Eightco Holdings Inc. current report, 14 September 2022

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

  1. Confirm whether the Forever 8 acquisition closed and review the final closing consideration.
  2. Verify the terms, outstanding balance and maturity of the seller notes and existing investor note.
  3. Assess the company’s ability to fund required prepayments, redemptions, earnouts and other obligations.
  4. Quantify actual and potential dilution from preferred-unit conversions, put rights and the 29,999,997 additional warrant shares.
  5. Review shareholder approval status and the effect of the June 30, 2023 deadline.
  6. Review Forever 8’s audited or reviewed financial statements and the acquisition’s subsequent reported operating results.