Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or Section 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such ~~files.)~~files).

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

As of May ~~10, 2018,~~15, 2019, there were ~~4,368,930~~5,692,830 shares of the registrant’s common stock outstanding.

This Quarterly Report on Form 10-Q 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 which we operate (including our management’s estimates and assumptions relating to such industries based on that knowledge). Management has developed its knowledge of such industries through its experience and participation in these industries. While our management believes the third-party sources referred to in this Quarterly Report on Form 10-Q are reliable, neither we nor our management have independently verified any of the data from such sources referred to in this Quarterly Report on Form 10-Q or ascertained the underlying economic assumptions relied upon by such sources. Furthermore, internally prepared and third-party market prospective information, in particular, are estimates only and there will usually be differences between the prospective and actual results, because events and circumstances frequently do not occur as expected, and those differences may be material. Also, references in this Quarterly Report on Form 10-Q 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 reference in this Quarterly Report on Form 10-Q.

Solely for convenience, we refer to trademarks in this Quarterly Report on Form 10-Q without the ® or the ™ or symbols, but such references are not intended to indicate that we will not assert, to the fullest extent under applicable law, our rights to our own trademarks. Other service marks, trademarks and trade names referred to in this Quarterly Report on Form 10-Q, if any, are the property of their respective owners, although for presentational convenience we may not use the ® or the ™ symbols to identify such trademarks.

Unless the context otherwise indicates, when used in this ~~report,~~Quarterly Report on Form 10-Q, the terms ~~Xspand Products Lab,”~~“Edison Nation” “we,” “us, ~~“our”~~” “our,” the “Company” and similar terms refer to ~~Xspand Products Lab,~~Edison Nation, Inc., a Nevada corporation formerly known as Xspand Products Lab, Inc. and Idea Lab Products, Inc., and all of our subsidiaries ~~S.R.M. Entertainment Limited (“SRM”)~~ and ~~Ferguson Containers, Inc. (“Fergco”).~~affiliates.

~~Unless otherwise indicated, all share and per share information contained herein gives pro forma effect to the 1:33333 reverse stock split of our common stock, which was effective February 14, 2018.~~

This Quarterly Report on Form 10-Q for the period ended March 31, 2019 (the “Quarterly Report”) contains forward-looking statements within the meaning of ~~Section 27A of~~ the Private Securities Litigation Reform Act of ~~1933,~~1995 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements relate to future events (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 ~~including~~such as “anticipates,” “believes,” “expects,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predict,” “should” or “will” or the negative of these terms or other comparable terminology. These statements are only predictions; uncertainties and other factors may cause our actual results, levels of activity, performance or achievements to be materially different from any 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 future results, levels of activity, performance or achievements. Our expectations are as of the date this Quarterly Report is filed, and we do not intend to update any of the forward-looking statements after the date this Quarterly Report is filed to confirm these statements to actual results, unless required by law.

You should not place undue reliance on forward looking statements. The cautionary statements set forth in this Quarterly Report identify important factors which you should consider in evaluating our forward-looking statements. These factors include, among other things:

This Quarterly Report on Form 10-Q also contains estimates and other statistical data made by independent parties and by us relating to market size and growth and other industry data. This data involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. We have not independently verified the statistical and other industry data generated by independent parties and contained in this Quarterly Report and, accordingly, we cannot guarantee their accuracy or completeness, though we do generally believe the data to be reliable. In addition, projections, assumptions and estimates of our future performance and the future performance of the industries in which we operate are necessarily subject to a high degree of uncertainty and risk due to a variety of 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; that existing and potential distribution partners may opt to work with, or favor the products of, competitors if our competitors offer more favorable products or pricing terms; that we may be unable to maintain or grow sources of revenue; that ~~changes in the distribution network composition may lead to decreases in query volumes; that~~ we may be unable ~~to attain and~~ maintain 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; that we may have unexpected increases in costs and expenses. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.

Edison Nation, Inc.(formerly known as Xspand Products Lab, Inc.)and Subsidiaries

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

Edison Nation, Inc.(formerly known as Xspand Products Lab, Inc.)and Subsidiaries

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

Edison Nation, Inc.(formerly known as Xspand Products Lab, Inc.)and Subsidiaries

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

Edison Nation, Inc.(formerly known as Xspand Products Lab, Inc.)and Subsidiaries

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

Edison Nation, Inc.(formerly known as Xspand Products Lab, Inc.)and Subsidiaries

Note 1 — ~~Business Organization~~Basis of Presentation and Nature of Operations

Xspand Products Lab, Inc. (“Xspand”) was incorporated on July 18, 2017 under the laws of the State of Nevada as Idea Lab X Products, Inc. On October 26, 2017, Idea Lab X Products, Inc. changed its name to Xspand Products Lab, Inc.

As of March 31, 2018, Xspand had two wholly-owned subsidiaries (collectively, the “Company”): S.R.M. Entertainment Limited (“SRM”) and Ferguson Containers, Inc. (“Fergco”). SRM was incorporated in Hong Kong on January 14, 1981 and primarily designs, manufactures and sells a broad variety of innovative toy products directly to retailers or direct to consumers via ecommerce in North America, Asia and Europe. Fergco was incorporated on September 14, 1966 under the laws of the State of New Jersey. Fergco primarily designs, manufactures and sells packaging and packaging materials for industrial and pharmaceutical companies in North America.

On September 30, 2017, SRM and Fergco were acquired by Xspand in exchange for an aggregate of 3,000,000 shares of Xspand common stock and notes payable aggregating $2,996,500. This transaction between entities under common control resulted in a change in reporting entity and required retrospective combination of the entities for all periods presented, as if the combination had been in effect since the inception of common control. Accordingly, the consolidated financial statements of Xspand reflect the accounting of the combined acquired subsidiaries at historical carrying values, except that equity reflects the equity of Xspand.

The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and with Form 10-Q and Article 10 of Regulation S-X of the United States Securities and Exchange ~~Commission.~~Commission (the “SEC”). Accordingly, they do not contain all information and footnotes required by GAAP for annual financial statements. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of March 31, ~~2018~~2019 and the results of operations, changes in stockholders’ equity, and cash flows for the periods presented. The results of operations for the three ~~months~~ ended March 31, ~~2018~~2019 are not necessarily indicative of the operating results for the full fiscal year for any future period.

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018. The Company’s accounting policies are described in the Notes to Consolidated Financial Statements in its Annual Report on Form 10-K for the year ended December 31, ~~2017,~~2018, and updated, as necessary, in this Quarterly Report on Form 10-Q.

As used 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 Nevada as Idea Lab X Products, Inc. and also formerly known as Xspand Products Lab, Inc. prior to its name change on September 12, 2018,and/or its wholly-owned and majority-owned operating subsidiaries, and/or where applicable, its management.

Edison Nation is a vertically-integrated, end-to-end, consumer product research & development, manufacturing, sales and fulfillment company. The Company’s proprietary web-enabled platform provides a low risk, high reward platform and process to connect innovators of new product ideas with potential licensees.

As of March 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. and 50% of Best Party Concepts, 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.

For the three months ended March 31, 2019, our operations lost approximately $1,300,000 of which approximately $700,000 was non-cash and approximately $400,000 was related to transaction costs and other non-recurring items.

At March 31, 2019, we had total current assets of approximately $6,200,000 and current liabilities of approximately $10,800,000 resulting in negative working capital of approximately $4,600,000, of which approximately $3,800,000 related to unsecured trade payables assumed in our Cloud B acquisition. In February 2019, our consolidating subsidiary, CBAV1, LLC, foreclosed on the promissory note it held that was secured by Cloud B, Inc.’s assets making any payments of suchCloud B trade payables unlikely. At March 31, 2019, we had total assets of approximately $30,300,000 and total liabilities of approximately $15,400,000 resulting in stockholders’ equity of approximately $14,900,000.

The foregoing factors raised concerns about the Company’s ability to continue as a going concern. The ability to continue as a going concern is dependent upon the Company’s ability to attract significant new sources of capital, attain a reasonable threshold of operating efficiencies and achieve profitable operations from the sale of its products. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Management has considered possible mitigating factors within our management plan on our ability to continue for at least a year from the date these financial statements are filed. The following items are management plans to alleviate any going concern issues:

Edison Nation, Inc.(formerly known as Xspand Products Lab, Inc.)and Subsidiaries

The ~~condensed~~ consolidated financial statements include the accounts of ~~Xspand~~Edison Nation, Inc. and its wholly-owned ~~subsidiaries, SRM~~ and ~~Fergco.~~ majority owned subsidiaries.All intercompany ~~transactions~~balances and ~~balances~~transactions have been ~~eliminated in consolidation.~~eliminated.

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

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

Cash and Cash Equivalents

The Company has cash on deposit in several financial institutions which, at times, may be in excess of Federal Deposit Insurance Corporation (“FDIC”) insurance limits. The Company has not experienced losses in such accounts and periodically evaluates the creditworthiness of its financial institutions. The Company reduces its credit risk by placing its cash and cash equivalents with major financial institutions. The Company had approximately $448,000 uninsured at March 31, 2019 of which approximately $329,000 was held in foreign bank accounts not covered by FDIC insurance limits as of March 31, 2019.

Accounts Receivable

As of March 31, 2019, the following customers represented more than 10% of total accounts receivable:

	~~-8-~~	March 31,
		2019
Customer A			17	%
Customer B			12	%

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

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

Step 1 – Identify the Contract with the Customer – A contract exists when (a) the parties to the contract have approved the contract and are committed to perform their respective obligations, (b) the entity can identify each party’s rights regarding the goods or services to be transferred, (c) the entity can identify the payment terms for the goods or services to be transferred, (d) the contract has commercial substance and € it is probably that the entity will collect substantially all of the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer.

Edison Nation, Inc.(formerly known as Xspand Products Lab, Inc.)and Subsidiaries

Step 2 – Identify Performance Obligations in the Contract – Upon execution of a contract, the Company identifies as performance obligations each promise to transfer to the customer either (a) goods or services that are distinct, or (b) a series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer. To the extent a contract includes multiple promised goods or services, the Company must apply judgement to determine whether the goods or services are capable of being distinct within the context of the contract. If these criteria are not met, the goods or services are accounted for as a combined performance obligation.

Step 3 – Determine the Transaction Price – When (or as) a performance obligation is satisfied, the Company shall recognize as revenue the amount of the transaction price that is allocated to the performance obligation. The contract terms are used to determine the transaction price. Generally, all contracts include fixed consideration. If a contract did include variable consideration, the Company would determine the amount of variable consideration that should be included in the transaction price based on expected value method. Variable consideration would be included in the transaction price, if in the Company’s judgement, it is probable that a significant future reversal of cumulative revenue under the contract would not occur.

Step 4 – Allocate the Transaction Price – After the transaction price has been determined, the next step is to allocate the transaction price to each performance obligation in the contract. If the contract only has one performance obligation, the entire transaction price will be applied to that obligation. If the contract has multiple performance obligations, the transaction price is allocated to the performance obligations based on the relative standalone selling price (SSP) at contract inception.

Step 5 – Satisfaction of the Performance Obligations (and Recognize Revenue) – Revenue is recognized when (or as) goods or services are transferred to a customer. The Company satisfies each of its performance obligations by transferring control of the promised good or service underlying that performance obligation to the customer. Control is the ability to direct the use of, and obtain substantially all of the remaining benefits from an asset. It includes the ability to prevent other entities from directing the use of, and obtaining the benefits from an asset. Indicators that control has passed to the customer include: a present obligation to pay; physical possession of the asset; legal title; risks and rewards of ownership; and acceptance of the asset(s). Performance obligations can be satisfied at a point in time or over time.

Substantially all of the Company’s revenues continue to be recognized when control of the goods are transferred to the customer, which is upon shipment of the finished goods to the customer. All sales have fixed pricing and there are currently no material variable components included in the Company’s revenue. Additionally, the Company will issue credits for defective merchandise, historically these credits for defective merchandise have not been material. Based on the Company’s analysis of the new revenue standards, revenue recognition from the sale of finished goods to customers, which represents substantially all of the Company’s revenues, was not impacted by the adoption of the new revenue standards.

The Company’s primary revenue streams include the sale and/or licensing of consumer goods ~~for innovative toy products (SRM)~~ and packaging materials ~~to industrial~~for innovative products. The Company’s licensing business is not material and ~~pharmaceutical companies (Fergco).~~has not been separately disaggregated for segment purposes. The disaggregated Company’s revenues for the three months ended March 31, 2019 and 2018 was as follows:

Edison Nation, Inc.(formerly known as Xspand Products Lab, Inc.)and Subsidiaries

For ~~a presentation~~the three months ended March 31, 2019 and 2018, the following customer represented more than 10% of total net revenues:

For the ~~Company’s revenues disaggregated by segment, see Note 9, Segment Reporting.~~three months ended March 31, 2019 and 2018, the following geographical regions represented more than 10% of total net revenues:

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

ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:

Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable

Level 3 — inputs that are unobservable (for example, cash flow modeling inputs based on assumptions)

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

Edison Nation, Inc.(formerly known as Xspand Products Lab, Inc.)and Subsidiaries

As of March 31, 2019, the book value and estimated fair value of the Company’s level 3 instruments was as follows:

The following changes in level 3 instruments for the three months ended March 31, 2019 are presented below:

There were no changes to the underlying assumptions used in determining the fair value of the contingent consideration liability for the three months ended March 31, 2019.

The Company uses the United States dollar as its functional and reporting currency since the majority of the Company’s revenues, expenses, assets and liabilities are in the United States. Assets and liabilities in foreign currencies ~~(HK dollars)~~ are translated using the exchange rate at the balance sheet date, while revenue and expense accounts are translated at the average exchange rates prevailing during the year. Equity accounts are translated at historical exchange rates. Gains and losses from foreign currency transactions and translation for the three months ended March 31, ~~2018~~2019 and ~~2017~~2018 and the cumulative translation gains and losses as of March 31, ~~2018~~2019 and December 31, ~~2017~~2018 were not material.

Edison Nation, Inc.(formerly known as Xspand Products Lab, Inc.)and Subsidiaries

~~The Company accounts for income taxes under the provisions of the Financial Accounting Standards Board (“FASB”) ASC Topic 740 “Income Taxes” (“ASC Topic 740”).~~

~~The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of items that have been included~~Net Earnings or excluded in the financial statements or tax returns. Deferred tax assets and liabilities are determined on the basis of the difference between the tax basis of assets and liabilities and their respective financial reporting amounts (“temporary differences”) at enacted tax rates in effect for the years in which the temporary differences are expected to reverse.

~~The Company utilizes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.~~

Management has evaluated and concluded that there were no material uncertain tax positions requiring recognition in the Company’s condensed consolidated financial statements as of March 31, 2018 and December 31, 2017. The Company does not expect any significant changes in its unrecognized tax benefits within twelve months of the reporting date.

~~The Company’s policy is to classify assessments, if any, for tax related interest as interest expense and penalties as general and administrative expenses in the statements of operations.~~

On December 22, 2017, the Tax Cuts and Jobs Act (the “TCJA”) was signed into law. This legislation significantly changes U.S. tax law by, among other things, lowering corporate income tax rates, implementing a territorial tax system and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries. The Tax Reform Act permanently reduces the U.S. corporate income tax rate from 35% to 21%, effective January 1, 2018.

The staff of the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the TCJA. Although the Company is unable to make a reasonable estimate on the full effect on our income taxes as of the date of this report, the Company remeasured its deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. The remeasurement of the Company's deferred tax assets and liabilities was offset by a change in the valuation allowance.

The Company is still in the process of analyzing the impact to the Company of the TCJA. Where the Company has been able to make reasonable estimates of the effects related to which its analysis is not yet complete, the Company has recorded provisional amounts. The ultimate impact to the Company’s condensed consolidated financial statements of the TCJA may differ from the provisional amounts due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of the TCJA. The accounting is expected to be complete when the Company’s 2017 U.S. corporate income tax return is filed in 2018.

Basic net ~~(loss) income~~loss per common share is computed by dividing net ~~(loss) income~~loss by the weighted average number of vested common shares outstanding during the ~~period, adjusted to give effect to the 1-for-3.333333 reverse stock split, which was effected on February 14, 2018.~~period. Diluted net income per common share is computed by dividing net income by the weighted average number vested of common shares, plus the net impact of common shares (computed using the treasury stock method), if dilutive, resulting from the exercise of dilutive securities. In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive. As of March 31, 2018, ~~and 2017,~~ there were no ~~dilutive securities~~common stock equivalents outstanding. As of March 31, 2019, the Company excluded the common stock equivalents summarized below, which entitle the holders thereof to ultimately acquire shares of common stock, from its calculation of earnings per share, as their effect would have been anti-dilutive.

Edison Nation, Inc.(formerly known as Xspand Products Lab, Inc.)and Subsidiaries

~~Financial instruments~~In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (ASU 2016-02) which amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. This accounting guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. Additionally, this accounting guidance requires a modified retrospective transition approach for all leases existing at, or entered into after the date of initial application, with an option to use certain transition relief. In July 2018, the FASB issued a practical expedient that ~~potentially expose~~would allow entities the ~~Company~~option to ~~concentrations~~apply the provisions of ~~credit risk consist primarily~~the new lease guidance at the effective date of ~~cash and cash equivalents, accounts receivables and revenues.~~

The Company has ~~cash on deposits in several financial institutions which, at times, may be in excess~~elected the “package of ~~Federal Deposit Insurance Corporation (“FDIC”) insurance limits.~~practical expedients” and as a result is not required to reassess its prior accounting conclusions about lease identification, lease classification and initial direct costs for lease contracts that exist as of the transition date. However, the Company has not elected the use of hindsight for determining the reasonably certain lease term.

The new lease standard also provides practical expedients and policy elections for an entity’s ongoing accounting. The Company has elected the practical expedient to not ~~experienced losses in such accounts~~separate lease and ~~periodically evaluates the creditworthiness~~non-lease components for all of its ~~financial institutions.~~leases. The Company ~~reduces its credit risk by placing its cash~~has elected the short-term lease recognition exemption, which results in no recognition of right-of-use assets and ~~cash equivalents with major financial institutions.~~lease liabilities for existing short-term leases at transition.

Upon adoption on January 1, 2019, the Company recognized right of use assets for operating leases and operating lease liabilities that have not previously been recorded. The lease liability for operating leases is based on the net present value of future minimum lease payments. The right of use asset for operating leases is based on the lease liability. The Company ~~had $534,666 uninsured at March 31, 2018 and $131,183 uninsured at December 31, 2017.~~ did not have any deferred rent or material prepaid rent.

The ~~Company held cash~~cumulative effect of ~~$445,481 in foreign bank accounts~~initially applying the new lease accounting standard as of ~~March 31, 2018.~~January 1, 2019 is as follows:

The ~~Company had revenues~~adoption of the standard did not result in any material changes to ~~two customers~~the recognition of operating lease expenses in the Company’s consolidated statements of operations.

In June 2018, the FASB issued an amendment to the accounting guidance related to accounting for employee share-based payments which clarifies that ~~represented 35%~~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. We have adopted this accounting guidance effective January 1, 2019, with no impact on our financial statements as there were no excess tax benefits to be recognized due to our net operating losses.

In August 2018, the FASB issued new accounting guidance that addresses the accounting for implementation costs associated with a hosted service. The guidance provides that implementation costs be evaluated for capitalization using the same criteria as that used for internal-use software development costs, with amortization expense being recorded in the same income statement expense line as the hosted service costs and ~~13%~~over the expected term of ~~total net sales~~the hosting arrangement. This guidance is effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. The guidance will be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. We have not yet adopted this accounting guidance and are currently evaluating the effect this accounting guidance will have on our financial statements.

In August 2018, the FASB issued new accounting guidance that eliminates, adds and modifies certain disclosure requirements for fair value measurements. Among the changes, an entity will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted. Since this accounting guidance only revises disclosure requirements, it will not have a material impact on the Company’s consolidated financial statements.

In October 2018, the FASB issued new accounting guidance for Variable Interest Entities, which requires indirect interests held through related parties in common control arrangements be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. The guidance is effective for the ~~three months ended March~~Company’s interim and annual reporting periods during the year ending December 31, ~~2018.~~2020. Early adoption is permitted. The Company ~~had revenues to one customer~~currently does not believe that ~~represented 28%~~the adoption of ~~total net sales for the three months ended March 31, 2017.~~this accounting guidance will have a material impact on its consolidated financial statements and related disclosures.

Edison Nation, Inc.(formerly known as Xspand Products Lab, Inc.)and Subsidiaries

~~The Company had accounts receivables to one customer that represented 42% and 33%~~Note 2 — Summary of ~~total accounts receivable as of March 31, 2018 and December 31, 2017.~~

The Company had revenues in the United Stated of approximately 61% and 68% of total consolidated revenues for the three months ended March 31, 2018 and 2017, respectively. No other geographical area accounted for more than 10% of total sales during the three months ended March 31, 2018 and 2017.

Deferred financing costs include debt discounts and debt issuance costs related to a recognized debt liability and are presented in the balance sheet as a direct deduction from the carrying value of the debt liability. Amortization of deferred financing costs are included as a component of interest expense.

Costs directly attributable to an offering of equity securities were deferred and will be charged against the gross proceeds of the offering as a reduction of additional paid-in capital at the time of the initial public offering (“IPO”). These costs included legal fees to draft the registration statement and provide counsel, fees incurred by the independent registered public accounting firm directly related to the offering, fees incurred by financial reporting advisors directly related to the offering, SEC filing, printing and distribution expenses, roadshow expenses and exchange listing fees.Significant Accounting Policies — (Continued)

The Company has evaluated subsequent events through the date which the financial statements were issued. Based upon ~~the~~such evaluation, except for items described in Note 10, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the financial statements.

The Company uses “the management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. The Company’s chief operating decision maker is the Chairman and ~~chief executive officer~~Chief Executive Officer (“CEO”) of the Company, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. The Company ~~classified~~deploys resources on a consolidated level to all brands of the Company and therefore the Company only identifies one reportable operating ~~segments into (i) design, manufacture~~ segment with multiple product offerings.

Edison Nation, Inc.(formerly known as Xspand Products Lab, Inc.)and sale of a broad variety of innovative toy products sold directly to retailers or direct to consumers via ecommerce in North America, Asia and Europe by SRM and (ii) the design, manufacture and sale of packaging and packaging materials to industrial and pharmaceutical companies in North America by Fergco.Subsidiaries

On September 4, 2018, the Company completed the acquisition of all of the voting membership interest of Edison Nation Holdings, LLC for a total purchase price of $12,820,978 comprising of (i) $950,000 cash, (ii) the assumption of the remaining balance of the senior convertible debt through the issuance to the holders of 4%, 5-year senior convertible notes (the “New Convertible Notes”), in the aggregate principal and interest amount of the sum of $1,428,161, less debt discount of $500,000 for the approximate fair value of the conversion feature, which are convertible into approximately 285,632 shares of the Company’s common stock, at the option of the holder of such New Convertible Notes (subject to certain adjustments as provided in the Membership Interest Purchase Agreement (the “Purchase Agreement”) among the Company and Edison Nation Holdings, LLC and Edison Nation Holdings, LLC members dated June 29, 2018 and the terms of the New Convertible Notes), (iii) the reservation of 990,000 shares of the Company’s common stock that may be issued in exchange for the redemption of certain non-voting membership interests of EN that will be created specifically in connection with the transaction contemplated by the Purchase Agreement (which exchange obligations may be instead satisfied in cash instead of shares of common stock, in the Company’s sole discretion), and (iv) the issuance of 557,084 shares or $3,760,317 of the Company’s common stock in full satisfaction of the indebtedness represented by promissory notes payable by EN to Venture Six, LLC and Wesley Jones.

On October 29, 2018, the Company completed the acquisition of 72.15% of the outstanding capital stock of Cloud B, Inc. in exchange for 489,293 shares of restricted common stock of the Company. In addition, the Company entered into an Earn Out Agreement with the Cloud B Sellers, whereby, beginning in 2019, the Company will pay the Cloud B Sellers an annual amount equal to 8% multiplied by the annual gross sales of Cloud B, as reduced by the total gross sales generated by Cloud B in 2018. The Earn Out Agreement expires on December 31, 2021.

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

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

NL Penn Capital, LP is owned by Chris Ferguson, our Chairman and Chief Executive Officer.

Edison Nation, Inc.(formerly known as Xspand Products Lab, Inc.)and Subsidiaries

The following represents the pro forma consolidated income statement as if the acquisitions had been included in the consolidated results of the Company for the three months ended March 31, 2018:

As of March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, inventory consisted of the following:

Edison Nation, Inc. (formerly known as Xspand Products Lab, Inc.) and Subsidiaries

~~United States and foreign components of income before income taxes were as follows:~~

Fergco was a Subchapter S pass-through entity for income tax purposes prior to the acquisition by Xspand on September 30, 2017. Accordingly, Fergco was not subject to income taxes prior to the acquisition and therefore the tax provision related to the United States income is only for the period from January 1, 2018 to March 31, 2018.

The Company’s foreign entity is SRM, which is an entity subject to the Hong Kong, China tax regime. The Hong Kong tax returns remain subject to examination by local taxing authorities beginning with the tax year ended December 31, 2011.

~~The tax effects of temporary differences that give rise to deferred tax assets or liabilities are presented below:~~

~~A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is a follows:~~

The Company entered into two debt instruments with current maturities of less than one year during the three months ended March 31, 2018. The Company’s debt as of March 31, 2018 and December 31, 2017,Intangible assets, net ~~of debt discounts of $229,365 and $0, respectively, consisted of the following:~~

~~The d~~ebenture and senior note holders are entitled to receive 20,000 shares and 13,500 shares upon completion of the Company’s IPO, respectively. The fair value of the shares to be issued was $167,500 which has been accrued with a corresponding reduction to the debt liability and will be amortized through interest expense. The Company will issue these shares as soon as administratively possible.

The estimated future amortization of intangibles subject to amortization at December 31, 2018 was as follows:

Amortization expense for the three months ended March 31, 2019 and ~~2017,~~2018 was $263,846 and $0, respectively.

Edison Nation, Inc. (formerly known as Xspand Products Lab, Inc.) and Subsidiaries

On March 6, 2019, Edison Nation, Inc. (the “Company”) entered into a securities purchase agreement (the “SPA”) with an accredited investor (the “Investor”) pursuant to which the Investor purchased a 2% unsecured, senior convertible promissory note (the “Note”) from the Company. The Note was in the amount of $560,000 with an original issue discount of $60,000. The Company issued 15,000 shares of its common stock (“Common Stock”) valued at $74,100 based on the share price on the date of issuance to the Investor as additional consideration for the purchase of the Note. The Under the terms of the SPA, the Investor will have piggyback registration rights in the event the Company files a Form S-1 or Form S-3 within six months from March 6, 2019, as well as a pro rata right of first refusal in respect of participation in any debt or equity financings undertaken by the Company during the 18 months following March 6, 2019. The Company is also subject to certain customary negative covenants under the SPA, including but not limited to, the requirement to maintain its corporate existence and assets subject to certain exceptions, and to not to make any offers or sales of any security under circumstances that would have the effect of establishing rights or otherwise benefitting other investors in a manner more favorable in any material respect than those rights and benefits established in favor of the Investor under the terms of the SPA and the Note. The maturity date of the Note is six months from March 6, 2019. All principal amounts and the interest thereon are convertible into shares Common Stock only in the event that an Event of Default occurs.

Edison Nation, Inc. (formerly known as Xspand Products Lab, Inc.) and Subsidiaries

The scheduled maturities of the debt for the next five years as of December 31, 2018, are as follows:

For the three months ended March 31, 2019, interest expense was $125,073 of which $80,262 was related party interest expense. For the three months ended March 31, 2018, interest expense was $87,535 of which $59,380 was related party interest expense.

Edison Nation, Inc. (formerly known as Xspand Products Lab, Inc.) and Subsidiaries

On December 31, 2018, the Company completed the acquisition of all of the voting membership interest of Pirasta, LLC from NL Penn Capital, LP in exchange for the satisfaction of $470,000 due ~~to/~~from related party. Accordingly, the consolidated financial statements of the Company reflect the accounting of the combined acquired subsidiary at historical carrying values, except that equity reflects a distribution for the excess of consideration paid over the net carrying amount of assets.

As of March 31, 2019 and December 31, 2018, due to related party consists of net amounts due ~~to/from~~to SRM Entertainment Group LLC (“SRM LLC”) and NL Penn Capital, LP (“NL Penn”), the majority owner of both, which ~~was the parent of SRM prior~~are owned by Chris Ferguson, our Chairman and Chief Executive Officer. The amount due to ~~its acquisition by Xspand,~~related parties is related to the acquisitions of Pirasta, LLC and Best Party Concepts, LLC offset by operating expenses that were paid ~~for~~by SRM and Edison Nation on behalf of ~~one related party to the other related party.~~SRM LLC and NL Penn. As of March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, the net amount due ~~from~~to related parties was ~~$962,586~~$97,996 and ~~$834,897,~~$140,682, respectively. Such amounts are due currently.

On August 1, 2018, the Company entered into a one-year letter agreement with ~~the acquisition of SRM and Fergco, Xspand issued two notes payable aggregating $2,996,500. One note was issued~~Enventys Partners, LLC, a North Carolina limited liability company (“Enventys”), whereby Enventys agreed to ~~NL Penn Capital, L.P, in relation~~provide services to the ~~acquisition of SRM~~Company as an independent contractor in the ~~amount~~areas of ~~$2,120,000~~product development and crowdfunding campaign marketing. During the term of the Enventys Agreement, the Company shall pay Enventys a fixed fee of $15,000 per month for product development assistance, including design research, mechanical engineering and quality control planning. Depending on the success of each campaign, the Company may also pay Enventys a commission of up to ten percent of the total funds raised in the applicable campaign. Louis Foreman, who has been appointed to the Company’s board of directors, is also the chief executive officer and the ~~other note was issued~~largest equity holder of Enventys. We incurred fees of approximately $72,000 related to the stockholders of Fergco in the amount of $876,500. The notes bear interest at a rate of six percent (6%) per annum and have an effective interest rate of six percent (6%) per annum. Xspand is required to make monthly payments comprised of principal and interest beginning in January 2018 that are amortized over ten (10) years, with a balloon payment of all outstanding principal and interest due at the respective maturity dates ($677,698 due on December 1, 2020 and $1,249,043 due on December 1, 2022). Related party interest expense was $59,881 and $0services performed by Enventys for the three months ended March 31, ~~2018 and 2017, respectively.~~2019.

Edison Nation, Inc. (formerly known as Xspand Products Lab, Inc.) and Subsidiaries

The Company has entered into non-cancellable operating leases for office, warehouse, and distribution facilities, with original lease periods expiring through 2021. In addition to minimum rent, certain of the leases require payment of real estate taxes, insurance, common area maintenance charges, and other executory costs. Differences between rent expense and rent paid are recognized as adjustments to operating lease right-of-use assets on the consolidated balance sheets.

As of March 31, 2019, the Company recorded operating lease liabilities of $877,341 and right of use assets for operating leases of $873,110. During the three months ended March 31, 2019, operating cash outflows relating to operating lease liabilities was $73,473 and the expense for right of use assets for operating leases was $77,704. As of March 31, 2019, the Company’s operating leases had a weighted-average remaining term of 3.7 years and weighted-average discount rate of 4.5%. Excluded from the measurement of operating lease liabilities and operating lease right-of-use assets were certain office, warehouse and distribution contracts that either qualify for the short-term lease recognition exception.

On August 8, 2016, SRM entered into a lease for office space in Kowloon, Hong Kong. On August 8, 2018, SRM extended its lease for office space in Kowloon, Hong Kong so that ~~expires~~the lease will now expire on ~~July 22, 2018.~~August 7, 2020. Monthly lease payments are approximately ~~$6,000~~$6,400 for a total of approximately ~~$152,000~~$154,000 for the total term of the lease.

~~There were not any future minimum payments under operating lease agreement that extended beyond 2018.~~

Total rent expense for the three months ended March 31, 2019 and 2018 was $144,433 and ~~2017 was~~ $64,026, ~~and $43,110, respectively, and~~respectively. Rent expense is included in general and administrative expense on the ~~condensed~~ consolidated statements of operations.

The following 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 March 31, 2019:

Fergco leases a portion of the building located in Washington, New Jersey that it owns under a month to month lease. Total rental income related to the leased space for both the three months ended March 31, ~~2018~~2019 and ~~2017~~2018 was $25,704, respectively, and is included in other income on the ~~condensed~~ consolidated statements of operations.

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

We are, and may in the future become, subject to various legal proceedings and claims that arise in or outside the ordinary course of business.

Edison Nation, Inc. (formerly known as Xspand Products Lab, Inc.) and Subsidiaries

On ~~February 28,~~September 6, 2018, the ~~Company agreed to assume certain consulting agreements entered into by SRMLLC, which was the parent~~Company’s board of ~~SRM prior to its acquisition by Xspand. Under these consulting agreements SRM LLC offered these consultants options to own stock if SRM LLC were ever sold for past considerations. As~~directors approved an ~~accommodation to Xspand, the principal stockholder of SRM satisfied these agreements on behalf~~amendment and restatement of the Company’s omnibus incentive plan solely to reflect the Company’s name change to Edison Nation, Inc. Thus, the Edison Nation, Inc. Omnibus Incentive Plan (the “Plan”) which remains effective as of February 9, 2018, provides for the issuance of up to 1,764,705 shares of common stock to help align the interests of management and our stockholders and reward our executive officers for improved Company ~~by transferring 344,250~~performance. Stock incentive awards under the Plan can be in the form of ~~his shares~~stock options, restricted stock units, performance awards and restricted stock that are made to employees, directors and service providers. Awards are subject to forfeiture until vesting conditions have been satisfied under the terms of the award. The exercise price of stock options are equal to the consultants. In accordance with SEC Staff Accounting Bulletin (SAB) 79 amended by SAB 5T, “Accounting for Expenses or Liabilities Paid by Principal Stockholder,” the Company recorded a noncash charge of $1,721,250 for the fair market value of ~~these shares.~~

~~Note 9 — Segment Reporting~~the underlying Company common stock on the date of grant.

The Company’s principal operating segments coincide with the types of products to be sold. The products from which revenues are derived are consistent with the reporting structure of the Company’s internal organization. The Company’s two reportable segmentsfollowing table summarizes stock option award activity for the three months ended March 31, 2018 and 2017 were the SRM segment and the Fergco segment. The Company’s chief operating decision-maker has been identified as the Chairman and CEO, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. Segment information is presented based upon the Company’s management organization structure as2019:

As of March 31, ~~2018 and~~2019, there was 123,333 unvested options to purchase common units of Edison Nation, Inc. or $178,360 of total unrecognized equity-based compensation expense that the ~~distinctive nature~~Company expected to recognize over a remaining weighted-average period of each segment. Future changes to this internal financial structure may result in changes to the reportable segments disclosed. There are no inter-segment revenue transactions and, therefore, revenues are only to external customers.

~~Segment operating profit is determined based upon internal performance measures used by the chief operating decision-maker.~~1.4 years. The Company derives the segment results from its internal management reporting system. The accounting policies the Company uses to derive reportable segment results are the same as those used for external reporting purposes. Management measures the performancerecorded stock-based compensation expense of each reportable segment based upon several metrics, including net revenues, gross profit and operating loss. Management uses these results to evaluate the performance of, and to assign resources to, each of the reportable segments. The Company manages certain operating expenses separately at the corporate level and does not allocate such expenses to the segments. Segment income from operations excludes interest income/expense and other income or expenses and income taxes according to how a particular reportable segment’s management is measured. Management does not consider impairment charges, and unallocated costs in measuring the performance of the reportable segments.

~~Segment information available with respect to these reportable business segments~~$184,419 for the three months ended March 31, ~~2018 and 2017 was as follows:~~2019. The Company recorded stock-based compensation expense of $1,721,250, related to the assumption of certain consulting agreements which were satisfied by the principal stockholder of SRM transferring 344,250 shares to the consultants, for the three months ended March 31, 2018.

In addition, the Company recorded stock-based compensation expense of $178,000 related to the issuance of 10,500 shares of common stock valued at $52,500 and 50,000 shares of common stock issued in 2018 valued at $251,000, of which $125,500 was expensed for the three months ended March 31, 2019 and $125,500 was unrecognized compensation expense for the three months ended March 31, 2019.

March 31, December 31,
2018 2017
Segment total assets:
Fergco $ 1,893,586 $ 1,853,273
SRM 3,035,398 2,217,296
Corporate 491,457 258
Total segment and consolidated assets $ 5,420,441 $ 4,070,827

Edison Nation, Inc. (formerly known as Xspand Products Lab, Inc.) and Subsidiaries

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

On ~~April 30, 2018, the~~May 13, 2019, Edison Nation, Inc. (the “Company”) entered into a 2% senior secured, senior convertible promissory note (the “Note”) for up to $1,000,000. The Company ~~completed its IPO of 1,307,120~~will issue 30,000 shares of its common stock, par value $0.001 per share (“Common Stock”) to the note holder as additional consideration for ~~aggregate gross proceeds~~the purchase of ~~$6,535,600. The~~the Note. Under the terms of the note, the note holder will have piggyback registration rights. On May 13, 2019, the Company ~~received approximately $5,400,000 in net proceeds after deducting discounts and commissions and other offering expenses.~~borrowed $600,000 under the note.

On May 6, 2019, we issued 12,500 shares of our common stock valued at $48,375 to an innovator in connection with their licensing agreement.

This Quarterly Report on Form 10-Q, including the following section entitled Management's Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements expressing management's current expectations, goals, objectives and similar matters. The following discussion pertains to our historical results, on a consolidated basis. However, because we conduct all of our material business operations through our wholly-owned subsidiaries, SRM and Fergco, the discussion and analysis relates to activities primarily conducted at the subsidiary level. Historical results and trends that might appear in this Quarterly Report should not be interpreted as being indicative of future operations. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the notes thereto appearing in Part I, Item 1 of this Quarterly Report. The Company undertakes no obligation to revise the forward-looking statements in this report after the date of the filing. Unless otherwise specifically indicated, all dollar amounts in the tables in this section are in thousands of dollars, except per share data or when otherwise specifically noted.ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

~~Xspand Products Lab, Inc. (“Xspand”) was incorporated on July 18, 2017~~Edison Nation: End-to-end product innovation, development and commercialization

Edison Nation is a vertically-integrated, end-to-end, consumer product research and development, manufacturing, sales and fulfillment company.

The Company is the aggregation of five wholly owned subsidiaries whose operations and go-to-market strategy are vertically integrated under the ~~laws~~Edison Nation corporate umbrella.

During the first quarter of 2019, Edison Nation rolled out its “One Company” initiative to integrate the acquired businesses into one cohesive operation.

Edison Nation’s cornerstone business driver is its proprietary web-enabled new product development and licensing platform (www.edisonnation.com) that provides a low risk, high reward process to connect innovators of new product ideas with potential licensing partners.

Considered to be the “go-to” resource for independent innovators with great consumer product invention ideas, Edison Nation engages with over 140,000 registered online innovators and entrepreneurs to bring innovative, new products to market focusing on high-interest, high-velocity consumer categories.

Since its inception, Edison Nation has received over 100,000 idea submissions, with products selling in excess of $250 million at retail through the management of over 300 client product campaigns with distribution across diverse channels including ecommerce, mass merchandisers, specialty product chains, entertainment venues, national drug chains, and tele-shopping. These clients include many of the ~~State~~largest manufacturers and retailers in the world including Amazon, Bed Bath and Beyond, HSN, Rite Aid, P&G, and Black & Decker.

Edison Nation also creates, manufactures and markets its own products for the infant / toddler market under the Cloud b consumer brand name. In addition, the Company leverages its vertically integrated resources and capabilities to create licensed consumer products for large entertainment theme park enterprises, like Disney World and Universal Studios.

Edison Nation also creates, manufactures and markets its own products including the infant / toddler market under the Cloud b consumer brand name, innovative party products under the Best Party Concepts brand, and premium branded coloring activities under the Pirasta brand. Recently the company launched product lines for 911 Help Now, Master Sous and Smarter Specs. In addition, the Company leverages its vertically integrated resources and capabilities to create licensed consumer products for large entertainment theme park enterprises, like Disney World and Universal Studios as well as custom packaging solutions for large and small U. S. Based companies.

New product ideas have little value without the ability and skill required to commercialize them. The considerable investment and executional “know how” needed to initiate a process - from idea to product distribution - has always been a challenge for the individual innovator.

Edison Nation’s business model is designed to take advantage of ~~Nevada~~online marketplace and crowdfunding momentum for our future growth mitigating new product development risk while allowing for optimized product monetization based on a product’s likelihood to succeed.

To that end, Edison Nation empowers and enables innovators and entrepreneurs to develop and launch products, gain consumer adoption and achieve commercial scale efficiently at little to no cost.

Indeed, the cornerstone of Edison Nation’s competitive advantage is its proprietary and web-enabled new product development (“NPD”) and commercialization platform. The platform can take a product from idea through ecommerce final sale in a matter of months versus a year or more for capital intensive and inefficient new product development protocols traditionally used by legacy manufacturers serving “big box” retailers.

The Company’s web-enabled NPD platform is designed to optimize product licensing and commercialization through best-in-class digital technologies, sourcing / manufacturing expertise and one of the largest sets of go-to-market solutions. This unique set of resources and capabilities have proven to be a reliable catalyst for sales success.

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

Interested innovators enter the Edison Nation 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 Edison Nation. They can also track the review progress of ideas they submit through their dashboard.

Edison Nation accepts ideas through a secure online submission process. Once a member explores the active searches in different product categories being run on the platform for potential licensees seeking new product ideas to be commercialized, the member can submit their new product ideas for processing. Edison Nation regularly works with different companies and retailers in various product categories to help them find new product ideas.

Registered members pay $25 to submit an idea. This submission fee covers a portion of the cost to review each idea submitted to the platform. There are no additional fees after the submission fee.

Although the platform might not have an active search that matches the innovator’s idea, the Edison Nation Licensing Team hosts an ongoing search for new consumer product ideas in all categories.

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

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

In addition to the above member programs, Edison Nation ASOTV (“As Seen on TV”) Team hosts a search for new products suitable for marketing via DRTV and subsequent distribution in national retail chains including mass merchandisers, specialty retail, drug chains and department stores.

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

The NPD platform’s database of over 85,000 product ideas helps determine which inventions have a substantial market opportunity quickly through proprietary algorithms that have been developed incorporating continuous learning from marketplace experience and changes in category requirements.

Selected ideas are assessed by the NPD Licensing Team based on nine key factors: competing products, uniqueness, retail pricing, liability & safety, marketability, manufacturing cost, patentability, consumer relevant features and benefits, and commercial-ability.

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

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

Due to the public nature of licensing, Edison Nation only accepts ideas from Insiders that are patented or patent-pending. A valid provisional patent application is required. The cost of submitting an idea to the Insider Licensing Program is $100, and a member must be an “Insider” to be considered.

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

Once an innovator’s idea is judged to be a potentially viable, commercial product and selected for potential commercialization, the Company acquires intellectual property rights from the innovator.

Once an innovator’s intellectual property is secured, the innovator’s product idea can then either be licensed to a manufacturer or retailer, or developed and marketed directly by Edison Nation. In either case, Edison Nation serves as the point-of-contact with the innovator for term sheets, royalty negotiation and concluding licensing agreements. Edison Nation also maintains contact with the innovator to keep them engaged during product development.

In general, innovators are paid a percentage of the Company’s revenue from the commercialization of the innovator’s intellectual property. This percentage varies with the Company’s investment in the development of the intellectual property, including whether the Company decides to license the innovator’s idea for commercialization or instead, to directly develop and market the innovator’s idea.

During the first quarter of 2019, Edison Nation began the process to consolidate all operating companies businesses into distinct business units of Edison Nation, which allows the Company to focus on growing sales and leveraging operations. The units consist of:

• Innovate. The Edison Nation Platform. Responsible for the innovation platform that helps inventors go from idea to reality. This is accomplished by optimizing new product election process through deeper analytics to predict success on platforms like crowdfunding and web market places like Amazon. Driving brand awareness of the platform by producing content for inventors and innovators on media platforms including our own Everyday Edison’s television show.

• Build and launch. Consolidating our teams of product designers and developers who take the product from the concept to the consumers hand. These are distributed by geography, industry skillset and expertise in the development process to ensure efficient product build and launch. The bulk of operations are part of this business unit, and the company will continue to develop this unit to meet the needs of our product launch schedule.

• Sell. Our Omni-channel sales effort is divided into three groups; (1) business-to-business revenue opportunities including traditional brick and mortar retailers (2) online market places and direct-to-consumer revenue opportunities, and (3) our NiTRO Team (Near Term Revenue Opportunities). NiTRO, identifies brands and products lines that would benefit from being part of Edison Nation. The team seeks to a find a mutually beneficial transaction to accomplish that goal.

With product design, product prototyping and creation of marketing assets all resourced with expert Edison Nation in-house capabilities, we have made protracted, high-cost, high-risk research and development models obsolete.

Edison Nation custom designs most products in-house for specific customers and their needs. We utilize our existing tooling to produce samples and prototypes for customer reviews, refinement and approval, as well as our in-house packaging design and fabrication resources.

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

No matter the product, Edison Nation’s objective is to optimize its marketability, function, value and appearance for the benefit of the consumer end user. From concept and prototyping, through design-for-manufacture, special attention is paid to a product’s utility, ease of use, lowest cost bill of materials, and how it “communicates” its features and benefits through design.

The combined experience and expertise of the Company’s team spans many high-demand categories including household items, small appliances, kitchenware, and toys. The company’s in-house capabilities are complimented by third-party engineering and prototyping contractors, like Enventys Partners, and category-specific expert resources within select manufacturers.

After an innovator’s idea has been selected and then developed, Edison Nation’s NPD and commercialization platform - powered by team of experienced licensing experts and backed by our scalable manufacturing and fulfillment supply chain infrastructure - provides innovators with a clear and unencumbered set of paths to market.

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

Each potential licensee of an innovator’s idea publishes an exclusive page on the Edison Nation web site with innovation goals and timeline for their search. Appropriate new product ideas are submitted in 100% confidence with all intellectual property safely guarded.

Once the search concludes, Edison Nation presents each with the best patent protected, or patentable ideas that can be selected for development.

Licensing partners and customers include Amazon, Bed, Bath & Beyond, Church & Dwight, Black & Decker, HSN, Worthington Industries, Pampered Chef, Boston America Corp., Walmart, Target, PetSmart, “As Seen on TV,” Sunbeam, Home Depot, and Apothecary Products.

Edison Nation has established a commercialization path to include the development and management of crowdfunding campaigns. This is evolving to be a strong engine for future growth.

The benefits of crowdfunding include increased product testing efficiency, decrease financial risk, and the ability to get closer to the end consumer, simultaneously.

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

Edison Nation’s experience with crowdfunding is extensive and with significant success. To date, our crowdfunding strategic partner, Enventys, has executed approximately 600 crowdfunding campaigns with an estimated average revenue of $250,000 per campaign, with online consumer purchase occurring on average within 30 days. The cost of a crowdfunding campaign run by Edison Nation is as low as approximately $25,000.

One recent example of a successful Kickstarter campaign run by the Company is last year’s introduction of the MasterSous, 8-in-1 Smart Cooker. This Wi-Fi-connected multi-cooker can sous vide, deep fry, simmer, sear, sauté, boil, steam and slow cook while autonomously stirring food. The owner can use the MasterSous mobile app to remotely adjust cooking times and control the automatic stirring mechanism that keeps food in constant motion for even cooking.

The successful Kickstarter crowdfunding campaign for the 8-in-1 Smart Cooker resulted in approximately $200,000 in deferred revenue to Edison Nation (300%+ than anticipated) from 738 backers. The 8-in-1 Smart Cooker product is now in production funded by the revenue gained (negative capital) in the Kickstarter campaign.

Once a product’s path to market is successfully identified, Edison Nation produces and commercializes the product either through (i) licensing partnerships, or (ii) through a direct-to-market path via ecommerce or traditional retail distribution.

To provide greater flexibility in the manufacturing and delivery of products, and as part of a continuing effort to reduce manufacturing costs, Edison Nation has concentrated production of most of the Company’s products in third-party manufacturers located in China and Hong Kong. The Company maintains a fully staffed Hong Kong office for sourcing, overseeing manufacturing and quality assurance.

Edison Nation’s contracted manufacturing base continues to expand, from two major facilities to 4 to-date. These include two manufacturers required to produce Cloud b children’s sleep products and one for the MasterSous kitchen appliance. Based on anticipated manufacturing requirements, this footprint may expand significantly by the end of 2019. The Company also continues to explore more efficient and expert manufacturing partners to gain greater economies of scale, potential consolidation, and cost savings on an on-going basis.

Products ~~Inc. On~~are also purchased from unrelated enterprises with specific expertise in the design, development, and manufacture those specialty products.

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

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

Our Omni-channel sales effort is divided into three groups; (1) business-to-business revenue opportunities including traditional brick and mortar retailers (2) online market places and direct-to-consumer revenue opportunities, and (3) our NiTRO Team (Near Term Revenue Opportunities). NiTRO, identifies brands and products lines that would benefit from being part of Edison Nation. The team seeks to a find a mutually beneficial transaction to accomplish that goal.

Edison Nation’s business to business team sells products through a diverse network of manufacturers, distributors and retailers. New customer prospects are gained through outbound sales calls, trade show participation, web searches, referrals from existing customers.

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

The NiTRO team identifies small, unique brands that could benefit from becoming part of a larger consumer products organization with more resources. The team seeks to negotiate a mutually beneficial agreement whereby the respective branded products become part of Edison Nation’s portfolio of consumer products.

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

The process for developing and launching consumer products has changed significantly in recent years. Previously, Fortune 500 and specialty consumer product companies funded multimillion-dollar NPD divisions to develop and launch products. These products were sold primarily on “big box” retail shelves supported by large marketing investments.

The emergence of ecommerce giants, including Amazon and Walmart.com, has disrupted traditional NPD and commercialization paths and has accelerated a consumer shift away from “brick and mortar” retailers. The result has been the bankruptcy or downsizing of many iconic retailers, including Toys R Us, JC Penney, Macy’s, Sears, Kmart, Office Depot, Family Dollar, and K-B Toys, with a commensurate loss of shelf space and accessible locations.

Moreover, crowdfunding sites, like Kickstarter and Indiegogo, have also disrupted NPD process cycles and are now “main stream.” In fact, as of October ~~26, 2017, Idea Lab X Products, Inc. changed~~2018, Kickstarter’s cumulative pledged funding exceeded $3.9 billion according to Kickstarter published data. Statista.com estimates that crowdfunded sales of products will exceed $18.9 billion by 2021.

These crowdfunding sites have enabled individual innovators and entrepreneurs to design, prototype and market unique products to millions of potential customers with significantly lower acquisition costs when compared to the capital and time required by legacy NPD processes.

The Company believes that its ~~name~~anticipated growth will be driven by five macro factors including:

distinctive sets of features and benefits without a reliance on brand awareness and familiarity;

In addition, we believe that by leveraging our expertise in helping companies launch thousands of new products and our ability to ~~Xspand Products Lab, Inc. On February 14, 2018, Xspand effected~~create unique, customized packaging, we intend to acquire small brands that have achieved approximately $1 million in retail sales over the trailing twelve-month period with a ~~one-for-3.333333 reverse stock split~~track record of ~~its issued and standing~~generating free cash flow. In addition, we will seek to elevate the value of these acquired brands by improving each part of their launch process, based on our own marketing methodologies.

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

One example is Cloud b (www.cloudb.com), a leading manufacturer of products and accessories that help parents and children sleep better. The Company distributes its products nationally and in over 100 countries worldwide.

Founded in 2002 and acquired by Edison Nation in October 2018, Cloud b’s highly regarded, award-winning products are developed in consultation with an Advisory Board of pediatricians and specialists. The Company recently won the Toy of the Year award from The Toy Association. Cloud b’s best-known products are Twilight Turtle™ and Sleep Sheep™.

Cloud b’s products can be purchased on-line (through its own ecommerce site and other online e-tailers), in specialty boutiques, gift stores, and worldwide at major retailers including Barnes & Noble, Bloomingdales, Dillard’s, Nordstrom, Von Maur, Harrods of London, and FNAC in France.

Immediate synergies include expanding Edison Nation’s West coast footprint by leveraging Cloud b’s sizeable distribution, sales and fulfillment operations. In addition, Cloud b is leveraging the Edison Nation proprietary NPD platform, Hong Kong-based manufacturer sourcing and management capabilities, and marketing and packaging resources.

Initial focus since acquisition has been ~~retroactively restated~~ to ~~reflect~~optimize existing product performance, while helping to develop new product lines leveraging the ~~aforementioned reverse stock split.~~Edison Nation NPD platform.

As of March 31, 2018, Xspand had two wholly-owned subsidiaries (collectively, the “Company”): S.R.M. Entertainment Limited (“SRM”) and Ferguson Containers, Inc. (“Fergco”). On September 30, 2017, SRM and Fergco were acquired by Xspand in exchange for an aggregate of 3,000,000 shares of Xspand common stock and notes payable aggregating $2,996,500. This transaction between entities under common control resulted in a change in reporting entity and required retrospective combination of the entities for all periods presented, as if the combination had been in effect since the inception of common control. Accordingly, the consolidated financial statements of Xspand reflect the accounting of the combined acquired subsidiaries at historical carrying values, except that equity reflects the equity of Xspand.

SRM was incorporated in Hong Kong on January 14, 1981 and Fergco was incorporated on September 14, 1966 under the laws of the State of New Jersey. Our two reportable segments correspond to SRM and Fergco’s business lines: (i) the design, manufacture and sale of a broad variety of innovative toy products sold directly to retailers or direct to consumers via e-commerce in North America, Asia and Europe by our SRM segment, and (ii) the design, manufacture and sale of packaging and packaging materials to industrial and pharmaceutical companies in North America by our Fergco segment.

The following is a description of factors which may influence our future results of operations, and which we believe are important to an understanding of our business and results of operations.

~~Revenues~~On September 4, 2018, the Company completed the acquisition of all of the voting membership interest of Edison Nation Holdings, LLC for a total purchase price of $11,776,696 comprising of (i) $950,000 cash (ii) the assumption of the remaining balance of the senior convertible debt through the issuance to the holders of 4%, 5-year senior convertible notes (the “New Convertible Notes”), in the aggregate principal and interest amount of the sum of $1,428,161, which are convertible into approximately 285,632 shares of the Company’s common stock, at the option of the holder of such New Convertible Notes, (iii) the reservation of 990,000 shares of the Company’s common stock that may be issued in exchange for the redemption of certain non-voting membership interests of Edison Nation and (iv) the issuance of 557,084 shares of the Company’s common stock in satisfaction of the indebtedness represented by promissory notes payable by Edison Nation with a total principal balance of $4,127,602.

~~We generate revenues through our two business segments. Through our SRM segment, we sell~~Cloud B, Inc. Transaction

On October 29, 2018, the Company entered into a ~~broad variety~~Stock Purchase Agreement with a majority of ~~innovative toy products directly~~the stockholders (the “Cloud B Sellers”) of Cloud B, Inc., a California corporation (“Cloud B”). Pursuant to ~~retailers or direct~~the terms of such Stock Purchase Agreement, the Company purchased 72.15% of the outstanding capital stock of Cloud B in exchange for 489,293 shares of restricted common stock of the Company. In addition, the Company entered into an Earn Out Agreement with the Cloud B Sellers, whereby, beginning in 2019, the Company will pay the Cloud B Sellers an annual amount equal to ~~consumers via e-commerce~~8% multiplied by the incremental gross sales of Cloud B over its 2018 gross sales level. The Earn Out Agreement expires on December 31, 2021.

On September 26, 2018, the Compensation Committee of the board of directors approved the terms of compensation to be paid to non-employee directors for fiscal year 2018. Compensation for non-employee directors includes an annual retainer of $15,000 and an award of options to purchase 20,000 shares of the Company’s common stock. The restricted stock underlying such options will vest one year after the grant date. However, the options have not yet been granted. In addition, the chair of each of the board’s committees shall receive an annual committee meeting fee of $5,000.

On December 31, 2018, the Company completed the acquisition of all of the voting membership interest of Pirasta, LLC from NL Penn Capital, LP in ~~North America, Asia and Europe. Through Fergco, we sell packaging and packaging materials principally to industrial and pharmaceutical companies~~exchange for the satisfaction of $470,000 due from related party. Accordingly, the consolidated financial statements of the Company reflect the accounting of the combined acquired subsidiary at historical carrying values, except that equity reflects a distribution for the excess of consideration paid over the net carrying amount of assets.

On December 31, 2018, the Company completed the acquisition of 50% of the voting membership interest of Best Party Concepts, LLC from NL Penn Capital, LP in ~~North America.~~exchange for the satisfaction of $500,000 due from related party. Accordingly, the consolidated financial statements of the Company reflect the accounting of the combined acquired subsidiary at historical carrying values, except that equity reflects a distribution for the excess of consideration paid over the net carrying amount of assets.

On March 6, 2019, Edison Nation, Inc. (the “Company”) entered into a securities purchase agreement (the “SPA”) with an accredited investor (the “Investor”) pursuant to which the Investor purchased a 2% unsecured, senior convertible promissory note (the “Note”) from the Company. The Company issued 15,000 shares of its common stock, par value $0.001 per share (“Common Stock”) to the Investor as additional consideration for the purchase of the Note. Under the terms of the SPA, the Investor will have piggyback registration rights in the event the Company files a Form S-1 or Form S-3 within six months from March 6, 2019, as well as a pro rata right of first refusal in respect of participation in any debt or equity financings undertaken by the Company during the 18 months following March 6, 2019. The Company is also subject to certain customary negative covenants under the SPA, including but not limited to, the requirement to maintain its corporate existence and assets subject to certain exceptions, and to not to make any offers or sales of any security under circumstances that would have the effect of establishing rights or otherwise benefitting other investors in a manner more favorable in any material respect than those rights and benefits established in favor of the Investor under the terms of the SPA and the Note. The maturity date of the Note is six months from March 6, 2019. All principal amounts and the interest thereon are convertible into shares Common Stock only in the event that an Event of Default occurs.

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

Our significant accounting policies are more fully described in Note 2 to our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

We sell consumer products across a variety of categories, including toys, plush, homewares and electronics, to retailers, distributors and manufacturers. We also sell consumer products directly to consumers through e-commerce channels.

Our cost of revenues includes inventory costs, materials and supplies costs, internal labor costs and related benefits, subcontractor costs, depreciation, overhead and shipping and handling costs.

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

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

~~The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles (“US GAAP”) and our discussion and analysis~~Interest expense includes the cost of our ~~financial condition and operating results requires management to make judgments, assumptions and estimates that affect the amounts reported in~~borrowings under our consolidated financial statements and accompanying notes. Note 2, “Summary of Significant Accounting Policies,” of the Notes to our condensed consolidated financial statements appearing elsewhere in this report describes the significant accounting policies and methods used in the preparation of our consolidated financial statements. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates, and such differences may be material.debt arrangements.

There have been no significant changes in our critical accounting policies during the three months ended March 31, 2018 as compared to the critical accounting policies described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017. We believe these critical accounting policies involve the more significant judgments and estimates used in the preparation of our consolidated financial statements and are the most critical to aid you in fully understanding and evaluating our reported financial results. Management considers these policies critical because they are both important to the portrayal of our financial condition and operating results, and they require management to make judgments and estimates about inherently uncertain matters.

~~Off-Balance Sheet Arrangements~~

We did not have and were not a party to, during the periods presented, any off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Three ~~months ended~~Months Ended March 31, 2019 versus Three Months Ended March 31, 2018 ~~versus~~

The following table sets forth information comparing the components of net (loss) income for the three months ended March 31, ~~2017~~2019 and 2018:

For the three months ended March 31, ~~2018 and 2017, total~~2019, revenues ~~and revenues~~increased by ~~segment consisted of the following:~~

~~For the three months ended March 31, 2018, revenues from our Fergco segment were consistent compared to the three months ended March 31, 2017.~~

~~For the three months ended March 31, 2018, revenues from our SRM segment decreased by $438,594~~$2,307,204 or ~~17%~~67.2%, as compared to the three months ended March 31, ~~2017.~~2018. The ~~decrease~~increase was primarily attributable to ~~the Walt Disney Company’s theme park safety officers terminating sales~~new business in connection with our acquisitions in 2018. The increase includes licensing related revenues related to our acquisition of ~~toy weapons in response~~Edison Nation Holdings, LLC and product revenues related to ~~school shootings in the United States.~~our acquisition of Cloud B, Inc.

For the three months ended March 31, ~~2018,~~2019, cost of revenues ~~decreased by $468,678 or 16%. Cost of revenues consisted of the following:~~

For the three months ended March 31, 2018, gross profit for our Fergco segment remained flat as compared to the three months ended March 31, 2017. Gross margin remained flat at 28% and 27% for the three months ended March 31, 2018 as compared to the three months ended March 31, 2017.

~~For the three months ended March 31, 2018, gross profit for our SRM segment~~ increased by ~~$30,941,~~$1,616,564 or 4%69.4%, as compared to the three months ended March 31, ~~2017. These increases were~~2018. The increase was primarily attributable to the increase in total consolidated revenues.

For the three months ended March 31, 2019, gross profit increased by $690,640, or 62.7%, as compared to the three months ended March 31, 2018. The increase was primarily a result of the increase in revenues. For the three months ended March 31, 2019, gross margin decreased to 31.2%, as compared to 32.1% for the three months ended March 31, 2018. The decrease in gross margin was due to ~~favorable~~ product mix of goods sold to customers.

Selling, general and administrative expenses were ~~$831,487~~$3,049,188 and ~~$507,819~~$2,552,737 for the three months ended March 31, ~~2018~~2019 and ~~2017,~~2018, respectively, representing aan increase of ~~$323,668,~~$496,451, or ~~64%~~19.4%. The increase was primarily ~~attributable to~~ the ~~certain indirect costs~~result of operating expense incurred related to Edison Nation Holdings, LLC and Cloud B, Inc. The increase in operating expenses is due to increased costs related to completed acquisitions as well as the ~~IPO~~integration of such acquisitions of $223,538 and increased ~~salaries related~~costs of operating as a public company. The larger costs include increases in wages and benefits of approximately $500,000. The wage increase relates primarily to a growth initiative whereby new staff will design, build and launch new products for the Company.

There are also increases in the following: depreciation and amortization of approximately $266,000, investor relations of approximately $161,000, external commissions of approximately $57,000, license and registration of approximately $26,000, rent of approximately $81,000, consulting fees of approximately $156,000 relating primarily to the ~~hiring~~integration of ~~Xspand employees~~acquisitions , legal fees of approximately $70,000, shipping, freight and ~~executives during~~postage of approximately $111,000, travel of approximately $44,000, computer, internet and website of approximately $56,000. In addition, there was a decrease of stock compensation of approximately $1,400,000 offsetting the three months ended March 31, 2018. Noncash stock-based compensation expense was $1,721,250 related to the assumption of certain consulting agreements which were satisfied by the principal stockholder of SRM transferring 344,250 shares to the consultants.expenses.

Rental income was $25,704 for both the three months ended March 31, ~~2018~~2019 and ~~2017.~~2018.

~~Non-GAAP Measures~~Interest expense was $124,694 for the three months ended March 31, 2019 versus $87,535 in the previous three months ended March 31, 2018. The increase in interest expense was related to increased borrowings of debt during 2019.

Income tax expense was $23,195 for the three months ended March 31, 2019, a decrease of $41,878 or 64.4%, compared to $65,073 for the three months ended March 31, 2018. The decrease was primarily due to the decrease in income from our foreign operations with no offset for income in the United States.

The Company defines EBITDA as net ~~income (loss)~~loss before interest, taxes and depreciation and amortization. The Company defines Adjusted EBITDA as EBITDA, further adjusted to eliminate the impact of certain non-recurring items and other items that we do not consider in our evaluation of our ongoing operating performance from period to period.These items will include stock-based compensation, restructuring and severance costs, transaction costs, acquisition costs, certain other non-recurring charges and gains that the Company does not believe reflects the underlying business performance.

For the three months ended March 31, 2019 and 2018, EBITDA and Adjusted EBITDA consisted of the following:

EBITDA and Adjusted EBITDA is a financial measure that is not calculated in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Management believes that because Adjusted EBITDA excludes ~~(i)~~(a) certain non-cash expenses (such as depreciation, amortization and stock-based compensation) and ~~(ii)~~(b) expenses that are not reflective of the Company’s core operating results over time (such as restructuring costs, litigation or dispute settlement charges or gains, and transaction-related costs), this measure provides investors with additional useful information to measure the Company’s financial performance, particularly with respect to changes in performance from period to period. The Company’s management uses EBITDA and Adjusted EBITDA (a) as a measure of operating ~~performance;~~performance, (b) for planning and forecasting in future ~~periods;~~periods, and (c) in communications with the Company’s ~~Board~~board of ~~Directors~~directors concerning the Company’s financial performance. The Company’s presentation of EBITDA and Adjusted EBITDA are not necessarily comparable to other similarly titled captions of other companies due to different methods of calculation and should not be used by investors as a substitute or alternative to net income or any measure of financial performance calculated and presented in accordance with U.S. GAAP. Instead, management believes EBITDA and Adjusted EBITDA should be used to supplement the Company’s financial measures derived in accordance with U.S. GAAP to provide a more complete understanding of the trends affecting the business.

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

For the three months ended March 31, 2019, our operations lost approximately $1,300,000, of which approximately $700,000 was non-cash and approximately $400,000 related to transaction costs and other non-recurring items.

At March 31, ~~2018,~~2019, we had total current assets of ~~$4,271,205~~approximately $6,200,000 and current liabilities of ~~$2,746,349~~approximately $10,800,000 resulting in negative working capital of ~~$1,524,856.~~approximately $4,600,000, of which approximately $3,800,000 was 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 Cloud B, Inc.’s assets making any payments of the Cloud B trade payables unlikely. At ~~December~~March 31, ~~2017,~~2019, we had total assets of ~~$4,070,827~~approximately $30,300,000 and total liabilities of ~~$4,303,457~~approximately $15,400,000 resulting in stockholders’ ~~deficit~~equity of ~~$232,630.~~approximately $14,900,000.

~~At March 31, 2018, we had $2,968,257~~The foregoing factors raised concerns about the Company’s ability to continue as a going concern. The ability to continue as a going concern is dependent upon the Company’s ability to attract significant new sources of ~~outstanding notes payable due~~capital, attain a reasonable threshold of operating efficiencies and achieve profitable operations from the sale of its products. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to ~~our related parties of which $239,689 was the current portion. These notes arose~~continue as ~~part of the consideration paid in our acquisition of SRM and Fergco. At March 31, 2018, we had outstanding debt with unrelated parties and~~ a ~~principal balance of $700,000, reduced by deferred financing fees of $229,365, of which the entire amount was current.~~going concern.

~~At March 31, 2018, we had~~Management has considered possible mitigating factors within our management plan on our ability to continue for at least a cash and cash equivalents balance of $1,147,502. On April 30, 2018, we completed our initial public offering raising 6,535,600 gross proceeds. The Company received approximately $5,400,000 in net proceeds after deducting discounts and commissions and other offering expenses. The Company believes that the funds available to it are adequate to meet its working capital needs, debt service and capital requirements for the next 12 monthsyear from the date ~~of this filing.~~these financial statements are filed. The following items are management plans to alleviate any going concern issues:

~~Thereafter, we may need to raise further capital, through the sale of additional equity or debt securities, to support our future operations.~~

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

During the three months ended March 31, ~~2018~~2019 and ~~2017~~2018, our sources and uses of cash were as follows:

Net cash used in operating activities for the three months ended March 31, 2019 was $1,692,196 which included a net loss of $1,378,397 that included $1,111,327 of cash used by changes in operating assets and liabilities which was offset by stock-based compensation of $362,419, depreciation and amortization of $301,383, amortization of debt issuance costs of $56,022 and amortization of right of use assets of 77,704. Net cash provided by operating activities for the three months ended March 31, 2018 was ~~$239,884~~$239,844, which included acash used by net ~~loss~~income of $1,577,305, which was offset by ~~noncash stock based~~stock-based compensation of $1,721,250 and $18,729 of cash provided by changes in operating assets and liabilities. Net cash provided by operating activities for the three months ended March 31, 2017 was $280,260, which included cash provided by net income of $539,441 partially offset by $310,648 of cash used in changes in operating assets and liabilities.

Net cash used in investing activities was ~~$16,403~~$72,955 and ~~$23,582~~$16,403 for the three months ended March 31, ~~2018~~2019 and ~~2017,~~2018, respectively. Cash used in investing activities was attributable ~~to purchases~~the purchase of property and equipment.

Cash provided by financing activities for the three months ended March 31, ~~2018~~2019 totaled ~~$366,753~~$431,866 which related mostly to net cash received ~~from the~~ borrowings ~~of $645,000~~under new debt instruments offset by ~~repayments of $72,687 under the notes payable and debentures and $205,560 of deferred offering costs.~~repayments. Cash ~~used in~~provided by financing activities for the three months ended March 31, ~~2017~~2018 was ~~$358,614~~$366,753 which related to ~~the payment of dividends.~~borrowings under two notes payable.

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

~~We maintain “disclosure~~The Company’s management, with the participation of the Company’s Principal Executive Officer and Principal Financial and Accounting Officer has evaluated the effectiveness of the Company’s disclosure controls and ~~procedures” as~~procedures (as such term is defined in ~~Rule~~Rules 13a-15(e) and 15d-15(e) under the ~~Securities~~ Exchange Act of 1934. In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Based on their evaluationAct) as of the end of the period covered by this ~~report, our Chief~~Quarterly report. Based on such evaluation, the Company’s Principal Executive Officer and ~~our Chief~~Principal Financial and Accounting Officer have concluded that, ~~our~~as of the end of such period covered by this Quarterly Report, the Company’s disclosure controls and procedures were not effective to ~~ensure~~provide reasonable assurance that information that it is required to disclose in reports that the ~~information relating to our company, required to be disclosed in our~~Company files with the SEC ~~reports (i)~~ is recorded, processed, summarized and reported within the time periods specified ~~in SEC~~by the Exchange Act rules and ~~forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosure.~~regulations.

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under Exchange Act (already defined).

Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. In our assessment of the effectiveness of internal control over financial reporting as of March 31, 2019, we determined that, there were control deficiencies existing that constituted a material weakness.

This Quarterly Report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal controls over financial reporting because this is not required of the Company pursuant to Regulation S-K Item 308(b).

During the three months ended March 31, ~~2018,~~2019, there were no changes in our internal control over financial reporting that materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Under the supervision and with the participation of management, including our principal executive officer, we have not completed an evaluation of the effectiveness of our internal control over financial reporting based on the COSO Framework. Based on this evaluation under the COSO Framework, management concluded that our internal control over financial reporting was not effective as of March 31, 2019.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting.

However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

As of March 31, 2019, management has not completed an effective assessment of the Company’s internal control over financial reporting based on the COSO framework. Management has concluded that as of March 31, 2019, our internal control over financial reporting was not effective to detect the inappropriate application of U.S. GAAP. Management identified the following material weaknesses set forth below in our internal control over financial reporting.

In April 2019, the Company has engaged an outside consultant to assist in monitoring and testing our internal controls. The Company expects improvements to be made on the integration of information issues in 2019 as we plan to move towards one accounting and a single ERP system. The Company is continuing to further remediate the material weakness identified above as its resources permit.

We are not required by current SEC rules to include, and do not include, an auditor’s attestation report regarding our internal controls over financial reporting. Accordingly, our registered public accounting firm has not attested to management’s reports on our internal control over financial reporting.

~~We are not currently a party to any material legal proceedings. Although we are not currently a party any material legal proceedings, from~~ITEM 1. LEGAL PROCEEDINGS

From time to time, ~~we may be subject~~the Company is party to ~~various other~~ legal ~~proceedings and claims~~actions that are routine and incidental to ~~our~~its business. ~~Although some~~However, based upon available information and in consultation with legal counsel, management does not expect the ultimate disposition of any or a combination of these ~~proceedings may result in adverse decisions or settlements, management believes that the final disposition of such matters will not~~actions to have a material adverse effect on ~~our~~the Company’s assets, business, ~~financial position,~~cash flow, condition (financial or otherwise), liquidity, prospects and\or results of ~~operations or cash flows.~~ operations.

Recent Sales of Unregistered Securities; Uses of Proceeds from Registered Securities

In connection with the foregoing, the Company relied upon the exemptions from registration provided by Rule 701 and Section 4(a)(2) under the Securities Exchange Act of 1933, as amended:

On ~~April 27,~~May 4, 2018, ~~the SEC~~we issued a notice of qualification of our registration statement on Form 1-A (File No. 024-10809), as amended, filed in connection with the IPO of our Common Stock. Pursuant to the registration statement, we registered the offering and sale of up to 2,000,00013,500 shares of our ~~Common Stock by~~common stock valued at $67,500 related to the ~~Company at~~borrowing of funds under a ~~price of $5.00 per share. The offering closed on April 30, 2018.~~note payable.

~~As a result of the offering, on April 30,~~On May 8, 2018, we received combined aggregate net proceeds of $5,647,358 million, which is comprised of gross proceeds of approximately $6,535,600 million, offset by selling agent discounts and commissions of approximately $800,000, and other offering expenses of $88,242. No payments for the foregoing expenses were made by us to anyissued 61,900 shares of our ~~officers, directors or persons owning ten percent or more~~common stock valued at $306,000 to various employees.

On August 17, 2018, we issued 50,000 shares of our ~~Common Stock, or~~common stock valued at $250,000 to a consultant for services provided.

On August 23, 2018, we issued 20,000 shares of our common stock valued at $100,000 related to the ~~associates~~borrowing of ~~any of the foregoing, or to our affiliates.~~funds under a note payable.

~~The net proceeds, after paying debt and accrued interest~~On September 4, 2018, we issued 557,084 shares of ~~$700,000 million, have been invested in cash and cash equivalents. There has been no material change in~~our common stock valued at $3,384,285 related to the ~~expected use~~acquisition of ~~the net proceeds as described in our Form 1-A, filed with the SEC on April 25, 2018.~~Edison Nation Holdings, LLC.

On September 10, 2018, we issued 20,000 shares of our common stock valued at $100,000 to a consultant for services performed.

On September 20, 2018, we issued 5,000 shares of our common stock valued at $25,000 to a consultant for services performed.

On October 23, 2018, we issued 10,000 shares of our common stock valued at $50,000 to a consultant for services performed.

On November 6, 2018, we issued 2,000 shares of our common stock valued at $10,000 to a consultant for services performed.

On December 21, 2018, we issued 50,000 shares of our common stock valued at $251,000 to a consultant for services performed.

On December 27, 2018, we issued 489,293 shares of our common stock valued at $2,664,200 related to the acquisition of Cloud B, Inc.

On December 27, 2018, we issued 18,797 shares of our common stock valued at $100,000 to a consultant for services performed.

On December 27, 2018, we issued 41,736 shares of our common stock valued at $250,000 to 2 employees.

On December 28, 2018, we issued 3,000 shares of our common stock valued at $15,000 to a consultant for services performed.

On March 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.

On March 13, 2019, we issued 10,500 shares of our common stock valued at $52,500 to two consultants for services performed.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	~~By:~~	~~/s/ Philip Anderson~~
		~~Philip Anderson~~
		~~Corporate Secretary and Chief Financial Officer~~
		~~(Principal Financial Officer and Principal Accounting Officer)~~

~~-23-~~40


	~~For the quarterly period ended March 31, 2018~~

or

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	~~For the transition period from_____to _____~~

~~Commission file number: 001-38448~~

~~XSPAND PRODUCTS LAB, INC.~~
~~(Exact Name of Registrant as Specified in Its Charter)~~

Nevada	82-2199200
(State or Other Jurisdiction	(~~IRS~~I.R.S. Employer
of Incorporation or Organization)	Identification ~~Number)~~No.)

~~4030 Skyron Drive, Suite F~~909 New Brunswick Ave
~~Doylestown, Pennsylvania~~Phillipsburg, New Jersey	~~18902~~08865
(Address of Principal Executive Offices)	(Zip Code)

Large accelerated filer¨	Accelerated filer¨
Non-accelerated filer¨x	Smaller Reporting Companyx
~~(Do not check if smaller reporting company)~~	Emerging Growth Companyx

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value per share	EDNT	Nasdaq

		Page Number

PART I ~~– FINANCIAL INFORMATION~~
		4
Item 1.	Financial Statements (unaudited)	4
	CondensedConsolidated Balance Sheets as of March 31, ~~2018~~2019 and December 31, ~~2017~~2018	45
	CondensedConsolidated Statements of Operations for the three months ended March 31, ~~2018~~2019 and ~~2017~~	5
	~~Condensed Consolidated Statement of Changes in Stockholders’ Deficit~~2018	6
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2019 and 2018	7
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, ~~2018~~2019 and ~~2017~~	7
	~~Notes to Condensed Consolidated Financial Statements~~2018	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1825
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2135
Item 4.	Controls and Procedures	2136

PART II ~~– OTHER INFORMATION~~
		38
Item 1.	Legal Proceedings	2238
Item 1A.	Risk Factors	2239
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2239
Item 3.	Defaults Upon Senior Securities	2240
Item 4.	Mine Safety Disclosures	2240
Item 5.	Other Information	2240
Item 6.	Exhibits	2240

	~~SIGNATURES~~Signatures	2340

~~(Mark One)~~

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	Page Number

Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018	5

Condensed Consolidated Statements of Operations for the three months ended March 31, 2019 and 2018	6

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2019 and 2018	7

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018	8

Notes to Condensed Consolidated Financial Statements	9

	March 31, 2018 (Unaudited)			December 31, 2017

Assets
Current Assets:
Cash and cash equivalents	$	1,147,502		$	557,268
Accounts receivable, net		1,878,748			1,430,236
Inventory		223,576			240,061
Prepaid expenses and other current assets		58,793			41,461
Due from related party		962,586			834,897
Total Current Assets		4,271,205			3,103,923
Deferred offering costs		205,560			-
Property and equipment, net		943,676			966,904
Total Assets	$	5,420,441		$	4,070,827

Liabilities and Stockholders' Deficit
Current Liabilities:
Accounts payable	$	1,793,775		$	1,135,039
Accrued expenses and other current liabilities		242,250			137,709
Notes payable - current		470,635			-
Current portion of notes payable - related parties		239,689			225,553
Total Current Liabilities		2,746,349			1,498,301
Notes payable - related parties, non-current		2,728,568			2,770,947
Deferred tax liability		34,209			34,209
Total Liabilities	$	5,509,126		$	4,303,457
Commitments and Contingencies (Note 7)

Stockholders' Deficit
Common stock, $0.001 par value, 250,000,000 shares authorized; 3,000,000
shares issued and outstanding as of March 31, 2018 and December 31, 2017	$	3,000		$	3,000
Additional paid-in capital		1,721,250			-
Accumulated Deficit		(1,812,935	)		(235,630	)
Total Stockholders’ Deficit		(88,685	)		(232,630	)
Total Liabilities and Stockholders’ Deficit	$	5,420,441		$	4,070,827

	March 31, 2019 (Unaudited)			December 31, 2018

Assets
Current assets:
Cash and cash equivalents	$	719,446		$	2,052,731
Accounts receivable, net		2,653,408			1,877,351
Inventory		1,361,342			923,707
Prepaid expenses and other current assets		1,407,760			611,695
Income tax receivable		82,568
Total current assets		6,224,524			5,465,484
Property and equipment, net		1,034,281			998,863
Right of use assets – operating leases, net		873,110			-
Intangible assets, net		12,423,885			12,687,731
Goodwill		9,736,510			9,736,510
Total assets	$	30,292,310		$	28,888,588

Liabilities and stockholders’ equity (deficit)
Current liabilities:
Accounts payable	$	6,360,102		$	5,519,159
Accrued expenses and other current liabilities		1,646,776			1,135,551
Deferred revenues		175,956			175,956
Current portion of operating lease liabilities		263,532			-
Income tax payable		-			129,511
Line of credit, net of debt issuance costs of $27,252 and $31,145, respectively		520,662			531,804
Current portion of long-term debt, net of debt issuance costs of $129,471 and $0, respectively		744,255			313,572
Current portion of long-term debt – related parties		967,576			932,701
Due to related party		97,996			140,682
Total current liabilities		10,776,855			8,878,936
Contingent consideration		520,000			520,000
Operating lease liabilities, net of current portion		613,809			-
Long-term senior convertible debt – related parties, net of debt discount of $441,667 and $466,667 related to the conversion feature, respectively		986,494			961,494
Long-term debt, net of current portion		53,198			56,688
Long-term debt – related parties, net of current portion		2,469,352			2,531,490
Deferred tax liability		341			341
Total liabilities		15,420,049			12,948,949
Commitments and contingencies (Note 8)

Stockholders' equity
Common stock, $0.001 par value, 250,000,000 shares authorized; 5,680,330 and 5,654,830 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively		5,680			5,655
Additional paid-in-capital		20,859,158			20,548,164
Accumulated deficit		(7,001,046	)		(5,565,756	)
Total stockholders’ equity attributable to Edison Nation, Inc.		13,863,792			14,988,063
Noncontrolling interests		1,008,469			951,576
Total stockholders’ equity		14,872,261			15,939,639
Total liabilities and stockholders’ equity	$	30,292,310		$	28,888,588

	For the Three Months Ended March 31,
	2018			2017

Revenues, net	$	3,431,330		$	3,861,776
Cost of revenues		2,328,994			2,797,672
Gross Profit		1,102,336			1,064,104

Operating Expenses:
Selling, general and administrative		831,487			507,819
Selling, general and administrative - stock-based compensation expense		1,721,250			-
Total Operating Expenses		2,552,737			507,819
Operating (Loss) Income		(1,450,401	)		556,285

Other (Expense) Income:
Rental income		25,704			25,704
Interest (expense) income		(87,535	)		1,191
Total Other (Expense) Income		(61,831	)		26,895
(Loss) Income Before Income Taxes		(1,512,232	)		583,180
Income tax expense		65,073			43,739
Net (Loss) Income	$	(1,577,305	)	$	539,441
Net (Loss) Income Per Share
- Basic and Diluted	$	(0.53	)	$	0.18
Weighted Average Number of Common Shares Outstanding
- Basic and Diluted		3,000,000			3,000,000

	Three Months Ended March 31,
	2019			2018

Revenues, net	$	5,738,534		$	3,431,330
Cost of revenues		3,945,558			2,328,994
Gross profit		1,792,976			1,102,336

Operating expenses:
Selling, general and administrative		3,049,188			2,552,737
Operating (loss) income		(1,256,212	)		(1,450,401	)

Other (expense) income:
Rental income		25,704			25,704
Interest expense, net		(124,694	)		(87,535	)
Total other (expense) income		(98,990	)		(61,831	)
Loss before income taxes		(1,355,202	)		(1,512,232	)
Income tax expense		23,195			65,073
Net loss	$	(1,378,397	)	$	(1,577,305	)
Net income attributable to noncontrolling interests		56,893			-
Net loss attributable to Edison Nation, Inc.		(1,435,290	)		(1,577,305	)
Net loss per share - basic and diluted	$	(0.25	)	$	(0.53	)
Weighted average number of common shares outstanding – basic and diluted		5,661,380			3,000,000

	Common Stock				Additional Paid-in		Accumulated			Total Stockholders'
	Shares		Amount		Capital		Deficit			Equity

Balance, December 31, 2017	3,000,000	$	3,000	$	-	$	(235,630	)	$	(232,630	)
Stock-based compensation					1,721,250					1,721,250
Net loss							(1,577,305	)		(1,577,305	)
Balance, March 31, 2018	3,000,000	$	3,000	$	1,721,250	$	(1,812,935	)	$	(88,685	)

Balance, December 31, 2018	5,654,830		5,655		20,548,164		(5,565,756	)		951,576		15,939,639
Issuance of common stock to note holders	15,000		15		74,085		-			-		74,100
Issuance of common stock to vendors for services	10,500		10		52,490		-			-		52,500
Stock-based compensation	-		-		184,419		-			-		184,419
Net loss	-		-		-		(1,435,290	)		56,893		(1,378,397	)
Balance, March 31, 2019	5,680,330	$	5,680	$	20,859,158	$	(7,001,046	)	$	1,008,469	$	14,872,261

Balance, December 31, 2017	3,000,000	$	3,000	$	-	$	(235,630	)	$	-		(232,630	)
Stock-based compensation	-		-		1,721,250		-			-		1,721,250
Net loss	-		-		-		(1,577,305	)		-		(1,577,305	)
Balance, March 31, 2018	3,000,000		3,000		1,721,250		(1,812,935	)		-		(88,685	)

	For the Three Months Ended March 31,
	2019		2018

Revenues:
Product sales	$	5,637,350	$	3,431,330
Service revenues		25,597		-
Licensing revenues		75,587		-
Total revenues, net	$	5,738,534	$	3,431,330

	March 31, 2019
	Book Value			Estimated Fair Value
Contingent consideration	$	(520,000	)	$	(520,000	)

	Contingent Consideration – Earnout
Balance, December 31, 2018	$	(520,000	)
Change in fair value		-
Balance, March 31, 2019	$	(520,000	)

	March 31,
	2019
Selling Agent Warrants		65,626
Shares reserved in exchange for the cancellation of certain non-voting membership interest in Edison Nation Holdings, LLC		990,000
Options		290,000
Convertible shares under notes payable		285,632
Shares to be issued to innovator		12,500
Total		1,643,758

	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

	Three Months Ended March 31, 2018

Revenues, net	$	5,380,494
Cost of revenues		3,227,171
Gross profit		2,153,323

Operating expenses:
Selling, general and administrative		3,729,957
Operating loss		(1,576,634	)

Other (expense) income:
Other (expense) income		(101,113	)
Loss before income taxes		(1,677,747	)
Income tax expense		65,073
Net loss	$	(1,742,820	)
Net loss attributable to noncontrolling interests		(29,613	)
Net loss attributable to Edison Nation, Inc.		(1,713,207	)
Net loss per share - basic and diluted	$	(0.42	)
Weighted average number of common shares outstanding – basic and diluted		4,046,377

	March 31,		December 31,
	2018		2017
Raw materials	$	6,489	$	30,410
Finished goods		217,087		209,651
Total inventory	$	223,576	$	240,061

	For the Three Months Ended March 31,
	2018			2017
United States	$	(2,059,485	)	$	51,583
Foreign		547,253			531,597
(Loss) income before income taxes	$	(1,512,232	)	$	583,180

			Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Finite lived intangible assets:
Customer relationships	15 years	14.8 years	$	4,270,000	$	126,056	$	4,143,944
Developed technology	7 years	6.7 years	$	3,800,000		290,476		3,509,524
Membership network	7 years	6.7 years	$	1,740,000		145,000		1,595,000
Non-compete agreements	2 years	1.7 years	$	50,000		14,583		35,417
Total finite lived intangible assets			$	9,860,000	$	576,115	$	9,283,885

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	$	576,115	$	12,423,885

For the Years Ended December 31,	Amount
2019	$	1,101,095
2020		1,092,762
2021		1,076,095
2022		1,076,095
2023		1,076,095
Thereafter		4,125,588
		9,547,730

For the Years Ended March 31,	Amount
2018	$	239,689
2019		242,075
2020		909,143
2021		193,042
2022		1,384,308
	$	2,968,257

	March 31, 2019
2019 (excluding the three months ended March 31, 2019)		221,931
2020		286,417
2021		237,377
2022		78,648
2023		78,648
2024 and thereafter		52,430
Total future lease payments		955,451
Less: imputed interest		(78,110	)
Present value of future operating lease payments		877,341
Less: current portion of operating lease liabilities		(263,532	)
Operating lease liabilities, net of current portion		613,809
Right of use assets – operating leases, net		873,110

	Shares		Weighted Average Exercise Price		Remaining Contractual Life in Years		Aggregate Intrinsic Value
Balance, January 1, 2019		290,000	$	5.55		4.2		-
Granted		-		-		-		-
Balance, March 31, 2019		290,000	$	5.55		4.1		-
Exercisable, March 31, 2019		166,667	$	5.32		4.1		-

	Three Months Ended March 31,						Period over Period Change
	2019			2018			$			%

Revenues, net	$	5,738,534		$	3,431,330		$	2,307,204			67.2	%
Cost of revenues		3,945,558			2,328,994			1,616,564			69.4	%
Gross profit		1,792,976			1,102,336			690,640			62.7	%

Operating expenses:
Selling, general and administrative		3,049,188			2,552,737			496,451			19.4	%
Operating (loss) income		(1,256,212	)		1,450,401			194,189			-13.4	%

Other (expense) income:
Rental income		25,704			25,704			-			0.0	%
Interest (expense) income		(124,694	)		(87,535	)		(37,159	)		42.5	%
Total other (expense) income		(98,990	)		(61,831	)		(37,159	)		60.1	%
Loss before income taxes		(1,355,202	)		(1,512,232	)		157,030			-10.4	%
Income tax expense		23,195			65,073			(41,878	)		-64.4	%
Net loss		(1,378,397	)		(1,577,305	)		198,908			-12.6	%
Net income attributable to noncontrolling interests		56,893			-			56,893			na
Net loss attributable to Edison Nation, Inc.	$	(1,435,290	)	$	(1,577,305	)	$	142,015			-9.0	%

	Three Months Ended
	March 31, 2018			March 31, 2017			% Change
Net (loss) income	$	(1,577,305	)	$	539,441			(392	%)

Interest expense, net		87,535			(1,191	)		(7450	)%
Income tax expense		65,073			43,739			49	%
Depreciation and amortization		39,631			51,467			(23	%)
EBITDA		(1,385,066	)		633,456			(319	%)
Noncash stock-based compensation		1,721,250			-			*
Adjusted EBITDA	$	336,184		$	633,456			(47	%)

Exhibit		Incorporated By Reference to			Filed
Number	Description	Form	Exhibit	Filing Date	Herewith
10.1	Form of Securities Purchase Agreement dated March 6, 2019	8-K	10.1	March 13, 2019
10.2	Form of 2% Senior Convertible Promissory Noted dated March 6, 2019	8-K	10.2	March 13, 2019
10.3	Pledge Agreement dated March 12, 2019	8-K	10.3	March 13, 2019
31.1	Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002				*
31.2	Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002				*
32.1	Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002				**

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				*

Exhibit		Incorporated By Reference to			Filed or Furnished
Number	Description	Form	Exhibit	Filing Date	Herewith
3.1	Articles of Incorporation of Idea Lab X Products Inc.		2.1	12/22/2017
3.2	Certificate of Amendment to the Articles of Incorporation of Idea Lab X Products Inc. dated October 26, 2017		2,2	12/22/2017
3.3	Certificate of Amendment to the Articles of Incorporation of Idea Lab X Products Inc. dated December 20, 2017		2,3	12/22/2017
3.4	Bylaws of Xspand Products Lab, Inc.		2.4	12/22/2017
31.1*	Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002				X
31.2*	Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002				X
32.1+	Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002				X

101.INS*	XBRL Instance Document				X
101.SCH*	XBRL Taxonomy Extension Schema Document				X
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document				X
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document				X
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document				X
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document				X


	~~XSPAND PRODUCTS LAB,~~EDISON NATION, INC.

	By:	/s/ Christopher B. Ferguson
		Christopher B. Ferguson
		Chairman and Chief Executive Officer
		(Principal Executive Officer)