SEC Form 8-K Summary
Registrant: Cryptyde, Inc. (now identified in the request metadata as Eightco Holdings Inc.); event date: September 14, 2022; filing signed: September 15, 2022. The filing reports a proposed acquisition and related financing, not quarterly or annual financial results.
Business Context and Transaction
Cryptyde entered into a Membership Interest Purchase Agreement to acquire 100% of Forever 8 Fund, LLC, an e-commerce inventory purchasing business. The transaction remained subject to customary closing conditions and could be terminated if it had not closed by October 31, 2022, absent a material breach.
- Base consideration includes 7,000,000 non-voting preferred membership units of Forever 8, subject to adjustment.
- Cryptyde will issue $27.5 million of seller convertible promissory notes.
- Cryptyde will transfer $4.6 million in cash to Forever 8 to satisfy certain obligations.
- Sellers may receive additional earnout consideration in cash or preferred units based on cumulative collected revenue targets.
Financial Terms, Liquidity and Capital Structure
- The seller notes bear interest at 10% annually for the first 12 months and 12% thereafter.
- Maturity is the later of 91 days after maturity of the senior secured convertible note issued to the existing investor on May 5, 2022, or three years after closing.
- Required prepayments include specified portions of warrant proceeds, 25% of gross proceeds from future debt and equity raises, and at least $11.5 million during the first 12 months, subject to the subordination agreement.
- After the required conditions are satisfied, sellers may convert notes after the one-year anniversary at a price based on the company’s 10-trading-day VWAP, subject to a $2.00 floor and related adjustment protection.
- The filing does not provide revenue, net income, operating cash flow, margins, cash balances, or liquidity ratios for the company or Forever 8.
Material Changes and Potential Dilution
- A waiver from the existing investor permitted the acquisition despite restrictions in the existing securities purchase agreement, convertible note and registration rights agreement.
- The conversion price of the existing investor note and exercise price of the warrants were irrevocably adjusted to $1.00, subject to further adjustment.
- The warrant adjustment increased the number of potentially issuable common shares by 29,999,997.
- The company may issue at least 6,281,949 common shares under the preferred-unit put and redemption arrangements; the ultimate number is not determinable.
- Preferred members may exercise put rights beginning generally six months after closing, subject to the threshold date, shareholder approval and other conditions.
- If shareholder approval is not obtained by June 30, 2023, certain redemption obligations may require cash payments rather than common-stock issuance.
Outlook, Risks and Unusual Items
- Earnout amounts are tied to three cumulative collected-revenue targets, with potential economic values of $15 million, $12 million and $10 million, respectively, subject to the agreement’s terms and unit caps.
- Additional preferred units may be required if the company’s stock VWAP is below specified thresholds, including $3.07 for the base consideration and $5.00 or $6.00 for the earnouts.
- The company guarantees qualifying obligations under the preferred-unit put rights, subject to the subordination agreement.
- Future cash requirements could be significant because of the $27.5 million seller notes, required prepayments, redemption rights, earnouts and the $4.6 million cash transfer.
- The transaction and related securities were to be issued in private transactions to accredited investors under Section 4(a)(2) and Rule 506.
Investor Verification Checklist
- Confirm whether the Forever 8 acquisition closed and review the final closing consideration.
- Verify the terms, outstanding balance and maturity of the seller notes and existing investor note.
- Assess the company’s ability to fund required prepayments, redemptions, earnouts and other obligations.
- Quantify actual and potential dilution from preferred-unit conversions, put rights and the 29,999,997 additional warrant shares.
- Review shareholder approval status and the effect of the June 30, 2023 deadline.
- Review Forever 8’s audited or reviewed financial statements and the acquisition’s subsequent reported operating results.