Eightco (OCTO) - 2022 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Presents the unaudited condensed consolidated financial statements for Q1 2022, showing increased revenue offset by higher expenses, resulting in a net loss and changes in assets and liabilities Condensed Consolidated Balance Sheets Details the company's financial position as of March 31, 2022, showing increases in assets and liabilities, and a decrease in stockholder's equity Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $14,888,141 | $13,978,348 | | Total current assets | $9,932,968 | $8,970,578 | | Total Liabilities | $13,853,933 | $11,806,996 | | Due to Parent | $5,886,437 | $4,198,546 | | Total Stockholder's Equity | $1,034,208 | $2,171,352 | Condensed Consolidated Statements of Comprehensive Loss Presents the company's financial performance for Q1 2022, highlighting a significant increase in net loss despite revenue growth, driven by rising costs Statement of Comprehensive Loss Summary (Unaudited) | Metric | Three Months Ended Mar 31, 2022 | Three Months Ended Mar 31, 2121 | | :--- | :--- | :--- | | Revenues, net | $3,719,647 | $1,757,652 | | Gross profit | $545,264 | $474,494 | | Operating loss | $(1,376,531) | $(19,561) | | Net loss | $(1,137,144) | $(29,007) | | Loss per share – basic and diluted | $(101.04) | $(2.90) | Condensed Consolidated Statements of Stockholder's Equity Details the changes in stockholder's equity for Q1 2022, primarily reflecting a decrease due to the net loss incurred - The net loss of $1,137,144 for the quarter was the primary driver for the reduction in total stockholder's equity, which fell to $1,034,208 as of March 31, 2022[25] Condensed Consolidated Statements of Cash Flows Summarizes cash inflows and outflows for Q1 2022, showing increased cash usage in operations offset by significant financing activities Summary of Cash Flows (Unaudited) | Cash Flow Activity | Three Months Ended Mar 31, 2022 | Three Months Ended Mar 31, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(1,551,911) | $(31,773) | | Net cash used in investing activities | $(6,595) | $(18,228) | | Net cash provided by financing activities | $1,660,247 | $43,958 | | Net increase in cash | $101,741 | $57,503 | | Cash at end of period | $1,012,935 | $234,262 | Notes to Condensed Consolidated Financial Statements Details the company's spin-off, accounting policies, related-party transactions, contingent obligations, and post-quarter financing - The company was formed via a spin-off from its parent, Vinco Ventures, Inc. The separation was completed on June 29, 2022, after the reporting period[29][31][80] - The company has a $4 million senior secured promissory note from Wattum Management Inc., a related party and non-controlling member of its CW Machines, LLC joint venture[59] - Subsequent to the quarter-end, the company closed on significant financing agreements, including a $33.3 million senior convertible note and a $12 million equity private placement, raising a total of $42 million in gross proceeds[77][78] - The company has contingent obligations to issue up to 400,000 shares of its common stock to former Emmersive Entertainment shareholders based on achieving specific revenue milestones for its Musician & Artist Platform through September 2024[73][74][75] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Analyzes Q1 2022 financial performance and condition, detailing segment contributions, revenue and loss drivers, and liquidity Overview and Business Segments Describes Cryptyde's three core business segments: Packaging, Web3, and Bitcoin Mining Services, outlining their respective operations - The company is comprised of three main business lines: Packaging (Ferguson Containers), Web3 (BlockHiro, LLC), and Bitcoin Mining Services (CW Machines, LLC)[87] - The Packaging Business, Ferguson Containers, has over 50 years of operating history in manufacturing and selling custom packaging[89] - The Web3 Business plans to use blockchain technology in consumer industries like gaming, music, and art, with a digital coin minting platform expected in 2022[90] - The Bitcoin Mining Services Business is a joint venture focused on selling Bitcoin mining equipment and co-location services to consumers[91] Results of Operations Analyzes Q1 2022 results, showing revenue growth from mining equipment sales, but also increased operating expenses leading to a wider net loss Q1 2022 vs Q1 2021 Results of Operations | Metric | Q1 2022 ($) | Q1 2021 ($) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenues, net | $3,719,647 | $1,757,652 | $1,961,995 | 111.63% | | Gross profit | $545,264 | $474,494 | $70,770 | 14.91% | | SG&A Expenses | $1,921,795 | $494,055 | $1,427,740 | 288.98% | | Operating loss | $(1,376,531) | $(19,561) | $(1,356,770) | 6937.12% | | Net loss | $(1,137,144) | $(29,007) | $(1,108,137) | 3820.24% | - The significant revenue increase was primarily due to the shipment of goods related to the sale of mining equipment[105] - The sharp increase in SG&A expenses was mainly a result of higher payroll costs and operating costs as a standalone public company[109] Liquidity and Capital Resources Assesses the company's liquidity and capital position, detailing historical funding reliance and recent capital raises for future operations - The company has approximately $40 million in cash from its former parent (Vinco) and recent private placements, which is believed to be sufficient for the next 12 months of operations[115][121] Summary of Cash Flows (Q1 2022 vs Q1 2021) | Cash Flow Activity | Three Months Ended Mar 31, 2022 ($) | Three Months Ended Mar 31, 2021 ($) | | :--- | :--- | :--- | | Operating Activities | $(1,551,911) | $31,773 | | Investing Activities | $(6,595) | $(18,228) | | Financing Activities | $1,660,247 | $43,958 | The Separation Outlines the spin-off from Vinco Ventures, effective June 29, 2022, detailing its rationale, distribution terms, and governing agreements - The separation from Vinco became effective on June 29, 2022, with Vinco distributing 100% of Cryptyde's common stock to its shareholders[127][128] - Key reasons for the spin-off include allowing each company to have a distinct strategic focus, creating differentiated investment opportunities, optimizing capital allocation, and providing direct access to capital markets[129] - The company entered into a Separation and Distribution Agreement and a Tax Matters Agreement with Vinco to govern the terms of the separation and the ongoing relationship, including asset allocation, liability assumption, and tax responsibilities[140][143][149] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exempt from market risk disclosures due to its status as a Smaller Reporting Company - As a Smaller Reporting Company, Cryptyde is exempt from providing disclosures about market risk[153] Item 4. Controls and Procedures Management concluded disclosure controls were ineffective as of March 31, 2022, due to a material weakness in internal controls - Management concluded that disclosure controls and procedures were not effective as of the end of the reporting period[154] - A material weakness was identified due to limited accounting personnel, leading to an inability to provide timely financial reporting and a lack of segregation of duties[155] - Remediation efforts began in Q1 2022, including adding accounting personnel and implementing a new accounting system, though the material weakness still existed as of March 31, 2022[156] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is involved in routine legal actions, none of which are expected to materially impact its financial condition or operations - The company does not expect any ongoing legal proceedings to have a material adverse effect on its business, financial condition, or results of operations[159] Item 1A. Risk Factors No material changes have occurred to the risk factors previously disclosed in the company's Form S-1 registration statement - No material changes have occurred to the risk factors disclosed in the Form S-1 filed on May 9, 2022[160] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details two private placements closed in May 2022, involving a convertible note and common stock with warrants, raising significant proceeds - On May 5, 2022, the company closed a private placement with Hudson Bay Master Fund, Ltd., issuing a convertible note with a principal of $33,333,333 and warrants for 3,333,333 shares, receiving $30,000,000 in consideration[161] - On May 20, 2022, the company closed an equity private placement with BHP Capital NY, Inc., issuing 1,500,000 shares of common stock and warrants for 1,500,000 shares, receiving $12,000,000 in consideration[164] Item 3. Defaults Upon Senior Securities The company reported no defaults on its senior securities - None[167] Item 4. Mine Safety Disclosures This item is not applicable to the company's operations - Not Applicable[168] Item 5. Other Information No information was provided under this item Item 6. Exhibits Lists all exhibits filed with the quarterly report, including key corporate and financing documents - A list of all exhibits filed with the Form 10-Q is provided, referencing key corporate and financing documents[170][172]