Eightco Holdings Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; filed April 1, 2024. This is an annual report, not a standalone fourth-quarter filing. Eightco’s principal businesses were Forever 8, an e-commerce inventory funding and product-supply business, and Ferguson Containers, a custom corrugated packaging manufacturer. The company said it no longer intended to generate revenue from its Web3 business; it also reported no anticipated future Bitcoin-mining equipment sales.
Financial performance and condition
| Metric | FY2023 | FY2022 | Change / context |
|---|---|---|---|
| Revenue | $75.30 million | $31.82 million | Up 136.6%; Forever 8 contributed $67.57 million, up 184.1%. Packaging revenue was $7.73 million, down 3.8%. |
| Gross profit / margin | $8.49 million / 11.3% | $2.19 million / 6.9% | Gross profit increased 287.1%; margin improved approximately 4.4 percentage points. |
| Operating loss | $9.98 million | $15.51 million | Improved, despite restructuring and severance expense rising to $2.13 million from $1.30 million. |
| Interest expense | $11.55 million | $6.97 million | Higher primarily due to amortization of debt issuance costs. |
| Warrant issuance loss | $46.93 million | $25.32 million | Large non-operating expense; a major contributor to the net loss. |
| Net loss | $68.32 million | $47.45 million | Loss widened 44.0%; basic and diluted loss per share was $23.63 versus $150.95. |
| Cash from operating activities | $(6.40) million | $(16.72) million | Cash used decreased year over year. |
| Cash from investing activities | $(0.30) million | $0.47 million | FY2022 included cash received in the Forever 8 acquisition. |
| Cash from financing activities | $6.36 million | $20.92 million | Lower financing inflows year over year. |
| Cash and cash equivalents at year-end | $5.25 million | $5.58 million | FY2023 year-end balance; management reported approximately $0.5 million at filing date. |
| Total assets / liabilities | $55.41 million / $59.76 million | $58.60 million / $52.79 million | Stockholders’ deficit was $4.35 million at FY2023 year-end, versus equity of $5.81 million a year earlier. |
Debt and liquidity: At December 31, 2023, the balance sheet included $4.64 million of current convertible notes, $11.50 million of current related-party convertible notes, $14.13 million of noncurrent related-party convertible notes, and lines of credit of $3.20 million and $3.43 million, respectively. It also reported $6.98 million due to the former parent. Current liabilities of $39.44 million exceeded current assets of $14.01 million. Management said available cash at the filing date was insufficient for projected operating needs for the next 12 months and additional capital would be required.
Material changes and unusual items
- Forever 8 drove growth: its revenue rose from $23.79 million to $67.57 million. Its gross profit increased to $6.26 million from $0.23 million, but its segment operating loss remained about $3.06 million.
- Packaging revenue decreased modestly, while packaging gross profit increased to $2.23 million from $1.96 million. The filing describes Ferguson Containers as historically generating positive operating cash flow.
- The net loss included a $46.93 million warrant issuance loss and $11.55 million of interest expense. Cash operating loss was materially smaller than reported net loss, in part because of noncash warrant and debt-cost items.
- Eightco completed a 1-for-50 reverse stock split and changed its name from Cryptyde, Inc. in April 2023. Shares outstanding were 4,706,419 at year-end, compared with 633,365 at December 31, 2022; the share counts and per-share data reflect the reverse split.
- Forever 8 borrowings included loan facilities bearing 15% or 18% interest, with unused commitment fees and inventory-related collateral. The filing reported $3.425 million committed under Series A and $275,000 under Series B as of the filing date; Series C commitments were $2.9 million.
- After year-end, the company raised approximately $0.71 million in a February 2024 common-stock placement. In March 2024, Forever 8 entered into a facility of up to $5 million, but only $600,000 was reported committed as of the filing date.
Outlook, risks and controls
- Going concern: The auditor highlighted substantial doubt about the company’s ability to continue as a going concern. The company had an accumulated deficit of $113.28 million, recurring losses, negative operating cash flows, a stockholders’ deficit, and current liabilities well above current assets. Management planned further fundraising and cost reductions, but financing availability and terms were uncertain.
- Nasdaq listing: On March 28, 2024, Nasdaq notified the company it had not regained compliance and did not meet the $5 million minimum stockholders’ equity requirement. The company said delisting and suspension were scheduled for April 8, 2024, absent an appeal; it intended to appeal, which would stay suspension pending the Panel’s decision.
- Internal controls: Management concluded disclosure controls and internal control over financial reporting were ineffective at year-end. A material weakness involved limited accounting personnel, inadequate segregation of duties, and insufficient timely review of financial reporting. Ferguson Containers separately disclosed weaknesses in segregation of duties and financial statement review. The auditor did not attest to internal controls.
- Concentration and operating risks: One customer represented 71% of 2023 revenue; one customer represented 27% of year-end accounts receivable in one disclosure. The business also faces supplier and raw-material concentration, transportation, competition, consumer-demand, cybersecurity, regulatory, and financing risks.
- Management and subsequent events: CEO Brian McFadden resigned effective December 31, 2023; CFO Brett Vroman moved to a consulting arrangement. Kevin O’Donnell resigned as Executive Chairman and Interim CEO on March 17, 2024, and Paul Vassilakos was appointed CEO and Executive Chairman. Subsequent severance, financing, debt amendments, and stock issuances may affect liquidity and dilution.
- No quantified operating guidance: The filing provides no specific revenue, earnings, or cash-flow forecast. Management described pursuing growth in Forever 8 and packaging, raising capital, and reducing costs.
Key facts for investors to verify
- Liquidity after year-end: cash on hand, cash burn, debt maturities and payments, committed versus funded credit facilities, and the status of any additional financing.
- Nasdaq appeal outcome and current listing status, including whether the company met the minimum equity requirement.
- Customer concentration and the collectability of receivables, as well as whether Forever 8’s revenue growth can produce sustainable operating cash flow.
- Potential dilution from convertible notes, Forever 8 seller obligations, warrants, severance paid in shares, and subsequent equity issuances.
- Remediation of the material weaknesses and the reliability and timeliness of future financial reporting.
- Reconcile discrepancies in the filing: the MD&A results table gives total cost of revenue as $68.81 million, while the audited statements and segment figures report $66.81 million; the segment note reports operating loss of $9.48 million, versus $9.98 million in the consolidated statements. The filing also describes the company as having one reportable segment in one section and two in others. Verify the correct presentation against the filed financial statements and any subsequent amendments.