Eightco (OCTO) - 2022 Q4 - Annual Report

Financial Performance - The Packaging Business generated revenue of $8,035,709 in the fiscal year ended December 31, 2022, compared to $7,874,285 in 2021, reflecting a growth of approximately 2.04%[28] - There is currently no material backlog of orders in the Packaging Business, and orders can be canceled before shipment, indicating potential volatility in future sales[62] - The company anticipates significant capital, operational, and marketing expenses in the coming years as it executes its growth strategy[73] - The company does not intend to pay dividends on common stock, meaning returns for shareholders will depend on stock price appreciation[136] - The company has approximately 336 holders of record of its common stock as of April 14, 2023[190] - The company does not currently intend to pay dividends on its common stock, with any future dividends at the discretion of the board of directors[191] Business Operations - The company completed the acquisition of Forever 8 Fund, LLC on October 1, 2022, focusing on providing funding solutions for e-commerce businesses[26] - The company plans to expand Forever 8's market reach through strategic expansion while continuing to focus on revenue growth[35] - The Company operates one reportable segment focused on the sale of corrugated packaging materials, as determined by the management approach[64] - The company is focused on three main businesses: Inventory Cash Flow Solution, Web3 Business, and Packaging Business[199] - The company employs 33 individuals across its subsidiaries, with 16 in Ferguson Containers, 11 in Eightco Holdings Shared Services, and 6 in Forever 8[56] Market and Competition - Increased competition in the Web3 and BTC Mining Hardware sectors may divert consumers and impact revenue, with competitors having greater financial resources[76] - The company faces strong competition from larger, more integrated firms with greater resources and lower operating costs in the paper and packaging industry[118] - Economic downturns could materially lower demand for packaging products, particularly from customers in discretionary sectors[120] Regulatory and Compliance Risks - The company recognizes the evolving regulatory landscape for digital assets and its potential impact on operations, particularly in the BTC Mining Hardware Business[48] - Regulatory uncertainty regarding the classification of crypto assets as securities poses risks to operations and financial condition[96] - The company is subject to SEC reporting and regulatory requirements, incurring expenses and management time to comply with Section 404 of the Sarbanes-Oxley Act[137] - The company is classified as an emerging growth company, taking advantage of exemptions from certain disclosure requirements, which may affect the attractiveness of its securities to investors[156] Operational Challenges - The BTC Mining Hardware Business does not currently anticipate any future sales of BTC mining equipment and has no material commitments for capital expenditures[34] - The company does not have long-term agreements with its customers in the Packaging Business, relying instead on purchase orders[27] - The company faces significant risks including limited experience in operating as a public entity, reliance on discretionary consumer spending, and potential impacts from COVID-19[69] - The management team has limited experience in operating a public company, which may hinder effective management and increase operational costs[90] - The lack of sufficient segregation of duties at Ferguson Containers may lead to deficiencies in financial reporting processes[139] Financial Instruments and Capital Structure - The company issued a Senior Secured Convertible Note with an initial principal amount of $5,555,000 at a conversion price of $6.245 per share[205] - The company may issue preferred stock in the future, which could adversely affect common stockholders and depress stock prices[140] - Future equity issuances for warrant exercises, acquisitions, or employee compensation may dilute existing shareholders' ownership and adversely affect earnings per share[161] - The company’s common stock will be subordinate to all future indebtedness and any series of preferred stock, which may dilute voting power and reduce the value of common stock[163] Strategic Risks - The acquisition of Forever 8 may not yield anticipated strategic benefits, and integration challenges could adversely affect financial results[124][125] - The company may not realize the anticipated benefits from its separation from Vinco, which could harm its business and financial performance[167] - Historical financial information may not be indicative of future results as the company has little history operating independently[171] - The company may be subject to substantial liabilities under the Separation and Distribution Agreement, which could adversely affect its financial condition[174] Environmental and External Factors - The Packaging Business utilizes 100% post-consumer recycled materials for many of its products, emphasizing sustainability[27] - Climate change and environmental regulations may increase compliance costs and disrupt operations, impacting business performance[135] - The cost and availability of wood fiber, a key raw material for the packaging business, may adversely affect profitability due to cyclical pricing and environmental regulations[113] - Disruptions in transportation could limit the supply of raw materials, negatively impacting production and financial performance[117] - Geopolitical risks, such as the situation in Ukraine, may contribute to market volatility and impact the Company's access to capital[82] Miscellaneous - The company completed a spin-off from Vinco Ventures Inc. on June 29, 2022, distributing one share of its common stock for every ten shares of Vinco common stock held[200] - A reverse stock split of 1-for-50 was executed on April 3, 2023, which may affect the liquidity of the common stock[146] - The trading price of the company's securities is expected to be volatile, influenced by various factors including business conditions and financial report releases[142] - The company has entered into a Tax Matters Agreement that restricts certain actions to maintain tax-free transaction status following the Separation[200]