Eightco Holdings Inc. (formerly Cryptyde, Inc.) — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; the filing was signed April 17, 2023. This is an annual report, not a standalone fourth-quarter report. The company was spun off from Vinco Ventures in June 2022 and acquired Forever 8 on October 1, 2022.
Business context
Eightco’s reported businesses were e-commerce inventory solutions through Forever 8, custom corrugated packaging through Ferguson Containers, and smaller Web3 and Bitcoin-mining-equipment activities. Management says it no longer intends to generate revenue from Web3 and was not anticipating near-term Bitcoin-mining equipment sales. Its stated focus is growth at Forever 8 and Ferguson Containers. The filing describes one reportable segment in parts of the narrative but identifies two segments—Inventory Management Solutions and Corrugated—in the financial-statement notes.
Financial results and liquidity
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Revenue | $31.82 million | $7.87 million |
| Gross profit / gross margin | $2.19 million / 6.9% | $2.19 million / 27.8% |
| Operating loss | $15.51 million | $0.43 million |
| Net loss | $47.45 million | $0.10 million |
| Net cash used in operating activities | $16.72 million | $0.20 million |
- Revenue rose 304%, reflecting Forever 8 and Bitcoin-mining-equipment sales; corrugated revenue increased 2.1% to $8.04 million. Forever 8/Inventory Management Solutions revenue was $23.79 million, with $0.23 million gross profit, while Corrugated generated $1.96 million gross profit.
- Gross profit was nearly unchanged despite the revenue increase; gross margin fell sharply, which management attributes in part to lower-margin mining-equipment sales and the business mix.
- SG&A increased to $16.40 million from $2.62 million. Other major loss items included a $25.32 million loss on warrant issuance/modification, $6.97 million interest expense, and $1.30 million impairment charge.
- At year-end, cash and cash equivalents were $5.58 million, restricted cash $1.00 million, current assets $14.08 million, and current liabilities $13.92 million. Working capital was approximately $0.16 million.
- Year-end liabilities totaled $52.79 million. Balance-sheet debt included convertible notes of $7.91 million net and related-party convertible notes of $24.75 million net, plus a $1.85 million line of credit; the company also reported $7.23 million due to its former parent. These amounts contrast with MD&A language describing approximately $7.9 million of note-related obligations and no other significant debt.
Changes, outlook, and material developments
- Forever 8 was acquired for stated preliminary consideration of $37.9 million, including $27.5 million face amount of seller notes, preferred units, and contingent consideration. The acquisition added $22.32 million of goodwill and $18.58 million of net intangible assets at year-end.
- Management stated that year-end cash was expected to support projected operating requirements for at least 12 months, while also saying additional capital would be needed to grow revenue. A separate note gives cash of approximately $3.1 million as of the filing date, versus $5.58 million at year-end. No quantified revenue or earnings guidance is provided.
- Subsequent to year-end, the company completed a $5 million private placement for a $5.555 million senior secured convertible note and warrants. The note matures January 15, 2024, has an 18% default interest rate, and is secured; conversion and warrant terms may create dilution. The filing also describes seller-note obligations and potential stock or cash settlement rights related to Forever 8.
- On April 3, 2023, the company changed its name to Eightco Holdings Inc. and effected a 1-for-50 reverse stock split. Nasdaq had issued a deficiency notice; on April 11, 2023, the company reported receiving a staff determination that its shares could be delisted absent an appeal.
- The company reported no asserted legal proceedings or claims. It disclosed ineffective disclosure controls and ineffective internal control over financial reporting, citing limited accounting staff, untimely year-end reporting, and inadequate segregation of duties and review controls. Ferguson Containers also had reported control weaknesses. The auditor gave an unmodified opinion on the financial statements but did not attest to internal controls.
Key risks and unusual items
- Liquidity, ability to raise capital, substantial financing costs, debt repayment, potential dilution, and the secured convertible financing terms.
- Execution and integration risks for Forever 8; the filing cautions that anticipated acquisition benefits may not materialize.
- Customer and supplier concentration, inventory and receivables risk, and exposure to economic conditions, inflation, and packaging-material and transportation costs.
- Nasdaq listing compliance, trading liquidity, and potential delisting; also risks arising from the Vinco separation, including tax and indemnification obligations.
- Material noncash and financing-related charges affected the reported loss, particularly the warrant-related charge and debt-discount amortization.
Important facts for investors to verify
- Reconcile cash available and the cash runway: the filing cites $5.58 million at year-end but approximately $3.1 million as of the filing date.
- Reconcile debt and related obligations across the balance sheet, MD&A, note terms, and subsequent financing disclosures, including maturity dates, collateral, restricted cash, and required repayments.
- Review Forever 8’s underlying unit economics, cash collections, inventory quality, customer concentration, acquisition earnouts, and seller put/conversion rights.
- Assess potential dilution from outstanding notes, warrants, preferred units, earnouts, and the 2023 financing; confirm authorized and reserved share capacity after the reverse split.
- Confirm the status of Nasdaq compliance or any appeal and review progress in remediating the material weaknesses in financial reporting controls.
- Check the operating cash-flow figure: the cash-flow statement reports $16.72 million used in 2022, while the MD&A prose gives $16.18 million. The filing text does not reconcile this discrepancy.