Eightco Holdings Inc. quarterly report, Q1 FY2022

Eightco Holdings Inc. (filing registrant: Cryptyde, Inc.) — Q1 2022 Form 10-Q

Reporting period: Three months ended March 31, 2022; unaudited. The supplied filing identifies the registrant as Cryptyde, Inc., not Eightco Holdings Inc. Cryptyde was then a Vinco Ventures subsidiary; its spin-off was completed June 29, 2022.

Business context

Cryptyde combined Ferguson Containers’ packaging business with a Bitcoin mining equipment and co-location joint venture, CW Machines, and a planned Web3 business, BlockHiro. Q1 revenue growth was attributed primarily to mining-equipment shipments. Web3 products were expected to launch in 2022.

Financial results and liquidity

MetricQ1 2022Q1 2021
Revenue$3.72 million$1.76 million
Gross profit$545,264$474,494
Gross margin14.7%27.0%
SG&A$1.92 million$494,055
Operating loss$1.38 million$19,561
Net loss$1.14 million$29,007
Operating cash flow$(1.55) million$(31,773) in cash flow statement

Revenue increased 111.6%, but cost of revenue rose faster, up 147.4%, reducing gross margin. Management attributed higher SG&A mainly to payroll and costs of operating as a standalone public company. The filing’s MD&A cash-flow discussion gives a conflicting positive figure for Q1 2021 operating cash flow; the financial statement reports cash used of $31,773.

At March 31, cash was $1.01 million; total assets were $14.89 million and total liabilities $13.85 million. Current assets were $9.93 million and current liabilities $7.89 million. The comparative current-liability figure in the balance sheet text is malformed, so a reliable period-over-period comparison is unclear. Equity totaled $1.03 million.

Debt was repaid in January 2022; no note payable remained at quarter-end. However, $5.89 million was due to Parent, up from $4.20 million at year-end, and was to be settled upon the spin-off. The balance sheet also included a $4.0 million related-party loan receivable and $7.53 million in vendor deposits for mining equipment. Operating cash use was funded largely by $1.69 million of financing from Parent.

Subsequent events, outlook and risks

  • After quarter-end, the company closed a convertible-note financing on May 5, 2022: $30 million consideration for a note with $33.33 million initial principal, convertible at $10 per share, plus warrants for 3.33 million shares. The note has a three-year term and an 18% default interest rate.
  • A May 20 equity placement raised $12 million for 1.5 million shares and warrants for another 1.5 million shares at $8 exercise price. Additional warrants issued in connection with the spin-off and financing create potential dilution, including certain warrants exercisable at $0.001 per share.
  • Management stated it expected approximately $40 million in cash from Vinco and the subsequent private placements and believed funds would be sufficient for the next 12 months. This is a post-quarter-end estimate, not March 31 cash.
  • The spin-off was completed June 29, 2022, at a distribution ratio of one Cryptyde share for every ten Vinco shares. Cryptyde reported 20,305,529 shares outstanding on that date.
  • Disclosure controls were deemed ineffective due to a material weakness in timely financial reporting, limited accounting personnel, insufficient segregation of duties, and gaps in controls. Additional accounting staff and a new system were being implemented; outside consultants were planned.
  • Key risks include executing the transition and growth plans, funding and debt repayment, reliance on third parties, competition and technology changes, cybersecurity and regulatory compliance, dilution, and whether the spin-off’s expected benefits materialize. The company also disclosed tax-related restrictions and potential indemnification obligations under its separation agreements.

Important facts for investors to verify

  • Confirm the company identity: the filing supplied is for Cryptyde, Inc., despite the request metadata naming Eightco Holdings Inc.
  • Review the completed financing documents, note terms, cash received and subsequent cash position; distinguish these from March 31 balances.
  • Assess potential dilution from issued and outstanding warrants, conversion rights, and the post-spin-off share count.
  • Examine the vendor deposits and related-party relationships involving Wattum, as well as the recoverability and terms of the $4.0 million loan.
  • Track gross margins, mining-equipment sales, cash burn, and remediation of the material weakness; clarify the filing’s inconsistent Q1 2021 operating-cash-flow discussion.