Eightco Holdings Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; filed May 15, 2024. Eightco operates an inventory management business (Forever 8) and a corrugated packaging business. The company says it no longer intends to generate revenue from its Web3 business.
Financial results and condition
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $9.62 million | $15.89 million |
| Gross profit / gross margin | $1.89 million / 19.6% | $1.82 million / 11.4% |
| Operating loss | $(2.99) million | $(3.53) million |
| Net income (loss) | $4.95 million | $(49.85) million |
| Cash used in operating activities | $(0.72) million | $(4.94) million |
| Cash and cash equivalents at quarter-end | $0.81 million | $3.09 million |
Revenue fell 39.5%, primarily because lower available capital constrained Forever 8 sales. Gross profit increased 3.7% as lower-margin inventory-management sales declined. SG&A fell 35.3% to $3.46 million, while restructuring and severance expense was $1.41 million. Despite reported net income, operations remained loss-making: the quarter’s result included $3.01 million from forgiven interest and $6.10 million from waived earnout consideration. Net interest expense was $1.20 million.
At March 31, total assets were $50.24 million and total liabilities were $46.80 million; stockholders’ equity was $3.44 million. Current assets of $9.44 million were below current liabilities of $32.52 million. Current debt included $11.50 million of related-party convertible notes and $7.20 million under lines of credit, of which $3.50 million was related-party debt. Long-term related-party convertible notes, net of discount, were $14.20 million; the company also reported $6.98 million due to its former parent. Cash declined by $4.44 million during the quarter. The cash flow statement reports financing cash outflow of $3.72 million, mainly reflecting $4.92 million of convertible-note repayments.
Material changes, financing, and management commentary
- Forever 8 and corrugated segment revenue were $7.96 million and $1.66 million, respectively, versus $13.95 million and $1.94 million a year earlier. Inventory Management Solutions reported an operating loss of $0.79 million; Corrugated reported operating income of $0.16 million.
- In March, Forever 8’s sellers agreed to forgive approximately $3.0 million of accrued interest, convert approximately $1.1 million of interest into about 1.4 million common shares, defer interest and payments until October 30, 2024, and waive earnout rights. The interest and earnout forgiveness generated the gains noted above.
- Common shares outstanding increased from 4.71 million at year-end to 8.54 million at March 31, reflecting private-placement shares and shares issued for debt, liabilities, services, and other obligations. The filing reports 8,752,487 shares outstanding as of May 15.
- Management states that cash on hand, approximately $0.3 million as of the report date, is insufficient for projected requirements over the next 12 months. The filing identifies substantial doubt about the company’s ability to continue as a going concern. Management expects to seek additional capital and reduce costs; financing may be unavailable, costly, restrictive, or significantly dilutive. There is no formal earnings guidance.
- After quarter-end, the company entered into an ATM agreement allowing up to $2.0 million of common-stock sales, subject to a 3% sales commission. Forever 8 also entered a Series D facility of up to $5.0 million; the filing’s stated amount committed as of the filing date is not consistent across its disclosures.
- Nasdaq had notified the company of noncompliance with both the $1.00 minimum bid-price and $2.5 million minimum-equity requirements. The company requested a hearing, scheduled for May 28, 2024; the appeal stayed delisting pending the hearing. Continued listing was not assured.
- Management said disclosure controls were ineffective and that a material weakness remained, citing limited accounting personnel, delayed financial reporting, and insufficient segregation of duties and transaction controls. Remediation efforts were planned for 2024 and 2025.
- The company reported no material changes to the risk factors in its 2023 Form 10-K. It cited macroeconomic, interest-rate, capital-market, supply-chain, and geopolitical uncertainty. Routine legal proceedings were not expected to have a material adverse effect.
Important facts for investors to verify
- Near-term liquidity, cash needs, and the company’s ability to raise financing and continue as a going concern.
- Nasdaq hearing outcome and the company’s ability to regain compliance with both listing requirements.
- Debt maturities, repayment or extension terms for high-interest credit lines, and payment deferrals under the seller notes.
- Customer concentration: one customer accounted for 56% of Q1 revenue; three customers represented approximately 17%, 12%, and 11% of accounts receivable.
- Potential dilution from additional equity financing, stock issued to settle obligations, and outstanding equity awards.
- Clarification of filing inconsistencies: the cash flow narrative gives operating cash use of $723,376 while the cash flow statement reports $723,292; the Series D committed amount is stated differently in the filing; and the reported ATM share-sale total should be reconciled with the separate disclosure of only 1,000 shares sold for $560 as of May 1.