UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________ to ________
Commission
file number:
(Exact Name of Registrant as Specified in its Charter)
| (State or Other Jurisdiction | (I.R.S. Employer | |
| of Incorporation or Organization) | Identification No.) |
| (Address of Principal Executive Offices) | (Zip Code) |
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The
|
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or Section 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller
Reporting Company | |
| Emerging
Growth Company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐
Yes ☒
As of August 14, 2023, there were shares of the registrant’s common stock outstanding.
EIGHTCO HOLDINGS INC.
TABLE OF CONTENTS
| 2 |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q for the period ended June 30, 2023 (the “Quarterly Report”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements relate to future events including, without limitation, our ability to raise capital, our operational and strategic initiatives or our future financial performance. We have attempted to identify forward-looking statements by using terminology such as “anticipates,” “believes,” “expects,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predict,” “should” or “will” or the negative of these terms or other comparable terminology. These statements are only predictions; uncertainties and other factors may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels or activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Our expectations are as of the date this Quarterly Report is filed, and we do not intend to update any of the forward-looking statements after the date this Quarterly Report is filed to confirm these statements to actual results, unless required by law.
You should not place undue reliance on forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties, and actual results may differ materially from those in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed in “Risk Factors,” in Part II, Item 1A of this Report as well as information provided elsewhere in this Quarterly Report and our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the Securities and Exchange Commission (the “SEC”) on April 17, 2023. You should carefully consider that information before you make an investment decision.
These and other factors discussed above could cause results to differ materially from those expressed in the estimates made by any independent parties and by us.
| 3 |
OTHER PERTINENT INFORMATION
Unless the context otherwise indicates, when used in this Quarterly Report, the terms “Eightco,” “we,” “us,” “our,” the “Company” and similar terms refer to Eightco Holdings Inc., a Delaware corporation, and all of our consolidated subsidiaries and variable interest entities.
| 4 |
PART I - FINANCIAL INFORMATION
EIGHTCO HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, net | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Right of use assets – operating leases | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Loan held-for-investment | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other current liabilities | ||||||||
| Current portion of operating lease liabilities | ||||||||
| Line of credit | ||||||||
| Convertible
note payable, net of debt discount of $ | ||||||||
| Due to Related Parties | ||||||||
| Total current liabilities | ||||||||
| Convertible notes payable, net of debt discount of $ and $, respectively | ||||||||
| Convertible
notes payable – related parties, net of debt discount of $ | ||||||||
| Operating lease liabilities, net of current portion | ||||||||
| Contingent consideration | ||||||||
| Deferred tax liabilities | ||||||||
| Total liabilities | $ | $ | ||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, $ par value, shares authorized and and shares outstanding at June 30, 2023 and December 31, 2022, respectively | ||||||||
| Common stock, $ par value, shares authorized and and shares outstanding at June 30, 2023 and December 31, 2022, respectively | $ | $ | ||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other Comprehensive Income | ||||||||
| Total stockholders’ equity attributable to Eightco Holdings Inc. | ||||||||
| Non-controlling interest | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See the accompanying notes to the condensed consolidated financial statements.
| 5 |
EIGHTCO HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues, net | $ | $ | $ | $ | ||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||
| Impairment | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Non-operating income (expense): | ||||||||||||||||
| Interest income (expense), net | ( | ) | ( | ) | ||||||||||||
| Loss On Issuance of Warrants | ( | ) | ( | ) | ||||||||||||
| Other income | ||||||||||||||||
| Total non-operating income (expense) | ( | ) | ( | ) | ||||||||||||
| Net loss before income tax expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax expense (benefit) | ( | ) | ||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ( | ) | ( | ) | ||||||
| Net loss attributable to non-controlling interest | ( | ) | ( | ) | ||||||||||||
| Net loss attributable to Eightco, Inc. | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Earnings (loss) per share: | ||||||||||||||||
| Loss per share – basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weight average number of common shares outstanding – basic and diluted | ||||||||||||||||
See the accompanying notes to the condensed consolidated financial statements.
| 6 |
EIGHTCO HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net loss | $ | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
| Foreign currency translation – unrealized gain (loss) | ||||||||||||||||
| Comprehensive loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| 7 |
EIGHTCO HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
| Common Stock | Additional Paid in | Non controlling | Retained
Earnings (Accumulated) | Accumulated Other | ||||||||||||||||||||||||
| Shares | Amount | Capital | Interest | Deficit | Income | Total | ||||||||||||||||||||||
| Balance, January 1, 2022 | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||
| Issuance of common stock to investors | ||||||||||||||||||||||||||||
| Exercise of warrants | ( | ) | ||||||||||||||||||||||||||
| Issuance of common stock t shareholders upon distribution from Vinco Ventures, Inc. | ( | ) | ||||||||||||||||||||||||||
| Issuance of warrants to noteholders and placement agent | - | |||||||||||||||||||||||||||
| Offering costs | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Share-based compensation | - | |||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Balance, June 30, 2022 | 21,815,166 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||
| Balance, January 1, 2023 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Issuance of common stock to note holders | ||||||||||||||||||||||||||||
| Exercise of warrants | ||||||||||||||||||||||||||||
| Issuance of common stock to employees and directors | ( | ) | ||||||||||||||||||||||||||
| Issuance of warrants | - | |||||||||||||||||||||||||||
| Foreign currency translation | - | |||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
| Issuance of common stock to investors | ( | ) | ||||||||||||||||||||||||||
| Exercise of warrants | ( | ) | ||||||||||||||||||||||||||
| Share-based compensation | - | |||||||||||||||||||||||||||
| Foreign currency translation | - | |||||||||||||||||||||||||||
| Issuance of warrants | - | |||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
See the accompanying notes to the condensed consolidated financial statements.
| 8 |
EIGHTCO HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| June 30, 2023 | June 30, 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Impairment | ||||||||
| Amortization of debt issuance costs | ||||||||
| Loss on issuance of warrants | ||||||||
| Share-based compensation | ||||||||
| Provision for bad debts | ||||||||
| Gain on sale of assets | ||||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ||||||||
| Accounts payable | ||||||||
| Accrued expenses and other current liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Purchases of developed technology | ( | ) | ||||||
| Proceeds from sale of property and equipment | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Net borrowings under lines of credit | ||||||||
| Net proceeds from issuance of common stock | ||||||||
| Net borrowings under convertible notes | ||||||||
| Due to Former Parent | ||||||||
| Fees paid for financing costs | ( | ) | ||||||
| Repayments under convertible notes payable – related parties | ( | ) | ||||||
| Repayments under notes payable | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Net (decrease) increase in cash and cash equivalents and restricted cash | ( | ) | ||||||
| Cash and cash equivalents and restricted cash, beginning of the year | ||||||||
| Cash and cash equivalents and restricted cash, end of the period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Right of use assets | $ | $ | ||||||
| Operating lease liabilities | $ | $ | ||||||
| Convertible shares under notes payable | $ | $ | ||||||
| Issuance of warrants to noteholders and placement agent | $ | $ | ||||||
| Original issue discount | $ | $ | ||||||
| Accrued placement agent fees for equity placement | $ | $ | ||||||
| Accrued placement agent fees for debt placement | $ | $ | ||||||
| Issuance of common stock upon the distribution from Vinco Ventures, Inc. | $ | $ | ||||||
See the accompanying notes to the condensed consolidated financial statements.
| 9 |
EIGHTCO HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
As
used herein, “Eightco” and the “Company” refer to Eightco Holdings Inc. and subsidiaries and/or where
applicable, its management, a Delaware corporation originally incorporated on September 21, 2021 (date of inception) under the laws
of the State of Nevada. On March 9, 2022, the company converted to a Delaware corporation pursuant to a plan of conversion entered
into with its former parent, Vinco Ventures, Inc. (“Vinco” or “Former Parent”). The company operates in
three main businesses: Forever 8 Inventory Cash Flow Solution, Web3 Business, and Packaging Business. Forever 8 Fund LLC (“Forever 8”), which
focuses on purchasing inventory for e-commerce retailers, was acquired by the company on October 1, 2022, and is part of its
Inventory Solution Business. The company previously sold BTC mining equipment and developed an NFT character set under its Web3
Business but has no intention of continuing this business at this time. The Packaging Business manufactures and sells custom
packaging for a wide variety of products and helps customers generate brand awareness and promote brand image through packaging.
Prior to the Separation (as defined below), the Company was
As
of June 30, 2023, Eightco had three wholly-owned subsidiaries: Forever 8, Ferguson Containers, Inc. (“Ferguson
Containers”) and BlockHiro, LLC. Ferguson Containers owns
During 2021, the Former Parent announced it plans to spin-off (the “Separation”) certain of its businesses. The Former Parent has included Ferguson Containers as well as other subsidiaries of the Former Parent (the “Eightco Businesses”) as part of the spin-off. In anticipation of the Separation, the Former Parent contributed its assets and legal entities comprising the Eightco Businesses to facilitate the Separation. As a result of the Separation, the Company has become an independent, publicly traded company comprised of the Eightco Businesses on June 30, 2022.
On March 29, 2022, Ferguson Containers ownership was assigned by the Former Parent to the Company. This transaction between entities under common control resulted in a change in reporting entity and required retrospective combination of the entities for all periods presented, as if the combination had been in effect since the inception of common control. Accordingly, the consolidated financial statements of the Company reflect the accounting of the combined acquired subsidiaries at historical carrying values, except that equity reflects the equity of Eightco.
Liquidity Uncertainties.
As
of June 30, 2023, the Company had approximately $ million in cash and cash equivalents as compared to $
The Company expects to need additional capital in order to increase revenues above current levels. Any additional equity financing, if available, may not be on favorable terms and would likely be significantly dilutive to the Company’s current stockholders, and debt financing, if available, may involve restrictive covenants. The Company’s ability to access capital when needed is not assured and, if not achieved on a timely basis, will likely have a materially adverse effect on our business, financial condition and results of operations.
Basis of Presentation.
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, the unaudited condensed financial statements included herein contain all adjustments necessary to present fairly the Company’s financial position and the results of its operations and cash flows for the interim periods presented. Such adjustments are of a normal recurring nature. The results of operations for the six months ended June 30, 2023 may not be indicative of results for the full year. These unaudited condensed financial statements should be read in conjunction with the audited financial statements and the notes to those statements for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K filed with the SEC on April 17, 2023.
The Company is an emerging growth company as the term is used in The Jumpstart Our Business Startups Act, enacted on April 5, 2021 and has elected to comply with certain reduced public company reporting requirements.
| 10 |
EIGHTCO HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reverse
Stock Split: On April 3, 2023, the Company filed a Certificate of Amendment (the “Certificate of Amendment”) to the Company’s
Certificate of Incorporation (the “Certificate of Incorporation”) with the Secretary of State of Delaware (1) to effect a
Use of Estimates. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. The Company’s significant estimates used in these consolidated financial statements include, but are not limited to, fair value of warrants, revenue recognition and the determination of the economic useful life of depreciable property and equipment. Certain of the Company’s estimates could be affected by external conditions, including those unique to the Company and general economic conditions. It is reasonably possible that these external factors could have an effect on the Company’s estimates and could cause actual results to differ from those estimates.
Business Combinations. For business combinations that meet the accounting definition of a business, the Company determines and allocates the purchase price of an acquired company to the tangible and intangible assets acquired, the liabilities assumed, and noncontrolling interest, if applicable, as of the date of acquisition at fair value. Fair value may be estimated using comparable market data, a discounted cash flow method, or a combination of the two. In the discounted cash flow method, estimated future cash flows are based on management’s expectations for the future. Revenues and costs of the acquired companies are included in the Company’s operating results from the date of acquisition. The Company uses its best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the acquisition date, and these estimates and assumptions are inherently uncertain and subject to refinement during the measurement period not to exceed one year from the acquisition date. As a result, any adjustment identified subsequent to the measurement period is included in operating results in the period in which the amount is determined (See Note 3 – “Acquisitions”).
Cash and Cash Equivalents. The Company considers all highly liquid, short-term investments with original maturities of six months or less when purchased to be cash equivalents.
Restricted Cash. The Company’s restricted cash consists of cash that the Company is contractually obligated to maintain in accordance with the terms of its January 2022 Note. See Note 14 – “Convertible Notes Payable” for further discussion.
Accounts
Receivable. Accounts receivable are carried at their contractual amounts, less an estimate for uncollectible amounts. Management
estimates the allowance for bad debts based on existing economic conditions, historical experience, the financial conditions of the customers,
and the amount and age of past due accounts. Receivables are considered past due if full payment is not received by the contractual due
date. Past due accounts are generally written off against the allowance for bad debts only after all collection attempts have been exhausted.
The allowance for doubtful account was $
Inventories. Inventory is recorded at the lower of cost or net realizable value on a first-in, first-out basis. The Company reduces the carrying value of inventories for those items that are potentially excess, obsolete, or slow moving based on changes in customer demand, technology developments, or other economic factors.
Property
and Equipment. Property and equipment are stated at cost, net of accumulated depreciation and amortization, which is recorded commencing
at the in-service date using the straight-line method over the estimated useful lives of the assets, as follows:
| 11 |
EIGHTCO HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Intangible
Assets and Long-lived Assets.
The Company reviews long-lived
assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.
The Company assesses the recoverability of its long-lived assets using undiscounted cash flows. If an asset is found to be impaired,
the amount recognized for impairment is equal to the difference between the carrying value and the asset’s fair value. We record
intangible assets based on their fair value on the date of acquisition. Intangible assets include the cost of developed technology, customer
relationships, trademarks and tradenames. Intangible assets are amortized utilizing the straight-line method over their remaining economic
useful lives, as follows: 10 years for developed technology, 7 years for customer relationships and 7 years for trademarks and tradenames.
The Company reviews long-lived assets and intangible assets for potential impairment annually and when events or changes in circumstances
indicate the carrying amount of an asset may not be recoverable. In the event the expected undiscounted future cash flows resulting from
the use of the asset is less than the carrying amount of the asset, an impairment loss is recorded equal to the excess of the asset’s
carrying value over its fair value. If an asset is determined to be impaired, the loss is measured based on quoted market prices in active
markets, if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques,
including a discounted value of estimated future cash flows. In the event that management decides to no longer allocate resources to
an asset, an impairment loss equal to the remaining carrying value of the asset is recorded. The Company did not record any impairment
charges related to intangibles assets during the six months ended June 30, 2023 and 2022, respectively. The Company recorded impairment charges related to long-lived assets of $
Goodwill. Goodwill is recorded for the difference between the fair value of the purchase consideration over the fair value of the net identifiable tangible and intangible assets acquired. The Company performs an impairment assessment of goodwill on an annual basis as of December 31st, or whenever impairment indicators exist. In the absence of any impairment indicators, goodwill is assessed for impairment during the fourth quarter of each fiscal year. Judgments regarding the existence of impairment indicators are based on market conditions and operational performance of the business. The Company may assess our goodwill for impairment initially using a qualitative approach to determine whether it is more likely than not that the fair value of these assets is greater than their carrying value. When performing a qualitative test, the Company assesses various factors including industry and market conditions, macroeconomic conditions and performance of our businesses. If the results of the qualitative assessment indicate that it is more likely than not that the goodwill and other indefinite-lived intangible assets are impaired, a quantitative impairment analysis would be performed to determine if impairment is required. The Company may also elect to perform a quantitative analysis of goodwill initially rather than using a qualitative approach. The impairment testing for goodwill is performed at the reporting unit level. The valuation methods used in the quantitative fair value assessment, discounted cash flow and market multiples method, requires our management to make certain assumptions and estimates regarding certain industry trends and future profitability of the Company’s reporting units. If the fair value of a reporting unit exceeds the related carrying value, the reporting unit’s goodwill is considered not to be impaired and no further testing is performed. If the carrying value of a reporting unit exceeds its fair value, an impairment loss is recorded for the difference. The valuation of goodwill is affected by, among other things, the Company’s business plan for the future and estimated results of future operations. Future events could cause the Company to conclude that impairment indicators exist, and, therefore, that goodwill may be impaired.
Contingent Liabilities. The Company, from time to time, may be involved in certain legal proceedings. Based upon consultation with outside counsel handling its defense in these matters and the Company’s analysis of potential outcomes, if the Company determines that a loss arising from such matters is probable and can be reasonably estimated, an estimate of the contingent liability is recorded in its condensed consolidated financial statements. If only a range of estimated loss can be determined, an amount within the range that, based on estimates, assumptions and judgments, reflects the most likely outcome, is recorded as a contingent liability in the condensed consolidated financial statements. In situations where none of the estimates within the estimated range is a better estimate of probable loss than any other amount, the Company records the low end of the range. Any such accrual would be charged to expense in the appropriate period. Litigation expenses for these types of contingencies are recognized in the period in which the litigation services were provided.
| 12 |
EIGHTCO HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue
Recognition. In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
606, Revenue from Contracts with Customers, the Company recognizes revenue when it satisfies performance obligations, by transferring
promised goods or services to customers, in an amount that reflects the consideration to which the Company expects to be entitled in
exchange for fulfilling those performance obligations. Revenue for product sales is recognized upon receipt by the customer. There are
no contract assets or contract liabilities and therefore no unsatisfied performance obligations. One customer represented
Disaggregation of Revenue. The Company’s primary revenue streams include the sale of consumer goods through our inventory management solutions business, the sale of corrugated packaging materials and the sale of mining equipment. There are no other material operations that were separately disaggregated for segment purposes.
Cost of Revenues. Cost of revenues includes freight charges, purchasing and receiving costs, depreciation and inspection costs.
Comprehensive income. The Company follows Accounting Standards Codification (“ASC”) 220 in reporting comprehensive income. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income. The Company’s only component of comprehensive income (loss) for the years ended December 31, 2022 and 2021 was foreign currency translation adjustments.
Foreign Currency Transactions and Translation. Eightco’s functional currency is the United States Dollar (“USD”) and the Forever 8 functional currency in which it operates is the Euro (“EUR”).
For the purpose of presenting these consolidated financial statements the reporting currency is USD. Forever 8 assets and liabilities are expressed in USDs at the exchange rate on the balance sheet date, equity accounts are translated at historical rates, and income and expense items are translated at the weighted average exchange rate during the period. The resulting translation adjustments are reported under accumulated other comprehensive income in the stockholders’ equity section of the balance sheets.
Transactions in currencies other than the entity’s functional currency are recorded at the rates of exchange prevailing on the date of the transaction. At the end of each reporting period, monetary items denominated in foreign currencies are translated at the rates prevailing at the end of the reporting periods. Exchange differences arising on the settlement of monetary items and on translation of monetary items at period-end are included in statement of comprehensive loss.
Exchange rate used for the translation as follows:
USD to EUR – 1 USD to .9174 EUR’s.
USD to GBP – 1 USD to .7937 GBP’s.
June 30, 2023 | June 30, 2022 | |||||||
| Warrants for Former Parent warrant holders | - | 174,404 | ||||||
| Convertible shares under notes payable | ||||||||
| Warrants for noteholders and placement agents | ||||||||
| Warrants for equity investors and placement agents | ||||||||
| Shares reserved for issuance for preferred units of Forever 8 Fund, LLC | ||||||||
| Convertible notes payable issued in acquisition of Forever 8 Fund, LLC | ||||||||
| Shares reserved for contingent consideration for acquisition of Forever 8 Fund, LLC | ||||||||
| Shares to be issued | ||||||||
| Total common stock equivalents | ||||||||
| 13 |
EIGHTCO HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Deferred Financing Costs. Deferred financing costs include debt discounts and debt issuance costs related to a recognized debt liability and are presented in the balance sheet as a direct deduction from the carrying value of the debt liability. Amortization of deferred financing costs are included as a component of interest expense. Deferred financing costs are amortized using the straight-line method over the term of the recognized debt liability which approximates the effective interest method.
Income Taxes. The Company accounts for income taxes under the provisions of the FASB ASC Topic 740 “Income Taxes” (“ASC Topic 740”). The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of items that have been included or excluded in the condensed consolidated financial statements or tax returns. Deferred tax assets and liabilities are determined on the basis of the difference between the tax basis of assets and liabilities and their respective financial reporting amounts (“temporary differences”) at enacted tax rates in effect for the years in which the temporary differences are expected to reverse. The Company utilizes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Management has evaluated and concluded that there were no material uncertain tax positions requiring recognition in the Company’s condensed consolidated financial statements as of June 30, 2023 and 2022. The Company does not expect any significant changes in its unrecognized tax benefits within twelve months of the reporting date. The Company’s policy is to classify assessments, if any, for tax related interest as interest expense and penalties as general and administrative expenses in the consolidated statements of comprehensive income. The Company is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress.
Fair Value Measurements. The Company measures the fair value of financial assets and liabilities based on the guidance of ASC 820 “Fair Value Measurements and Disclosures” (“ASC 820”) which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.
ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:
Level 1 — quoted prices in active markets for identical assets or liabilities
Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level 3 — inputs that are unobservable (for example, cash flow modeling inputs based on assumptions)
The
carrying amounts of the Company’s financial instruments, such as cash, accounts receivable, accounts payable and other current
liabilities approximate fair values due to the short-term nature of these instruments. The Company’s long-term debt consists of
$
Concentration
of Credit Risks. Financial instruments that potentially subject the Company to concentrations of credit risk are cash equivalents
and accounts receivable. Cash and cash equivalents are invested in deposits with certain financial institutions and may, at times, exceed
federally insured limits. The Company has not experienced any significant losses on its deposits of cash and cash equivalents. In regard
to trade receivables, the Company performs ongoing evaluations of its customers’ financial condition as well as general economic
conditions and, generally, requires no collateral from its customers. On June 30, 2023, amount due from one customer totaled approximately
Leases.
In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842). This ASU requires
a lessee to recognize a right-of-use asset and a lease liability under most operating leases in its balance sheet. The ASU is effective
for annual and interim periods beginning after December 15, 2021. Early adoption is permitted. The Company has adopted ASU 2016-02 as
of January 1, 2022. The adoption of the standard did not have a material impact on the balance sheet. As of April 26, 2022, the date
the Company assumed the lease (Note 18), the operating lease right of use asset and operating lease liability amounted to $
| 14 |
EIGHTCO HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recent Accounting Pronouncements. In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). This standard establishes an impairment model (known as the current expected credit loss (“CECL”) model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses, which is intended to result in a timelier recognition of losses. Under the CECL model, entities will estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments, but not expected extensions or modifications) from the date of initial recognition of the financial instrument. Measurement of expected credit losses are to be based on relevant forecasts that affect collectability. The scope of financial assets within the CECL methodology is broad and includes trade receivables from certain revenue transactions and certain off-balance sheet credit exposures. Different components of the guidance require modified retrospective or prospective adoption.
In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses. ASU 2018-19 clarifies that receivables arising from operating leases are not within the scope of the credit losses standard. Instead, entities would need to apply other U.S. GAAP, namely Topic 842 (Leases), to account for changes in the collectability assessment for operating leases. Other than operating lease receivables, Partnership trade receivables include receivables from finance leases and equipment sales. Under Topic 606 (Revenue from Contracts with Customers), revenue is recognized when, among other criteria, it is probable that the entity will collect the consideration to which it is entitled for goods or services transferred to a customer. At the point that finance lease receivables are recorded, they become subject to the CECL model and estimates of expected credit losses over their contractual life will be required to be recorded at inception based on historical information, current conditions, and reasonable and supportable forecasts. Trade receivables derived from equipment sales are of short duration and there is not a material difference between incurred losses and expected losses.
In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which amends and clarifies several provisions of Topic 326. In May 2019, the FASB issued ASU 2019-05, Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief, which amends Topic 326 to allow the fair value option to be elected for certain financial instruments upon adoption. ASU 2019-10 extended the effective date of ASU 2016-13 until December 15, 2022. The Company adopted this new guidance, including the subsequent updates to Topic 326, on January 1, 2023 and the adoption did not have a material impact on the Company’s financial statements and related disclosures
Management does not believe that any other recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, the Company will adopt those that are applicable under the circumstances.
Segment Reporting. The Company uses “the management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. The Company’s chief operating decision maker is the Chairman and Chief Executive Officer (“CEO”) of the Company, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. The Company’s primary revenue streams include the sale of consumer goods through our inventory management solutions business, which includes the sale of mining equipment, and the sale of corrugated packaging materials. There are no other material operations that were separately disaggregated for segment purposes.
| 15 |
EIGHTCO HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. ACQUISITIONS
Effective
October 1, 2022, the Company acquired
Pursuant
to the Purchase Agreement, the Sellers received consideration consisting of (i) an aggregate of
| October 1, | ||||
| 2022 | ||||
| $ | ||||
| Convertible
promissory notes in an aggregate principal amount of $ | ||||
| Contingent consideration | ||||
| Total purchase price | $ | |||
The Company believes that this combination will further strengthen its future growth opportunities. The Company accounted for this acquisition as a business combination under the acquisition method of accounting. The following table summarizes the preliminary purchase price allocation of fair values of the assets acquired and liabilities assumed at the date of acquisition:
| October 1, | ||||
| 2022 | ||||
| Cash and cash equivalents | $ | |||
| Accounts receivable, net | ||||
| Inventories | ||||
| Prepaid expenses and other assets | ||||
| Property and equipment | ||||
| Intangible assets | ||||
| Goodwill | ||||
| Total assets acquired | ||||
| Accounts payable and accrued expenses | ||||
| Debt | ||||
| Earnout | ||||
| Total liabilities assumed | ||||
| Total | $ | |||
The Company anticipates the goodwill will be tax deductible.
4. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following at June 30, 2023 and December 31, 2022:
June 30, 2023 | December 31, 2022 | |||||||
| Trade accounts receivable | $ | $ | ||||||
| Less: allowance for doubtful accounts | ( | ) | ( | ) | ||||
| Total accounts receivable | $ | $ | ||||||
5. INVENTORIES
Inventories consist of the following at June 30, 2023 and December 31, 2022:
June 30, 2023 | December 31, 2022 | |||||||
| Raw materials | $ | $ | ||||||
| Finished goods | ||||||||
| Reserve for obsolescence | ( | ) | ||||||
| Total inventories | $ | $ | ||||||
| 16 |
EIGHTCO HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Other current assets consist of the following at June 30, 2023 and December 31, 2022:
June 30, 2023 | December 31, 2022 | |||||||
| Advances for inventory purchases | $ | $ | ||||||
| Prepaid insurance | ||||||||
| Deposits | ||||||||
| Prepaid software deposit | ||||||||
| Other | ||||||||
| Total other current assets | $ | $ | ||||||
7. LOAN HELD-FOR-INVESTMENT, RELATED PARTY
Loan
held-for-investment, related party, represents a senior secured promissory note (the “Wattum Note”) from Wattum
Management Inc., a non-controlling member of CW Machines, LLC, a related party. The Wattum Note bears interest of
8. PROPERTY AND EQUIPMENT, NET
Property and equipment consist of the following at June 30, 2023 and December 31, 2022:
June 30, 2023 | December 31, 2022 | |||||||
| Land | $ | $ | ||||||
| Building and building improvements | ||||||||
| Equipment and machinery | ||||||||
| Furniture and fixtures | ||||||||
| Office and computer equipment | ||||||||
| Vehicles | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Total property and equipment, net | $ | $ | ||||||
Depreciation
and amortization expense was $
9. INTANGIBLE ASSETS, NET
Intangible assets consist of the following at June 30, 2023 and December 31, 2022:
| Useful Lives | June 30, 2023 | December 31, 2022 | ||||||||
| Customer relationships | $ | $ | ||||||||
| Developed technology | ||||||||||
| Trademarks and tradenames | ||||||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||||
| Total intangible assets, net | $ | $ | ||||||||
Amortization
expense was $
Amortization expense for the next five years is as follows:
| For the years ending December 31, | ||||
| 2023 (excluding the six months ended June 30, 2023) | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| $ | ||||
| 17 |
EIGHTCO HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
10. GOODWILL
The changes in the carrying amount of goodwill for the period from January 1, 2023 through June 30, 2023 consisted of the following:
| Balance, January 1, 2023 | $ | |||
| Additions and adjustments | ||||
| Balance, June 30, 2023 | $ |
11. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following at June 30, 2023 and December 31, 2022:
June 30, 2023 | December 31, 2022 | |||||||
| Customer deposits | $ | $ | ||||||
| Payroll and related benefits | ||||||||
| Professional fees | ||||||||
| Accrued taxes | ||||||||
| Accrued settlement liability for equity holders of Forever 8 | ||||||||
| Accrued interest | ||||||||
| Accrued rent | ||||||||
| Accrued warrant liability | ||||||||
| Other | ||||||||
| Total accrued expenses and other current liabilities | $ | $ | ||||||
12. DUE TO AND FROM FORMER PARENT
As
of June 30, 2023 and December 31, 2022, due to Former Parent consists of net amounts due to Vinco related to management fees and borrowings
for working capital and financing needs of Eightco as well as other operating expenses that were paid for on behalf of
one to the other. As of June 30, 2023 and December 31, 2022, the net amount due to Former Parent was $
13. LINES OF CREDIT
Principal due under the lines of credit was as follows at June 30, 2023 and December 31, 2022:
June 30, 2023 | December 31, 2022 | |||||||
| Lines
of credit, | $ | $ | ||||||
| Lines of credit – related parties, 15%, 6/30/24 | ||||||||
| Lines of credit, net | $ | $ | ||||||
The lines of credit mature on June 30, 2024 with an extension available until September 30, 2024 at the Company’s option.
Interest
expense under lines of credit was $
14. CONVERTIBLE NOTES PAYABLE
Principal due under the convertible note payable was as follows at June 30, 2023 and December 31, 2022:
June 30, 2023 | December 31, 2022 | |||||||
| Current: | ||||||||
| Note
payable, | ||||||||
| Less: debt discount | ( | ) | ||||||
| Convertible notes payable, net, current | $ | $ | ||||||
| Long-Term: | ||||||||
| Note
payable, | ||||||||
| Less: debt discount | ( | ) | ( | ) | ||||
| Convertible notes payable, net | $ | $ | ||||||
Interest
expense under the convertible notes payable was $
| 18 |
EIGHTCO HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
14. CONVERTIBLE NOTES PAYABLE (continued)
March 2023 Offering
On
March 15, 2023, Eightco entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with Hudson
Bay (the “Investor”) for the issuance and sale of a Senior Secured Convertible Note with an initial principal amount of
$
In connection with the Private Placement, the Company entered into a Registration Rights Agreement (the “Registration Rights Agreement”), a Security and Pledge Agreement (the “Pledge Agreement”), and various ancillary certificates, disclosure schedules and exhibits in support thereof prior to the closing of the Securities Purchase Agreement.
Securities Purchase Agreement
The Securities Purchase Agreement provides for the purchase by the Investor and the sale by the Company of the Note and the Warrant. The Securities Purchase Agreement contains representations and warranties of the Company and the Investor that are typical for transactions of this type. The representations and warranties made by the Company in the Securities Purchase Agreement are qualified by reference to certain exceptions contained in disclosure schedules delivered to the Investor. Accordingly, the representations and warranties contained in the Securities Purchase Agreement should not be relied upon by third parties who have not reviewed those disclosure schedules and the documentation surrounding the transaction as a whole.
The Securities Purchase Agreement closed upon the satisfaction of certain conditions of the Investor and the Company that are typical for transactions of this type, as well certain other condition including the following:
| ● | the Company delivered to the Investor a lock up agreement (the “Lock-Up Agreement”), executed by each of the parties identified in the Securities Purchase Agreement; | |
| ● | the Company received stockholder approval of a resolution to increase the amount of authorized shares of the Company, and filed with the Delaware Secretary of State a Certificate of Amendment to the Company’s Certificate of Incorporation causing the increase in the amount of authorized shares of the Company; and | |
| ● | the Company, the Investor and the certain creditors of the Company amended that certain Subordination Agreement, dated as of September 13, 2022, by and among the Company, the Investor and certain persons identified in that Subordination Agreement (the “Subordination Agreement Amendment”). |
The Securities Purchase Agreement also obligates the Company to indemnify the Investor for certain losses resulting from (1) any misrepresentation or breach of any representation or warranty made by the Company or any subsidiary of the Company, (2) any breach of any obligation of the Company or, any subsidiary of the Company, of the Securities Purchase Agreement or any agreements and instruments entered into or connection with the Securities Purchase Agreement and (3) certain third party claims.
Senior Secured Convertible Note
The Company issued the Note upon the closing. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on January 15, 2024 (“Maturity Date”). The Note does not bear interest, provided, however, that the Note will bear interest at 18% per annum upon the occurrence of an event of default (as described below).
The Maturity Date may be extended at the sole option of the Investor for so long as certain events of default is continuing or for so long as an event is continuing that if not cured and with the passage of time would result in an event of default.
The
Note is convertible at the option of the Investor into shares of Common Stock at a conversion price of $
| 19 |
EIGHTCO HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
14. CONVERTIBLE NOTES PAYABLE (continued)
The conversion price of the Note will be subject to adjustments for stock splits, combinations or similar events. In addition, the conversion price of the Note will also subject to anti-dilution adjustment which, subject to specified exceptions, in the event that the Company issues or is deemed to have issued certain securities at a price lower than the then applicable conversion price, immediately reduces the conversion price of the Note to equal the price at which the Company issues or is deemed to have issued its Common Stock.
The Note imposes penalties on the Company for any failure to timely deliver any shares of its Common Stock issuable upon conversion.
The Note contains events of default that are typical for transactions of this type, as well as the following events:
| ● | the failure of any registration statement required by the Registration Rights Agreement to be filed within five trading days after the date required by the Registration Rights Agreement or the failure of any such registration statement to become effective within five trading days after the date required by the Registration Rights Agreement; | |
| ● | the lapse or unavailability of any registration statement required by the Registration Rights Agreement for more than 5 consecutive trading days or more than an aggregate of 10 trading days in any 365-day period (other than certain allowable grace periods); | |
| ● | the suspension from trading or failure of the Common Stock to be listed for trading on an eligible market for more than 2 consecutive trading days or more than an aggregate of 5 trading days in any 365-day period; | |
| ● | the failure of the Company to issue shares upon conversion of the Note for more than 2 trading days after the relevant conversion date or a notice of the Company’s intention not to comply with a request for conversion; | |
| ● | the failure for 2 consecutive trading days to have reserved for issuance 250% of the full number of shares issuable upon conversion in accordance to the terms of the Note; | |
| ● | the failure for 2 trading days to pay the Investor principal, interest, late charges or other amounts when and as due under the Note; | |
| ● | the occurrence of any default under, redemption of or acceleration prior to maturity of any indebtedness of the Company or a subsidiary; | |
| ● | the invalidity of any material provision of the Security Documents (defined below) or if the enforceability of validity of any material provision of the Security Documents is contested by the Company; | |
| ● | the failure of the Security Documents to perfect or maintain the Investor’s first priority security interest; and | |
| ● | the failure to comply with certain covenants of the Note. |
If
there is an event of default, then the Investor has the right to request redemption of all or any portion of the Note, at
The Note prohibits the Company from entering into certain transactions involving a change of control, unless the successor entity assumes in writing all of the obligations of the Company under the Note and the other transaction documents. In the event of such a transaction, the Investor will have the right to request redemption of the Note, at Redemption Variable Premium (as defined in the Note) of the greater of (i) of the sum of the amount of principal, interest and late fees to be redeemed; and (ii) the product of (x) the sum of the amount of principal, interest and late fees to be redeemed and (y) the quotient determined by dividing (1) the greatest closing sale price of the shares of Common Stock during the period beginning on the date immediately preceding the earlier to occur of (A) the consummation of the applicable change of control and (B) the public announcement of such change of control and ending on the date the Note Investor delivers a change of control redemption notice, by (2) the Conversion Price; or; (iii) Redemption Variable Premium of the product of (x) the number of shares into which the Note (including all principal, interest and late fees) subject to such redemption may be converted multiplied by (y) the greatest closing sale price of the shares of Common Stock during the period beginning on the date immediately preceding the earlier to occur of (x) the consummation of the change of control and (y) the public announcement of such change of control and ending on the date the Investor delivers the change of control redemption notice; provided, however, that if no Cash Release Event has occurred on or prior to the applicable change of control redemption date, the principal amount used in calculating the applicable change of control redemption price on such change of control.
| 20 |
EIGHTCO HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
14. CONVERTIBLE NOTES PAYABLE (continued)
If the Company issues options, convertible securities, warrants, stock, or similar securities to holders of its Common Stock, the holder of the Note shall have the right to acquire the same as if it had converted its Note.
The Investor is entitled to receive any dividends paid or distributions made to the holders of the Common Stock on an “as if converted” to Common Stock basis.
The Note contains a variety of covenants on the part of Company that are typical for transactions of this type, as well as the following covenants:
| ● | the Note ranks senior to all other indebtedness of the Company, except that certain permitted indebtedness ranks pari passu with the Note; | |
| ● | the Company will not incur other indebtedness, except for certain permitted indebtedness; | |
| ● | the Company will not incur any liens, except for certain permitted liens; | |
| ● | the Company will not, directly or indirectly, redeem or repay all or any portion of any permitted indebtedness if at the time such payment is due or is made or, after giving effect to such payment, an event constituting, or that with the passage of time and without being cured would constitute, an event of default has occurred and is continuing; and | |
| ● | the Company will not redeem, repurchase or pay any dividend or distribution on its Common Stock or any other capital stock. |
On
March 23, 2023, the warrants issued were classified as equity with an initial grant date fair value of $
Dividend Yield | Expected Volatility | Risk-free Interest Rate | Expected Life | |||||||||||||
| Hudson Bay Warrant; March 2023 | % | % | % | |||||||||||||
| Palladium Capital Warrant; March 2023 | % | % | ||||||||||||||