financial performance calculated and presented in accordance with U.S. GAAP. Instead, managementbelieves EBITDA and Adjusted EBITDA should be used to supplement the Company’s financial measures derived in accordancewith U.S. GAAP to provide a more complete understanding of the trends affecting the business.

 

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

 

42

 

 

Liquidityand Capital Resources

 

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

 

CashFlows

 

Duringthe nine months ended September 30, 2020 and 2019, our sources and uses of cash were as follows:

 

CashFlows from Operating Activities

 

Netcash 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 compensationof $2,765,022 and amortization of debt issuance costs of $2,015,422. Net cash used in operating activities for the nine monthsended September 30, 2019 was $2,298,186, which included a net loss of $5,784,666. That net loss included $782,561 of cash providedby changes in operating assets and liabilities, which were offset by stock-based compensation of $876,585, depreciation and amortizationof $952,019, amortization of debt issuance costs of $658,126 and amortization of right of use assets of $217,189.

 

CashFlows from Investing Activities

 

Cashused in investing activities for the nine months ended September 30, 2020 was $193,429 which related to the purchase of propertyand equipment of $193,429. Cash used in investing activities for the nine months ended September 30, 2019 was $113,612 which relatedto the purchase of property and equipment.

 

CashFlows from Financing Activities

 

Cashprovided by financing activities for the nine months ended September 30, 2020 was $3,476,624 which related to borrowings underlines of credit, convertible notes payable and notes payable. Cash provided by financing activities for the nine months endedSeptember 30, 2019 was $1,573,370 which related mostly to net cash received borrowings under new debt instruments offset by repayments.

 

CashFlows

 

Duringthe years ended December 31, 2019 and 2018, our sources and uses of cash were as follows:

 

CashFlows from Operating Activities

 

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

 

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

 

CashFlows from Investing Activities

 

Netcash used in investing activities was $159,938 and $1,414,021 for the years ended December 31, 2019, December 31, 2018,respectively. Cash used in investing activities was attributable the purchase of property and equipment.

 

CashFlows from Financing Activities

 

Cashprovided by financing activities for the year ended December 31, 2019 totaled $3,556,381, which related mostly to borrowings fromnotes payable.

 

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

 

43

 

 

 

Liquidity

 

Forthe 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. For the year ended December 31, 2019,our operations lost approximately $13,026,228 of which approximately $8,064,101 was non-cash and approximately $364,320 relatedto transaction costs and non-recurring items.

 

AtSeptember 30, 2020, we had total current assets of $6,723,083 and current liabilities of $10,115,092 resulting in negative workingcapital 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. At December 31, 2019, we had total current assets of $4,955,365 and current liabilities of $12,973,319resulting in negative working capital of $8,017,954, of which approximately $4,015,484 related to unsecured trade payables assumedin our Cloud B acquisition. In February 2019, our consolidating subsidiary, CBAV1, LLC, foreclosed on its promissory note it heldthat was secured by Cloud B, Inc.’s assets making any payments of the Cloud B trade payables unlikely. At December 31, 2019,we had total assets of $23,609,619 and total liabilities of $16,155,187 resulting in stockholders’ equity of $7,454,432.

 

AtSeptember 30, 2020, we had $2,667,513 of outstanding notes payable due to our related parties of which $1,214,698 was the currentportion. At December 31, 2019, we had $3,282,021 of outstanding notes payable due to our related parties of which $1,686,352 wasthe current portion. These notes arose as part of the consideration paid in our acquisition of SRM, Fergco and Edison Nation Holdings,LLC.

  

AtSeptember 30, 2020 and December 31, 2019, we had a cash and cash equivalents balance of $384,604 and $412,719, respectively. TheCompany believes that the funds available to it are adequate to meet its working capital needs, debt service and capital requirementsfor the next 12 months from the date of this filing.

 

Theforegoing factors raised initial concerns about the Company’s ability to continue as a going concern. The ability to continueas a going concern is dependent upon the Company’s ability to attract significant new sources of capital, attain a reasonablethreshold of operating efficiencies and achieve profitable operations from the sale of its products. The consolidated financialstatements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Thefollowing is additional information on our operating losses and working capital:

 

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

 

Managementhas considered possible mitigating factors within our management plan on our ability to continue for at least a year from thedate 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; $12,000,000 through the issuance of a Senior Convertible Note (the “Hudson Bay financing”); $3,300,000 through a Securities Purchase Agreement (the “BHP financing”); and $1,090,604 through the exercise of multiple warrants.

 

  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.

 

Off-BalanceSheet Arrangements

 

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

 

44

 

 

CriticalAccounting Policies and Significant Judgments and Estimates

 

Ourmanagement’s discussion and analysis of our financial condition and results of operations are based on our financial statements,which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparationof these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilitiesand the disclosure of contingent assets and liabilities as of the date of the financial statements as well as the reported expensesduring the reporting periods. The accounting estimates that require our most significant, difficult, and subjective judgmentshave an impact on revenue recognition, the determination of share-based compensation, and financial instruments. We evaluate ourestimates and judgments on an ongoing basis. Actual results may differ materially from these estimates under different assumptionsor conditions.

 

Oursignificant accounting policies are more fully described in Note 2 to our annual financial statements and as updated in Note2 to our unaudited condensed consolidated financial statements as appropriate included elsewhere in this registration statement.

 

Changesin and Disagreements with Accountants on Accounting and Financial Disclosure

 

None.

 

45

 

 

BUSINESS

 

Overview

 

Formedin July 2017 under the laws of the State of Nevada, Vinco Ventures, Inc. seeks to be involved with every step of the consumerproduct life cycle- from ideation, to research and development, manufacturing, sales, packaging and fulfillment. The Company alsoseeks to raise awareness of the Vinco Ventures brand name as a diversified consumer products business through a numberof media channels.

 

Thefirst stage of development for any consumer product is the impetus to turn an idea into a salable commodity. Considered to bethe “go-to” resource for independent innovators with great consumer product invention ideas, Vinco Venturesmaintains a consumer-facing online presence whereby innovators can submit ideas for consideration by us. If an idea is successfullychosen, Vinco Ventures will apply its proprietary, web-enabled new product development (“NPD”) and commercializationplatform that can take a product from idea through e-commerce final sale in a matter of months versus a year or more for capitalintensive 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 interestedin accessing the Company’s NPD platform to bring innovative, new products to market focusing on high-interest, high-velocityconsumer categories. The Company generates revenue from its web presence by charging a fee for each idea submission, and alsothrough subscription-based plans for innovators that wish to submit high volumes of ideas.

 

Sinceits inception, Vinco Ventures has received over 200,000 idea submissions, with products selling in excess of $250 millionat 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 includemany of the largest manufacturers and retailers in the world including Amazon, Bed Bath and Beyond, HSN, Rite Aid, P&G, andBlack & Decker. The Company generates revenue from licensing agreements with such manufacturers and retailers, which suchagreements are entered into when innovators submit their ideas through Vinco Ventures’ web portal. Occasionally,the Company also generates revenue from innovators that wish to use the Company’s product development resources, but licenseor distribute products themselves.

 

VincoVentures has a number of internally developed brands “ENBrands” which act as a launchpad for new innovative items that have matriculated through the innovation portal. These ENBrands include Cloud B, Pirasta, Uber Mom, Best Party Concepts, Lily and Grey, Sol and Salud, Trillion Trees, Eco Quest, SmarterSpecs, Barkley Lane, and Ngenious Fun. Additionally, the Company offers a partnership model for entrepreneurs and businesses thatare 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 developmentof new item that enhance the brands overall image and consumer adoption,

 

Inaddition to developing products for its EN Brands, the Company develops and manufactures products for well-known brands in theentertainment and theme park industry. For over 20 years, the Company has developed, manufactured and supplied the entertainmentand amusement park industry with exclusive products that are often only available to consumers inside venues such as Disney Parksand Resorts, Disney Stores, Universal Resorts, Sea World, Sesame Place, Busch Gardens, Merlin Entertainment and Madison SquareGarden. For the customers listed above, The Company has developed products for core brands such as Harry Potter, Frozen, Marvel,and Star Wars.

 

Oncemost consumer products are ideated, developed, manufactured, and possibly even licensed, they must be packaged and distributed.Therefore, we lease a packaging and logistics center in Alpha, New Jersey. The Company generates revenue from the sale of custompackaging for many of the products that have run through our NPD or in-house product development process. The Company also sellspackaging products to a number of other entities that are not related to the Company’s product development process, includingpharmaceutical and e-commerce companies. When packaging of products is complete, we typically ship products using our own trucksrather 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.

 

Oncea product is ready for distribution, consumer awareness must be raised in order to the sell the product. Accordingly, the Companyhas begun to pursue a three-prong media strategy. First, the Company is seeking to re-release episodes of the ‘EverydayEdisons’ television program, while simultaneously seeking a distribution partner for forthcoming episodes. The Company intendsto 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-learningplatform through the sale of subscription-based plans. Third, the Company is seeking to expand its web presence by acquiring orcreating other innovator-facing internet media properties. The Company intends to generate revenue from such internet media throughthe display of paid advertisements on its properties.

 

46

 

 

COVID-19

 

COVID-19 has causedand continues to cause significant loss of life and disruption to the global economy, including the curtailment of activitiesby businesses and consumers in much of the world as governments and others seek to limit the spread of the disease, and throughbusiness 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 productsin their stores and theme parks due to government-mandated closures and have deferred or significantly reduced orders for ourproducts. We expect these trends to continue until such closures are significantly curtailed or lifted. In addition, the pandemichas reduced foot traffic in the stores where our products are sold that remain open, and the global economic impact of the pandemichas temporarily reduced consumer demand for our products as they focus on purchasing essential goods.

 

Inthe 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 handsanitizer through an online portal for hospitals, government agencies and distributors.

 

Given these factors, the Company anticipatesthat the greatest impact from the COVID-19 pandemic in fiscal 2020 occurred in the first quarter of 2020 and resulted in a netsales decline as compared to the first quarter of 2019.

 

In addition, certain of our suppliers andthe manufacturers of certain of our products were adversely impacted by COVID-19. As a result, we faced delays or difficulty sourcingproducts, which negatively affected our business and financial results. Even if we are able to find alternate sources for suchproducts, they may cost more and cause delays in our supply chain, which could adversely impact our profitability and financialcondition.

 

We have taken actions to protect our employeesin response to the pandemic, including closing our corporate offices and requiring our office employees to work from home. Atour distribution centers, certain practices are in effect to safeguard workers, including a staggered work schedule, and we arecontinuing to monitor direction from local and national governments carefully. Additionally, our two retail locations have beenclosed until further notice.

 

As a result of the impact of COVID-19 onour financial results, and the anticipated future impact of the pandemic, we have implemented cost control measures and cash managementactions, including:

  

● Furloughinga significant portion of our employees; and

 

● Implementing 20% salaryreductions across our executive team and other members of upper level management; and

 

● Executing reductionsin operating expenses, planned inventory levels and non-product development capital expenditures; and

 

● Proactively managingworking capital, including reducing incoming inventory to align with anticipated sales.

 

MarketStrategy

 

Theprocess for developing and launching consumer products has changed significantly in recent years. Previously, Fortune 500 andother companies maintained multimillion-dollar research and development divisions to develop and launch products to be sold primarilyon retail shelves and supported by large television and print advertising investment. The emergence of e-commerce giants, includingAmazon.com, has caused retail shelf space to no longer be a requirement to launch a new product. Crowdfunding sites like Kickstarterenable solo entrepreneurs to inexpensively produce an advertising video and quickly introduce a new product to many millions ofpotential customers, and to quickly gain those customers for a low cost of acquisition relative to the cost and time requiredin prior years as expensive advertising investment is no longer required to gain market awareness. For example, according to Statista.com,crowdfunded sales of products will exceed $18.9 billion in 2021. The consumer shift away from brick and mortar retailers towarde-commerce has resulted in the bankruptcy or downsizing of many iconic retailers which sold toys, including Toys R Us, Sears,Kmart, and K-B Toys, with the resultant loss in shelf space and available locations helping to drive our market opportunity. Byutilizing the opportunities to market products over the internet, rather than through traditional, commercial channels, we believewe can reach a much broader market for our brands and products.

 

LeveragingEvolving Market Opportunities for Growth

 

TheCompany believes that its anticipated growth will be driven by five macroeconomic factors:

 

The significant growth of ecommerce (14% compound annual growth rate, estimated to reach $4.9 trillion by 2021 (eMarketer 2018));
The increasing velocity of “brick and mortar” retail closures, now surpassing Great Recession levels (Cushman & Wakefield/Moody’s Analytics 2018);
Product innovation and immediate delivery gratification driving consumer desire for next-generation products with distinctive sets of features and benefits without a reliance on brand awareness and familiarity;

The marriage of media-based entertainment and consumer goods;

The rapid adoption of crowdsourcing to expedite successful new product launches; and
The opportunity to market products over the internet and television, rather than through traditional, commercial channels, to reach a much broader, higher qualified target market for brands, and products.

 

Inaddition, we intend to acquire more small brands that have achieved approximately $1 million in retail sales over the trailingtwelve-month period with a track record of generating free cash flow. By leveraging our expertise in helping companies launchthousands of new products and our ability to create unique, customized packaging, we will seek to elevate the value of these acquiredbrands by improving each part of their launch process, based on our own marketing methodologies.

 

Webelieve our acquisition strategy will allow us to acquire small brands using a combination of shares of our common stock, cashand other consideration, such as earn-outs. We intend to use our acquisition strategy in order to acquire up to ten or more smallbrands per year for the next three years. In situations where we deem that a brand is not a “fit” for acquisitionor partnership, we may provide the brand with certain manufacturing or consulting services that will assist the brand to achieveits goals.

 

Oneexample of a brand that we have recently acquired is Cloud B, Inc. (“Cloud B”), a leading manufacturer of productsand accessories that help parents and children sleep better. Cloud B distributes its products nationally and in over 100 countriesworldwide.

 

Foundedin 2002 and acquired by Vinco Ventures in October 2018, Cloud B’s highly regarded, award-winning products are developedin consultation with an advisory board of pediatricians and specialists. Cloud B recently won the Toy of the Year award from TheToy Association. Cloud B’s best-known products are Twilight Turtle™ and Sleep Sheep™.

 

CloudB’s products can be purchased online (through its own e-commerce site and other online retailers), in specialty boutiques,gift stores, and worldwide at major retailers including Barnes & Noble, Bloomingdale’s, Dillard’s, Nordstrom,Von Maur, Harrods, and Fnac in France.

 

Immediatesynergies include expanding Vinco Ventures’ West Coast footprint by leveraging Cloud B’s sizable distribution,sales and fulfillment operations. The initial focus for Cloud B has been to optimize existing product performance while helpingto develop new product lines leveraging the Vinco Ventures NPD platform. In addition, Cloud B is leveraging Vinco Ventures’Hong Kong-based manufacturer sourcing and management capabilities, as well as the Company’s marketing and packagingresources.

 

47

 

 

Business

 

OneCompany Initiative

 

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

 

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

 

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

 

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

  

Innovate:The Vinco Ventures New Product Development & Commercialization Platform

 

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

 

Thecornerstone of Vinco Ventures’ competitive advantage is its NPD platform, which is designed to optimize product licensingand commercialization through best-in-class digital technologies, sourcing / manufacturing expertise and one of the largest setsof go-to-market solutions. The NPD platform can take a product from idea through ecommerce final sale in a matter of months versusa year or more for capital intensive and inefficient new product development protocols traditionally used by legacy manufacturersserving “big box” retailers.

 

ProductSubmission Aggregation

 

Interestedinnovators 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,common questions, engage in member chats, and stay informed of the latest happenings at Vinco Ventures. They can also trackthe review progress of ideas they submit through their dashboard.

 

VincoVentures accepts ideas through a secure online submissionprocess. Once a member explores the active searches in different product categories being run on the platform for potential licenseesseeking new product ideas to be commercialized, the member can submit their new product ideas for processing. Vinco Venturesregularly works with different companies and retailers in various product categories to help them find new product ideas.

 

Registeredmembers 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.

 

Althoughthe platform might not have an active search that matches the innovator’s idea, the Vinco Ventures Licensing Teamhosts an ongoing search for new consumer product ideas in all categories.

 

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

 

48

 

 

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

 

Inaddition to the above member programs, Vinco Ventures ASOTV (“As Seen on TV”) Team hosts a search fornew products suitable for marketing via DRTV (“Direct Response TV”) and subsequent distribution in nationalretail chains including mass merchandisers, specialty retail, drug chains and department stores.

 

ProductSubmission Review

 

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

 

 

TheNPD platform’s database of over 85,000 product ideas helps determine which inventions have a substantial market opportunityquickly through proprietary algorithms that have been developed incorporating continuous learning from marketplace experienceand changes in category requirements.

 

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

 

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

 

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

 

TheILP incorporates a four-stage process:

 

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

 

  Stage #2 — Preparation: The Licensing Team performs a best partner review. 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.

 

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

 

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

 

Dueto 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 ILP is $100, and a member must be an“Insider” to be considered.

 

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

 

49

 

 

Acquisitionof Intellectual Property

 

Oncean 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.

 

Oncean innovator’s intellectual property is secured, the innovator’s product idea can then either be licensed to a manufactureror retailer or developed and marketed directly by Vinco Ventures. In either case, Vinco Ventures serves as the point-of-contactwith the innovator for term sheets, royalty negotiation and concluding licensing agreements. Vinco Ventures also maintainscontact with the innovator to keep them engaged during product development.

 

Ingeneral, innovators are paid a percentage of the Company’s revenue from the commercialization of the innovator’s intellectualproperty. This percentage varies with the Company’s investment in the development of the intellectual property, includingwhether the Company decides to license the innovator’s idea for commercialization or instead, to directly develop and marketthe innovator’s idea.

 

Buildand Launch: Product Design and Development

 

Withproduct design, product prototyping and creation of marketing assets all resourced with expert Vinco Ventures in-housecapabilities, we have made protracted, high-cost, high-risk research and development models obsolete.

 

VincoVentures custom designs most products in-house for specificcustomers and their needs. We utilize our existing tooling to produce samples and prototypes for customer reviews, refinementand approval, as well as our in-house packaging design and fabrication resources.

 

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

 

Nomatter the product, Vinco Ventures’ objective is to optimize its marketability, function, value and appearance forthe benefit of the consumer end user. From concept and prototyping, through design-for-manufacture, special attention is paidto a product’s utility, ease of use, lowest cost bill of materials, and how it “communicates” its features andbenefits through design.

 

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

 

Manufacturing,Materials, and Logistics

 

Toprovide greater flexibility in the manufacturing and delivery of products, and as part of a continuing effort to reduce manufacturingcosts, Vinco Ventures has concentrated production of most of the Company’s products in third-party manufacturerslocated in China and Hong Kong. The Company maintains a fully staffed Hong Kong office for sourcing, overseeing manufacturingand quality assurance.

 

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

 

Productsare also purchased from unrelated enterprises with specific expertise in the design, development, and manufacture those specialtyproducts.

 

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

 

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

 

Sell:Paths to Market

 

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

 

50

 

 

Eachpotential licensee of an innovator’s idea publishes an exclusive page on the Vinco Ventures web site with innovationgoals and timeline for their search. Appropriate new product ideas are submitted in 100% confidence with all intellectual propertysafely guarded.

 

Oncethe search concludes, Vinco Ventures presents each with the best patent protected, or patentable ideas that can be selectedfor development.

 

Licensingpartners 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 ApothecaryProducts.

 

OnlineMarketplace and Crowdfunding

 

VincoVentures has established a commercialization path to includethe development and management of crowdfunding campaigns. This is evolving to be an engine for future growth. The benefitsof crowdfunding include increased product testing efficiency, decreased financial risk, and the ability to get closer to the endconsumer, simultaneously.

 

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

 

Sales,Marketing, and Advertising

 

OurOmni-channel sales effort is divided into three groups: (1) business-to-business revenue opportunities including traditional brickand mortar retailers, (2) online marketplaces and direct-to-consumer revenue opportunities, and (3) our NiTRO Team (Near TermRevenue Opportunities). NiTRO, identifies brands and products lines that would benefit from being part of Vinco Ventures.

 

VincoVentures’ business to business team sells products througha 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.

 

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

 

TheNiTRO team identifies small, unique brands that could benefit from becoming part of a larger consumer products organization withmore resources. The team seeks to negotiate a mutually beneficial agreement whereby the respective branded products become partof Vinco Ventures’ portfolio of consumer products. 

 

MediaStrategy

 

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

 

Sourcesof Revenue

 

TheCompany pursues the following six sources of sales volume:

 

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

 

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

 

 

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

 

51

 

 

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

 

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

 

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

 

Employees

 

Asof February 4, 2021, we had 35 total employees, 33 of whom were full-time employees. None of our employeesare represented by a union or parties to a collective bargaining agreement. We believe our employee relations to be in good standing. 

  

Properties

 

Thefollowing table summarizes pertinent details of our properties as of February 4, 2021:

 

Location  Owned
or
Leased
  Lease Expiration  Type of Property
1 West Broad Street, Suite 1004 Bethlehem, PA 18018  Leased  July 31, 2022  Principal Executive Office
909 New Brunswick Avenue Phillipsburg, NJ 08865  Leased  Month-to-Month  Office Space
20 Industrial Road Alpha, NJ 08865  Leased  Month-to-Month  Packaging and Logistics Center
2100 Palmetto St, Unit C Clearwater, FL 33765  Leased  August 2022  Packaging and Logistics Center
51 South Lincoln Avenue Washington, NJ 07882  Owned  Month-to-Month  Rental Property

 

52

 

 

LegalProceedings

 

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

 

OceansideTraders, LLC v. Cloud b, Inc. and Vinco Ventures, Inc. f/k/a Edison Nation, Inc.

 

OnApril 14, 2020, Oceanside Traders, LLC filed a complaint against Cloud B, Inc. and Vinco Ventures, Inc. with the Superior Courtof Ocean County, State of New Jersey, alleging breach of contract and other claims resulting in total damages in the amount of$440,383, consisting of $141,007 for failure to pay plaintiff for goods sold, for $138,180 for overpayments and $161,196 for lostprofits. On November 9, 2020, Plaintiff filed an amended complaint, adding other defendants, alleging breach of contract, breachof covenant of good faith and fair dealing, quasi-contract/unjust enrichment, conversion, fraud, negligent misrepresentation,fraudulent transfer, and piercing the corporate veil. On December 4, 2020, Vinco Ventures, Inc. filed its amended answer. On December28, 2020, the other defendants filed a motion to dismiss on jurisdictional grounds which is currently pending before the court.

 

RosenbergFortuna & Laitman, LLP and Mark Principe v. Safe TV, LLC

 

OnMarch 13, 2019, Rosenberg Fortuna & Laitman, LLP and Mark Principe filed a complaint against Safe TV Shop, LLC with the SupremeCourt of the State of New York, County of Nassau alleging a breach of indemnification arising out of the use of a certain packagingmaterial. On February 12, 2020, the parties entered a Stipulation and Settlement and Consent Agreement for a Consent Judgmentin the amount of $50,000. Safe TV, LLC has no assets and there have been no operations by Safe TV, LLC since the date of acquisitionby Vinco Ventures, Inc.

 

GeraldWhitt, et al. v. Vinco Ventures, CBAV1, LLC, et al.

 

OnOctober 27, 2020, Gerald Whitt, et al, the minority shareholders of Cloud b Inc. (“Whitt Plaintiffs”) filed a civilcomplaint in the Superior Court of the State of California against Vinco Ventures, Inc., CBAV1, LLC and other parties, allegingfraudulent concealment, breach of fiduciary duty, breach of contract, breach of confidence, intentional misrepresentation, negligentmisrepresentation, unfair business practices and civil conspiracy (the “Whitt Complaint”). The Whitt Plaintiffsseek “in excess of $8,000,000” in damages. Defendants’ position is that the Whitt Complaint is frivolous andthe filing of same was an abuse of process. Defendants have not been served with the Whitt Complaint.

 

Inre CBAV1, LLC, Debtor, Chapter 11 Bankruptcy/In re Cloud b, Inc., Debtor Chapter 7 Bankruptcy

 

OnOctober 30, 2020, CBAV1, LLC filed a voluntary petition under Chapter 11 of title 11 of the United States Code, as amended (the“Bankruptcy Code”). On October 30, 2020, Cloud b filed a voluntary petition under Chapter 7 of the BankruptcyCode. On November 15, 2020, a prospective buyer entered into a non-binding letter of intent to purchase the CBAV1 Assets for $2,250,000.On December 18, 2020, CBAV1, LLC filed a motion to sell substantially of the CBAV1 Assets free and clear of all interests, liens,claims and encumbrances. On that same date, CBAV1, LLC also filed a motion to approve (i) certain procedures for the submissionof bids in connection with the sale of substantially all of the assets, (ii) the break-up fee and expense reimbursement, (iii)scheduling an auction and (iv) scheduling a sale hearing. On January 21, 2021, the prospective buyer entered into an asset purchaseagreement to buy the CBAV1 Assets for $2,250,000, on terms and conditions set forth therein.

 

VincoVentures, Inc., et al. v. Milam Knecht & Warner, LLP, Michael D. Milam, Gerald Whitt, Alexander Whitt, et al.

 

OnDecember 31, 2020, Vinco Ventures, Inc., and other parties, filed a complaint against the Whitt Plaintiffs, and other parties,with the United States District Court for Eastern District of Pennsylvania, alleging intentional misrepresentation, negligentmisrepresentation, negligence, conspiracy, unfair business practices, abuse of process, civil extortion, trade libel and defamation.

 

MANAGEMENT

 

Directorsand Executive Officers

 

Thefollowing table sets forth information about our directors and executive officers:

 

Name   Age   Position(s)
Executive Officers        
Christopher B. Ferguson   51   Chief Executive Officer and Chairman
Kevin Ferguson   59   President and Treasurer
Brett Vroman   40   Chief Financial Officer and Corporate Secretary
Brian McFadden   35   Chief Strategy Officer
Non-Employee Directors        
Frank Jennings (1)(2)(3)   48   Director
Louis Foreman   51   Director
Kevin O’Donnell (1)(2)(3)   44   Director
Mary Ann Halford (1)(2)(3)   55   Director

 

(1)Member of the Audit Committee

(2)Member of the Compensation Committee​

(3)Member of the Corporate Governance and Nominating Committee

 

ExecutiveOfficers

 

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

 

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

 

BrettVroman has served as our Chief Financial Officer since June 2019 and previously served as our Controller from May 2018through May 2019. Prior to joining the Company, from October 2014 to May 2018, Mr. Vroman was Director of Financial Reportingat Avantor, Inc., a global manufacturer and distributor of high-quality products, services and solutions to customers and suppliersin the life science, advanced technology and applied materials industries. From March 2011 to October 2014, Mr. Vroman was employedas an Assurance Senior Manager at BDO USA, LLP, a public accounting, tax, consulting and business advisory firm and from December2005 to February 2011, Mr. Vroman last held the position of Audit Manager at Smart and Associates, LLP, a business advisory andconsulting firm. Mr. Vroman is a certified public accountant and holds a Bachelor of Science in Accounting from York College ofPennsylvania.

 

BrianMc Fadden has been our Chief Strategy Officersince November 2020. A serial entrepreneur himself, Mr. McFadden is charged with identifying and targeting company acquisitionsto ensure long term growth and scale. Mr. McFadden brings with him a wealth of knowledge in the consumer products space,specifically the live shopping and e-commerce markets. In previous roles, Mr. McFadden oversaw development efforts to secure severalcellular communications patents for products in the safety and security market. He was also responsible for the implementationof the individual product launches, specifically focused on the home shopping outlets.  A Hamilton College graduate,Mr. McFadden supports entrepreneurs in their early-stage growth efforts in the pursuit to BE BIG.

 

53

 

 

Non-EmployeeDirectors

 

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

 

LouisForeman has been a member of our board of directors since March 2019 and has served as the Preferred Designee and a memberof the Board of Managers of Edison Nation Holdings, LLC, a wholly owned subsidiary of the Company, since September 2018. FromMay 2005 to the present, Mr. Foreman has worked as the Creator and Executive Producer of the television show Everyday Edisons.In addition to his role as a founder of the Edison Nation brand, from November 2001 to the present, Mr. Foreman has served asthe Chief Executive Officer of Enventys Partners, an integrated product development firm. From May 2012 to the present, Mr. Foremanhas also served as Chief Executive Officer of Edison Nation Medical, a healthcare innovation portal. From June 2010 to December2017, Mr. Foreman served as President of the Intellectual Property Owners Education Foundation, a non-profit organization devotedto educational and charitable activities designed to promote the value of intellectual property rights. Mr. Foreman holds a Bachelorof Arts degree in Economics from the University of Illinois at Urbana-Champaign. His experience in prior leadership roles as wellas his operational experience as founder of Edison Nation provide a significant benefit to our board of directors.

 

KevinJ. O’Donnell has been a member of our board of directors since March 2019, and founded PopTop Partners, LLC, a boutiqueinvestment firm specializing in small to mid-market companies with an emphasis on the retail and restaurant sector in April 2011and continues to serve as the firm’s Managing Partner to the present day. Mr. O’Donnell brings close to 20 years ofstrategic corporate growth, financial structuring, and business development initiatives to emerging growth companies. From May2007 to June 2010, Mr. O’Donnell served as the Founder/President of KOR Capital, LLC, a private equity and consulting firmspecializing in turn around management of mid-market companies. From December 1999 to February 2007, Mr. O’Donnell was aCo-Founder and Principal of ALS, LLC, a human resources management organization. Mr. O’Donnell holds a Bachelor of Artsfrom the University of Central Florida. Mr. O’Donnell’s service in both operational and leadership roles providesa significant benefit to our audit, nominating and corporate governance, and compensation committees, as well as to our boardof directors.

 

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

 

FamilyRelationships

 

Otherthan Messrs. Christopher B. Ferguson and Kevin J. Ferguson, who are brothers, there are no family relationships among any of ourexecutive officers or directors.

 

CorporateGovernance Overview

 

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

 

54

 

 

Inthis section, we describe the roles and responsibilities of our board of directors and its committees and describe our corporategovernance policies, procedures and related documents. The charters of the audit, nominating and corporate governance, and compensationcommittees of our board of directors, our Corporate Governance Guidelines and Code of Business Conduct and Ethics can be accessedelectronically under the “Governance” link on the Investor Relations page of our website at https://www.edisonnation.com.(The inclusion of our website address in this section does not include or incorporate by reference the information on our websiteinto this prospectus.) We will also provide a copy of the audit and compensation committee charters, our Corporate GovernanceGuidelines and our Code of Business Conduct and Ethics without charge upon written request sent to our Investor Relations departmentat Investor Relations, 1 West Broad Street, Suite 1004, Bethlehem, Pennsylvania 18018 or (866) 900-0992.

 

BoardComposition and Leadership Structure

 

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

 

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

 

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

 

DirectorIndependence

 

ApplicableNasdaq rules require a majority of a listed company’s board of directors to be comprised of independent directors withinone (1) year of listing. In addition, Nasdaq rules require that, subject to specified exceptions, each member of a listed company’saudit, compensation and nominating and corporate governance committees be independent, and that audit committee members also satisfyindependence criteria set forth in Rule 10A-3 under the Exchange Act. The Nasdaq independence definition includes a series ofobjective tests, such as that the director is not, and has not been for at least three (3) years, one of our employees, that neitherthe director nor any of his family members has engaged in various types of business dealings with us and that the director isnot associated with the holders of more than five percent (5%) of our common stock. In addition, under applicable Nasdaq rules,a director will only qualify as an “independent director” if, in the opinion of the listed company’s board ofdirectors, that person does not have a relationship that would interfere with the exercise of independent judgment in carryingout the responsibilities of a director.

 

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

 

Board’sRole in Risk Oversight and Management

 

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

 

Committeesof Our Board of Directors

 

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

 

55

 

 

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

 

AuditCommittee

 

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

 

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

 

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

 

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

 

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

 

overseeing our internal audit function;

 

overseeing our risk assessment and risk management policies;

 

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

 

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

 

reviewing and approving or ratifying any related person transactions; and

 

preparing the audit committee report required by SEC rules.

 

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

 

Nominatingand Corporate Governance Committee

 

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

 

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

 

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

 

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

 

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

 

56

 

 

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

 

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

 

Boardof Directors

c/o CorporateSecretary

VincoVentures, Inc.

1West Broad Street, Suite 1004

Bethlehem,Pennsylvania 18018

 

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

 

CompensationCommittee

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

57

 

 

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

 

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

 

CompensationCommittee Interlocks and Insider Participation

 

Notapplicable to smaller reporting companies.

 

CompensationCommittee Report

 

Notapplicable to smaller reporting companies.

 

BoardDiversity

 

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

 

personal and professional integrity, ethics and values;

 

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

 

development or commercialization experience in large consumer products companies;

 

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

 

strong finance experience;

 

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

 

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

 

conflicts of interest; and

 

practical and mature business judgment.

 

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

 

58

 

 

DirectorNomination Process

 

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

 

ShareholderNominations to the Board of Directors

 

ArticleII, Section 2.5 of our Second Amended and Restated Bylaws provides that our board of directors will accept for consideration submissionsfrom shareholders of recommendations for the nomination of directors. Acceptance of a recommendation for consideration does notimply that the board of directors will nominate the recommended candidate. Director nominations by a shareholder or group of shareholdersfor consideration by our shareholders at our annual meeting of shareholders, or at a special meeting of our shareholders thatincludes on its agenda the election of one or more directors, may only be made pursuant to Article II, Section 2.5 of our SecondAmended and Restated Bylaws or as otherwise provided by law. Nominations pursuant to our Second Amended and Restated Bylaws aremade by delivering to our Corporate Secretary, within the time frame described in our Second Amended and Restated Bylaws, allof the materials and information that our bylaws require for director nominations by shareholders.

 

Noperson shall be eligible to serve as a director of the Company unless nominated in accordance with the procedures set forth inArticle II, Section 2.5 of our Second Amended and Restated Bylaws and any nominee proposed by a shareholder not nominated in accordancewith Article II, Section 2.5 shall not be considered or acted upon for execution at such meeting. Shareholders’ notice forany proposals requested to be included in our prospectus pursuant to Rule 14a-8 under the Exchange Act (including director nominations),must be made in accordance with that rule.

 

Roleof Board in Risk Oversight Process

 

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

 

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

 

Codeof Business Conduct and Ethics

 

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

 

EXECUTIVECOMPENSATION

 

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

 

59

 

 

SummaryCompensation Table

 

Thefollowing table provides information regarding the compensation awarded to or earned during 2020 and 2019, as applicable,by our named executive officers.

 

Name and Principal Position   Year     Salary 
($)
    Bonus 
($)
    Stock 
Awards 
($)(1)
    Options 
Awards 
($)(2)
    All Other 
Compensation 
($)
    Total 
($)
 
Christopher B. Ferguson     2020       160,963                               160,963  
Chief Executive Officer     2019      

175,000

(4)    

     

     

     

     

175,000

 
                                                         
Philip Anderson (3)     2020                                      
Chief Strategy Officer, former Chief Financial Officer     2019      

105,769

           

65,626

      —       

59,245

     

230,640

 
                                                         
Bruce Bennett (6)     2020       69,622                         2,211       71,833  
EVP and Chief Product Officer     2019      

170,019

     

     

     

     

8,844

     

178,863

 
                                                         
Brett Vroman     2020       176,924                               176,924  
Chief Financial Officer and Corporate Secretary     2019      

180,000

(5)

   

     

     

     

     

180,000

 
                                                         
Brian Mc Fadden (7)     2020      

     

     

     

     

     

 
Chief Strategy Officer                                                        

 

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

 

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

 

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

 

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

 

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

 

(6)Mr. Bennett received $2,211 and $8,844 for the years ended 2020 and 2019, respectively, as an allowance forhis automobile. On June 30, 2020, Mr. Bennett separated from any employment with the Company.

 

(7)Mr. Mc Fadden was retained as the Company’s Chief Strategy Officer on November 10, 2020. Mr. Mc Fadden received no compensationduring fiscal 2020.

 

Narrativeto Summary Compensation Table

 

General

 

During2020 and 2019, we compensated our named executive officers through a combination of base salary, cash bonuses and otherbenefits including car allowances. Each of our named executive officers has substantial responsibilities in connection with theday-to-day operations of our Company. Since we were recently formed, the amounts indicated in the table above reflect compensationpaid or accrued directly by our operating subsidiaries for these individuals prior to the formation of the Company.

 

BaseSalary

 

Thebase salaries of our named executive officers were historically reviewed and set annually by the board of directors of SRM andFergco; base salaries were also reviewed upon the promotion of an executive officer to a new position or another change in jobresponsibility. In establishing base salaries for our named executive officers for 2019, 2020 and into the future, ourcompensation committee relied and will continue to rely on external market data and peer data obtained from outside sources. Inaddition to considering the information obtained from such sources, our compensation committee will consider:

 

  each named executive officer’s scope of responsibility;

 

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

 

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

 

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

 

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

 

60

 

 

CashBonuses

 

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

 

StockAwards

 

Ourstock incentive awards are issued under the Edison Nation, Inc. Omnibus Incentive Plan (the “Plan”) originally adoptedby our board of directors in December 2017 and amended and restated on September 6, 2018. The Plan provides for up to 1,764,705(13,412 remaining as of February 3, 2021) shares of our common stock, or approximately 15% of our outstanding shares calculatedon a fully diluted basis, to be issued as stock-based incentives. Stock incentive awards under the Plan can be in the form ofstock options, restricted stock units, performance awards and restricted stock that are made to employees, directors andservice providers. Awards are subject to forfeiture until vesting conditions have been satisfied under the terms of the award.We believe awards to our executive officers help align the interests of management and our shareholders and reward our executiveofficers for improved Company performance.

 

OnJuly 15, 2020, the Company filed a Registration Statement on Form S-8 registering 1,764,705 (1,263,705 remaining as of February3, 2021) shares of common stock to be issued as stock-based incentives under the Company’s Amended and Restated EdisonNation, Inc. Omnibus Incentive Plan.

 

Section 162(m)of the Code

 

Section 162(m)of the Code generally limits the corporate tax deduction for compensation in excess of $1 million that is paid toour named executive officers. Section 162(m) of the Code was amended by the Tax Cut and Jobs Act of 2018 so that the exceptionsfor payment of “performance-based compensation” or commissions have been eliminated. However, because we recentlybecame a publicly-held corporation in connection with an initial public offering, the $1 million annual deduction limit doesnot apply during a limited “transition period” for compensation paid under our Plan. This relief applies to stockincentive awards of that are outstanding as well as future awards granted with respect to shares available under the Plan. Thecompensation committee intends to continue to rely on the transition relief until it expires at our annual meeting of shareholdersin 2020 or, if sooner, when the shares currently available for awards at the time of the initial public offering have been depleted.

  

EmploymentAgreements

 

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

 

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

 

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

 

TheVroman Employment Agreement provides for a term of 3 years terminable at will by either party, as well as an annual discretionarybonus of up to 50% of his base salary based on performance criteria determined by the Board. Mr. Vroman will also receive thenormal benefits available to the Company’s executives. If Mr. Vroman’s employment is terminated by the Company withoutCause (as defined in the Vroman Employment Agreement) or by Mr. Vroman as a result of a material breach by the Company, Mr. Vromanwill be entitled to payment of an amount equal to 6 months of his base salary and continuation of benefits for 6 months followingthe termination. The Vroman Employment Agreement also contains certain restrictive covenants, including indefinite confidentiality,a one-year restriction from directly or indirectly owning or participating in a Competing Business (as defined in the VromanEmployment Agreement), and an 18-month restriction on solicitation of employees, customers, and suppliers of the Company.

 

The Vroman Amendment provides that Mr.Vroman’s base salary shall be increased to $200,000 for the remainder of the term of the Vroman Employment Agreement. Additionally,Mr. Vroman has agreed to surrender certain Stock Options (defined under the Vroman Employment Agreement) previously awarded for50,000 restricted stock units under the Plan. The restricted stock units will become vested upon Mr. Vroman’s completionof services specified in the Amendment or, if sooner, upon a change in control of the Company (as described in the Plan) or Mr.Vroman’s death. Mr. Vroman’s restricted stock units will be subject to the further terms of the Incentive Plan.

 

OnFebruary 2, 2021, the Company entered into an Employment Agreement (the “Agreement”) with Christopher Ferguson (the“Executive”) for the role of Chief Executive Officer. The Agreement is effective as of November 12, 2020 (the “EffectiveDate”) and has a term of three (3) years (the “Term”) from the Effective Date. Thereafter, the Agreement shallautomatically be renewed and the Term shall be extended for additional consecutive terms of 1 year (each a “Renewal Term”),unless such renewal is objected to by either the Company or the Executive. The Executive’s initial annual base salary shallbe $200,000, less applicable withholdings (the “Base Salary”) and 120,000 common shares that shall vest intheir entirety on issuance. The Base Salary shall be payable in accordance with the Company’s normal payroll proceduresin effect from time to time. The Base Salary due of shares, shall be payable within the first 30 days of the year. On each anniversaryof the Agreement, the base salary will increase no less than $15,000 (“minimum”). For 2021, the Executive shall receivea cash bonus in the amount equal to 30% of the annual Base Salary, and an award of 200% shares of the Company’s common stock,which shall vest in their entirety on issuance (the “Principal Market”), which shall be received by the Executiveno later than the first 30 days of the current fiscal year. The Executive shall be entitled to 150,000 shares of the Company’scommon stock, due immediately upon an increase of 2.5 times the Enterprise Value on a 5-day closing average from the effectivenessof the Agreement. For clarification, the Enterprise Value as of the Company at the effective date was $25,042,464.

 

OnFebruary 2, 2021, the Company entered into an Employment Agreement (the “Agreement”) with Brett Vroman (the “Executive”)for the role of Chief Financial Officer. The Agreement is effective as of November 12, 2020 (the “Effective Date”)and has a term of three (3) years (the “Term”) from the Effective Date. Thereafter, the Agreement shall automaticallybe renewed and the Term shall be extended for additional consecutive terms of 1 year (each a “Renewal Term”),unless such renewal is objected to by either the Company or the Executive. The Executive’s initial annual base salary shallbe $200,000, less applicable withholdings (the “Base Salary”) and 120,000 common shares that shall vest intheir entirety on issuance. The Base Salary shall be payable in accordance with the Company’s normal payroll proceduresin effect from time to time. The Base Salary due of shares, shall be payable within the first 30 days of the year. On each anniversaryof the Agreement, the base salary will increase no less than $15,000 (“minimum”). For 2021, Executive shall receivea cash bonus in the amount equal to 30% of the annual Base Salary, and an award of 200% shares of the Company’s common stock,which shall vest in their entirety on issuance (the “Principal Market”), which shall be received by the Executiveno later than the first 30 days of the current fiscal year. Upon the execution of this agreement, the Executive is entitled toa one-time past performance bonus for the work completed in fiscal years 2018, 2019 and 2020 of 150,000 shares of the Company’scommon stock, which shall vest in their entirety on issuance. The Executive shall be entitled to100,000 shares of the Company’scommon stock, due immediately upon an increase of 2.5 times the Enterprise Value on a 5-day closing average from the effectivenessof the Agreement. For clarification, the Enterprise Value as of the Company at the effective date was $25,042,464.

 

OnFebruary 2, 2021, the Company entered into an Employment Agreement (the “Agreement”) with Brian Mc Fadden (the “Executive”)for the role of Chief Strategy Officer. The Agreement is effective as of November 12, 2020 (the “Effective Date”)and has a term of three (3) years (the “Term”) from the Effective Date. Thereafter, the Agreement shall automaticallybe renewed and the Term shall be extended for additional consecutive terms of 1 year (each a “Renewal Term”),unless such renewal is objected to by either the Company or the Executive. The Executive’s initial annual base salary shallbe $200,000, less applicable withholdings (the “Base Salary”) and 120,000 common shares that shall vest intheir entirety on issuance. The Base Salary shall be payable in accordance with the Company’s normal payroll proceduresin effect from time to time. The Base Salary due of shares, shall be payable within the first 30 days of the year. On each anniversaryof the Agreement, the base salary will increase no less than $15,000 (“minimum”). For 2021, the Executive shall receivea cash bonus in the amount equal to 30% of the annual Base Salary, and an award of 200% shares of the Company’s common stock,which shall vest in their entirety on issuance (the “Principal Market”), which shall be received by the Executiveno later than the first 30 days of the current fiscal year. Upon the execution of the Agreement, the Executive is entitled toa one-time signing bonus of 150,000 shares of the Company’s common stock, which shall vest in their entirety on issuance.The Executive shall be entitled to100,000 shares of the Company’s common stock, due immediately upon an increase of 2.5times the Enterprise Value on a 5-day closing average from the effectiveness of the Agreement. For clarification, the EnterpriseValue as of the Company at the effective date was $25,042,464.

 

61

 

  

OutstandingEquity Awards at February 4, 2021

 

Thefollowing table provides information with respect to holdings of unvested options and stock awards held by our named executiveofficers, at February 4, 2021.

 

   Option Awards 
Name  Number of
securities
underlying
unexercised
option
exercisable
(#)
   Number of
securities
underlying
unexercised
option
unexercisable
(#)
   Option
exercise price
($)
   Option
expiration
date
 
Christopher B. Ferguson   -    -   $-    - 
Philip Anderson (1)   -    -   $-    - 
Bruce Bennett   -    -   $-    - 
Brett Vroman   80,000         -   $7.01    9/26/2023 
Brian Mc Fadden   

-

    

-

   $

-

    

-

 

 

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

 

Non-EmployeeDirector Compensation

 

Wedo not have a formal policy with respect to compensation payable to our non-employee directors for service as directors. The tablebelow shows the equity and other compensation granted to our non-employee directors during fiscal 2020:

 

Name   Fees Earned
or Paid in
Cash ($)
    Stock
Awards
($)(3)
    Option
Awards
($)(3)
    All Other
Compensation ($)
    Total ($)  
Louis Foreman     40,000      

60,450

      -       -      

100,450

 
Frank Jennings     40,000      

60,450

      -       -      

100,450

 
Kevin O’Donnell     40,000      

60,450

      -       -      

100,450

 
Toper Taylor (1)     20,000       120,000       -       -       140,000  
Mary Ann Halford (2)    

30,000

      60,450       -       -      

90,450

 

 

  (1) On April 14, 2020, Toper Taylor provided notice of his intention to resign as a member of the Board of Directors (the “Board”) of Vinco Ventures, Inc. (the “Company”), effective as of April 14, 2020 (the “Taylor Resignation”). Mr. Taylor served as the chairman of the Board’s nominating and corporate governance committee and as a member of the Board’s audit committee and compensation committee. Mr. Taylor’s resignation was not in connection with any known disagreement with the Company on any matter relating to the Company’s operations, policies, or practices.
     
  (2) On April 14, 2020, the Board appointed Mary Ann Halford to serve as a member of the Company’s Board and to serve as the chairman of the nominating and corporate governance committee, as well as a member of the Board’s audit committee and compensation committee.
     
  (3) 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.

 

62

 

 

CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS

 

Policiesand Procedures for Related Person Transactions

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

63

 

 

RelatedParty Transactions

 

NLPenn Capital, LP and SRM Entertainment Group LLC

 

OnDecember 31, 2018, the Company completed the acquisition of all of the voting membership interest of Pirasta, LLC from NL PennCapital, LP in exchange for the satisfaction of $470,000 due from related party. Accordingly, the consolidated financial statementsof the Company reflect the accounting of the combined acquired subsidiary at historical carrying values, except that equity reflectsa distribution for the excess of consideration paid over the net carrying amount of assets.

 

OnDecember 31, 2018, the Company completed the acquisition of 50% of the voting membership interest of Best Party Concepts, LLCfrom NL Penn Capital, LP in exchange for the satisfaction of $500,000 due from related party. Accordingly, the consolidated financialstatements of the Company reflect the accounting of the combined acquired subsidiary at historical carrying values, except thatequity reflects a distribution for the excess of consideration paid over the net carrying amount of assets.

 

Asof September 30, 2020, December 31, 2019 and December 31, 2018, due to related party consists of net amounts due to SRMEntertainment Group LLC (“SRM LLC”) and NL Penn Capital, LP, which are both majority owned by Chris Ferguson, ourChairman and Chief Executive Officer. The amount due to related parties is related to the acquisitions of Pirasta, LLC and BestParty Concepts, LLC offset by operating expenses that were paid by SRM LLC and Edison Nation on behalf of SRM LLC and NL PennCapital, LP. As of September 30, 2020, December 31, 2019 and December 31, 2018, the net amount due to related parties was$22,005, $17,253 and $140,682, respectively. Such amounts are due currently.

 

OnNovember 17, 2020, the Company, through its subsidiary, Edison Nation, LLC (the “Vendor”), entered into an InventoryManagement Agreement (the “Agreement”) with the Forever 8 Fund, LLC (“F8”), an entity which our Presidentholds a 45% ownership interest. Under the terms of the Agreement, F8 desires to maintain inventory of and sell to Vendor certainProducts pursuant to the terms and conditions set forth in the Agreement. As consideration for the inventory management servicesprovided under this Agreement, Vendor agrees to pay F8 a fee for each unit of each Product sold on a Platform determined in accordancewith the fee schedule set forth in the applicable Product Schedule (the “Fee Schedule”) based on the Age of InventorySold 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 Dateand shall continue in full force and effect until January 31, 2022 (the “Initial Term”), unless terminated earlieras provided in this Agreement.

 

ServiceAgreement

 

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

 

StockOption and Other Compensation Plans

  

OnSeptember 6, 2018, the Company’s board of directors approved an amendment and restatement of the Company’s omnibusincentive plan solely to reflect the Company’s name change to Edison Nation, Inc. Thus, the Edison Nation, Inc. OmnibusIncentive Plan (the “Plan”) which remains effective as of February 9, 2018, provides for the issuance of up to 1,764,705(13,412 remaining as of February 3, 2021) shares of common stock to help align the interests of management and our shareholdersand reward our executive officers for improved Company performance. Stock incentive awards under the Plan can be in the form ofstock options, restricted stock units, performance awards and restricted stock that are made to employees, directors and serviceproviders. Awards are subject to forfeiture until vesting conditions have been satisfied under the terms of the award. The exerciseprice of stock options are equal to the fair market value of the underlying Company common stock on the date of grant.

 

OnJuly 15, 2020, the Company filed a Registration Statement on Form S-8 registering 1,764,705 (1,263,705 remaining as ofFebruary 3, 2021) shares of common stock to be issued as stock-based incentives under the Company’s Amended and RestatedVinco Ventures, Inc. Omnibus Incentive Plan.

 

OnSeptember 26, 2018, the Compensation Committee of the board of directors approved the terms of compensation to be paid to non-employeedirectors for fiscal year 2018. Compensation for non-employee directors includes an annual retainer of $20,000, an annual committeemeeting fee of $5,000, if such director chairs a committee of the board of directors, and an award of options to purchase 20,000shares of the Company’s common stock (the “Options”). The restricted stock underlying such Options were to vestone year after the grant date. However, the Options were never granted. Accordingly, On November 15, 2019, in lieu of grantingthe Options, the Company granted each member of the board of directors restricted stock units of 20,000 shares which vested immediately,except for Toper Taylor who received 30,000 shares in November 2019, related to the share amounts due to him under the terms ofhis agreement with us. In addition, the Company granted each non-employee director restricted stock units of 30,000 shares, whichvested on January 1, 2020.

 

PRINCIPALSHAREHOLDERS

 

SecurityOwnership of Management and Certain Beneficial Owners

 

Thefollowing table sets forth the beneficial ownership of our Common Stock as of February 4, 2021 by:

 

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

 

64

 

 

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

 

Thepercentage of beneficial ownership is based on 43,432,514 shares of our Common Stock outstanding as of February 4, 2021,which includes 18,952,514 shares of common stock outstanding, 6,000,000 shares of common stock issuable under aSenior Convertible Note issued in the Hudson Bay financing, 15,000,000 shares issuable under a warrant issued in connection withthe Hudson Bay financing, 1,500,000 shares of common stock issued in connection with the BHP Securities Purchase Agreement, 1,500,000shares issuable under a warrant issued in connection with the BHP financing and 480,000 shares of common stock underlying a warrantissued in connection with the placement of the Hudson Bay financing, which are all outstanding as of February 4, 2021 and excludes:

 

  1,764,705 (13,412 remaining as of February 3, 2021) shares of common stock reserved for future issuance under the Vinco Ventures, Inc. Omnibus Incentive Plan (the “Plan”);
  1,764,705 (1,263,705 remaining as of February 3, 2021) shares of common stock reserved for future issuance under the Company’s Amended and Restated Vinco Ventures, Inc. Omnibus Incentive Plan (the “Amended Plan”) registered on Form S-8 on July 15, 2020;
 

80,000 shares issuable under an option granted to one of our executives as of February 4, 2021;

  285,632 shares of common stock issuable upon conversion of the 4%, 5-year senior convertible notes in connection with the Edison Nation Holdings, LLC acquisition; and

 

Name of Beneficial Owner  

Number of

Shares

    Percentage  
5% Shareholders (1)                
Hudson Bay Master Limited Fund, Ltd. (2)     21,000,000       48.35 %
BHP Capital NY Inc (3)     3,000,000       6.91 %
Executive Officers and Directors                
Christopher B. Ferguson (4)     1,779,950       4.10 %
Kevin Ferguson (5)     313,500       * %
Brett Vroman (6)     83,000       * %
Frank Jennings (7)     110,650       * %
Louis Foreman (8)     816,457      

1.88

%
Kevin O’Donnell (9)     112,325       * %
Mary Ann Halford (10)    

60,000

     

*

%
Brian Mc Fadden (11)     30,000       * %
Total Executive Officers and Directors     3,304,382       7.61 %

 

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

 

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

 

(2)Includes 6,000,000 shares of common stock issuable under a Senior Convertible Note issued to Hudson Bay Master Fund, Ltd and15,000,000 shares issuable under a warrant issued in connection with the Hudson Bay financing.

 

(3)Includes 1,500,000 shares of common stock issued in connection with the BHP Capital NY Inc Securities Purchase Agreement and1,500,000 shares issuable under a warrant issued in connection with the BHP financing.

 

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

 

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

 

(6)Includes 3,000 shares held by Mr. Vroman and 80,000shares issuable under the option held by Mr. Vroman.

 

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

 

(8)Includes 692,113 shares indirectly held by Mr. Foreman throughVenture Six LLC (the “Venture Six Shares”), 50,000 shares issued to Mr. Foreman as Director’s compensationand 14,344 held in Mr. Foreman’s name. Mr. Foreman is the managing member of Venture Six LLC and disclaims beneficialownership of the Venture Six Shares reported.

 

(9)Includes 50,000 shares issued to Mr. O’Donnell as Director’scompensation 325 held in Mr. O’Donnell’s name and 575 shares held by Mr. O’Donnell’s children.

 

(10)Includes 60,000 shares issued to Ms. Halford as Director’scompensation.

 

(11)Includes 25,000 shares issued to Mr. Mc Fadden as a commitment fee for a note issued to Mr. Mc Fadden.

 

65

 

 

DESCRIPTIONOF CAPITAL STOCK

 

General

 

Thefollowing description of our capital stock and provisions of our amended and restated articles of incorporation and Second Amendedand Restated Bylaws are summaries and are qualified by reference to such amended and restated articles of incorporation and bylawsthat will be in effect upon the closing of this offering. By becoming a shareholder in our Company, you will be deemed to havenotice of and consented to these provisions of our amended and restated articles of incorporation and Second Amended and RestatedBylaws.

 

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

 

CommonStock

 

Holdersof our common stock are entitled to one vote for each share held on all matters submitted to a vote of shareholders and do nothave cumulative voting rights. An election of directors by our shareholders shall be determined by a plurality of the votes castby the shareholders entitled to vote on the election. Holders of common stock are entitled to receive proportionately any dividendsas may be declared by our board of directors, subject to any preferential dividend rights of outstanding preferred stock.

 

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

 

Asof February 4, 2021, there were 18,952,514 shares of our Common Stock outstanding, which excludes:

 

  13,412 shares of common stock reserved for future issuance under the Vinco Ventures, Inc. Omnibus Incentive Plan (the “Plan”);
  1,764,705 (1,263,705 remaining as of February 3, 2021) shares of common stock reserved for future issuance under the Company’s Amended and Restated Vinco Ventures, Inc. Omnibus Incentive Plan (the “Amended Plan”) registered on Form S-8 on July 15, 2020;
  285,632 shares of common stock issuable upon conversion of the 5%, 5-year senior convertible notes in connection with the Edison Nation Holdings, LLC acquisition; and
  80,000 shares issuable under an option granted to one of our executives.

 

PreferredStock

 

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

 

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

 

OnOctober 16, 2020, the Company filed a Certificate of Designation (the “Designation”) with the Secretary of State ofNevada, which designates 1,000,000 shares of the Company’s preferred stock, par value $0.001 per share, as Series B ConvertiblePreferred Stock (“Series B”). Pursuant to the terms of the Designation, holders of the Series B shall be entitledto dividends, a liquidation preference and shall have conversion rights. Each share of Series B shall be convertible into 1 shareof 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.

 

OnFebruary 2, 2021, the Company filed an Amendment (the “Amendment”) to its Designation for the Company’s SeriesB Convertible Preferred Stock (“Series B”). Under the Amendment, the holders of the Series B shall have voting rightswhereby each share of Preferred Stock shall entitle the holder thereof to vote on all mattersvoted on by the holders of Common Stock, voting together as a single class with other shares entitled to vote at all meetingsof the stockholders of the Corporation. With respect to any such vote, each share of Preferred Stock shall entitle the holderthereof to cast the number of votes equal to the number of whole shares of Common Stock into which such shares of Preferred Stockare then convertible (the “Conversion Shares”). Such right may be exercised at any annual meeting or special meeting,or pursuant to any written consent of stockholders.

 

Anti-TakeoverProvisions

 

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

 

66

 

 

Removalof Directors

 

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

 

Authorizedbut Unissued Shares

 

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

 

Warrants

 

Asof February 4, 2021, there were 16,980,000 shares of our common stock issuable upon exercise of outstanding Warrants,including the 15,000,000 shares of common stock underlying the Hudson Bay Warrant, 1,500,000 shares of common stockunderlying the BHP Warrant and 480,000 shares of common stock underlying the Placement Agent Warrant.

 

Options

 

Asof February 4, 2021, there were 80,000 shares of our common stock issuable upon exercise of outstanding stock options pursuantto our equity plans with a weighted average exercise price of $7.01 per share.

 

RestrictedStock Units

 

Asof February 4, 2021, there were no Restricted Stock Units outstanding.

 

RegistrationRights

 

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

 

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

 

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

 

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

 

Seethe section entitled “Recent Developments—Hudson Bay Financing” relating to the registration rights grantedto investors in the Hudson Bay Financing.

 

Seethe section entitled “Recent Developments—BHP Financing” relating to the registration rights grantedto investors in the BHP Financing.

 

TransferAgent and Registrar

 

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

 

TheNasdaq Capital Market

 

Ourcommon stock trades on The Nasdaq Capital Market under the symbol “BBIG.”

 

67

 

 

LEGALMATTERS

 

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

 

EXPERTS

 

Thefinancial statements of Vinco Ventures, Inc. as of December 31, 2019 and 2018 appearing in this prospectus and RegistrationStatement, have been audited by Marcum LLP, independent registered public accounting firm, as set forth in their report thereonappearing elsewhere herein, and are included in reliance upon such report, given on the authority of such firm as experts in accountingand auditing.

 

WHEREYOU CAN FIND MORE INFORMATION

 

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

 

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

 

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

 

INCORPORATIONOF CERTAIN INFORMATION BY REFERENCE

 

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

 

  Quarterly Reports on Form 10-Q for the quarters ended March 31, 2019, June 30, 2019, March 31, 2020 and June 30, 2020;
  Current Reports on Form 8-K, filed on March 13, 2019, March 29, 2019, May 10, 2019, May 17, 2019, June 11, 2019, June 19, 2019, June 20, 2019, July 29, 2019, August 29, 2019, October 4, 2019, October 8, 2019, and January 29, 2020, February 21, 2020, March 12, 2020, March 26, 2020, April 17, 2020, April 27, 2020, May 13, 2020, May 26, 2020, August 18, 2020, August 24, 2020, October 1, 2020, October 16, 2020, October 22, 2020, November 3, 2020, November 12, 2020 (3), November 30, 2020, December 3, 2020, January 21, 2021 (3), January 25, 2021 and February 4, 2021 as well as the Current Reports on Form 8-K/A filed on October 8, 2019, October 2, 2020 and January 6, 2021; and
  Definitive Proxy Statement on Schedule 14A, filed on September 11, 2020
 

Registration Statement on Form S-8

 

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

 

Youmay request a copy of any of the reports or documents incorporated by reference into this prospectus, at no cost (other than exhibitsand schedules to such filings, unless such exhibits or schedules are specifically incorporated by reference into this prospectussupplement and the accompanying prospectus), by writing or calling us at the following address: Investor Relations, 1 West BroadStreet, Suite 1004, Bethlehem, Pennsylvania 18018 or (866) 900-0992.

 

68

 

 

INDEXTO CONSOLIDATED FINANCIAL STATEMENTS

 

PARTI

 

INDEXTO FINANCIAL STATEMENTS

 

    Page
Unaudited Condensed Consolidated Financial Statements for the Nine Months Ended September 30, 2020 and 2019   F-2
Condensed Consolidated Balance Sheets as of September 30, 2020 (Unaudited) and December 31, 2019   F-2
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019 (Unaudited)   F-3
Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three and nine months ended September 30, 2020 and 2019 (Unaudited)   F-4 - F-5
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019 (Unaudited)   F-6
Notes to Condensed Consolidated Financial Statements   F-7 - F-28
Audited Consolidated Financial Statements for the Years Ended December 31, 2019 and 2018   F-29
Report of Independent Registered Public Accounting Firm   F-29
Consolidated Balance Sheets as of December 31, 2019 and 2018   F-30
Consolidated Statements of Operations for the years ended December 31, 2019 and 2018   F-31
Consolidated Statement of Changes in Shareholders’ Equity (Deficit) for the years ended December 31, 2019 and 2018   F-32
Consolidated Statements of Cash Flows for the years ended December 31, 2019 and 2018   F-33
Notes to Consolidated Financial Statements   F-34 - F-59

 

F-1

 

 

VincoVentures, Inc. and Subsidiaries

(f/k/aEdison Nation, Inc.)

CONDENSEDCONSOLIDATED 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  

 

Theaccompanying notes are an integral part of these consolidated financial statements.

 

F-2

 

 

VincoVentures, Inc. and Subsidiaries

(f/k/aEdison Nation, Inc.)

CONDENSEDCONSOLIDATED 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 

 

 

Theaccompanying notes are an integral part of these consolidated financial statements.

 

F-3

 

 

VincoVentures, Inc. and Subsidiaries

(f/k/aEdison Nation, Inc.)

CONDENSEDCONSOLIDATED 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 

 

Theaccompanying notes are an integral part of these consolidated financial statements.

 

F-4

 

 

VincoVentures, Inc. and Subsidiaries

(f/k/aEdison Nation, Inc.)

CONDENSEDCONSOLIDATED 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 

 

Theaccompanying notes are an integral part of these consolidated financial statements.

 

F-5

 

 

VincoVentures, Inc. and Subsidiaries

(f/k/aEdison Nation, Inc.)

CONDENSEDCONSOLIDATED 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      

-

 
 

 

 

Theaccompanying notes are an integral part of these consolidated financial statements.

 

F-6

 

 

VincoVentures, Inc. and Subsidiaries

(f/k/aEdison Nation, Inc.)

NOTESTO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note1 — Basis of Presentation and Nature of Operations

 

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

 

Thesecondensed consolidated financial statements should be read in conjunction with the consolidated financial statements and relatednotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 as filed with theSecurities and Exchange Commission on May 29, 2020 and further amended on June 4, 2020. The Company’s accounting policiesare described in the Notes to Consolidated Financial Statements in its Annual Report on Form 10-K for the year ended December31, 2019, and updated, as necessary, in this Quarterly Report on Form 10-Q.

 

Asused 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 underthe laws of the State of Nevada as Idea Lab X Products, Inc. and also formerly known as Xspand Products Lab, Inc. prior to itsname change on September 12, 2018, and/or its wholly-owned and majority-owned operating subsidiaries. On November 5, 2020, theCompany (the “Parent”) and its wholly owned subsidiary, Vinco Ventures, Inc. (the “Merger Sub”), enteredinto an Agreement and Plan of Merger (the “Agreement”). Under the terms of the Agreement, the Merger Sub merged withand into the Parent and the Parent became the surviving corporation of the Merger (the “Surviving Corporation”). Thename of the Surviving Corporation became Vinco Ventures, Inc. The transaction closed on November 10, 2020.

 

VincoVentures is a vertically-integrated, end-to-end, consumer product research and development, manufacturing, sales and fulfillmentcompany. The Company’s proprietary web-enabled platform provides a low risk, high reward platform and process to connectinnovators of new product ideas with potential licensees.

 

Asof 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 andGlobal 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-19has caused and continues to cause significant loss of life and disruption to the global economy, including the curtailment ofactivities 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.

 

Asa result of the pandemic, we have experienced, and continue to experience, weakened demand for our traditional products. Manyof our customers have been unable to sell our products in their stores and theme parks due to government-mandated closures andhave deferred or significantly reduced orders for our products. We expect these trends to continue until such closures are significantlycurtailed or lifted. In addition, the pandemic has reduced foot traffic in the stores where our products are sold that remainopen, and the global economic impact of the pandemic has temporarily reduced consumer demand for our products as they focus onpurchasing essential goods.

 

Inthe 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 handsanitizer through an online portal for hospitals, government agencies and distributors.

 

Giventhese factors, the Company anticipates that the greatest impact from the COVID-19 pandemic in fiscal 2020 occurred in the firstquarter of 2020 and resulted in a net sales decline as compared to the first quarter of 2019. This statement is the Company’sopinion based on current information, but you are cautioned not to give undue weight to such statement as we cannot give assurancesabout any future impacts of the pandemic.

 

Inaddition, certain of our suppliers and the manufacturers of certain of our products were adversely impacted by COVID-19. As aresult, we faced delays or difficulty sourcing products, which negatively affected our business and financial results. Even ifwe are able to find alternate sources for such products, they may cost more and cause delays in our supply chain, which couldadversely impact our profitability and financial condition.

 

Wehave taken actions to protect our employees in response to the pandemic, including closing our corporate offices and requiringour office employees to work from home. At our distribution centers, certain practices are in effect to safeguard workers, includinga 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.

 

Asa result of the impact of COVID-19 on our financial results, and the anticipated future impact of the pandemic, we have implementedcost 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

 

Forthe 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.

 

AtSeptember 30, 2020, we had total current assets of $6,723,083 and current liabilities of $10,115,092 resulting in negative workingcapital 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.

 

F-7

 

 

VincoVentures, Inc. and Subsidiaries

(f/k/aEdison Nation, Inc.)

NOTESTO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Theforegoing factors raised initial concerns about the Company’s ability to continue as a going concern. The ability to continueas a going concern is dependent upon the Company’s ability to attract significant new sources of capital, attain a reasonablethreshold of operating efficiencies and achieve profitable operations from the sale of its products. The condensed consolidatedfinancial 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:

 

TheCompany’s operating loss for the nine months ended September 30, 2020 included $3,703,865 related to depreciation, amortizationand stock-based compensation, respectively. In addition, $554,741 was related to transaction costs, restructuring charges andother non-recurring and redundant costs which are being removed or reduced.

 

Managementhas considered possible mitigating factors within our management plan on our ability to continue for at least a year from thedate 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.

 

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

 

F-8

 

 

VincoVentures, Inc. and Subsidiaries

(f/k/aEdison Nation, Inc.)

NOTESTO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note2 — Summary of Significant Accounting Policies

 

Principlesof Consolidation

 

Theconsolidated financial statements include the accounts of Vinco Ventures, Inc. and its wholly-owned and majority ownedsubsidiaries. All intercompany balances and transactions have been eliminated.

 

VariableInterest Entity Assessment

 

AVIE is an entity (a) that has total equity at risk that is not sufficient to finance its activities without additional subordinatedfinancial support from other entities, (b) where the group of equity holders does not have the power to direct the activitiesof the entity that most significantly impact the entity’s economic performance, or the obligation to absorb the entity’sexpected losses or the right to receive the entity’s expected residual returns, or both, or (c) where the voting rightsof some investors are not proportional to their obligations to absorb the expected losses of the entity, their rights to receivethe expected residual returns of the entity, or both, and substantially all of the entity’s activities either involve orare conducted on behalf of an investor that has disproportionately few voting rights. In order to determine if an entity is considereda 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 alongto its interest holders, the rights of the parties, and the purpose of the arrangement. If the Company cannot conclude after aqualitative analysis whether an entity is a VIE, it performs a quantitative analysis. The qualitative analysis considered thedesign of the entity, the risks that cause variability, the purpose for which the entity was created, and the variability thatthe entity was designed to pass along to its variable interest holders.

 

Useof Estimates

 

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

 

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

 

Reclassifications

 

Certainreclassifications have been made to prior year amounts to conform to current year presentation.

 

Cashand Cash Equivalents

 

TheCompany 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 thecreditworthiness of its financial institutions. The Company reduces its credit risk by placing its cash and cash equivalents withmajor financial institutions. The Company had $100,464 uninsured cash at September 30, 2020 of which $100,464 was held in foreignbank accounts not covered by FDIC insurance limits as of September 30, 2020.

 

AccountsReceivable

 

Accountsand notes receivable consist of trade receivables from customers. The Company’s payment terms with customers are definedwithin each customer’s invoice. All accounts receivables are considered current assets as the Company does not grant paymentterms greater than one year. Accounts receivable initially are recorded at the gross amount and are recorded after the Companyhas an unconditional right to payment where only the passage of time is required before payment is received. The Company evaluatesthe collectability of outstanding receivable balances and records an allowance for doubtful accounts representing an estimateof future expected credit loss. Additions to the allowance for doubtful accounts are made by recording a charge to bad debt expensereported in selling, general and administrative expenses. As of September 30, 2020, no customersrepresented more than 10% of total accounts receivable.

 

Inventory

 

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

 

RevenueRecognition

 

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

 

Step1 – Identify the Contract with the Customer – A contract exists when (a) the parties to the contract have approvedthe contract and are committed to perform their respective obligations, (b) the entity can identify each party’s rightsregarding the goods or services to be transferred, (c) the entity can identify the payment terms for the goods or services tobe transferred, (d) the contract has commercial substance and it is probable that the entity will collect substantially all ofthe consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer.

 

F-9

 

 

VincoVentures, Inc. and Subsidiaries

(f/k/aEdison Nation, Inc.)

NOTESTO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note2 — Summary of Significant Accounting Policies — (Continued)

 

Step2 – Identify Performance Obligations in the Contract – Upon execution of a contract, the Company identifies as performanceobligations each promise to transfer to the customer either (a) goods or services that are distinct, or (b) a series of distinctgoods or services that are substantially the same and have the same pattern of transfer to the customer. To the extent a contractincludes multiple promised goods or services, the Company must apply judgement to determine whether the goods or services arecapable of being distinct within the context of the contract. If these criteria are not met, the goods or services are accountedfor as a combined performance obligation.

 

Step3 – Determine the Transaction Price – When (or as) a performance obligation is satisfied, the Company shall recognizeas revenue the amount of the transaction price that is allocated to the performance obligation. The contract terms are used todetermine 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 expectedvalue method. Variable consideration would be included in the transaction price, if in the Company’s judgement, it is probablethat a significant future reversal of cumulative revenue under the contract would not occur.

 

Step4 – Allocate the Transaction Price – After the transaction price has been determined, the next step is to allocatethe transaction price to each performance obligation in the contract. If the contract only has one performance obligation, theentire transaction price will be applied to that obligation. If the contract has multiple performance obligations, the transactionprice is allocated to the performance obligations based on the relative standalone selling price (SSP) at contract inception.

 

Step5 – Satisfaction of the Performance Obligations (and Recognize Revenue) – Revenue is recognized when (or as) goodsor services are transferred to a customer. The Company satisfies each of its performance obligations by transferring control ofthe promised good or service underlying that performance obligation to the customer. Control is the ability to direct the useof and obtain substantially all of the remaining benefits from an asset. It includes the ability to prevent other entities fromdirecting the use of and obtaining the benefits from an asset. Indicators that control has passed to the customer include: a presentobligation 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.

 

Substantiallyall of the Company’s revenues continue to be recognized when control of the goods are transferred to the customer, whichis upon shipment of the finished goods to the customer. All sales have fixed pricing and there are currently no material variablecomponents included in the Company’s revenue. Additionally, the Company will issue credits for defective merchandise, historicallythese 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.

 

Disaggregationof Revenue

 

TheCompany’s primary revenue streams include the sale and/or licensing of consumer goods and packaging materials. The Company’slicensing business is not material and has not been separately disaggregated for segment purposes. The disaggregated Company’srevenues for the three and nine months ended September 30, 2020 and 2019 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  

 

F-10

 

 

VincoVentures, Inc. and Subsidiaries

(f/k/aEdison Nation, Inc.)

NOTESTO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note2 — Summary of Significant Accounting Policies — (Continued)

 

Forthe 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.

 

Forthe three and nine months ended September 30, 2020 and 2019, the following geographical regions represented more than 10% of totalnet 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.

 

FairValue of Financial Instruments

 

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

 

ASC820 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 participantson the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observableinputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that maybe used to measure fair value:

 

Level1 — quoted prices in active markets for identical assets or liabilities

 

Level2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable

 

Level3 — inputs that are unobservable (for example, cash flow modeling inputs based on assumptions)

 

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

 

F-11

 

 

VincoVentures, Inc. and Subsidiaries

(f/k/aEdison Nation, Inc.)

NOTESTO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note2 — Summary of Significant Accounting Policies — (Continued)

 

SequencingPolicy

 

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

 

ForeignCurrency Translation

 

TheCompany 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 theexchange rate at the balance sheet date, while revenue and expense accounts are translated at the average exchange rates prevailingduring the year. Equity accounts are translated at historical exchange rates. Gains and losses from foreign currency transactionsand translation for the three and nine months ended September 30, 2020 and 2019 and the cumulative translation gains and lossesas of September 30, 2020 and December 31, 2019 were not material.

 

F-12

 

 

VincoVentures, Inc. and Subsidiaries

(f/k/aEdison Nation, Inc.)

NOTESTO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note2 — Summary of Significant Accounting Policies — (Continued)

 

NetEarnings or Loss per Share

 

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

 

Asof September 30, 2020, the Company excluded the common stock equivalents summarized below, which entitle the holders thereof toultimately 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 

 

F-13

 

 

VincoVentures, Inc. and Subsidiaries

(f/k/aEdison Nation, Inc.)

NOTESTO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note2 — Summary of Significant Accounting Policies — (Continued)

 

RecentAccounting Pronouncements

 

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

 

InAugust 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivativesand Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40)”. This ASU reduces the number of accountingmodels for convertible debt instruments and convertible preferred stock. As well as amend the guidance for the derivatives scopeexception 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 beginningafter December 15, 2021; Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, includinginterim periods within those fiscal years. Adoption is either a modified retrospective method or a fully retrospective methodof transition. The Company is currently assessing the impact the new guidance will have on our consolidated financial statements. 

 

F-14

 

 

VincoVentures, Inc. and Subsidiaries

(f/k/aEdison Nation, Inc.)

NOTESTO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note2 — Summary of Significant Accounting Policies — (Continued)

 

SubsequentEvents

 

TheCompany 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 eventsthat would have required adjustment or disclosure in the financial statements.

 

SegmentReporting

 

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

 

F-15

 

 

VincoVentures, Inc. and Subsidiaries

(f/k/aEdison Nation, Inc.)

NOTESTO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note3 — Acquisitions and Divestitures

 

Divestitureof Subsidiary

 

OnFebruary 17, 2020, the Company divested its Cloud B, Inc. subsidiary and entered into an Agreement for the Purchase and Sale ofCloud B, Inc.(the “Purchase Agreement”), with Pearl 33 Holdings, LLC (the “Buyer”), pursuant to whichthe Buyer purchased from the Company (and the Company sold and assigned) 80,065 shares of common stock of Cloud B (the “CloudB Shares”) for $1.00 and an indemnification agreement as described below, constituting a 72.15% ownership interest in CloudB, 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.

 

OnFebruary 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 issuanceof 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 valueof the 150,000 shares of common stock which were issued to the Buyer on June 30, 2020.

 

Thetable 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 

 

AssetAcquisition

 

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

 

Pleasesee Note 11 — Subsequent Events for further information on acquisitions and divestitures.

 

Note4 — Variable Interest Entities

 

TheCompany is involved in the formation of various entities considered to be Variable Interest Entities (“VIEs”). TheCompany 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.

 

TheCompany’s determination of whether it is the primary beneficiary of VIE is based in part on an assessment of whether ornot the Company and its related parties are exposed to the majority of the risks and rewards of the entity. Typically, the Companyis entitled to substantially all or portion of the economics of these VIEs. The Company is the primary beneficiary of the VIEentities.

 

F-16

 

 

VincoVentures, Inc. and Subsidiaries

(f/k/aEdison Nation, Inc.)

NOTESTO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Thefollowing table presents the carrying values of the assets and liabilities of entities that are VIEs and consolidated by the Companyat 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 

 

Thefollowing 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 )

 

F-17

 

 

VincoVentures, Inc. and Subsidiaries

(f/k/aEdison Nation, Inc.)

NOTESTO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

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

 

OnMay 20, 2020 (the “Effective Date”), Vinco Ventures, Inc. (the “Company”) entered into an Agreementand Plan of Share Exchange (the “Share Exchange Agreement”) with PPE Brickell Supplies, LLC, a Florida limited liabilitycompany (“PPE”), and Graphene Holdings, LLC, a Wyoming limited liability company (“Graphene”, and togetherwith PPE, the “Sellers”), whereby the Company purchased 25 membership units of Global Clean Solutions, LLC, a Nevadalimited liability company (“Global”) from each of PPE and Graphene, for a total of fifty (50) units, representingfifty percent (50%) of the issued and outstanding units of Global (the “Purchase Units”). The Company issued 250,000shares of its restricted common stock, $0.001 par value per share (the “Common Stock”) to PPE, and 50,000 shares ofCommon Stock to Graphene, in consideration for the Purchase Units. Global Clean Solutions, LLC is a VIE. The fair value of theshares of $699,000 was treated as a distribution to the noncontrolling interest members.

 

Pursuantto the terms of the Share Exchange Agreement, the Sellers may earn additional shares of Common Stock upon Global realizing thefollowing revenue targets: (i) In the event that Global’s total orders equal or exceed $1,000,000, Graphene shall receive200,000 shares of Common Stock; (ii) In the event that Global’s total orders equal or exceed $10,000,000, PPE shall receive100,000 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 managersto the Board of Managers of Global. The fair value of the shares is expensed over the estimated vesting period and is adjustedbased on the number of shares that vest.

 

AmendedLimited Liability Company Agreement

 

Onthe Effective Date, the Company entered into an Amended Limited Liability Company Agreement of Global (the “Amended LLCAgreement”). 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: Vinco Ventures,Inc. 50%, PPE 25% and Graphene 25%.

 

SecuredLine of Credit Agreement

 

Onthe Effective Date, the Company (as “Guarantor”) entered into a Secured Line of Credit Agreement (the “CreditAgreement”) with Global and PPE. Under the terms of the Credit Agreement, PPE is to make available to Global a revolvingcredit loan in a principal aggregate amount at any one time not to exceed $2,500,000. Upon each drawdown of funds against thecredit line, Global shall issue a Promissory Note (the “Note”) to PPE. The Note shall accrue interest at 3% per annumand have a maturity date of six (6) months. In the event of a default, any and all amounts due to PPE by Global, including principaland accrued but unpaid interest, shall increase by forty (40%) percent and the interest shall increase to five (5%) percent (the“Default Interest”).

 

SecurityAgreement

 

Onthe 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 theevent of a default that is not cured by the defined cure period, the PPE may liquidate the Reserve Shares until the Global’sprincipal, interest and associated expenses are recovered. The number of Reserve Shares may be increased through the issuanceof True-Up shares in the event the original number of Reserve Shares is insufficient.

 

Note5 — Accounts Receivable

 

Asof 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 

 

Note6 — Inventory

 

Asof 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 

 

F-18

 

 

VincoVentures, Inc. and Subsidiaries

(f/k/aEdison Nation, Inc.)

NOTESTO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note7 — Debt

 

Asof 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  

 

ConvertibleNotes Payable

 

OnJanuary 23, 2020, the Company entered into a $1,100,000 loan agreement the (“Loan Agreement”) with Greentree FinancialGroup, 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 550,000shares of the Company’s common stock, $0.001 per share (“Common Stock”). The Note is convertible at any timeat a price of $2.00 per share, subject to certain adjustments to the conversion price set forth in the Note. The Note reiteratesthe registration rights set forth in the Loan Agreement and the Warrant. There is no prepayment penalty on the Note. If the Noteis not prepaid by the 90th day after the effective date of the Registration Statement, the Investor is required to convert theentire amount of principal and interest outstanding on the Note at that time, at a price of $2.00 per share, unless an event ofdefault (as such events are described in the Note) under the Note has occurred, in which case the Note would be mandatorily convertedat a price equal to 50% of the lowest trading price of the Common Stock for the last 10 trading days immediately prior to, butnot including, the date that the Note mandatorily converts. In the event that the average of the 15 lowest closing prices forthe Company’s common stock on NASDAQ or other primary trading market for the Company’s common stock (the average ofsuch lowest closing prices being herein referred to, the “True-up Price”) during the period beginning on the effectivedate 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 additionalshares of the Company’s common stock (the “True-up Shares”) within three days. No value has been assigned tothe True-up Shares due to the contingency of an effective Registration Statement. The warrant has an exercise price of $2.00 pershare, subject to certain adjustments to the exercise price set forth in the Warrant. The Warrant, as amended, expires on January23, 2023. If the closing price per share of the Common Stock reported on the day immediately preceding an exercise of the Warrantis greater than $2.00 per share, the Warrant may be exercised cashlessly, based on a cashless exercise formula. The Warrant reiteratesthe registration rights set forth in the Loan Agreement and the Note. The Warrant also contains a repurchase provision, whichat any time after the Registration Statement is effective and the Common Stock has traded at a price over $3.00 share for 20 consecutivedays, 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 January24, 2020, the Company used $588,366 of the proceeds from the Note to pay off in full the 12% Convertible Promissory Note heldby 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 foradvisory services. Pursuant to the Loan Agreement, the Company agreed to issue and sell to the Investor the Note, in the principalamount of $1,100,000.

 

F-19

 

 

VincoVentures, Inc. and Subsidiaries

(f/k/aEdison Nation, Inc.)

NOTESTO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

Note7 — Debt — (Continued)

 

OnJanuary 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 LoanAgreement, Note and Warrant to January 23, 2020 and the due date to October 23, 2020, (ii) clarify the terms of the registrationright 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 WarrantShares, the 100,000 Origination Shares, and 300,000 shares of Common Stock to account for changes to the conversion and/or exerciseprice under the Note and Warrant, and (iii) to ensure that the total number of shares of Common Stock issued pursuant to the LoanAgreement, the Note, and/or the Warrant, each as amended, does not exceed 17.99% of the Company’s issued and outstandingCommon Stock as of January 23, 2020. The Company is subject to a $35,000 penalty on a monthly basis if a registration statementis not effective after 105 days from January 23, 2020. The Company recognized a beneficial conversion option of $586,785 relatedto the 550,000 shares of Common Stock issuable upon conversion of the Note, a debt discount of $296,891 based on the relativefair value related to the 550,000 Warrant Shares, a debt discount of $201,324 based on the relative fair value related to the160,000 Origination and Advisory Shares. On July 23, 2020, theCompany issued 320,000 shares of common stock valued at $1,158,400 to Greentree Financial Group, Inc. to satisfy $360,000 principaland $131,889 interest and fees and on August 4, 2020, the Company issued 370,000 shares of common stock valued at $1,394,900 toGreentree Financial Group, Inc. in satisfaction of $740,000 principal. The Note is paid in full.

 

OnApril 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 purposesThe 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 Companyissued the Investor 10,700 shares of Common Stock (the “Origination Shares”) as an origination fee. The transactionclosed on April 9, 2020. The Investor shall have the right at any time to convert all or any part of the outstanding and unpaidprincipal, interest, fees, or any other obligation owed pursuant to this Note into fully paid and non-assessable shares of CommonStock at a conversion price equal to $2.05 per share. Upon an Event of Default, the Conversion Price shall equal the AlternateConversion Price (as defined herein) (subject to equitable adjustments for stock splits, stock dividends or rights offerings bythe 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 thelesser of (i) 80% multiplied by the average of the three lowest daily volume weighted average prices (“VWAP”) duringthe 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 thelatest complete Trading Day prior to the Conversion Date. Please see Note 11 — Subsequent Events for furtherinformation.

 

OnApril 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”) inthe amount of $168,000 ($18,000 OID). The $150,000 of proceeds from the Note will be used for general working capital purposesThe 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 Companyissued the Investor 10,700 shares of Common Stock (the “Origination Shares”) as an origination fee. The transactionclosed on April 9, 2020. The Investor shall have the right at any time to convert all or any part of the outstanding and unpaidprincipal, interest, fees, or any other obligation owed pursuant to this Note into fully paid and non-assessable shares of CommonStock at a conversion price equal to $2.05 per share. Upon an Event of Default, the Conversion Price shall equal the AlternateConversion Price (as defined herein) (subject to equitable adjustments for stock splits, stock dividends or rights offerings bythe 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 thelesser of (i) 80% multiplied by the average of the three lowest daily volume weighted average prices (“VWAP”) duringthe 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 thelatest complete Trading Day prior to the Conversion Date.

 

OnJuly 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 purposesThe 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 Companyissued the Investor 14,266 shares of Common Stock (the “Origination Shares”) as an origination fee. The transactionclosed on July 29, 2020.  The Investor shall not have the right to convert the Note into shares prior to 180 calendar daysfrom the Issue Date. Provided that the Note remains unpaid, the Investor may elect to convert all or any part of the outstandingand unpaid principal, interest, fees, or any other obligation owed pursuant to the Note into fully paid and non-assessable sharesof 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 stocksplits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securities of anysubsidiary 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 dailyvolume weighted average prices (“VWAP”) during the previous twenty (20) Trading Days (as defined below) before theIssue Date of this Note (representing a discount rate of 20%) or (ii) 80% multiplied by the Market Price (as defined herein) (representinga discount rate of 20%). “Market Price” means the average of the three lowest daily VWAPs for the Common Stock duringthe twenty (20) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date.

 

F-20

 

 

VincoVentures, Inc. and Subsidiaries

(f/k/aEdison Nation, Inc.)

NOTESTO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note7 — Debt — (Continued)

 

32EFinancing

 

OnDecember 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 proceedsfrom the 32E Note was used for general working capital needs of the Company and the repayment of debt related to Horberg Enterprises.

 

Pursuantto the terms of the 32E Note, on December 4, 2019, the Company also issued 32E a Common Stock Purchase Warrant (the “32EWarrant”) to purchase 50,000 shares of common stock at an exercise price of $1.50 per share. The 32E Warrant expires onDecember 4, 2024. The 32E Warrant contains price protection provisions, as well as a provision allowing 32E to purchase the numberof shares that 32E could have acquired if it held the number of shares of common stock acquirable upon complete exercise of the32E Warrant, in the event that the Company grants, issues or sells common stock, common stock equivalents, rights to purchasecommon stock, warrants, securities or other property pro rate to holders of any class of the Company’s securities. If thereis no effective registration statement registering the resale of the shares of common stock underlying the 32E Warrant, then the32E 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 than4.9% of the total issued and outstanding shares of common stock, provided that (i) such exercise limitation may be waived by 32Ewith 61 days prior notice, and (ii) 32E cannot waive the exercise limitation if conversion of the 32E Warrant would result in32E having beneficial ownership of greater than 9.9% of the total issued and outstanding shares of common stock.

 

Inconnection with the sale of the 32E Note, also on December 4, 2019, the Company entered into a registration rights agreement wherebythe Company agreed to register the 10,000 shares of common stock issued to 32E as an inducement on a registration statement onForm S-1 with the SEC. The Company was required to have such registration statement declared effective by the SEC within 90 calendardays (or 180 calendar days in the event of a “full review” by the SEC) following the earlier of 30 days from December4, 2019 or the filing date of the registration statement on Form S-1, which such registration statement has not been filed ortimely declared effective. If the registration statement is not filed or declared effective within the timeframe set forth inthe registration rights agreement, the Company was supposed to be obligated to pay to 32E a monthly amount equal to 1% of thetotal subscription amount paid by 32E until such failure is cured. The Company has not made any such payment 32E. The registrationrights agreement also contains mutual indemnifications by the Company and each investor, which the Company believes are customaryfor transactions of this type.

 

OnMay 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 theprincipal plus interest in the amount of $6,250 for a total of $56,250. 32E shall also receive 40,000 restricted stock units andsurrender the warrant issued to it in the December 4, 2019 financing transaction. The Company accounted for the Amendment as amodification.

 

PromissoryNotes

 

OnJanuary 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 loanthe Company $400,000. The Loan is interest bearing at the rate of 1.5% per month through the term of the Loan. Additionally, theLoan Agreement provides that the Company shall pay the Lender the entire unpaid principal and all accrued interest upon thirtydays’ notice to the Company, but in any event, the notice shall not be sooner than June 1, 2020. On April 24, 2020, theCompany and Lender entered into a Debt Conversion Agreement whereby the Lender was given the right and elected to exercise thatright 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 pershare for a total of 212,000 shares of restricted common stock issued by the Company.

 

F-21

 

 

VincoVentures, Inc. and Subsidiaries

(f/k/aEdison Nation, Inc.)

NOTESTO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

Note7 — Debt — (Continued)

 

OnJanuary 2, 2020, Ed Roses, LLC (the “Partnership”) entered into a Loan Agreement (the “Agreement”) withSook Hyun Lee (the “Lender”). Under the terms of the Agreement, the Lender agreed to lend $150,000 to the Partnershipfor 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 isremitted by either party. On the Maturity date, the Partnership shall pay the Lender all unpaid principal and interest and a $30,000commitment fee. The Lender shall have a collateral interest in the accounts receivable of the Partnership, including but not limitedto 7 Eleven receivables. As collateral, the Company, Inc. placed 75,000 shares of common stock in reserve.

 

OnJanuary 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 purchasedthe 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 usingthe Black-Scholes option-valuation model. The proceeds from the Ralls Note will be used for general working capital needs of theCompany. The Company will also issue 33,000 incentive shares to Ralls valued at $79,860 based on the closing stock price on January10, 2020. The fair value of the warrants and incentive shares have been recorded as debt discount. The original maturity dateof the Ralls Note was July 10, 2020. On July 14, 2020, the Company entered into an Amendment to Note Agreement and Common StockPurchase Warrant (the “Amendment”) with Equity Trust Company, a Custodian FBO: Rawleigh H. Ralls IRA. Under the termsof the Amendment, the parties amended the terms of the January 10, 2020 Note Agreement (the “Agreement”) and CommonStock 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 33,000Additional Incentive Shares and (iv) the Company shall prepare and file with the United States Securities and Exchange Commissiona registration statement on Form S-1 within 30 days of the Effective Date of the Amendment, that registers a total of 191,000shares of Common Stock, which such amount of shares is the sum of 125,000 Warrant Shares, the 33,000 Incentive Shares, and 33,000Additional Incentive Shares. On July 14, 2020, the Company issued the 33,000 Additional Incentive Shares valued at $124,740.

 

OnJanuary 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 SolitNote 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 theBlack-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 January15, 2020. The fair value of the warrants and incentive shares have been recorded as debt discount. The original maturity dateof the Solit Note was July 15, 2020. On July 14, 2020, the Company entered into an Amendment to Note Agreement and Common StockPurchase Warrant (the “Amendment”) with Paul J. Solit and Julie B. Solit. Under the terms of the Amendment, the partiesamended 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 OriginalIssue Discount (“OID”) shall be increased to $14,000 and (iii) the Lender shall be issued 13,000 Additional IncentiveShares. On July 14, 2020, the Company issued the 13,000 Additional Incentive Shares valued at $49,140.

 

OnJanuary 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 whichO’Leary purchased the O’Leary Note from the Company for $50,000 and an original issue discount of $3,500, and theCompany issued to O’Leary a warrant (the “O’Leary Warrant”) to purchase 25,000 shares of the Company’scommon stock valued at $16,797 estimated using the Black-Scholes option-valuation model. The proceeds from the O’Leary Notewill be used for general working capital needs of the Company. The Company will also issue 6,500 incentive shares to O’Learyvalued at $15,535 based on the closing stock price on January 17, 2020. The fair value of the warrants and incentive shares havebeen recorded as debt discount. The original maturity date of the O’Leary Note was July 17, 2020. On July 14, 2020, theCompany entered into an Amendment to the O’Leary Note and O’Leary Warrant (the “Amendment”) with RichardO’Leary. Under the terms of the Amendment, the parties amended the terms such that; (i) the maturity date of the O’LearyNote 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 toJune 30, 2021. On July 14, 2020, the Company issued the 6,500 Additional Incentive Shares valued at $24,570.

 

F-22

 

 

VincoVentures, Inc. and Subsidiaries

(f/k/aEdison Nation, Inc.)

NOTESTO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note7 — Debt — (Continued)

 

OnMarch 6, 2019, Vinco Ventures, 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 convertiblepromissory note (the “Note”) from the Company. The Note was in the amount of $560,000 with an original issue discountof $60,000. The Company issued 15,000 shares of its common stock (“Common Stock”) valued at $74,100 based on the shareprice on the date of issuance to the Investor as additional consideration for the purchase of the Note. The Under the terms ofthe SPA, the Investor will have piggyback registration rights in the event the Company files a Form S-1 or Form S-3 within sixmonths from March 6, 2019, as well as a pro rata right of first refusal in respect of participation in any debt or equity financingsundertaken by the Company during the 18 months following March 6, 2019. The Company is also subject to certain customary negativecovenants under the SPA, including but not limited to, the requirement to maintain its corporate existence and assets subjectto certain exceptions, and to not to make any offers or sales of any security under circumstances that would have the effect ofestablishing rights or otherwise benefitting other investors in a manner more favorable in any material respect than those rightsand benefits established in favor of the Investor under the terms of the SPA and the Note. The maturity date of the Note is sixmonths from March 6, 2019. All principal amounts and the interest thereon are convertible into shares Common Stock only in theevent that an Event of Default occurs. On January 24, 2020, the Company paid the Investor $588,366 to pay the Note in full.

 

PaycheckProtection Program

 

OnApril 15, 2020, Vinco Ventures, 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 CoronavirusAid, 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 applicableto loans administered by the SBA under the PPP. Under the terms of the PPP, certain amounts of the PPP Loan may be forgiven ifthey are used for qualifying expenses as described in the CARES Act. The PPP Loan is included in notes payable on the consolidatedbalance sheet.

 

ReceivablesFinancing

 

OnAugust 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-Assignee2% per month for extension periods commencing July 1, 2020 through December 10, 2020. The balance at September 30, 2020 is $128,077.

 

OnFebruary 21, 2020, the Company entered into a receivables financing arrangement for certain receivables of the Company not toexceed $1,250,000 at any one time. The agreement allows for borrowings up to 85% of the outstanding receivable based on the creditquality of the customer. The fee is between 1% and 2% of the total invoices financed. The balance at September 30, 2020 is $463,843.

 

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

 

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

 

OnNovember 18, 2019, the Company entered into a Future Receivables Purchase Agreement with a financial institution (the “FutureReceivables Purchase Agreement”), whereby the Company agreed to the sale of $337,500 of receivables for $250,000. The proceedswere 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 PurchaseAgreement.

 

F-23

 

 

VincoVentures, Inc. and Subsidiaries

(f/k/aEdison Nation, Inc.)

NOTESTO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

Note7 — Debt — (Continued)

 

Lineof Credit

 

Onthe Effective Date, the Company (as “Guarantor”) entered into a Secured Line of Credit Agreement (the “CreditAgreement”) with Global and PPE. Under the terms of the Credit Agreement, PPE is to make available to Global a revolvingcredit loan in a principal aggregate amount at any one time not to exceed $2,500,000. Upon each drawdown of funds against thecredit line, Global shall issue a Promissory Note (the “Note”) to PPE. The Note shall accrue interest at 3% per annumand have a maturity date of six (6) months. In the event of a default, any and all amounts due to PPE by Global, including principaland 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.

 

Thescheduled 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  

 

Forthe three and nine months ended September 30, 2020, interest expense was $1,004,626 and $2,575,737, respectively of which $74,736and $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.

 

F-24

 

 

VincoVentures, Inc. and Subsidiaries

(f/k/aEdison Nation, Inc.)

NOTESTO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note8 — Related Party Transactions

 

NLPenn Capital, LP and SRM Entertainment Group LLC

 

Asof September 30, 2020 and December 31, 2019, due to related party consists of net amounts due to SRM Entertainment Group LLC (“SRMLLC”) and NL Penn Capital, LP (“NL Penn”), the majority owner of both, which are owned by Chris Ferguson, ourChairman and Chief Executive Officer. The amount due to related parties is related to the acquisitions of Pirasta, LLC and BestParty Concepts, LLC offset by operating expenses that were paid by SRM and Edison Nation on behalf of SRM LLC and NL Penn. Asof September 30, 2020 and December 31, 2019, the net amount due to related parties was $22,005 and $17,253, respectively. Suchamounts are due currently. NL Penn and affiliated entities may lend additional capital to Edison Nation pursuant to terms andconditions similar to the current working capital lenders to Edison Nation such as Franklin Capital. In addition, Edison Nationborrows working capital from Franklin Capital, and Mr. Ferguson is a personal guarantor on the working capital facility providedto Edison Nation by Franklin Capital. In addition, there was accounts receivable of approximately $104,000 due from SRM LLC whichwas included as part of accounts receivable in the condensed consolidated balance sheet.

 

F-25

 

 

VincoVentures, Inc. and Subsidiaries

(f/k/aEdison Nation, Inc.)

NOTESTO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note9 — Commitments and Contingencies

 

OperatingLeases

 

TheCompany has entered into non-cancellable operating leases for office, warehouse, and distribution facilities, with original leaseperiods 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 adjustmentsto operating lease right-of-use assets on the consolidated balance sheets.

 

Asof September 30, 2020, the Company recorded operating lease liabilities of $534,819 and right of use assets for operating leasesof $505,933. During the three and nine months ended September 30, 2020, operating cash outflows relating to operating lease liabilitieswas $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 yearsand weighted-average discount rate of 4.5%. Excluded from the measurement of operating lease liabilities and operating lease right-of-useassets were certain office, warehouse and distribution contracts that qualify for the short-term lease recognition exception.

 

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

 

Totalrent expense for the three and nine months ended September 30, 2020 was $116,183 and $332,492, respectively. Total rent expensefor the three and nine months ended September 30, 2019 was $128,256 and $410,759, respectively. Rent expense is included in generaland administrative expense on the consolidated statements of operations.

 

RentalIncome

 

Fergcoleases a portion of the building located in Washington, New Jersey that it owns under a month to month lease. Total rental incomerelated 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.

 

LegalContingencies

 

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

 

Weare, and may in the future become, subject to various legal proceedings and claims that arise in or outside the ordinary courseof business.

 

OnApril 14, 2020, Oceanside Traders, LLC (“Plaintiff”) filed a complaint against Cloud B, Inc. and Vinco Ventures,Inc. (together the “Defendants”) with the Superior Court of Ocean County, New Jersey alleging a breach of contractin that the Defendants failed to pay Plaintiff for goods sold in the amount of $141,007 plus $138,180 for overpayments and $279,187for 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 notproperly served with the complaint. The court granted Vinco Ventures, Inc.’s motion to vacate the judgment. On November9, 2020, Plaintiff filed an amended complaint against Vinco Ventures, Inc., et al.

 

OnMarch 13, 2019, Rosenberg Fortuna & Laitman LLP and Mark Principe (together the “Plaintiffs”) filed a complaintagainst Safe TV Shop, LLC (the “Defendant”) with the Supreme Court of the State of New York, County of Nassau alleginga breach of indemnification arising out of the use of a certain packaging material. On February 12, 2020, the parties entereda 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 dateof acquisition by the Company.

 

OnOctober 27, 2020, Gerald Whitt, Alexander Whitt, Matthew Whitt, Christopher Whitt, Deborah Milam and David Knecht, individuallyand in their personal capacities, and derivatively on behalf of Cloud B, Inc. (together the “Plaintiffs”) filed aclaim 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 anominal defendant, alleging fraudulent concealment, breach of fiduciary duty, breach of contract, breach of confidence, intentionalmisrepresentation, negligent misrepresentation, unfair business practices and civil conspiracy requesting judgment in excess of$8,000,000 for compensatory damages, punitive damages and attorneys’ fees.

 

F-26

 

 

VincoVentures, Inc. and Subsidiaries

(f/k/aEdison Nation, Inc.)

NOTESTO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note10 — Stockholders’ Equity

 

PreferredStock

 

OnMarch 25, 2020, the Company filed a certificate of amendment to the Company’s articles of incorporation with the Secretaryof 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 selectionclause in the Company’s amended and restated articles of incorporation, specifically that such clause does not apply tofederal 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 andRestated Bylaws, confirming that the Company’s shareholders may vote by written consent. As of September 30, 2020 and December31, 2019, there were 0 shares of preferred stock issued and outstanding, respectively. Please see Note 11 — SubsequentEvents for further information.

 

Stock-BasedCompensation

 

OnSeptember 6, 2018, the Company’s board of directors approved an amendment and restatement of the Company’s omnibusincentive plan solely to reflect the Company’s name change to Edison Nation, Inc. Thus, the Vinco Ventures, Inc. OmnibusIncentive Plan (the “Plan”) which remains effective as of February 9, 2018, provides for the issuance of up to 1,764,705shares of common stock to help align the interests of management and our stockholders and reward our executive officers for improvedCompany performance. Stock incentive awards under the Plan can be in the form of stock options, restricted stock units, performanceawards and restricted stock that are made to employees, directors and service providers. Awards are subject to forfeiture untilvesting conditions have been satisfied under the terms of the award. The exercise price of stock options is equal to the fairmarket value of the underlying Company common stock on the date of grant.

 

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

 

Thefollowing 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    - 

 

Asof September 30, 2020, there were no unvested options to purchase shares of the Company’s common stock and there was nounrecognized equity-based compensation expense that the Company expected to recognize over a remaining weighted-average period.

 

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

 

F-27

 

 

VincoVentures, Inc. and Subsidiaries

(f/k/aEdison Nation, Inc.)

NOTESTO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note11 — Subsequent Events

 

OnSeptember 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, theSellers own all outstanding Units of TBD. Under the terms of the Agreement, the Company is to issue a total of Two Million TwoHundred Ten Thousand Three Hundred Eighty-Two (2,210,382) shares of the Company’s common stock and a total of Seven HundredSixty-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 conversionof the Preferred within 120 days after the Closing. The Sellers shall have an Earn Out Consideration - At such time as the Assetspurchased in the Agreement achieve cumulative revenue of $10,000,000, the Sellers shall earn a total of One Hundred Twenty-FiveThousand (125,000) shares of Common Stock. The Closing of the transaction occurred on October 16, 2020.

 

OnOctober 7, 2020, the Company (the “Borrower”) and Jefferson Street Capital, LLC (the “Holder”) enteredinto 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 requested and the Holder agreed to temporarily forebear, until the earlierof (i) December 9, 2020 or (ii) at such time as a default shall occur under and pursuant to the Purchase Agreement, the Note orthe Agreement, from exercising its right to convert amounts due under the Note into Common Stock of the Borrower, in exchangefor a one time cash payment forbearance fee equal to $12,500 paid upon execution of the Agreement.

 

OnOctober 8, 2020, the Company issued 1,132,209 shares of common stock to Mercury FundingCo, LLC, representing a 8.05% ownershipin the Company, valued at $1,890,956 as per the terms of the Purchase and Sale Agreement dated September 29, 2020 for the purchaseof TBD Safety, LLC.

 

OnOctober 8, 2020, the Company issued 1,078,073 shares of common stock to Ventus Capital, LLC, representing a 7.64% ownership inthe Company, valued at $1,800,382 as per the terms of the Purchase and Sale Agreement dated September 29, 2020 for the purchaseof TBD Safety, LLC.

 

OnOctober 12, 2020, the Company issued 125,000 shares of common stock to Ralls, valued at $250,000, related to the exercise of theCommon Stock Purchase Warrant dated January 10, 2020.

 

OnOctober 16, 2020, the Company filed a Certificate of Designation (the “Designation”) with the Secretary of State ofNevada, which designates 1,000,000 shares of the Company’s preferred stock, par value $0.001 per share, as Series B ConvertiblePreferred Stock (“Series B”). Pursuant to the terms of the Designation, holders of the Series B shall be entitledto dividends, a liquidation preference and shall have conversion rights. Each share of Series B shall be convertible into 1 shareof Common Stock, on or after the twelve-month anniversary of the Original Issue Date at theoption of the Holder thereof, for a total not to exceed 1,000,000 shares of Common Stock. The holders of the Series B shall haveno voting rights.

 

OnOctober 27, 2020, Gerald Whitt, Alexander Whitt, Matthew Whitt, Christopher Whitt, Deborah Milam and David Knecht, individuallyand in their personal capacities, and derivatively on behalf of Cloud B, Inc. (together the “Plaintiffs”) filed aclaim 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 anominal defendant, alleging fraudulent concealment, breach of fiduciary duty, breach of contract, breach of confidence, intentionalmisrepresentation, negligent misrepresentation, unfair business practices and civil conspiracy requesting judgment in excess of$8,000,000 for compensatory damages, punitive damages and attorneys’ fees.

 

OnOctober 29, 2020, the Company, along with its subsidiaries, Edison Nation, LLC and Ferguson Containers, Inc., entered into a FuturesReceivables Sale Agreement (the “Agreement”) with Itria Ventures, LLC whereby the Company agreed to the saleof $155,000 of receivables for $125,000. The proceeds were used to fund our receivables for overseas distributors. ChristopherB. Ferguson, our Chairman and Chief Executive Officer, personally guaranteed the prompt and complete performance of the Company’sobligations under the Agreement.

 

OnOctober 30, 2020, Vinco Ventures, Inc. (the “Company”) received a letter of intent from a prospective purchaserdated October 22, 2020 setting forth the terms of an offer to purchase Cloud b assets from CBAV1, LLC (“CBAV1”), theCompany’s wholly owned subsidiary (the “LOI”). The Cloud b assets include but are not limited to intellectualproperty, 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”).

 

OnNovember 4, 2020, the Company filed Articles of Incorporation in the State of Nevada for a new wholly owned subsidiary, VincoVentures, LLC.

 

OnNovember 4, 2020, the Company, through its new wholly owned subsidiary, Vinco Ventures, Inc. (“Vinco”), filed Articlesof Formation in the State of Nevada for Honey Badger Media, LLC (“Honey Badger”). Honey Badger will become a whollyowned subsidiary of Vinco.

 

OnNovember 5, 2020, the Company (the “Parent”) and its wholly owned subsidiary, Vinco Ventures, Inc. (the “MergerSub”), entered into an Agreement and Plan of Merger (the “Agreement”). Under the terms of the Agreement, theMerger Sub merged with and into the Parent and the Parent became the surviving corporation of the Merger (the “SurvivingCorporation”). 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 November12, 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’scommon stock was assigned a new CUSIP number of 927330100.

 

OnNovember 10, 2020, the Company, through its wholly owned subsidiary, Honey Badger Media, LLC, entered into a series of transactionswith Honey Badger Media, LLC, a Delaware limited liability company:

 

OnNovember 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 interestin and to the Internet Websites, Domain Names, and all of the respective content (the “Domains”), and any other rightsassociated with the domains, including, without limitation, any intellectual property rights, all related Domains, logos, customerlists and agreements, email lists, passwords, usernames and trade names; and all of the related social media accounts includingbut 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 ThousandDollars (US $300,000).

 

OnNovember 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 limitedto, the right to use all of Licensor’s intellectual property rights comprising the Platform, owned by or licensed to Licensorthat are utilized as part of the Platform (“Licensed Related Assets”). In consideration for the License, theLicensee agreed to pay to the Licensor a fee equal to thirty percent (30%) of theNet Profits generated from Licensee’s clients through the Platform and Licensed Related Assets and the Licensee’sparent company agreed to issue the Licensor 750,000 shares of common stock.

 

OnNovember 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 commencingon November 10, 2020 and ending on the two (2) year anniversary of the Employment Agreement. The Executive shall receive a basesalary of Sixty Thousand Dollars ($60,000) per year. Executive shall be entitled to three (3) weeks of comprehensive paid timeoff (includes vacation, sick and personal days) each year.

 

OnNovember 17, 2020, the Company, through its subsidiary, Edison Nation, LLC (the “Vendor”), entered into an InventoryManagement Agreement (the “Agreement”) with the Forever 8 Fund, LLC (“F8”), an entity which our Presidentholds a 45% ownership interest. Under the terms of the Agreement, F8 desires to maintain inventory of and sell to Vendor certainProducts pursuant to the terms and conditions set forth in the Agreement. As consideration for the inventory management servicesprovided under this Agreement, Vendor agrees to pay F8 a fee for each unit of each Product sold on a Platform determined in accordancewith the fee schedule set forth in the applicable Product Schedule (the “Fee Schedule”) based on the Age ofInventory Sold set forth on the Fee Schedule (the “F8 Fees”). Prior to the signing of the agreement, F8 advancedthe Vendor $239,283 that was utilized to pay for deposits with the Vendors factories. This Agreement shall commence on the EffectiveDate and shall continue in full force and effect until January 31, 2022 (the “Initial Term”), unless terminatedearlier as provided in this Agreement.

 

OnNovember 20, 2020, the Company issued 40,000 shares of common stock valued at $59,600 to a note holder for conversion ofa restricted stock unit into shares of common stock.

 

OnDecember 14, 2020, the Company issued 10,000 shares of common stock valued at $15,000 under the Company’s 2020 Omnibus Planto an employee for services rendered on behalf of the Company.

 

OnDecember 14, 2020, the Company issued 11,000 shares of common stock valued at $16,500 under the Company’s 2020 Omnibus Planto a consultant for services rendered on behalf of the Company.

 

OnDecember 14, 2020, the Company issued 30,000 shares of common stock valued at $45,000 under the Company’s 2020 Omnibus Planto a director as compensation.

 

OnDecember 16, 2020, the Company issued 60,000 shares of common stock valued at $90,000 under the Company’s 2020 Omnibus Planto a director as compensation.

 

OnDecember 29, 2020, the Company issued 41,730 shares of common stock valued at $62,595 to Jefferson Street Capital, LLC in satisfactionof $740,000 principal against a note issued on April 7, 2020.

 

OnDecember 31, 2020, the Company issued 50,000 shares of common stock valued at $75,000 under the Company’s 2020 Omnibus Planto a consultant for services rendered on behalf of the Company.

 

OnJanuary 5, 2021, the Company issued 750,000 shares of common stock valued at $1,125,000 as per the terms of the Platform LicenseAgreement between the Company and Honey Badger Media, LLC dated November 10, 2020.

 

OnJanuary 5, 2021, the Company issued 150,000 shares of common stock valued at $225,000 under the Company’s 2020 Omnibus Planto a consultant for services rendered on behalf of the Company.

 

OnJanuary 11, 2021, the Company issued 100,000 shares of common stock valued at $150,000 under the Company’s 2020 OmnibusPlan to a consultant for services rendered on behalf of the Company.

 

OnJanuary 19, 2021, the Company issued 200,000 shares of common stock valued at $300,000 for the partial exercise of the warrantissued in connection with the Greentree financing.

 

OnJanuary 20, 2021, the Company issued 27,415 shares of common stock valued at $41,123 to Jefferson Street Capital, LLC in satisfactionof $740,000 principal against a note issued on April 7, 2020.

 

OnJanuary 21, 2021, the Company issued 58,000 shares of common stock valued at $87,000 to a consultant for services rendered onbehalf of the Company.

 

OnJanuary 21, 2021, the Company issued 350,000 shares of common stock valued at $525,000 for the partial exercise of the warrantissued in connection with the Greentree financing.

 

OnJanuary 22, 2021, the Company issued 51,129 shares of common stock valued at $76,694 for the exercise of the placement agent warrantissued in connection with the Greentree financing.

 

OnJanuary 22, 2021, the Company issued 67,744 shares of common stock valued at $101,616 for the exercise of the placement agentwarrant issued in connection with the Greentree financing.

 

OnJanuary 22, 2021, the Company issued 20,358 shares of common stock valued at $30,537 for the exercise of the placement agent warrantissued in connection with the Greentree financing.

 

OnJanuary 22, 2021, the Company issued 20,358 shares of common stock valued at $30,537 for the exercise of the placement agent warrantissued in connection with the Greentree financing.

 

OnJanuary 22, 2021, the Company issued 50,000 shares of common stock valued at $75,000 for the exercise of a warrant.

 

OnJanuary 25, 2021 (the “Effective Date”), Vinco Ventures Inc. (the “Company”) consummated the closing ofa private placement offering (the “Offering”) whereby pursuant to the Securities Purchase Agreement (the “PurchaseAgreement”) entered into by the Company on January 21, 2021 with one accredited investor (the “Investor”), theCompany issued a Senior Convertible Note for the purchase price of $12,000,000 (the “Note”) and a five (5) year warrant(the “Warrant”) to purchase shares of the Company’s common stock, par value $0.001 per share (“CommonStock”). The Note carries an interest rate of 6% per annum and matures on the 12-month anniversary of the Issuance Date(as defined in the Note). The Note contains a voluntary conversion mechanism whereby the Noteholder may convert at any time afterthe Issuance Date, in whole or in part, the outstanding balance of the Note into shares of the Common Stock at a conversion priceof $2.00 per share (the “Conversion Shares”). The Note shall be a senior obligation of the Company and its subsidiaries.The Note contains customary events of default (each an “Event of Default”). If an Event of Default occurs, interestunder the Note will accrue at a rate of twelve percent (12%) per annum and the outstanding principal amount of the Note, plusaccrued but unpaid interest, liquidated damages and other amounts owing with respect to the Note will become, at the Note holder’selection, immediately due and payable in cash. Upon completion of a Change of Control (as defined in the Note), the Note’sholder may require the Company to purchase any outstanding portion of the Note in cash at a price in accordance with the termsof the Note.

 

Pursuantto the Purchase Agreement, the Investor received a Warrant in an amount equal to 250% of the shares of Common Stock initiallyissuable to each Investor pursuant to the Investor’s Note. The Warrant contains an exercise price of $2.00 per share. Inconnection with the closing of the Offering, the Warrant was issued to purchase an aggregate of 15,000,000 shares of Common Stock(the “Warrant Shares”).

 

TheCompany also entered into a Registration Rights Agreement with the Investor (the “Registration Rights Agreement”).The Registration Rights Agreement provides that the Company shall (i) file with the Securities and Exchange Commission (the “Commission”)a Registration Statement by 30 days following the Closing Date to register the Conversion Shares and Warrant Shares (the “RegistrationStatement”); and (ii) use all commercially reasonable efforts to have the Registration Statement declared effective by theCommission within 60 days following the Closing Date or at the earliest possible date, or 75 days following the Closing Date ifthe Registration Statement receives comments from the Commission.

 

PalladiumCapital Group, LLC (the “Placement Agent”) acted as placement agent for the Offering. The Placement Agent receivedcash compensation of $1,080,000 (8% of the gross proceeds to the Company plus an additional 1% of the gross proceeds to the Companyfor non-accountable expenses). The Placement Agent also received a Warrant in an amount equal to 8% of the shares of Common Stockinitially issuable to each Investor pursuant to the Investor’s Note.

 

OnJanuary 28, 2021 (the “Effective Date”), the Company consummated the closing of a private placement offering (the“Offering”) whereby pursuant to the Securities Purchase Agreement (the “SPA”) entered into by the Companyon January 28, 2021 with BHP Capital NY Inc (the “Investor”), the Company issued 1,500,000 shares of restricted commonstock and a five (5) year warrant (the “Warrant”) to purchase shares of the Company’s common stock, par value$0.001 per share (“Common Stock”).

 

Pursuantto the SPA, the Investor received a Warrant in an amount equal to 100% of the shares of Common Stock issued to the Investor underthe SPA. The Warrant contains an exercise price of $2.20 per share. In connection with the closing of the Offering, the Warrantwas issued to purchase an aggregate of 1,500,000 shares of Common Stock (the “Warrant Shares”).

 

TheCompany also entered into a Registration Rights Agreement with the Investor (the “Registration Rights Agreement”).The Registration Rights Agreement provides that the Company shall (i) file with the Securities and Exchange Commission (the “Commission”)a Registration Statement by 30 days following the Closing Date to register the Conversion Shares and Warrant Shares (the “RegistrationStatement”); and (ii) use all commercially reasonable efforts to have the Registration Statement declared effective by theCommission within 60 days following the Closing Date or at the earliest possible date, or 75 days following the Closing Date ifthe Registration Statement receives comments from the Commission.

 

OnJanuary 29, 2021, the Company issued 100,000 shares of common stock valued at $327,000 to a consultant for services rendered onbehalf of the Company.

 

 OnFebruary 1, 2021, the Company issued 27,415 shares of common stock valued at $27,515 to Jefferson Street Capital, LLC in satisfactionof $26,766 principal against a note issued on April 7, 2020.

 

OnFebruary 2, 2021, the Company issued 100,000 shares of common stock valued at $319,000 for settlement of investment banking services.

 

OnFebruary 2, 2021, the Company issued 209 shares of common stock for a cashless exercise of a warrant.

 

OnFebruary 2, 2021, the Company entered into an Employment Agreement (the “Agreement”) with Christopher Ferguson (the“Executive”) for the role of Chief Executive Officer. The Agreement is effective as of November 12, 2020 (the “EffectiveDate”) and has a term of three (3) years (the “Term”) from the Effective Date. Thereafter, the Agreement shallautomatically be renewed and the Term shall be extended for additional consecutive terms of 1 year (each a “Renewal Term”),unless such renewal is objected to by either the Company or the Executive. The Executive’s initial annual base salary shallbe $200,000, less applicable withholdings (the “Base Salary”) and 120,000 common shares that shall vest intheir entirety on issuance. The Base Salary shall be payable in accordance with the Company’s normal payroll proceduresin effect from time to time. The Base Salary due of shares, shall be payable within the first 30 days of the year. On each anniversaryof the Agreement, the base salary will increase no less than $15,000 (“minimum”). For 2021, the Executive shall receivea cash bonus in the amount equal to 30% of the annual Base Salary, and an award of 200% shares of the Company’s common stock,which shall vest in their entirety on issuance (the “Principal Market”), which shall be received by the Executiveno later than the first 30 days of the current fiscal year. The Executive shall be entitled to 150,000 shares of the Company’scommon stock, due immediately upon an increase of 2.5 times the Enterprise Value on a 5-day closing average from the effectivenessof the Agreement. For clarification, the Enterprise Value as of the Company at the effective date was $25,042,464.

 

OnFebruary 2, 2021, the Company entered into an Employment Agreement (the “Agreement”) with Brett Vroman (the “Executive”)for the role of Chief Financial Officer. The Agreement is effective as of November 12, 2020 (the “Effective Date”)and has a term of three (3) years (the “Term”) from the Effective Date. Thereafter, the Agreement shall automaticallybe renewed and the Term shall be extended for additional consecutive terms of 1 year (each a “Renewal Term”),unless such renewal is objected to by either the Company or the Executive. The Executive’s initial annual base salary shallbe $200,000, less applicable withholdings (the “Base Salary”) and 120,000 common shares that shall vest intheir entirety on issuance. The Base Salary shall be payable in accordance with the Company’s normal payroll proceduresin effect from time to time. The Base Salary due of shares, shall be payable within the first 30 days of the year. On each anniversaryof the Agreement, the base salary will increase no less than $15,000 (“minimum”). For 2021, Executive shall receivea cash bonus in the amount equal to 30% of the annual Base Salary, and an award of 200% shares of the Company’s common stock,which shall vest in their entirety on issuance (the “Principal Market”), which shall be received by the Executiveno later than the first 30 days of the current fiscal year. Upon the execution of this agreement, the Executive is entitled toa one-time past performance bonus for the work completed in fiscal years 2018, 2019 and 2020 of 150,000 shares of the Company’scommon stock, which shall vest in their entirety on issuance. The Executive shall be entitled to100,000 shares of the Company’scommon stock, due immediately upon an increase of 2.5 times the Enterprise Value on a 5-day closing average from the effectivenessof the Agreement. For clarification, the Enterprise Value as of the Company at the effective date was $25,042,464.

 

OnFebruary 2, 2021, the Company entered into an Employment Agreement (the “Agreement”) with Brian Mc Fadden (the “Executive”)for the role of Chief Strategy Officer. The Agreement is effective as of November 12, 2020 (the “Effective Date”)and has a term of three (3) years (the “Term”) from the Effective Date. Thereafter, the Agreement shall automaticallybe renewed and the Term shall be extended for additional consecutive terms of 1 year (each a “Renewal Term”),unless such renewal is objected to by either the Company or the Executive. The Executive’s initial annual base salary shallbe $200,000, less applicable withholdings (the “Base Salary”) and 120,000 common shares that shall vest intheir entirety on issuance. The Base Salary shall be payable in accordance with the Company’s normal payroll proceduresin effect from time to time. The Base Salary due of shares, shall be payable within the first 30 days of the year. On each anniversaryof the Agreement, the base salary will increase no less than $15,000 (“minimum”). For 2021, the Executive shall receivea cash bonus in the amount equal to 30% of the annual Base Salary, and an award of 200% shares of the Company’s common stock,which shall vest in their entirety on issuance (the “Principal Market”), which shall be received by the Executiveno later than the first 30 days of the current fiscal year. Upon the execution of the Agreement, the Executive is entitled toa one-time signing bonus of 150,000 shares of the Company’s common stock, which shall vest in their entirety on issuance.The Executive shall be entitled to100,000 shares of the Company’s common stock, due immediately upon an increase of 2.5times the Enterprise Value on a 5-day closing average from the effectiveness of the Agreement. For clarification, the EnterpriseValue as of the Company at the effective date was $25,042,464.

 

OnFebruary 2, 2021, the Company filed an Amendment to the Certificate of Designation (the “Amendment”) for the Company’sSeries B Convertible Preferred Stock (“Preferred Stock”). Under the Amendment, eachshare of Preferred Stock shall entitle the holder thereof to vote on all matters voted on by the holders of Common Stock, votingtogether as a single class with other shares entitled to vote at all meetings of the stockholders of the Corporation. With respectto any such vote, each share of Preferred Stock shall entitle the holder thereof to cast the number of votes equal to the numberof whole shares of Common Stock into which such shares of Preferred Stock are then convertible (the “Conversion Shares”).Such right may be exercised at any annual meeting or special meeting, or pursuant to any written consent of stockholders.

 

On February 4, 2021, the Company issued243,483 shares of common stock valued at $486,966 as true up shares in connection with the Greentree financing.

 

On February 4, 2021, the Company issued25,000 shares of common stock valued at $40,750 as incentive shares for a Note Agreement dated November 2, 2020.

 

On February 4, 2021, the Company issued25,000 shares of common stock valued at $31,250 to a consultant for services rendered on behalf of the Company.

 

On February 4, 2021, the Company issued255,000 shares of common stock valued at $351,900 to certain employees for services rendered on behalf of the Company.

 

On February 4, 2021, the Company issued210,000 shares of common stock valued at $287,700 to Directors of the Company’s Board of Directors for services rendered.

 

On February 4, 2021, the Company issued150,000 shares of common stock valued at $205,500 to a consultant for services rendered on behalf of the Company.

 

F-28

 

 

REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Tothe Stockholders and Board of Directors of

EdisonNation, Inc.

 

Opinionon the Financial Statements

 

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

 

ExplanatoryParagraph – Changes in Accounting Principles

 

ASUNo.2016-02

 

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

 

Basisfor Opinion

 

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

 

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

 

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

 

/s/ Marcum LLP  
   
Marcum llp  

 

Wehave served as the Company’s auditor since 2017.

 

NewYork, NY

May29, 2020

 

F-29

 

 

EdisonNation, Inc. and Subsidiaries

CONSOLIDATEDBALANCE SHEETS

 

  

December 31,

2019

  

December 31,

2018

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

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

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

 

Theaccompanying notes are an integral part of these consolidated financial statements.

 

F-30

 

 

EdisonNation, Inc. and Subsidiaries

CONSOLIDATEDSTATEMENTS OF OPERATIONS

 

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

(520,000

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

(19,547

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

 

Theaccompanying notes are an integral part of these consolidated financial statements.

 

F-31

 

 

EdisonNation, Inc. and Subsidiaries

CONSOLIDATEDSTATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

 

   Common Stock  

Additional

Paid-in

   Accumulated   Noncontrolling  

Total

Stockholders’

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

45,000

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

560,185

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

 

Theaccompanying notes are an integral part of these consolidated financial statements.

 

F-32

 

 

EdisonNation, Inc. and Subsidiaries

CONSOLIDATEDSTATEMENTS OF CASH FLOWS

 

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

2,299,915

      3,386,493  
Change in fair value of earnout    

(520,000

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

98,613

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

Right of use assets

  $

943,997

    $

-

 

Operating lease liabilities

  $

943,997

    $

-

 

 

Theaccompanying notes are an integral part of these consolidated financial statements.

 

F-33

 

 

EdisonNation, Inc. and Subsidiaries

NOTESTO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note1 — Basis of Presentation and Nature of Operations

 

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

 

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

 

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

 

August23, 2019, the Company formed Ed Roses, LLC, a 50% joint venture with 4Keeps Roses, Inc., to distribute preserved roses, flowersand associated gift products.

 

On November6, 2019, the Company issued 22,500 shares of our common stock and paid $52,352 in cash to acquire the assets of Uber Mom, LLC,which was the approximate value of Uber Mom, LLC’s inventory.

 

Liquidity

 

Forthe year ended December 31, 2019, our operations lost approximately $13,026,228 of which approximately $8,064,101 was non-cashand approximately $364,320 related to transaction costs and non-recurring items.

 

AtDecember 31, 2019, we had total current assets of $4,955,365 and current liabilities of $12,973,319 resulting in negative workingcapital of $8,017,954, of which approximately $4,015,484 related to unsecured trade payables assumed in our Cloud B acquisition.In February 2019, our consolidating subsidiary, CBAV1, LLC, foreclosed on its promissory note it held that was secured by CloudB, Inc.’s assets making any payments of the Cloud B trade payables unlikely. At December 31, 2019, we had total assets of$23,609,619 and total liabilities of $16,155,187 resulting in stockholders’ equity of $7,454,432.

 

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

 

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

 

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

 

OnOctober 2, 2019, the Company entered into a Share Purchase Agreement (the “PIPE Purchase Agreement”) with certainaccredited investors (collectively, the “Investors”) for the private placement of 1,175,000 shares of the Company’scommon stock, $0.001 par value per share, at a purchase price of $2.00 per share (the “PIPE Transaction”). In a seriesof three closings conducted in October 2019, the Company received net proceeds of $2,039,303 which consisted of $2,350,000 ofgross proceeds offset by $310,697 of fees to placement agent and their lawyers. Alexander Capital, LP (“Alexander Capital”),a FINRA registered broker dealer, acted as placement agent with respect to the PIPE Transaction. In connection with the PIPE Transaction,Alexander Capital received a commission of $141,000, a debt restructuring fee of $64,208, a debt conversion fee of 15,889, a placementfee of $33,600 and warrants to purchase 70,500 shares of the Company’s common stock, at an exercise price of $2.50 per share(the “Placement Agent Warrants”). In connection with the PIPE transaction, the convertible notes entered into on May13, 2019 were also converted at $2.00 per share into 560,185 shares of the Company’s common stock.

 

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

 

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

 

Note2 — Summary of Significant Accounting Policies

 

Principlesof Consolidation

 

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

 

Reclassifications

 

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

 

Useof Estimates

 

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

 

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

 

F-34

 

 

EdisonNation, Inc. and Subsidiaries

NOTESTO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note2 — Summary of Significant Accounting Policies — (Continued)

 

Cashand Cash Equivalents

 

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

 

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

 

AccountsReceivable

 

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

 

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

 

Inventory

 

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

 

LoanHeld for Investment

 

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

 

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

 

Propertyand Equipment, Net

 

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

 

F-35

 

 

EdisonNation, Inc. and Subsidiaries

NOTESTO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note2 — Summary of Significant Accounting Policies — (Continued)

 

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

 

Long-LivedAssets

 

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

 

Goodwilland Intangible Assets

 

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

 

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

 

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

 

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

 

F-36

 

 

EdisonNation, Inc. and Subsidiaries

NOTESTO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note2 — Summary of Significant Accounting Policies — (Continued)

 

RevenueRecognition

 

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

 

Step1 – Identify the Contract with the Customer – A contract exists when (a) the parties to the contract have approvedthe contract and are committed to perform their respective obligations, (b) the entity can identify each party’s rightsregarding the goods or services to be transferred, (c) the entity can identify the payment terms for the goods or services tobe transferred, (d) the contract has commercial substance and it is probably that the entity will collect substantially all ofthe consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer.

 

Step2 – Identify Performance Obligations in the Contract – Upon execution of a contract, the Company identifies as performanceobligations each promise to transfer to the customer either (a) goods or services that are distinct, or (b) a series of distinctgoods or services that are substantially the same and have the same pattern of transfer to the customer. To the extent a contractincludes multiple promised goods or services, the Company must apply judgement to determine whether the goods or services arecapable of being distinct within the context of the contract. If these criteria are not met, the goods or services are accountedfor as a combined performance obligation.

 

Step3 – Determine the Transaction Price – When (or as) a performance obligation is satisfied, the Company shall recognizeas revenue the amount of the transaction price that is allocated to the performance obligation. The contract terms are used todetermine 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 expectedvalue method. Variable consideration would be included in the transaction price, if in the Company’s judgement, it is probablethat a significant future reversal of cumulative revenue under the contract would not occur.

 

Step4 – Allocate the Transaction Price – After the transaction price has been determined, the next step is to allocatethe transaction price to each performance obligation in the contract. If the contract only has one performance obligation, theentire transaction price will be applied to that obligation. If the contract has multiple performance obligations, the transactionprice is allocated to the performance obligations based on the relative standalone selling price (SSP) at contract inception.

 

Step5 – Satisfaction of the Performance Obligations (and Recognize Revenue) – Revenue is recognized when (or as) goodsor services are transferred to a customer. The Company satisfies each of its performance obligations by transferring control ofthe promised good or service underlying that performance obligation to the customer. Control is the ability to direct the useof and obtain substantially all of the remaining benefits from an asset. It includes the ability to prevent other entities fromdirecting the use of and obtaining the benefits from an asset. Indicators that control has passed to the customer include: a presentobligation 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.

 

Substantiallyall of the Company’s revenues continue to be recognized when control of the goods are transferred to the customer, whichis upon shipment of the finished goods to the customer. All sales have fixed pricing and there are currently no material variablecomponents included in the Company’s revenue. Additionally, the Company will issue credits for defective merchandise, historicallythese 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.

 

Disaggregationof Revenue

 

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

 

  

For the Years

Ended December 31,

 
   2019   2018 
         
Revenues:          
Product sales  $

19,184,428

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

19,629,062

   $16,502,209 

 

F-37

 

 

EdisonNation, Inc. and Subsidiaries

NOTESTO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note2 — Summary of Significant Accounting Policies — (Continued)

 

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

 

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

 

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

 

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

 

Costof Revenues

 

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

 

Shippingand Handling Costs

 

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

 

FairValue of Financial Instruments

 

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

 

ASC820 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 participantson the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observableinputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that maybe used to measure fair value:

 

Level1 — quoted prices in active markets for identical assets or liabilities

 

Level2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable

 

Level3 — inputs that are unobservable (for example, cash flow modeling inputs based on assumptions)

 

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

 

F-38

 

 

EdisonNation, Inc. and Subsidiaries

NOTESTO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note2 — Summary of Significant Accounting Policies — (Continued)

 

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

 

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

 

ForeignCurrency Translation

 

TheCompany 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 theexchange rate at the balance sheet date, while revenue and expense accounts are translated at the average exchange rates prevailingduring the year. Equity accounts are translated at historical exchange rates. Gains and losses from foreign currency transactionsand translation for the years ended December 31, 2019 and 2018 and the cumulative translation gains and losses as of December31, 2019 and 2018 were not material.

 

IncomeTaxes

 

TheCompany accounts for income taxes under the provisions of the Financial Accounting Standards Board (“FASB”) ASC Topic740 “Income Taxes” (“ASC Topic 740”).

 

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

 

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

 

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

 

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

 

F-39

 

 

EdisonNation, Inc. and Subsidiaries

NOTESTO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note2 — Summary of Significant Accounting Policies — (Continued)

 

NetEarnings or Loss per Share

 

Basicnet (loss) income per common share is computed by dividing net (loss) income by the weighted average number of vested common sharesoutstanding during the period. Diluted net income per common share is computed by dividing net income by the weighted averagenumber 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 commonshares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive. As of December 31, 2019,the Company excluded the common stock equivalents summarized below, which entitle the holders thereof to ultimately acquire sharesof common stock, from its calculation of earnings per share, as their effect would have been anti-dilutive.

 

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

 

F-40

 

 

EdisonNation, Inc. and Subsidiaries

NOTESTO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note2 — Summary of Significant Accounting Policies — (Continued)

 

DeferredFinancing Costs

 

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

 

RecentAccounting Pronouncements

 

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

 

F-41

 

 

EdisonNation, Inc. and Subsidiaries

NOTESTO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note2 — Summary of Significant Accounting Policies — (Continued)

 

 

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

 

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

 

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

 

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

 

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

 

Theadoption of the standard did not result in any material changes to the recognition of operating lease expenses in the Company’sconsolidated statements of operations.

 

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

 

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

 

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

 

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

 

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

 

SubsequentEvents

 

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

 

SegmentReporting

 

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

 

F-42

 

 

EdisonNation, Inc. and Subsidiaries

NOTESTO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note3 — Acquisition

 

OnSeptember 4, 2018, the Company completed the acquisition of all of the voting membership interest of Edison Nation Holdings, LLCfor a total purchase price of $12,820,978 comprising of (i) $950,000 cash (ii) the assumption of the remaining balance of thesenior convertible debt through the issuance to the holders of 4%, 5-year senior convertible notes (the “New ConvertibleNotes”), in the aggregate principal and interest amount of the sum of $1,428,161, less debt discount of $500,000 for theapproximate fair value of the conversion feature, which are convertible into approximately 285,632 shares of the Company’scommon stock, at the option of the holder of such New Convertible Notes (subject to certain adjustments as provided in the MembershipInterest Purchase Agreement (the “Purchase Agreement”) among the Company and Edison Nation Holdings, LLC and EdisonNation Holdings, LLC members dated June 29, 2018 and the terms of the New Convertible Notes), (iii) the reservation of 990,000shares of the Company’s common stock that may be issued in exchange for the redemption of certain non-voting membershipinterests of EN that will be created specifically in connection with the transaction contemplated by the Purchase Agreement (whichexchange obligations may be instead satisfied in cash instead of shares of common stock, in the Company’s sole discretion),and (iv) the issuance of 557,084 shares or $3,760,317 of the Company’s common stock in full satisfaction of the indebtednessrepresented by promissory notes payable by EN to Venture Six, LLC and Wesley Jones.

 

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

 

OnOctober 29, 2018, the Company completed the acquisition of 72.15% of the outstanding capital stock of Cloud B, Inc. in exchangefor 489,293 shares of restricted common stock of the Company. In addition, the Company entered into an Earn Out Agreement withthe Cloud B Sellers, whereby, beginning in 2019, the Company will pay the Cloud B Sellers an annual amount equal to 8% multipliedby the annual gross sales of Cloud B, as reduced by the total gross sales generated by Cloud B in 2018. The Earn Out Agreementexpires on December 31, 2021. In February 2019, CBAVI, LLC foreclosed on the Promissory Note it held that was secured by CloudB, Inc.’s assets. After the foreclosure, there likely will be no assets to distribute to other creditors. In addition, thefair value of the earnout originally valued at $520,000 was reduced to $0 with an adjustment to change in fair value in the Company’sConsolidated Statements of Operations.

 

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

 

OnDecember 31, 2018, the Company completed the acquisition of all of the voting membership interest of Pirasta, LLC from NL PennCapital, LP in exchange for the satisfaction of $470,000 due from related party. Accordingly, the consolidated financial statementsof the Company reflect the accounting of the combined acquired subsidiary at historical carrying values, except that equity reflectsa distribution for the excess of consideration paid over the net carrying amount of assets.

 

Theactivity of Pirasta, LLC included in the Company’s consolidated statements of operations from the date of acquisition toDecember 31, 2018 was not material.

 

OnDecember 31, 2018, the Company completed the acquisition of 50% of the voting membership interest of Best Party Concepts, LLCfrom NL Penn Capital, LP in exchange for the satisfaction of $500,000 due from related party. Accordingly, the consolidated financialstatements of the Company reflect the accounting of the combined acquired subsidiary at historical carrying values, except thatequity reflects a distribution for the excess of consideration paid over the net carrying amount of assets. NL Penn Capital, LPis owned by Christopher B. Ferguson, our Chairman and Chief Executive Officer.

 

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

 

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

 

Theactivity of Uber Mom included in the Company’s consolidated statements of operations from the date of acquisition to December31, 2019 was not material.

 

JointVenture

 

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

 

F-43

 

 

EdisonNation, Inc. and Subsidiaries

NOTESTO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note3 — Acquisition — (Continued)

 

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

 

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

 

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

 

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

(520,000

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

 

TheCompany believes that these combinations will further strengthen its future growth opportunities while also increasing productdiversification. The Company accounted for these acquisitions as a business combination under the acquisition method of accounting.

 

Thefollowing table summarizes the preliminary purchase price allocation of fair values of the assets acquired and liabilities assumedduring 2018 at the date of acquisition:

 

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

 

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

 

Thefollowing table summarizes the preliminary purchase price allocation of fair values of the assets acquired and liabilities assumedduring 2019 at the date of acquisition:

 

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

 

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

 

  

Years Ended

December 31,

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

 

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

 

Note4 — Accounts Receivable

 

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

 

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

 

Note5 — Inventory

 

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

 

   December 31,   December 31, 
   2019   2018 
Raw materials  $

49,232

   $48,576 
Finished goods 

1,319,993

    875,131 
Total inventory  $

1,369,225

   $923,707 

 

F-44

 

 

EdisonNation, Inc. and Subsidiaries

NOTESTO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note6 — Prepaid expenses and other current assets

 

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

 

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

 

Note7 — Property and equipment, net

 

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

 

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

 

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

 

Note8 — Goodwill

 

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

 

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

 

TheCompany recorded an impairment charge of $4,443,000 related to our annual impairment assessment. The impairment was a result ofdecreased profitability as compared to anticipated profitability in our businesses acquired in 2018. The Company utilized thesimplified test for goodwill impairment. The amount recognized for impairment is equal to the difference between the carryingvalue and the asset’s fair value. The valuation methods used in the quantitative fair value assessment was a discountedcash flow method and required management to make certain assumptions and estimates regarding certain industry trends and futureprofitability of our reporting units.

 

F-45

 

 

EdisonNation, Inc. and Subsidiaries

NOTESTO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note9 — Intangible assets, net

 

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

 

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

 

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

 

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

 

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

 

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

 

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

1,076,095

 
Thereafter   $ 3,060,921  

 

Note10 — Accrued expenses and other current liabilities

 

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

 

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

 

F-46

 

 

EdisonNation, Inc. and Subsidiaries

NOTESTO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note11 — Debt

 

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

 

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

1,621,015

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

1,408,167

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

(1,365,675

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

 

Lineof Credit

 

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

 

Long-termConvertible Notes Payable – Related Parties

 

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

 

F-47

 

 

EdisonNation, Inc. and Subsidiaries

NOTESTO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note11 — Debt — (Continued)

 

NotesPayable

 

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

 

OnSeptember 7, 2018, the Company borrowed $73,559 related to the purchase of a commercial delivery vehicle. The note bears interestat a rate of 4.5% per annum. The monthly payments under the note are $1,371 commencing on October 6, 2018 and maturing on September6, 2023. The loan is collaterized by the commercial delivery vehicle having the approximate value of $75,000.

 

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

 

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

 

OnJune 14, 2019, the Company entered into that certain Loan Agreement with Tiburon Opportunity Fund (the “Lender”),dated June 14, 2019 (the “Loan Agreement”). Pursuant to the terms of the Loan Agreement, the Lender agreed to loanthe Company $250,000. The Loan is interest bearing at the rate of 1.5% per month through the term of the Loan. Additionally, theLoan Agreement provides that the Company shall pay the Lender the entire unpaid principal and all accrued interest upon thirtydays’ notice to the Company, but in any event, the notice shall not be sooner than August 11, 2019. The Loan proceeds arebeing used to fund general working capital needs of the Company. If the Company defaults on the performance of any obligationunder the Loan Agreement, the Lender may declare the principal amount of the Loan owing under the Loan Agreement at the time ofdefault to be immediately due and payable. Furthermore, the Loan Agreement grants the Lender a collateral interest in certainaccounts receivable of SRM Entertainment Ltd., a subsidiary of the Company. The outstanding principal and interest on the notewas repaid on December 27, 2019.

 

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

 

OnJanuary 24, 2020, the Company repaid the Labrys Note in full. Upon repayment of the Labrys Note, Labrys returned to the Companyfor cancellation the 153,005 shares of Common Stock that had been originally issued to as a portion of the commitment fee paidin connection with the Labrys Note, and allowed the Company to cancel the reservation of the 875,000 shares of Common Stock thathad been reserved pursuant to the Labrys SPA and Labrys Note.

 

OnDecember 4, 2019, the Company entered into a Senior Secured Note Agreement (the “32E Loan Agreement”) with 32 EntertainmentLLC (“32E”), pursuant to which 32E agreed to loan the Company $250,000 (the “Loan”). The Loan is interestbearing at the rate of 10.0% per annum through the term of the Loan. The Company issued 10,000 shares of common stock to 32E inconnection with the 32E Loan Agreement. In addition, the Company issued a warrant (the “32E Warrant”) to purchase50,000 shares of the Company’s common stock. Under the terms of the 32E Loan Agreement, the Company entered into a registrationrights agreement whereby the Company agreed to register the shares and file this registration statement on a Form S-1 with theSEC. The Company was required to have such registrations statement declared effective by the SEC within 90 calendar days. TheLoan proceeds are being used to fund general working capital needs of the Company. If the Company defaults on the performanceof any obligation under the Loan Agreement, 32E may declare the principal amount of the Loan owing under the 32E Loan Agreementat the time of default to be immediately due and payable. Interest is due in March, June and September. The outstanding principaland interest on the note are due on December 4, 2020. On May 19, 2020, the 32E Loan Agreement was amended to change the due dateon the outstanding principal and interest to May 31, 2020.

 

NotesPayable – Related Parties

 

OnSeptember 30, 2018, in connection with the acquisition of SRM and Fergco, the Company issued two notes payable aggregating $2,996,500.One note was issued to NL Penn Capital, L.P, in relation to the acquisition of SRM in the amount of $2,120,000 and the other notewas issued to the stockholders of Fergco in the amount of $876,500. The notes bear interest at a rate of six percent (6%) perannum and have an effective interest rate of six percent (6%) per annum. The Company is required to make monthly payments comprisedof principal and interest beginning in January 2018 that are amortized over ten (10) years, with a balloon payment of all outstandingprincipal and interest due at the respective maturity dates of $677,698, due on December 1, 2020, and $1,249,043, due on December1, 2022. NL Penn Capital, L.P. has from time to time agreed to defer payments due under the note. The former stockholders of Fergcohave agreed to defer all payments due under the note and the deferred amount is due on demand.

 

F-48

 

 

EdisonNation, Inc. and Subsidiaries

NOTESTO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note11 — Debt — (Continued)

 

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

 

ConvertibleNotes

 

OnMarch 6, 2019, Edison Nation entered into a securities purchase agreement (the “FirstFire SPA”) with an accreditedinvestor (the “Investor”) pursuant to which the Investor purchased a 2% unsecured, senior convertible promissory note(the “FirstFire Note”) from the Company. The FirstFire Note was in the amount of $560,000 with an original issue discountof $60,000. The Company issued 15,000 shares of its common stock valued at $74,100 based on the share price on the date of issuanceto the Investor as additional consideration for the purchase of the FirstFire Note. The Under the terms of the FirstFire SPA,the Investor will have “piggyback” registration rights in the event the Company files a Form S-1 or Form S-3 withinsix months from March 6, 2019, as well as a pro rata right of first refusal in respect of participation in any debt or equityfinancings undertaken by the Company during the 18 months following March 6, 2019. The Company is also subject to certain customarynegative covenants under the FirstFire SPA, including but not limited to, the requirement to maintain its corporate existenceand assets subject to certain exceptions, and to not to make any offers or sales of any security under circumstances that wouldhave the effect of establishing rights or otherwise benefitting other investors in a manner more favorable in any material respectthan those rights and benefits established in favor of the Investor under the terms of the FirstFire SPA and the FirstFire Note.The maturity date of the FirstFire Note is six months from March 6, 2019. All principal amounts and the interest thereon are convertibleinto shares of the Company’s common stock only in the event that an event of default occurs.

 

OnJune 17, 2019, the Company entered into that certain Settlement and Release Agreement with the Investor (the “SettlementAgreement”) whereby the Company and the Investor agreed to terminate the FirstFire SPA, FirstFire Note, and all other documentsentered into in connection therewith. Pursuant to the terms of the Settlement Agreement, the Company paid $566,000 and issued15,000 shares of restricted common stock to the Investor (the “Settlement Amount”). Upon receipt of the SettlementAmount, the Investor and the Company have agreed to terminate the FirstFire SPA, FirstFire Note, and all other documents enteredinto in connection therewith, and to release, waive, and forever discharge the other party from, including, but not limited to,any claim, right, or legal action, whether past, current, or future, which may arise directly or indirectly out of such documents.

 

OnMay 13, 2019, the Company entered into a securities purchase agreement (the “May 2019 SPA”) with certain accreditedinvestors (the “Investors”) pursuant to which the Investors purchased Senior Convertible Promissory Notes (the “May2019 Notes”) from the Company. The use of proceeds from the May 2019 Notes was used for general working capital and to fundnew product launches. Unless there is a specific Event of Default (as such term is defined in the May 2019 Notes), the Investorsshall not have the ability to convert the principal and interest under the May 2019 Notes into shares of common stock. Pursuantto the May 2019 SPA, the Company agreed to sell to the Investors the May 2019 Notes, in the aggregate principal amount of $1,111,111,which are convertible into shares of common stock. Additionally, the Company will issue an additional 20,000 shares of commonstock to the Investors as additional consideration for the purchase of the May 2019 Notes. Under the terms of the May 2019 SPA,the Investors have piggyback registration rights in the event the Company files a Form S-1 or Form S-3 within six months of May13, 2019. The Company is also subject to certain customary negative covenants under the May 2019 SPA, including but not limitedto, the requirement to maintain its corporate existence and assets subject to certain exceptions, and to not to make any offersor sales of any security under circumstances that would have the effect of establishing rights or otherwise benefitting otherinvestors in a manner more favorable in any material respect than those rights and benefits established in favor of the Investorsunder the terms of the May 2019 SPA and the May 2019 Notes.

 

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

 

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

 

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

 

F-49

 

 

EdisonNation, Inc. and Subsidiaries

NOTESTO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note11 — Debt — (Continued)

 

ReceivablesFinancing and Inventory

 

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

 

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

 

OnNovember 18, 2019, the Company entered into a Future Receivables Purchase Agreement with a financial institution (the “FutureReceivables Purchase Agreement”), whereby the Company agreed to the sell of $337,500 of receivables for $250,000. The proceedswere 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 PurchaseAgreement.

 

F-50

 

 

EdisonNation, Inc. and Subsidiaries

NOTESTO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note11 — Debt — (Continued)

 

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

 

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

 

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

 

Note12 — Income Taxes

 

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

 

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

 

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

 

UnitedStates and foreign components of income before income taxes were as follows:

 

   

For the Years

Ended December 31,

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

 

F-51

 

 

EdisonNation, Inc. and Subsidiaries

NOTESTO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note12 — Income Taxes – (Continued)

 

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

 

   

For the Years

Ended December 31,

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

 

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

 

Theincome tax provision (benefit) consists of the following:

 

   

For the Years

Ended December 31,

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

(896,468

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

(333,141

)      (10,102 )
Less: valuation allowance    

1,229,609

     

701,525

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

 

F-52

 

 

EdisonNation, Inc. and Subsidiaries

NOTESTO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note12 — Income Taxes – (Continued)

 

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

 

   

For the Years

Ended December 31,

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

 

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

 

Note13 — Related Party Transactions

 

NLPenn Capital, LP and SRM Entertainment Group LLC

 

OnDecember 31, 2018, the Company completed the acquisition of all of the voting membership interest of Pirasta, LLC from NL PennCapital, LP in exchange for the satisfaction of $470,000 due from related party. Accordingly, the consolidated financial statementsof the Company reflect the accounting of the combined acquired subsidiary at historical carrying values, except that equity reflectsa distribution for the excess of consideration paid over the net carrying amount of assets.

 

OnDecember 31, 2018, the Company completed the acquisition of 50% of the voting membership interest of Best Party Concepts, LLCfrom NL Penn Capital, LP in exchange for the satisfaction of $500,000 due from related party. Accordingly, the consolidated financialstatements of the Company reflect the accounting of the combined acquired subsidiary at historical carrying values, except thatequity reflects a distribution for the excess of consideration paid over the net carrying amount of assets.

 

Asof December 31, 2019 and December 31, 2018, the net amounts due to related parties consists of net amounts due to SRM EntertainmentGroup LLC (“SRM LLC”) and NL Penn Capital, LP, which are both majority owned by Chris Ferguson, our Chairman and ChiefExecutive Officer. The amount due to related parties is related to the acquisitions of Pirasta, LLC and Best Party Concepts, LLCoffset by operating expenses that were paid by SRM and Edison Nation on behalf of SRM LLC and NL Penn Capital, LP. As of December31, 2019 and December 31, 2018, the net amount due to related parties was $17,253 and $140,682, respectively. Such amounts aredue currently.

 

EnventysPartners, LLC

 

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

 

Inaddition, during 2019 we engaged Enventys to design our website and incurred fees of $10,000 related to website development forthe Ferguson Containers website.

 

F-53

 

 

EdisonNation, Inc. and Subsidiaries

NOTESTO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note14 — Commitments and Contingencies

 

OperatingLease

 

TheCompany has entered into non-cancellable operating leases for office, warehouse, and distribution facilities, with original leaseperiods 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 adjustmentsto operating lease right-of-use assets on the consolidated balance sheets.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

  

December 31,

2019

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

 

RentalIncome

 

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

 

ConsultingAgreements

 

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

 

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

 

LegalContingencies

 

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

 

Weare, and may in the future become, subject to various legal proceedings and claims that arise in or outside the ordinary courseof business.

 

OnApril 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 thatthe Defendants failed to pay Plaintiff for goods sold in the amount of $141,007 plus $138,180 for overpayments and $279,187 forlost profits for a total of $443,383. The parties are currently in settlement discussions, and the Company has accrued $190,105for anticipated settlement costs.

 

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

 

OnMarch 13, 2019, Rosenberg Fortuna & Laitman LLP and Mark Principe (together the “Plaintiffs”) filed a complaintagainst Safe TV Shop, LLC (the “Defendant”) with the Supreme Court of the State of New York, County of Nassau alleginga breach of indemnification arising out of the use of a certain packaging material. On February 12, 2020, the parties entereda 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 dateof acquisition by the Company.

 

F-54

 

 

EdisonNation, Inc. and Subsidiaries

NOTESTO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note15 — Stockholders’ Equity

 

CommonStock

 

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

 

OnOctober 2, 2019, Edison Nation, Inc. (the “Company”) entered into a Share Purchase Agreement (the “PIPE PurchaseAgreement”) with certain accredited investors (collectively, the “Investors”) for the private placement of 1,175,000shares of the Company’s common stock, $0.001 par value per share, at a purchase price of $2.00 per share (the “PIPETransaction”). The PIPE Purchase Agreement contained certain closing conditions relating to the sale of securities, representationsand warranties by the Company and the Investors, as well as covenants of the Company and the Investors (including indemnificationfrom the Company in the event of breaches of its representations and warranties), all of which the Company believes are customaryfor transactions of this type.

 

Stock-BasedCompensation

 

OnSeptember 6, 2018, the Company’s board of directors approved an amendment and restatement of the Company’s omnibusincentive plan solely to reflect the Company’s name change to Edison Nation, Inc. Thus, the Edison Nation, Inc. OmnibusIncentive Plan (the “Plan”) which remains effective as of February 9, 2018, provides for the issuance of up to 1,764,705shares of common stock to help align the interests of management and our stockholders and reward our executive officers for improvedCompany performance. Stock incentive awards under the Plan can be in the form of stock options, restricted stock units, performanceawards and restricted stock that are made to employees, directors and service providers. Awards are subject to forfeiture untilvesting conditions have been satisfied under the terms of the award. The exercise price of stock options are equal to the fairmarket value of the underlying Company common stock on the date of grant.

 

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

 

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

 

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

 

Thefollowing table summarizes stock option award activity during 2019:

 

    Shares    

Weighted

Average

Exercise

Price

   

Remaining

Contractual

Life in

Years

   

Aggregate

Intrinsic Value

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

 

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

 

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

 

F-55

 

 

EdisonNation, Inc. and Subsidiaries

NOTESTO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note15 — Stockholders’ Equity – (Continued)

 

PipeFinancing

 

OnOctober 2, 2019, Edison Nation, Inc. (the “Company”) entered into a Share Purchase Agreement (the “PIPE PurchaseAgreement”) with certain accredited investors (collectively, the “Investors”) for the private placement of 1,175,000shares of the Company’s common stock, $0.001 par value per share, at a purchase price of $2.00 per share (the “PIPETransaction”). The PIPE Purchase Agreement contained certain closing conditions relating to the sale of securities, representationsand warranties by the Company and the Investors, as well as covenants of the Company and the Investors (including indemnificationfrom the Company in the event of breaches of its representations and warranties), all of which the Company believes are customaryfor transactions of this type.

 

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

 

Inconnection with the PIPE Purchase Agreement, the Company entered into Registration Rights Agreements with each of the Investors(the “Registration Rights Agreement”), pursuant to which the Company is required to prepare and file a registrationstatement (the “Registration Statement”) with the United States Securities and Exchange Commission (the “SEC”)under the Securities Act of 1933, as amended, covering the resale of the shares of common stock issued to the Investors underthe PIPE Purchase Agreement, as well as the Placement Agent Warrants. The Company will be required to have such Registration Statementdeclared effective by the SEC within 90 calendar days (or 120 calendar days in the event of a “full review” by theSEC) following the applicable closing date of the PIPE Transaction. The registration statement was not filed or declared effectivewithin the timeframe set forth in the Registration Rights Agreements, and the Company is obligated to pay the Investors an amountequal to 1% of the total purchase price of the common stock per month (up to a maximum of 8% in the aggregate) until such failureis cured. The Registration Rights Agreement also contains mutual indemnifications by the Company and each Investor, which theCompany believes are customary for transactions of this type.

 

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

 

Inaddition, the Company issued warrants to the placement agent in the PIPE Financing of a value equal to six percent (6%) of theaggregate number of PIPE Shares, whereby the exercise price is 125% of the price at which the shares were issued in such offering.

 

SellingAgent Agreement

 

Inconnection with the IPO, the Company agreed to issue to the selling agent in the IPO, warrants to purchase a number of sharesof the common stock equal to 5.0% of the total shares of common stock sold in any closing of the IPO, excluding shares purchasedby investors sourced via alternative funding platforms (the “Selling Agent Warrants”). The Selling Agent Warrantsare exercisable commencing on the qualification date of the IPO and have a term of 5 years. The Selling Agent Warrants are notredeemable by the Company. The exercise price for the Selling Agent Warrants is 20% greater than the IPO offering price, or $6.00per share. On August 16, 2018, the Company issued 65,626 of Selling Agent Warrants that are exercisable for 65,626 shares of theCompany’s common stock.

 

F-56

 

 

EdisonNation, Inc. and Subsidiaries

NOTESTO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note16 — Subsequent Events

 

OnJanuary 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 loanthe Company $400,000. The Loan is interest bearing at the rate of 1.5% per month through the term of the Loan. Additionally, theLoan Agreement provides that the Company shall pay the Lender the entire unpaid principal and all accrued interest upon thirtydays’ notice to the Company, but in any event, the notice shall not be sooner than June 1, 2020. On April 24, 2020 the Companyand Lender entered into a Debt Conversion Agreement whereby the Lender elected to convert $400,000 of funds loaned to the Companyinto shares of the Company’s common stock. The conversion price was $2.00 per share for a total of 200,000 shares of restrictedcommon stock issued by the Company.

 

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

 

OnJanuary 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 purchasedthe Ralls Note from the Company for $250,000, and the Company issued to Ralls a warrant (the “Ralls Warrant”) to purchase125,000 shares of the Company’s common stock. The proceeds from the Ralls Note will be used for general working capitalneeds of the Company. The Company will also issue 33,000 incentive shares to Ralls. The maturity date of the Ralls Note is July10, 2020.

 

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

 

OnJanuary 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 SolitNote from the Company for $100,000, and the Company issued to the Solits a warrant (the “Solit Warrant”) to purchase50,000 shares of the Company’s common stock. The proceeds from the Solit Note will be used for general working capital needsof the Company. The Company will also issue 13,000 incentive shares to O’Leary. The maturity date of the Solit Note is July15, 2020.

 

OnJanuary 17, 2020, the Company entered into a 5% Promissory Note Agreement with Richard O’Leary (“O’Leary”)for an aggregate principal amount of $53,500 (the “O’Leary Note”), pursuant to which O’Leary purchasedthe O’Leary Note from the Company for $50,000, and the Company issued to O’Leary a warrant (the “O’LearyWarrant”) to purchase 25,000 shares of the Company’s common stock. The proceeds from the O’Leary Note will beused for general working capital needs of the Company. The Company will also issue 6,500 incentive shares to O’Leary. Thematurity date of the O’Leary Note is July 17, 2020.

 

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

 

F-57

 

 

VincoVentures, Inc. and Subsidiaries

NOTESTO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note16 — Subsequent Events – (Continued)

 

OnJanuary 24, 2020, the Company repaid the Labrys Note in full. Upon repayment of the Labrys Note, Labrys Fund, LP returned to theCompany for cancellation the 153,005 shares of Common Stock that had been originally issued to as a portion of the commitmentfee paid in connection with the Labrys Note and allowed the Company to cancel the reservation of the 875,000 shares of CommonStock that had been reserved pursuant to the Labrys SPA and Labrys Note.

 

OnJanuary 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 LoanAgreement, Note and Warrant to January 23, 2020, (ii) clarify the terms of the registration right provision in the Loan Agreement,and (iii) to ensure that the total number of shares of Common Stock issued pursuant to the Loan Agreement, the Note, and/or theWarrant, each as amended, does not exceed 17.99% of the Company’s issued and outstanding Common Stock as of January 23,2020.

 

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

 

OnFebruary 17, 2020, the Company entered into that certain Agreement for the Purchase and Sale of Cloud B, Inc.(the “PurchaseAgreement”), 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, constitutinga 72.15% ownership interest in Cloud B, based on 110,964 shares of Cloud B’s common stock outstanding as of February 17,2020. Pursuant to that certain Release Agreement by and between the Company and the Buyer included as an exhibit to the PurchaseAgreement, the Buyer agreed to release any and all claims against the Company, and its officers, directors or affiliates arisingfrom the Purchase Agreement or the purchase, sale, and assignment of the Cloud B Shares. Pursuant to that certain IndemnificationAgreement by and between the Company and the Buyer included as an exhibit to the Purchase Agreement, the Company agreed to indemnify,defend and hold harmless the Buyer, and its owners, managers and representatives arising from any events that occurred prior tothe purchase, sale, and assignment of the Cloud B Shares to the Buyer. The Company’s indemnification obligations pursuantto such Indemnification Agreement are limited to the issuance of 150,000 shares of the Company’s common stock to the Buyer.

 

OnMarch 11, 2020, the Company and its wholly owned subsidiary, Scalematix, LLC, entered into an Asset Purchase Agreement (the “Agreement”)with HMNRTH, LLC (the “Seller”) and TCBM Holdings, LLC (the “Owner”) (together Seller and Owner the “SellingParties”) for the purchase of certain assets in the health wellness industry and related consumer products industry. Underthe terms of the Agreement, Buyer is to remit $70,850 via wire transfer at Closing and shall issue to a representative of theSelling Parties Two Hundred Thirty-Eight Thousand Seven Hundred and Fifty (238,750) shares of restricted common stock. The shareswere issued on March 16, 2020 and valued at $477,500.

 

Inaddition, the Selling Parties shall have the right to additional earn out compensation based upon the following metrics: (i) atsuch time as the purchased assets achieve cumulative revenue of $2,500,000, the Selling Parties shall earn One Hundred Twenty-FiveThousand (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 March11, 2020.

 

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

 

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

 

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

 

OnApril 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”) inthe amount of $168,000 ($18,000 OID). The $150,000 of proceeds from the Note will be used for general working capital purposesThe 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 Companyis to issue the Investor 10,700 shares of Common Stock (the “Origination Shares”) as an origination fee. The transactionclosed on April 9, 2020. The Investor shall have the right at any time to convert all or any partof the outstanding and unpaid principal, interest, fees, or any other obligation owed pursuant to this Note into fully paid andnon-assessable shares of Common Stock at a conversion price equal to $2.05 per share.

 

OnApril 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 purposesThe 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 Companyis to issue the Investor 10,700 shares of Common Stock (the “Origination Shares”) as an origination fee. The transactionclosed on April 9, 2020. The Investor shall have the right at any time to convert all or any partof the outstanding and unpaid principal, interest, fees, or any other obligation owed pursuant to this Note into fully paid andnon-assessable shares of Common Stock at a conversion price equal to $2.05 per share.

 

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

 

F-58

 

 

OnApril 15, 2020, Edison Nation, Inc. (the “Company”) entered into a loan agreement (“PPP Loan”) with FirstChoice 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 intendsto use proceeds from the PPP Loan primarily for payroll costs, rent and utilities. The PPP Loan has a 1.00% interest rate perannum and matures on April 15, 2022 and is subject to the terms and conditions applicable to loans administered by the SBA underthe PPP. Under the terms of the PPP, certain amounts of the PPP Loan may be forgiven if they are used for qualifying expensesas described in the CARES Act.

 

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

 

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

 

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

 

OnMay 7, 2020, the Company entered into a Purchase of Inventory and Repurchase Agreement (the “Agreement”) with FergcoBros, LLC (“Purchaser”). Under the terms of the Agreement, the Company assigned its rights, title and interest toinventory relating to its Edison Nation Medical customer, Orange County, CA (the “Inventory”) for payment in the amountof $100.000. The Company shall have the right to repurchase the Inventory for $105,000 in whole or periodioc installments by May15, 2020. The Agreement was amended on May 15, 2020, to extend the repurchase date to June 30, 2020.

 

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

 

May17, 2020, the Company entered into an Amendment to Purchase of Inventory and Repurchase Agreement with the Purchasers-Assigneesdated May 17, 2020. Under the terms of the Amendment, the repurchase date was extended to June 30, 2020 and the Company confirmedthat of the Purchaser-Assignees is entitled to receive 10,000 shares of common stock.

 

OnMay 19, 2020, the Company entered into an Amendment (the “Amendment”) to the Senior Secured Note (the “Note”)issued by the Company to 32 Entertainment, LLC (the “Lender”) dated December 4, 2019. Under the terms of the Amendment,the Company issued the Lender an Amended Subordinate Secured Note (the “Replacement Note”) in the principal amountof $200,000 that accrues interest at 16% annually and matures on May 21, 2020. On or before May 28, 2020, the Company shall prepay$50,000 toward the principal plus interest in the amount of $6,250 for a total of $56,250. The Lender shall also receive 40,000restricted stock units and surrender the warrant issued to the Lender in the December 4, 2019 financing transaction.

 

OnMay 20, 2020 (the “Effective Date”), Edison Nation, Inc. (the “Company”) entered into an Agreement andPlan of Share Exchange (the “Share Exchange Agreement”) with PPE Brickell Supplies, LLC, a Florida limited liabilitycompany (“PPE”), and Graphene Holdings, LLC, a Wyoming limited liability company (“Graphene”, and togetherwith PPE, the “Sellers”), whereby the Company purchased 25 membership units of Global Clean Supplies, LLC, a Nevadalimited liability company (“Global”) from each of PPE and Graphene, for a total of fifty (50) units, representingfifty percent (50%) of the issued and outstanding units of Global (the “Purchase Units”).

 

OnMay 20, 2020, the Company entered into an Amended Limited Liability Company Agreement of Global (the “Amended LLC Agreement”).The Amended LLC Agreement amends the original Limited Liability Company Agreement of Global, dated May 13, 2020. The Amended LLCdefines the operating rules of Global and the ownership percentage of each member: Edison Nation, Inc. 50%, PPE 25% and Graphene25%.

 

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

 

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

 

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

 

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

 

F-59

 

 

24,480,000Shares

 

 

 

PROSPECTUS

 

 

 

         ,2021

 

Throughand including              , 2021 (the 25th dayafter the date of this offering), all dealers effecting transactions in these securities, whether or not participating in thisoffering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectuswhen acting as an underwriter and with respect to an unsold allotment or subscription.

 

   
 

 

PARTII

INFORMATIONNOT REQUIRED IN PROSPECTUS

 

Item13. Other Expenses of Issuance and Distribution

 

Thefollowing table sets forth the costs and expenses payable in connection with the sale and distribution of the securities beingregistered. All amounts are estimated except the SEC registration fees. Except as otherwise noted, all the expenses below willbe paid by us.

 

SEC Registration Fees  $9,988.67 
Legal Fees and Expenses   100,000.00 
Accounting Fees and Expenses   20,000.00 
Printing and Related Expenses   10,000.00 
Miscellaneous   5,000.00 
Total  $144,988.67 

 

 

*        Estimated expenses not presently known.

 

Item 14.Indemnification of Directors and Officers

 

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

 

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

 

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

 

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

 

Item 15.Recent Sales of Unregistered Securities

 

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

  

 II-1 
 

 

Issuanceof common stock - 2021

 

OnJanuary 5, 2021, the Company issued 750,000 shares of common stock valued at $1,125,000 as per the terms of the Platform LicenseAgreement between the Company and Honey Badger Media, LLC dated November 10, 2020.

  

On January 11, 2021, the Company issued100,000 shares of common stock valued at $150,000 to a consultant for services rendered on behalf of the Company.

 

OnJanuary 19, 2021, the Company issued 200,000 shares of common stock valued at $300,000 for the partial exercise of the warrantissued in connection with the Greentree financing.

 

OnJanuary 20, 2021, the Company issued 27,415 shares of common stock valued at $41,123 to Jefferson Street Capital, LLC in satisfactionof $740,000 principal against a note issued on April 7, 2020.

 

OnJanuary 21, 2021, the Company issued 58,000 shares of common stock valued at $87,000 to a consultant for services rendered onbehalf of the Company.

 

OnJanuary 21, 2021, the Company issued 350,000 shares of common stock valued at $525,000 for the partial exercise of the warrantissued in connection with the Greentree financing.

 

OnJanuary 22, 2021, the Company issued 51,129 shares of common stock valued at $76,694 for the exercise of the placement agent warrantissued in connection with the Greentree financing.

 

OnJanuary 22, 2021, the Company issued 67,744 shares of common stock valued at $101,616 for the exercise of the placement agentwarrant issued in connection with the Greentree financing.

 

OnJanuary 22, 2021, the Company issued 20,358 shares of common stock valued at $30,537 for the exercise of the placement agent warrantissued in connection with the Greentree financing.

 

OnJanuary 22, 2021, the Company issued 20,358 shares of common stock valued at $30,537 for the exercise of the placement agent warrantissued in connection with the Greentree financing.

 

OnJanuary 22, 2021, the Company issued 50,000 shares of common stock valued at $75,000 for the exercise of a warrant.

  

On February 1, 2021, the Company issued27,415 shares of common stock valued at $27,515 to Jefferson Street Capital, LLC in satisfaction of $26,766 principal againsta note issued on April 7, 2020.

 

On February 2, 2021, the Company issued100,000 shares of common stock valued at $319,000 for settlement of investment banking services.

 

On February 2, 2021, the Company issued209 shares of common stock for a cashless exercise of a warrant.

 

On February 4, 2021, the Company issued243,483 shares of common stock valued at $486,966 as true up shares in connection with the Greentree financing.

 

On February 4, 2021, the Company issued25,000 shares of common stock valued at $40,750 as incentive shares for a Note Agreement dated November 2, 2020.

 

Issuanceof common stock - 2020

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

OnJune 30, 2020, the Company issued 33,000 shares of common stock valued at $79,860 as incentive shares in connection with the Rallsfinancing.

 

OnJune 30, 2020, the Company issued 13,000 shares of common stock valued at $30,420 as incentive shares in connection with the Solitfinancing.

 

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

 

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

 

OnJuly 14, 2020, the Company issued 6,500 shares of common stock valued at $24,570 as Additional Incentive shares in connectionwith the O’Leary financing.

 

OnJuly 14, 2020, the Company issued 33,000 shares of common stock valued at $124,740 as Additional Incentive shares in connectionwith the Ralls financing.

 

OnJuly 14, 2020, the Company issued 13,000 shares of common stock valued at $49,140 as Additional Incentive shares in connectionwith the Solit financing.

 

OnJuly 23, 2020, the Company issued 320,000 shares of common stock valued at $1,158,400 to Greentree Financial Group, Inc. to satisfy$360,000 principal and $131,889 interest and fees against a note issued on January 23, 2020.

 

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

 

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

 

OnSeptember 2, 2020, the Company issued 30,000 shares of common stock valued at $61,500 to a Consultant for advisory services.

 

OnOctober 12, 2020, the Company issued 125,000 shares of common stock to Ralls, valued at $250,000, related to the exercise of theCommon Stock Purchase Warrant dated January 10, 2020.

 

OnNovember 19, 2020, the Company issued 40,000 shares of common stock valued at $59,600 to a note holder for conversion of a restrictedstock unit into shares of common stock.

 

OnDecember 29, 2020, the Company issued 41,730 shares of common stock valued at $62,595 to Jefferson Street Capital, LLC in satisfactionof $740,000 principal against a note issued on April 7, 2020.

 

Issuanceof common stock - 2019

 

OnMarch 6, 2019, we issued 15,000 shares of our common stock valued at $74,100 related to the borrowing of funds under a note payable.

 

OnMay 24, 2019, we issued 20,000 shares of our common stock valued at $62,000 to a note holder related to the borrowing of funds.

 

OnJune 18, 2019, we issued 15,000 shares of our common stock valued at $37,200 to a note holder to satisfy a portion of the payoffof one of our notes.

 

OnJuly 16, 2019, we issued 20,000 shares of our common stock valued at $70,920 to note holders related to the borrowing of funds.

 

OnAugust 26, 2019, we issued 181,005 shares of our common stock, of which 153,005 shares were reserved shares which were returnableupon repayment, valued at $713,159.70 to a note holder related to the borrowing of funds. These shares were returned in 2020 andare no longer outstanding.

 

OnNovember 4, 2019, we issued 15,000 shares of our common stock valued at $29,880 to one of our note holders related to our borrowingof funds.

 

OnNovember 21, 2019, we issued 1,175,000 shares of our common stock to investors at a purchase price of $2.00 per share in connectionwith the PIPE Transaction.

 

OnDecember 5, 2019, we issued 45,000 shares of our common stock valued at $90,000 related to the acquisition of the assets of UberMom, LLC.

 

OnDecember 19, 2019, we issued 10,000 shares of our common stock valued at $20,000 to 32 Entertainment, LLC, related to the borrowingof funds.

 

OnDecember 31, 2019, we issued 10,000 shares of our common stock valued at $20,000 to Joseph Tropea, a note holder, related to theborrowing of funds.

 

 II-2 
 

 

Issuanceof common stock - 2018

 

OnMay 4, 2018, we issued 13,500 shares of our common stock valued at $67,500 related to the borrowing of funds under a note payable.

 

OnAugust 23, 2018, we issued 20,000 shares of our common stock valued at $100,000 related to the borrowing of funds under a notepayable.

 

OnSeptember 4, 2018, we issued 557,084 shares of our common stock valued at $3,384,285 related to the acquisition of Edison NationHoldings, LLC.

  

OnDecember 27, 2018, we issued 489,293 shares of our common stock valued at $2,664,200 related to the acquisition of Cloud B, Inc.

 

Issuanceof common stock under the Company’s Equity Compensation Plan:

  

OnMay 8, 2018, we issued 61,900 shares of our common stock valued at $306,000 to various employees.

 

OnAugust 17, 2018, we issued 50,000 shares of our common stock valued at $250,000 to a consultant for services provided.

 

OnSeptember 10, 2018, we issued 20,000 shares of our common stock valued at $100,000 to a consultant for services performed.

 

OnSeptember 20, 2018, we issued 5,000 shares of our common stock valued at $25,000 to a consultant for services performed.

 

OnOctober 23, 2018, we issued 10,000 shares of our common stock valued at $50,000 to a consultant for services performed.

 

OnNovember 6, 2018, we issued 2,000 shares of our common stock valued at $10,000 to a consultant for services performed.

 

OnDecember 21, 2018, we issued 50,000 shares of our common stock valued at $251,000 to a consultant for services performed.

 

OnDecember 27, 2018, we issued 18,797 shares of our common stock valued at $100,000 to a consultant for services performed.

 

OnDecember 27, 2018, we issued 41,736 shares of our common stock valued at $250,000 to 2 employees.

 

OnDecember 28, 2018, we issued 3,000 shares of our common stock valued at $15,000 to a consultant for services performed.

 

OnMarch 13, 2019, we issued 10,500 shares of our common stock valued at $52,500 to two consultants for services performed.

 

OnMay 6, 2019, we issued 12,500 shares of our common stock valued at $47,625 to an innovator for the licensing of their product.

 

OnMay 24, 2019, we issued 10,000 shares of our common stock valued at $30,000 to a consultant for strategic consulting services.

 

OnJuly 16, 2019, we issued 25,000 shares of our common stock valued at $98,500 to a consultant for strategic consulting services.

 

OnJuly 16, 2019, we issued 50,000 shares of our common stock valued at $197,000 to a consultant for investor relations services.

 

OnSeptember 4, 2019, we issued 17,000 shares of our common stock under our plan valued at $54,250 to consultants for strategic consultingservices.

 

OnSeptember 4, 2019, we issued 3,000 shares of our common stock under our plan valued at $8,850 to an employee.

 

OnDecember 17, 2019, we issued 10,000 shares of our common stock valued at $20,000 to a consultant for strategic consulting servicesfor our Amazon.com business.

 

OnJanuary 7, 2020, we issued 100,000 shares of our common stock valued at $200,000 to Phil Anderson, former Chief Strategic Officer,for satisfaction of surrendering his outstanding options.

 

OnJanuary 7, 2020, we issued 32,813 shares of our common stock valued at $65,626 to Phil Anderson, our former Chief Financial Officerand Chief Strategic Officer, for satisfaction of his remaining payments under his strategic consulting contract.

 

OnDecember 31, 2019, we issued 23,923 shares of our common stock valued at $47,846 to 4 Keeps Roses, Inc, related to the joint ventureof Ed Roses, LLC.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

OnSeptember 2, 2020, the Company issued 25,000 shares of common stock valued at $61,000 to a Consultant for advisory services.

 

OnSeptember 2, 2020, the Company issued 15,000 shares of common stock valued at $32,400 to a Consultant for advisory services.

 

OnSeptember 29, 2020, the Company issued 50,000 shares of common stock valued at $106,500 to Louis Foreman, a director of the Company,in exchange for a Restricted Stock Unit.

 

OnSeptember 29, 2020, the Company issued 50,000 shares of common stock valued at $106,500 to Kevin O’Donnell, a director ofthe Company, in exchange for a Restricted Stock Unit.

 

OnSeptember 29, 2020, the Company issued 50,000 shares of common stock valued at $106,500 to Frank Jennings, a director of the Company,in exchange for a Restricted Stock Unit.

 

On December 14, 2020, the Company issued 10,000shares of common stock valued at $15,000 to an employee for services rendered on behalf of the Company.

 

On December 14, 2020, the Company issued 11,000shares of common stock valued at $16,500 to a consultant for services rendered on behalf of the Company.

 

On December 14, 2020, the Company issued 30,000shares of common stock valued at $45,000 to a director as compensation.

 

On December 16, 2020, the Company issued 60,000shares of common stock valued at $90,000 to a director as compensation.

 

On December 31, 2020, the Company issued 50,000shares of common stock valued at $75,000 to a consultant for services rendered on behalf of the Company.

 

On January 5, 2021, the Company issued 150,000shares of common stock valued at $225,000 to a consultant for services rendered on behalf of the Company.

 

On January 29, 2021, the Company issued100,000 shares of common stock valued at $327,000 under the Company’s Omnibus Plan to a consultant for services renderedon behalf of the Company.

 

On February 4, 2021, the Company issued25,000 shares of common stock valued at $31,250 to a consultant for services rendered on behalf of the Company.

 

On February 4, 2021, the Company issued255,000 shares of common stock valued at $351,900 to certain employees for services rendered on behalf of the Company.

 

On February 4, 2021, the Company issued210,000 shares of common stock valued at $287,700 to Directors of the Company’s Board of Directors for services rendered.

 

On February 4, 2021, the Company issued150,000 shares of common stock valued at $205,500 to a consultant for services rendered on behalf of the Company.

 

Item16. Exhibits and Financial Statement Schedules

 

(a) Exhibits.

 

Exhibit      

Incorporated By Reference

to

  Filed
Number   Description   Form   Exhibit   Filing Date   Herewith
3.1   Articles of Merger, filed with the Secretary of State of Nevada effective September 7, 2018   8-K   3.1   September 12, 2018    
3.2   Second Amended and Restated Bylaws of Edison Nation, Inc.   8-K   3.2   September 12, 2018    

3.3

  Second Amended and Restated Articles of Incorporation of Edison Nation, Inc.   8-K  

3.1

 

March 26, 2020

   
3.4   Certificate of Designation of Series B Convertible Preferred Stock   8-K   3.1   October 16, 2020    
3.5   Amendment to Certificate of Designation of Series B Convertible Preferred Stock               *
5.1   Legal opinion of Lucosky Brookman LLP               *
10.1   Form of Senior Convertible Promissory Note   8-K   2.1   July 6, 2018    
10.1   Membership Interest Purchase Agreement dated June 29, 2018   8-K   10.1   July 6, 2018    
10.2   Fifth Amended and Restated Operating Agreement of Edison Nation Holdings, LLC, dated September 4, 2018   8-K   10.2   September 6, 2018    
10.3   Registration Rights Agreement dated September 4, 2018   8-K   10.3   September 6, 2018    
10.4+   Amended and Restated Edison Nation, Inc. Omnibus Incentive Plan   8-K   3.3   September 12, 2018    
10.5+   Employment Agreement, by and between Edison Nation, Inc. and Christopher Ferguson, dated September 26, 2018   8-K   10.1   October 5, 2018   +
10.6+   Employment Agreement, by and between Edison Nation, Inc. and Phil Anderson, dated September 26, 2018   8-K   10.2   October 5, 2018   +
10.7   Stock Purchase Agreement, dated October 24, 2018   8-K   10.1   October 30, 2018    
10.8   Securities Purchase Agreement, dated March 6, 2019   8-K   10.1   March 13, 2019    
10.9   Senior Convertible Promissory Note, dated March 6, 2019   8-K   10.2   March 13, 2019    
10.10   Pledge Agreement, dated March 12, 2019   8-K   10.3   March 13, 2019    
10.11   Form of Securities Purchase Agreement dated May 13, 2019   8-K   10.1   May 17, 2019    
10.12   Form of Senior Convertible Promissory Note dated May 13, 2019   8-K   10.2   May 17, 2019    
10.13   Settlement and Release Agreement dated June 17, 2019 with FirstFire Global Opportunities Fund, LLC   8-K    10.1   June 19, 2019    
10.14   Loan Agreement with Tiburon Opportunity Fund, dated June 14, 2019   8-K   10.1   June 20, 2019    
10.15   Operating Agreement of Ed Roses, LLC, dated August 23, 2019   S-1   10.18   February 12, 2020    
10.16   Securities Purchase Agreement with Labrys Fund, LP, dated August 26, 2019   8-K   10.1   August 29, 2019    
10.17   12% Convertible Promissory Note, dated August 26, 2019   8-K   10.2   August 29, 2019    
10.18   Form of Share Purchase Agreement, dated October 2, 2019   8-K   10.1   October 4, 2019    
10.19   Form of Registration Rights Agreement, dated October 2, 2019   8-K   10.2   October 4, 2019    
10.20   Uber Mom Asset Purchase Agreement, dated November 6, 2019   S-1   10.23   February 12, 2020    
10.21   Purchase of Inventory and Repurchase Agreement with Claudia McFillin and Joseph Tropea, dated November 12, 2019   S-1   10.24   February 12, 2020    
10.22   Future Receivables Sale and Purchase Agreement with Velocity Group USA Inc., dated November 18, 2019   S-1   10.25   February 12, 2020    
10.23   10% Senior Secured Note with 32 Entertainment LLC, dated December 4, 2019   S-1   10.26   February 12, 2020    
10.24  

Common Stock Purchase Warrant with 32 Entertainment LLC, dated December 4, 2019

  S-1   10.27   February 12, 2020    

 

 II-3 
 

 

Exhibit      

Incorporated By Reference

to

  Filed
Number   Description   Form   Exhibit   Filing Date   Herewith
10.25   Registration Rights Agreement with 32 Entertainment LLC, dated December 4, 2019   S-1   10.28   February 12, 2020    
10.26   Loan Agreement with Tiburon Opportunity Fund, dated January 2, 2020   S-1   10.29   February 12, 2020    
10.27   5% Note Agreement with Equity Trust Company, Custodian FBO: Rawleigh H. Ralls, dated January 10, 2020   S-1   10.30   February 12, 2020    
10.28   Common Stock Purchase Warrant with Equity Trust Company, Custodian FBO: Rawleigh H. Ralls, dated January 10, 2020   S-1   10.31   February 12, 2020    
10.29   5% Note Agreement with Paul J. Solit and Julie B. Solit, dated January 15, 2020   S-1   10.32   February 12, 2020    
10.30   Common Stock Purchase Warrant with Paul J. Solit and Julie B. Solit, dated January 15, 2020   S-1   10.33   February 12, 2020    
10.31   5% Note Agreement with Richard O’Leary, dated January 17, 2020   S-1   10.34   February 12, 2020    
10.32   Common Stock Purchase Warrant with Richard O’Leary, dated January 15, 2020   S-1   10.35   February 12, 2020    
10.33   Loan Agreement with Greentree Financial Group, Inc., dated January 23, 2020   8-K   10.1   January 29, 2020    
10.34   10% Convertible Promissory Note with Greentree Financial Group, Inc., dated January 23, 2020   8-K   10.2   January 29, 2020    
10.35   Common Stock Purchase Warrant with Greentree Financial Group, Inc., dated January 23, 2020   8-K   10.3   January 29, 2020    
10.36   Amendment Agreement with Greentree Financial Group, Inc., dated January 29, 2020   8-K   10.4   January 29, 2020    
10.37   Asset Purchase Agreement between HMNRTH, LLC, TCBM Holdings, LLC and Edison Nation, Inc. and Scalematix, LLC dated March 11, 2020   8-K   10.1   March 12, 2020    
10.38   Securities Purchase Agreement between Edison Nation, Inc. and Jefferson Street Capital, LLC dated April 7, 2020   8-K   10.3   April 27, 2020  
10.39   Convertible Promissory Note between Edison Nation, Inc. and Jefferson Street Capital, LLC dated April 7, 2020  

8-K

 

10.4

 

April 27, 2020

 
10.40   Securities Purchase Agreement between Edison Nation, Inc. and BHP Capital NY Inc. dated April 7, 2020  

8-K

  10.1  

April 27, 2020

 
10.41   Convertible Promissory Note between Edison Nation, Inc. and BHP Capital NY Inc dated April 7, 2020  

8-K

 

10.2

 

April 27, 2020

 
10.42   Promissory Note Small Business Administration-Paycheck Protection Program dated April 15, 2020   8-K   10.8   April 27, 2020    
10.43   Consulting Agreement between Edison Nation, Inc. and Tiburon dated April 24, 2020   8-K   10.5   April 27, 2020    
10.44   Debt Conversion Agreement between Edison Nation, Inc. and Tiburon Opportunity Fund dated April 24, 2020   8-K   10.6   April 27, 2020    
10.45   Distributor Agreement between Edison Nation Holdings, LLC and Marrone Bio Innovations, Inc. dated May 13, 2020   10-K    10.45   May 29, 2020  

10.46   Secured Line of Credit Agreement between Global Solutions, LLC, Edison Nation, Inc. and PPE Brickell Supplies, LLC dated May 20, 2020  

8-K

 

10.1

 

May 26, 2020

   
10.47   Security Agreement between Global Solutions, LLC, Edison Nation, Inc. and PPE Brickell Supplies, LLC dated May 20, 2020   8-K   10.2   May 26, 2020    
10.48   Agreement and Plan of Share Exchange Agreement between Edison Nation, Inc. PPE Brickell Supplies, LLC and Graphene Holdings, LLC dated May 20, 2020   8-K   10.3   May 26, 2020    
10.49   Amended Limited Liability Company Agreement of Global Clean Solutions, LLC dated May 20, 2020   8-K   10.4   May 26, 2020    
10.50   Purchase of Inventory and Repurchase Agreement between Edison Nation, Inc. and Fergco Bros, LLC dated May 7, 2020  

10-K

  10.50  

May 29, 2020

 
10.51   Amendment to Purchase of Inventory and Repurchase Agreement between Edison Nation, Inc. and Fergco Bros, LLC dated May 15, 2020    10-K   10.51    May 29, 2020  
10.52   Amendment to Senior Secured Note between Edison Nation, Inc. and 32 Entertainment, LLC dated May 19, 2020    10-K   10.52    May 29, 2020  
10.53   Amended Subordinate Secured Note between Edison Nation, Inc and 32 Entertainment, LLC dated May 19, 2020  

10-K

  10.53  

May 29, 2020

 
10.54   Agreement for the Purchase and Sale of Common Stock of Cloud B, Inc. dated February 17, 2020   8-K   10.1   February 21, 2020    
10.55   Amendment to Note Agreement and Common Stock Purchase Warrant between Edison Nation, Inc. and Richard O’Leary dated July 10, 2020   S-1    10.55   July 16, 2020    
10.56   Amendment to Note Agreement and Common Stock Purchase Warrant between Edison Nation, Inc. and Equity Trust Company, a Custodian FBO: Rawleigh H. Ralls IRA dated July 10, 2020   S-1    10.56    July 16, 2020     
10.57   Amendment to Note Agreement and Common Stock Purchase Warrant between Edison Nation, Inc. and Paul J. Solit and Julie B. Solit dated July 10, 2020   S-1    10.57   July 16, 2020    
10.58   Convertible Promissory Note between Edison Nation, Inc. and Jefferson Street Capital, LLC dated July 29, 2020   10-Q   10.30   August 18, 2020    
10.59   Memorandum of Understanding between the Global Clean Solutions, LLC, Office Mart, Inc. and ZAAZ Medical, Inc. dated June 8, 2020   10-Q   10.31   August 18, 2020    
10.60   Amendment to Memorandum of Understanding dated August 6, 2020   10-Q   10.32   August 18, 2020    

10.61

  Forbearance Agreement between the Company and Jefferson Street Capital, LLC dated October 7, 2020  

10-Q

 

10.33

 

November 23, 2020

   
10.62   Asset Purchase Agreement between Honey Badger Media, LLC and Honey Badger, LLC dated November 10, 2020  

8-K

  10.1   November 12, 2020    
10.63   Platform License Agreement between Honey Badger Media, LLC and Honey Badger Media, LLC dated November 10, 2020  

8-K

  10.2   November 12, 2020    
10.64   Inventory Management Agreement between Edison Nation, LLC and Forever 8 Fund, LLC dated November 17, 2020   10-Q   10.36  

November 23, 2020

   
10.65   Stock Exchange Agreement dated between Jupiter Wellness, Inc, SRM Entertainment, Ltd and Vinco Ventures, Inc. dated November 30, 2020   8-K   1.1   December 3, 2020    
10.66   Agreement to Complete a Plan of Merger between Vinco Ventures, Inc., Vinco Acquisition Corporation and ZASH Global Media and Entertainment Corporation dated January 20, 2021   8-K   10.1   January 21, 2021    

10.67

  Contribution Agreement by and among ZVV Media Partners, LLC, Vinco Ventures, Inc. and Zash Global Media and Entertainment Corporation dated January 19, 2021  

8-K

 

10.1

 

January 21, 2021

   
10.68  

Senior Convertible Note between Vinco Ventures, Inc. and Hudson Bay Master Fund, Ltd dated January 25, 2021

 

8-K

  4.1   January 25, 2021    
10.69   Securities Purchase Agreement between Vinco Ventures, Inc. and Hudson Bay Master Fund, Ltd dated January 25, 2021   8-K   10.1   January 25, 2021    
10.70 Common Stock Purchase Warrant Agreement between Vinco Ventures, Inc. and Hudson Bay Master Fund, Ltd dated January 25, 2021   8-K   10.2   January 25, 2021    
10.71   Registration Rights Agreement between Vinco Ventures, Inc. and Hudson Bay Master Fund, Ltd dated January 25, 2021   8-K   10.3   January 25, 2021    
10.72   Securities Purchase Agreement between Vinco Ventures, Inc. and BHP Capital NY Inc. dated January 29, 20201  

8-K

 

10.1

 

February 4, 2021

   
10.73   Common Stock Purchase Warrant Agreement between Vinco Ventures, Inc. and BHP Capital NY Inc. dated January 29, 2021  

8-K

 

10.2

 

February 4, 2021

 
10.74   Registration Rights Agreement between Vinco Ventures, Inc. and BHP Capital NY Inc. dated January 29, 2021  

8-K

 

10.3

 

February 4, 2021

 
10.75   Employment Agreement between Vinco Ventures, Inc. and Christopher Ferguson dated February 2, 2021               *
10.76   Employment Agreement between Vinco Ventures, Inc. and Brett Vroman dated February 2, 2021              

*

10.77   Employment Agreement between Vinco Ventures, Inc. and Brian McFadden dated February 2, 2021              

*

21.1   List of Significant Subsidiaries   S-1   21.1   February 12, 2020  
21.2   Articles of Incorporation of Vinco Ventures, Inc. filed with the State of Nevada   8-K   21.1   November 12, 2020    
21.3   Articles of Formation of Honey Badger Media, LLC filed with the State of Nevada  

8-K

  21.1   November 12, 2020    
23.1   Consent of Marcum llp               *
                     
101.INS*   XBRL Instance Document               *
101.SCH*   XBRL Taxonomy Extension Schema Document               *
101.CAL*   XBRL Taxonomy Extension Calculation Linkbase Document               *
101.DEF*   XBRL Taxonomy Extension Definition Linkbase Document               *
101.LAB*   XBRL Taxonomy Extension Label Linkbase Document               *
101.PRE*   XBRL Taxonomy Extension Presentation Linkbase Document               *

 

  * Filed herewith.
     
  ** Furnished herewith.
     
  + Denotes a management compensatory plan, contract or arrangement

 

(b) Financial statement schedules.

 

Nofinancial statement schedules are provided because the information called for is not required or is shown in the consolidatedfinancial statements or related notes.

  

Item17. Undertakings

 

(a)The undersigned registrant hereby undertakes:

 

(1)To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

 

(i)To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;

 

(ii)To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recentpost-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information setforth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (ifthe total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or highend of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregateoffering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.

 

(iii)To include any material information with respect to the plan of distribution not previously disclosed in the registration statementor any material change to such information in the registration statement;

 

(2)That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shallbe deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities atthat time shall be deemed to be the initial bona fide offering thereof.

 

 II-4 
 

 

(3)To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsoldat the termination of the offering.

 

(4)That, for the purpose of determining liability under the Securities Act to any purchaser, each prospectus filed pursuant to Rule424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B orother than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statementas of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statementor prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by referenceinto the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time ofcontract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectusthat was part of the registration statement or made in any such document immediately prior to such date of first use.

 

Insofaras indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling personsof the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of theSEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In theevent that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurredor paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding)is asserted by such director, officer or controlling person in connection with the securities being registered, the registrantwill, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriatejurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and willbe governed by the final adjudication of such issue.

 

 II-5 
 

 

SIGNATURES

 

Pursuantto the requirements of the Securities Act of 1933, we have duly caused this Registration Statement on Form S-1 to be signed onits behalf by the undersigned, thereunto duly authorized, in Bethlehem, Pennsylvania, on February 5, 2021.

 

  VINCO VENTURES, INC.
     
  By: /s/ Christopher B. Ferguson
    Christopher B. Ferguson
    Chief Executive Officer

 

POWEROF ATTORNEY

 

KNOWALL PERSONS BY THESE PRESENTS, that each person whose individual signature appears below hereby authorizes and appoints ChristopherB. Ferguson and Brett Vroman, and each of them, with full power of substitution and resubstitution and full power to act withoutthe other, as his true and lawful attorney-in-fact and agent to act in his name, place and stead and to execute in the name andon behalf of each person, individually and in each capacity stated below, and to file any and all amendments to this RegistrationStatement on Form S-1, and to file the same, with all exhibits thereto, and other documents in connection therewith,with the SEC, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform eachand every act and thing, ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his substituteor substitutes may lawfully do or cause to be done by virtue thereof.

 

Pursuantto the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacitiesand on the dates indicated.

 

Signature   Title   Date
         
/s/ Christopher B. Ferguson   Chief Executive Officer and Chairman of the Board of Directors  

February 5, 2021

Christopher B. Ferguson   (Principal Executive Officer)    
         
/s/ Brett Vroman   Chief Financial Officer  

February 5, 2021

Brett Vroman   (Principal Financial Officer and Principal Accounting Officer)    
         
/s/ Louis Foreman   Director  

February 5, 2021

Louis Foreman        
         
/s/ Frank Jennings   Director  

February 5, 2021

Frank Jennings        
         
/s/ Mary Ann Halford   Director  

February 5, 2021

Mary Ann Halford        
         
/s/ Kevin J. O’Donnell   Director  

February 5, 2021

Kevin J. O’Donnell        

 

 II-6 

 

Stock View