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)
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 ☒
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
|
As of November 14, 2022, there were shares of the registrant’s common stock outstanding.
CRYPTYDE, INC.
TABLE OF CONTENTS
| 2 |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q for the period ended September 30, 2022 (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. The cautionary statements set forth in this Quarterly Report identify important factors which you should consider in evaluating our forward-looking statements. These factors include, among other things:
| ● | Our ability to effectively execute our business plans including transitioning from being focused on end-to-end consumer product innovation, development, and commercialization to being focused on digital media, advertising and content technologies innovation, development, and commercialization; | |
| ● | Our ability to manage our expansion, growth and operating expenses; | |
| ● | Our ability to protect our brands, reputation and intellectual property rights; | |
| ● | Our ability to obtain adequate financing to support our development plans; | |
| ● | Our ability to repay our debts; | |
| ● | Our ability to rely on third-party suppliers, content contributors, developers, and other business partners; | |
| ● | Our ability to evaluate and measure our business, prospects and performance metrics; | |
| ● | Our ability to compete and succeed in a highly competitive and evolving industry; | |
| ● | Our ability to respond and adapt to changes in technology and consumer behavior; | |
| ● | Our dependence on information technology, and being subject to potential cyberattacks, security problems, network disruptions, and other incidents; | |
| ● | Our ability to comply with complex and evolving laws and regulations including those relating to privacy, data use and data protection, content, competition, safety and consumer protection, e-commerce, digital assets and other matters, many of which are subject to change and uncertain interpretation; | |
| ● | Our ability to enhance disclosure and financial reporting controls and procedures and remedy the existing weakness; | |
| ● | Risks in connection with completed or potential acquisitions, dispositions and other strategic growth opportunities and initiatives; | |
| ● | Taxes; | |
| ● | The stability of the governments and political and business conditions in certain foreign countries in which we or certain of our business partners may operate now or in the future; | |
| ● | Costs and results of potential litigation; | |
| ● | Changes in accounting standards or inaccurate estimates or assumptions in the application of accounting policies; | |
| ● | The use of social or digital media to disseminate false, misleading and/or unreliable or inaccurate information regarding our products, services or the industry in which we operate; | |
| ● | The potential that we do not realize some or all of the benefits expected to result from the spin-off, or the delay of such benefits; | |
| ● | Our ongoing businesses may be adversely affected and subject to certain risks and consequences as a result of the spin-off transaction; | |
| ● | If the distribution of shares of Cryptyde, together with certain related transactions, does not qualify as a transaction that is generally tax-free for U.S. federal income tax purposes, the Company’s stockholders and the Company could be subject to significant tax liability; | |
| ● | If the spin-off transaction does not comply with state and federal fraudulent conveyance laws and legal dividend requirements; | |
| ● | Our ability to realize the benefits of our acquisition of Forever 8 Fund, LLC; | |
| ● | Our ability to regain compliance with the listing standards of the Nasdaq Capital Market; or | |
| ● | Other risk factors discussed in our Registration Statement on Form S-1 filed with the Securities and Exchange Commission on August 12, 2022. |
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 |
TRADEMARKS, SERVICE MARKS AND TRADE NAMES
Solely for convenience, we refer to trademarks in this Quarterly Report without the ® or the ™ or symbols, but such references are not intended to indicate that we will not assert, to the fullest extent under applicable law, our rights to our own trademarks. Other service marks, trademarks and trade names referred to in this Quarterly Report, if any, are the property of their respective owners, although for presentational convenience we may not use the ® or the ™ symbols to identify such trademarks.
OTHER PERTINENT INFORMATION
Unless the context otherwise indicates, when used in this Quarterly Report, the terms “Cryptyde,” “TYDE,” “we,” “us,” “our,” the “Company” and similar terms refer to Cryptyde, Inc., a Delaware corporation, and all of our consolidated subsidiaries and variable interest entities.
| 4 |
PART I - FINANCIAL INFORMATION
CRYPTYDE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (Unaudited) | (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 | ||||||||
| Loan held-for-investment | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDER’S EQUITY | ||||||||
| Current liabilities: | ||||||||
| Note payable, current portion | $ | $ | ||||||
| Accounts payable | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Current portion of operating lease liabilities | ||||||||
| Income tax payable | ||||||||
| Due to Former Parent | ||||||||
| Total current liabilities | ||||||||
| Convertible notes payable, net of debt discount
of $ | ||||||||
| Operating lease liabilities, net of current portion | ||||||||
| Note payable, less current portion | ||||||||
| Deferred tax liabilities | ||||||||
| Due to Former Parent | ||||||||
| Total liabilities | $ | $ | ||||||
| Stockholder’s equity: | ||||||||
| Common stock, $ par value, and shares authorized and and shares outstanding at September 30, 2022 and December 31, 2021, respectively | $ | $ | ||||||
| Additional paid-in capital | ( | ) | ||||||
| Retained earnings (accumulated deficit) | ( | ) | ||||||
| Total stockholder’s equity attributable to Cryptyde, Inc. | ||||||||
| Non-controlling interest | ( | ) | ( | ) | ||||
| Total stockholder’s equity | ||||||||
| Total liabilities and stockholder’s equity | $ | $ | ||||||
See the accompanying notes to the condensed consolidated financial statements.
| 5 |
CRYPTYDE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
For the three and nine months ended September 30, 2022 and 2021 (Unaudited)
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenues, net | $ | $ | $ | $ | ||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ||||||||||||
| Non-operating income (expense): | ||||||||||||||||
| Interest expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Rental income | ||||||||||||||||
| Loss on issuance of warrants | ( | ) | ( | ) | ||||||||||||
| Other income | ||||||||||||||||
| Total non-operating income (expense) | ( | ) | ( | ) | ||||||||||||
| Net income (loss) before income tax expense | ( | ) | ( | ) | ||||||||||||
| Income tax expense (benefit) | ( | ) | ||||||||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | ||||||||||
| Net income (loss) attributable to non-controlling interest | ( | ) | ||||||||||||||
| Net income (loss) attributable to Cryptyde, Inc. | ( | ) | ( | ) | ||||||||||||
| Net income (loss) per share: | ||||||||||||||||
| Net income (loss) per share basic | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Net income (loss) per share diluted | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Weight average number of common shares outstanding – basic and diluted | ||||||||||||||||
See the accompanying notes to the condensed consolidated financial statements.
| 6 |
CRYPTYDE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the nine months ended September 30, 2022 and 2021:
| Common Stock | Additional Paid in | Non controlling | Retained Earnings (Accumulated) | |||||||||||||||||||||
| Shares | Amount | Capital | Interest |
Deficit | Total | |||||||||||||||||||
| Balance, January 1, 2022 | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||
| Balance, March 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||
| Issuance of common stock to investors | ||||||||||||||||||||||||
| Exercise of warrants | ( | ) | ||||||||||||||||||||||
| Issuance of common stock to 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 | ( | ) | ( | ) | ||||||||||||||||||||
| Exercise of warrants | ||||||||||||||||||||||||
| Issuance of warrants to noteholders and placement agent | - | |||||||||||||||||||||||
| Issuance of common stock to vendors | ( | ) | ||||||||||||||||||||||
| Issuance of common stock to note holders | ||||||||||||||||||||||||
| Share-based compensation | - | |||||||||||||||||||||||
| Net income (loss) | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Balance, January 1, 2021 | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance, March 31, 2021 | ( | ) | ||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance, June 30, 2021 | $ | ( | ) | |||||||||||||||||||||
| Net income | - | |||||||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||
See the accompanying notes to the condensed consolidated financial statements.
| 7 |
CRYPTYDE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2022 and 2021 (Unaudited)
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ||||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of debt issuance costs | ||||||||
| Loss on issuance of warrants | ||||||||
| Share-based compensation | ||||||||
| Provision for bad debts | ||||||||
| Gain on sale | ( | ) | ||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Accounts payable | ||||||||
| Accrued expenses and other current liabilities | ( | ) | ||||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Proceeds from sale of land and building | ||||||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| Net proceeds from issuance of common stock | ||||||||
| Net borrowings under convertible notes | ||||||||
| Due to Former Parent | ( | ) | ||||||
| Fees paid for financing costs | ( | ) | ||||||
| Repayments under lines of credit | ( | ) | ||||||
| Repayments under notes payable | ( | ) | ( | ) | ||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Net 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 | $ | $ | ||||||
| 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.
| 8 |
CRYPTYDE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the nine months ended September 30, 2022 and 2021
(Unaudited)
1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
As used herein, “Cryptyde” and the “Company” refer
to Cryptyde, 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 the Former Parent. The Company is comprised of three main businesses, Forever 8 Inventory
Cash Flow Solution, our Web3 Business, which includes the sale of BTC mining hardware, and our Packaging Business. Our Inventory Solution
Business, Forever 8 Fund, LLC, a Delaware limited liability company focused on purchasing inventory for e-commerce retailers, which we
acquired on October 1, 2022 (“Forever 8”). Under the umbrella of our Web 3 Business, we intend to integrate blockchain technology
into the existing consumer facing industries starting with the Forever 8 business. Our Packaging Business manufactures and sells custom
packaging for a wide variety of products and through packaging helps customers generate brand awareness and promote brand image. Prior
to the Separation (as defined below), the Company was
As
of September 30, 2022, Cryptyde, Inc. had two wholly-owned subsidiaries: Ferguson Containers, Inc. and BlockHiro, LLC (“BH”).
Ferguson Containers, Inc. 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 “Cryptyde Businesses”) as part of the spin-off. In anticipation of the Separation, the Former Parent contributed its assets and legal entities comprising the Cryptyde Businesses to facilitate the Separation. As a result of the Separation, the Company has become an independent, publicly traded company comprised of the Cryptyde Businesses on September 30, 2022.
On March 29, 2022, Ferguson Containers, Inc. 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 condensed 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 Cryptyde, Inc.
Basis of Presentation. The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). All significant intercompany transactions and balances have been eliminated in consolidation. The Company’s accounting policies are described in the Notes to Consolidated Financial Statements of Ferguson Containers, Inc. and Cryptyde, Inc. in the Company’s Registration Statement on Form S-1 (Registration No. 333-264777), and updated as necessary in these Cryptyde, Inc. Notes to Condensed Consolidated Financial Statements. These statements include all adjustments (consisting only of normal recurring adjustments) which management believes necessary for a fair presentation of the statements and have been prepared on a consistent basis using the accounting policies described in the summary of accounting policies included in Note 2. All significant intercompany transactions and balances have been eliminated in consolidation. Certain information and note disclosures normally included in the financial statements prepared in accordance with US GAAP have been condensed, or omitted pursuant to such rules and regulations, although the Company believes that the accompanying disclosures are adequate to make the information presented not misleading. Operating results for the nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 condensed consolidated financial statements include, but are not limited to, 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.
Cash and Cash Equivalents. The Company considers all highly liquid, short-term investments with original maturities of three 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 26, 2022 Secured Convertible Note. See Note 11 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 $
| 9 |
CRYPTYDE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the nine months ended September 30, 2022 and 2021
(Unaudited)
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:
Impairment
of 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. The Company did
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.
| 10 |
CRYPTYDE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the nine months ended September 30, 2022 and 2021
(Unaudited)
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 corrugated packaging materials and the sale of mining equipment. There are no other material operations that were separately disaggregated for segment purposes. The Company previously had income from rental operations which is included as part of other income in the statements of operations for the nine months ended September 30, 2021.
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. Since the Company has no items of other comprehensive loss, comprehensive loss is equal to net loss.
September 30, 2022 | December 31, 2021 | |||||||
| Warrants for Former Parent warrant holders | ||||||||
| Convertible shares under notes payable | ||||||||
| Warrants for noteholders and placement agent | ||||||||
| Warrants for equity investors and placement agent | ||||||||
| Shares to be issued | ||||||||
| Total common stock equivalents | ||||||||
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 September 30, 2022 and December 31, 2021. 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.
| 11 |
CRYPTYDE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the nine months ended September 30, 2022 and 2021
(Unaudited)
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.
Concentration of Credit Risks. Financial instruments that potentially subject the Company to concentrations of credit risk are cash equivalents, accounts receivable and revenues. 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.
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 14), the operating lease right of use asset and operating lease liability amounted to $
Recent Accounting Pronouncements. As of September 30, 2022, there were no recently adopted accounting pronouncements that had a material effect on the Company’s condensed consolidated financial statements.
| 12 |
CRYPTYDE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the nine months ended September 30, 2022 and 2021
(Unaudited)
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 corrugated packaging materials and therefore the Company only identifies one reportable operating segment.
3. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following at September 30, 2022 and December 31, 2021:
September 30, 2022 | December 31, 2021 | |||||||
| Trade accounts receivable | $ | $ | ||||||
| Less: allowance for doubtful accounts | ( | ) | ||||||
| Total accounts receivable | $ | $ | ||||||
4. INVENTORIES
Inventories consist of the following at September 30, 2022 and December 31, 2021:
September 30, 2022 | 2021 | |||||||
| Raw materials | $ | $ | ||||||
| Finished goods | ||||||||
| Total inventories | $ | $ | ||||||
5. OTHER CURRENT ASSETS
Other current assets consist of the following at September 30, 2022 and December 31, 2021:
September 30, 2022 | December 31, 2021 | |||||||
| Advances for inventory purchases | $ | $ | ||||||
| Prepaid insurance | ||||||||
| Deposits | ||||||||
| Prepaid software deposit | ||||||||
| Other | ||||||||
| Total other current assets | $ | $ | ||||||
As
of September 30, 2022 and December 31, 2021, the Company had deposits with a vendor, Wattum Management, Inc., of $
As
of September 30, 2022 and December 31, 2021, the Company had deposits with a vendor, Forever 8 Fund, LLC, of $
6. LOAN HELD-FOR-INVESTMENT, RELATED PARTY
Loan
held-for-investment, related party, represents a senior secured promissory note (“Note”) from Wattum Management Inc., a non-controlling
member of CW Machines, LLC, a related party. The note bears interest of
| 13 |
CRYPTYDE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the nine months ended September 30, 2022 and 2021
(Unaudited)
7. PROPERTY AND EQUIPMENT, NET
Property and equipment consist of the following at September 30, 2022 and December 31, 2021:
September 30, 2022 | December 31, 2021 | |||||||
| Land | $ | $ | ||||||
| Building and building improvements | ||||||||
| Equipment and machinery | ||||||||
| Furniture and fixtures | ||||||||
| Vehicles | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Total property and equipment, net | $ | $ | ||||||
Depreciation
and amortization expense was $
8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following at September 30, 2022 and December 31, 2021:
September 30, 2022 | December 31, 2021 | |||||||
| Customer deposits | $ | $ | ||||||
| Payroll and related benefits | ||||||||
| Professional fees | ||||||||
| Placement agent fees | ||||||||
| Other | ||||||||
| Total accrued expenses and other current liabilities | $ | $ | ||||||
9. DUE TO AND FROM FORMER PARENT
As
of September 30, 2022 and December 31, 2021, due to Former Parent consists of net amounts due to Vinco related to management fees and
borrowings for working capital and financing needs of Cryptyde, Inc. as well as other operating expenses that were paid for on behalf
of one to the other. As of September 30, 2022 and December 31, 2021, the net amount due to Former Parent was $
| 14 |
CRYPTYDE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the nine months ended September 30, 2022 and 2021
(Unaudited)
10. NOTE PAYABLE
Principal due under the note payable was as follows at September 30, 2022 and December 31, 2021:
September 30, 2022 | December 31, 2021 | |||||||
| Note payable | ||||||||
| Less: note payable, current portion | ( | ) | ||||||
| Note payable, net of current portion | $ | $ | ||||||
On January 29, 2022, the Company fully paid off the remaining balance of the Note payable.
11. CONVERTIBLE NOTE PAYABLE
Principal due under the convertible note payable was as follows at September 30, 2022 and December 31, 2021:
September 30, 2022 | December 31, 2021 | |||||||
| Note payable | ||||||||
| Less: debt discount | ( | ) | ||||||
| Note payable, net | $ | $ | ||||||
On
January 26, 2022, the Company, entered into a Securities Purchase Agreement (the “Note Securities Purchase Agreement”) with
an accredited investor (the “Note Investor”) for the issuance and sale of a Senior Convertible Note with an initial principal
amount of $
On July 28, 2022, the Company entered into an Amendment Agreement (the “July 2022 Amendment Agreement”) with the Note Investor to amend the Note Securities Purchase Agreement, the Note, and that certain Registration Rights Agreement.
Pursuant
to the July 2022 Amendment Agreement, the Company released an aggregate of $
| 15 |
As a result of the Adjustment, the exercise price of (i) warrants to purchase
up to
The July 2022 Amendment Agreement
amends the Note to permit the Company to enter into technology license agreements which obligate the Company to make cash payments of
up to $
The July 2022 Amendment Agreement grants the holder of the Note the right, at any time after December 27, 2023, to force the Company to redeem all or any portion of the outstanding principal, interest or penalties on the Note.
The parties also amended the Company’s carve out to its financing standstill as set forth in the July 2022 Amendment Agreement.
On
September 14, 2022, the Company and the Note Investor entered into a waiver (the “Waiver”) to permit, subject to the terms
and conditions set forth therein, the entry into a purchase agreement for Forever 8 Fund, LLC. Pursuant to the Waiver, the conversion
price and exercise price of the Note and the Warrants, respectively, were voluntarily and irrevocably adjusted to equal $
As
a result of the adjustment of the Note and Warrant conversion and exercise price, respectively, in the Waiver, the exercise price of
(i) warrants to purchase up to
The warrants issued by the Company were modified to reduce the exercise
price, which also increased the number of warrants to purchase common stock. The warrant modification expense of $
Dividend Yield | Expected Volatility | Risk-free Interest Rate | Expected Life | |||||||||||||
| Hudson Bay Warrant; September 2022 | % | % | % | |||||||||||||
| Palladium Capital Warrant; September 2022 | % | % | % | |||||||||||||
| BHP Warrant; September 2022 | % | % | % | |||||||||||||
12. INCOME TAXES
Cryptyde, Inc. is taxed as a corporation and pays corporate federal, state and local taxes on income.
BlocHiro,
LLC and Cryptyde Shares Services, LLC are limited liability companies which are disregarded entities for income tax purposes and are
owned
CW
Machines, LLC is a limited liability company for income tax purposes and is owned
Ferguson Containers is taxed as a corporation and pays corporate federal, state and local taxes on income.
Income
tax (benefit) expense for the three months ended September 30, 2022 and 2021 was $
There are no unrecognized tax benefits and no accruals for uncertain tax positions.
| 16 |
CRYPTYDE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the nine months ended September 30, 2022 and 2021
(Unaudited)
13. STOCKHOLDERS’ EQUITY
Common
Stock. Prior to the Separation, Vinco Ventures, Inc. owned
On
June 29, 2022, Vinco Ventures, Inc. distributed
On
May 18, 2022, the Company issued warrants to warrant holders of the Former Parent to purchase up to
On
January 26, 2022, the Company, with respect to certain sections, entered into a Securities Purchase Agreement (the “Equity Private
Placement”) with an accredited investor (the “Equity Investor”) for the issuance of a (i) shares of Common Stock, and (ii) a warrant (the
“Equity Investor Warrant”) to purchase up to
During
August 2022, the Company issued
shares of common stock to noteholders for repayment of principal valued at $
On
August 29, 2022, the Company issued
shares of common stock to Emmersive Entertainment for the settlement of the Former Parent’s earnout shares valued at $
On
September 7, 2022, the Company issued
shares of common stock to vendors for compliance an investor relation services valued at $
On September 27, 2022, the Company approved the issuance of shares
of restricted stock units to employees for services provided valued at $
14. COMMITMENTS AND CONTINGENCIES
Operating Leases. The Company leases certain office space from an entity affiliated through common ownership under an operating lease agreement on a month-to-month basis.
On
April 26, 2022, the Company entered into an assignment and assumption agreement with Vinco Ventures, Inc. whereby the parties agreed
to transfer and assign to Cryptyde, Inc. the lease agreement dated July 16, 2021 by and between Abdi R. Boozer-Jomehri (d/b/a Safety
Harbor Centre, Inc.) and Edison Nation, LLC, a 100% owned subsidiary of Vinco Ventures, Inc. (the “Safety Harbor Lease”).
The Company adopted ASC 842 on January 1, 2022 and recognized a right of use asset and liability of $
On October 19, 2022, the Company entered into a commercial lease agreement
with Foxx Trot Tango, LLC to lease approximately
Rent
expense for the nine months ended September 30, 2022 and 2021 was $
| 17 |
CRYPTYDE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the nine months ended September 30, 2022 and 2021
(Unaudited)
Emmersive Sellers: On April 17, 2021, the Former Parent entered into (and closed on) a certain Asset Contribution Agreement (“Asset Contribution Agreement”) with Emmersive Entertainment, Inc. (“Emmersive”), pursuant to which Emmersive contributed/transferred to the Company the assets used for Emmersive’s business, which include digital assets, software and certain physical assets (the “Contributed Assets”) in consideration for, among other things, the Former Parent assuming certain obligations of Emmersive, hiring certain employees, and issuing preferred membership units (“Preferred Units”) in EVNT Platform, LLC to Emmersive and/or its shareholders (“Preferred Members”) pursuant to a First Amended and Restated Operating Agreement for the Former Parent dated as of April 17, 2021 (“Amended Operating Agreement”). Certain put rights are associated with Preferred Units, which if exercised by the Preferred Members, obligates the Former Parent to purchase the Preferred Units in exchange for shares of the Former Parent’s common stock (“Put Rights”). In addition, the Preferred Members have the opportunity to earn Conditional Preferred Units if certain conditions are satisfied for earn out targets (“Earn-Out Targets”).
On February 25, 2022, the Former Parent and Emmersive entered into a Termination and Release Agreement, terminating certain transaction documents dated April 17, 2021, and a Milestone Agreement for the earnout shares to be earned and any remaining consideration to be paid by Cryptyde, Inc. with an effective date of the agreements upon the spin-off being declared effective (“Effective Date”) Upon the spinoff, the agreements release Emmersive of the opportunity to earn the additional shares of common stock of the Former Parent from the Asset Contribution Agreement. The contingent consideration to be paid by Cryptyde, Inc. upon the successful completion of the spin-off are described below:
Earned Shares: Issuance of shares of common stock of Cryptyde, Inc. (“Cryptyde Shares”). The Company recorded $ of share-based compensation related to the Cryptyde Shares.
Milestone
1:
Milestone
2:
Milestone
3:
None of the above milestones were met as of September 30, 2022.
| 18 |
CRYPTYDE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the nine months ended September 30, 2022 and 2021
(Unaudited)
15. SUBSEQUENT EVENTS
On October 5, 2022, Cryptyde, Inc. (NASDAQ: TYDE) (the “Company”) received a written notice (the “Notice”) from The Nasdaq Stock Market LLC (“Nasdaq”) that the Company is not in compliance with the minimum bid price requirement of $ per share set forth in Nasdaq Rules for continued listing on Nasdaq. Based on the closing bid price of the Company’s listed securities for the 31 consecutive business days from August 22, 2022 to October 4, 2022, the Company no longer meets the minimum bid price requirement set forth in Listing Rule 5550(a)(2). The Notice is only a notification of deficiency, not of imminent delisting, and has no current effect on the listing or trading of the Company’s securities on the Nasdaq Capital Market.
In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company has been provided 180 calendar days, or until April 3, 2023, to regain compliance with Nasdaq Listing Rule 5550(a)(2). To regain compliance, the Company’s common shares must have a closing bid price of at least $ for a minimum of 10 consecutive business days. The Company intends to resolve the deficiency and regain compliance with the Listing Rules; however, there is no guaranty that the Company will be able to do so. Ultimately, if the Company is not able to resolve the deficiency and regain compliance with the Listing Rules, the Company’s common stock may be delisted.
On
September 14, 2022, the Company entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) by and
among the Company, Forever 8 Fund, LLC (“Forever 8”), a Delaware limited liability company focused
on purchasing inventory for e-commerce retailers, and the members of Forever 8 (the “Sellers”) pursuant to which
Crpytyde was to acquire
Pursuant
to the Purchase Agreement, the Sellers received consideration consisting of (i) an aggregate of
| 19 |
As
indicated below, the Purchase Agreement provides that the Sellers are entitled to receive three potential earnout payments (the “Earnout
Consideration). The Earnout Consideration is payable to the Sellers in cash or, at Cryptyde’s election, in up to
If
Cryptyde elects to issue additional Preferred Units upon the achievement of any Earn-Out Target and the VWAP of Cryptyde’s common
stock for the 15 trading days preceding the date that any Earn-Out Target is achieved (the “Earn-Out VWAP”) is (A) with respect
to the first Earn-Out Target, less than $5.00, (B) with respect to the second Earn-Out Target, less than $6.00 or (C) with respect to
the third Earn-Out Target, less than $5.00, then Sellers shall be entitled to receive an additional number of additional Preferred Units
(the “True-up Units” and together with the additional Preferred Units, the “Total Additional Preferred Units”)
such that the Total Additional Preferred Units multiplied by the Earn-Out VWAP equals (x) $
In accordance with the Purchase Agreement, the Company’s existing operating agreement was amended and restated. The amended and restated operating agreement (the “Operating Agreement”) provides for, among other things, a put right for designated members (the “Preferred Members”). The Preferred Members (who are the Sellers) will have a put right to cause Cryptyde to redeem certain Preferred Units, from time to time on or after the six-month anniversary following the Closing. Upon exercise of the put right, each Initial Base Preferred Unit (as defined in the Purchase Agreement) shall be exchanged for one Cryptyde share.
The Preferred Members have a put right, on terms and conditions set forth in Section 7.01 of the Operating Agreement, to cause Cryptyde to redeem the Preferred Units as follows:
(a) starting on the later of (i) six (6) months following the Closing and (ii) the Threshold Date (as defined in the Subordination Agreement), one (1) Cryptyde Share per Initial Base Preferred Unit being redeemed up to a maximum of Initial Base Preferred Units;
(b)
upon the satisfaction of (i) the receipt of Shareholder Approval on or prior to June 30, 2023, (ii) six (6) months following the Closing
and (iii) the occurrence of the Threshold Date, one (1) Cryptyde Share per Initial Base Preferred Units that could not be converted due
to the unit limit in Section 7.01(a) of the Operating Agreement (such shares being an aggregate of
(c) if Shareholder Approval is not obtained on or before June 30, 2023, subject to both (i) six (6) months following the Closing and (ii) the terms of the Subordination Agreement, a cash payment equal to the difference between $3.07 minus the Additional Base Preferred Unit VWAP (as defined in the Purchase Agreement with it being subject to a $2.00 floor) (such difference being the “Additional Base Preferred Unit Cash Catch Up Amount”) with the Additional Base Preferred Unit Cash Catch Up Amount being multiplied by each Extra Initial Base Preferred Unit and each Additional Base Preferred Unit being redeemed;
(d) upon the satisfaction of (i) the receipt of Shareholder Approval on or prior to June 30, 2023, (ii) six (6) months following the time a Preferred Unit issued in connection with the first Earn-Out Target is earned under Section 1.04 of the Purchase Agreement and (iii) the occurrence of the Threshold Date, one (1) TYDE Share per Earnout One Unit being redeemed;
| 20 |
(e)
if Shareholder Approval has not been obtained on or before June 30 2023, subject to both (i) six (6) months following the time an Earnout
One Unit is earned under Section 1.04 of Purchase Agreement and (ii) the terms of the Subordination Agreement, a cash payment equal to
the amount of $
(f) upon the satisfaction of (i) the receipt of Shareholder Approval on or prior to June 30, 2023, (ii) six (6) months following the time a Preferred Unit issued in connection with the second Earn-Out Target is earned under Section 1.04 of the Purchase Agreement and (iii) the occurrence of the Threshold Date, one (1) TYDE Share per Earnout Two Unit being redeemed;
(g)
if Shareholder Approval has not been obtained on or before June 30 2023, subject to both (i) six (6) months following the time an Earnout
Two Unit is earned under Section 1.04 of the Purchase Agreement and (ii) the terms of the Subordination Agreement, a cash payment equal
to the amount of $
(h) upon the satisfaction of (i) the receipt of Shareholder Approval on or prior to June 30, 2023, (ii) six (6) months following the time a Preferred Unit issued in connection with the third Earn-Out Target is earned under Section 1.04 of the Purchase Agreement and (iii) the occurrence of the Threshold Date, one (1) TYDE Share per Earnout Three Unit being redeemed;
(i)
if Shareholder Approval has not been obtained on or before June 30 2023, subject to both (i) six (6) months following the time an Earnout
Three Unit is earned under Section 1.04 of the Purchase Agreement and (ii) the terms of the Subordination Agreement, a cash payment equal
to the amount of $
Pursuant to the Operating Agreement, Cryptyde unconditionally guaranteed the payment, when due, of obligations pursuant to the put right. Cryptyde shall satisfy these obligations to the Preferred Members either in cash or, if Shareholder Approval has been obtained, through the issuance and delivery to each Preferred Member of one TYDE Share per Preferred Unit held by each Preferred Member.
| 21 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
As explained above, unless otherwise indicated, the terms “we,” “us,” “our,” “our Company,” “TYDE” and “the Company” refer to Cryptyde, Inc., together with its consolidated subsidiaries. The following discussion and analysis of the Company’s financial condition and results of operations should be read together with the Company’s financial statements and related notes appearing elsewhere in this Quarterly Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to the Company’s plans and strategy for the Company’s business and related financing, includes forward-looking statements involving risks and uncertainties and should be read together with the “Cautionary Note Regarding Forwarding- Looking Statements” section of this Quarterly Report. Such risks and uncertainties could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
Vinco has successfully completed a spin-off of its Packaging Business, Web3 Business, and BTC Mining Hardware Business. To accomplish this spin-off, Vinco transferred those businesses to us, then Vinco distributed all of its equity interest in us, consisting of all of the outstanding shares of our common stock, to Vinco’s stockholders on a pro rata basis (the “Distribution”). Following the Separation, Vinco does not own any equity interest in us, and we operate independently from Vinco.
Our financial statements have been prepared on a stand-alone basis and are derived from the consolidated financial statements and accounting records of Vinco. Our financial statements reflect our financial position, results of operations and cash flows as we were historically managed, in conformity with GAAP. Our financial statements include certain assets and liabilities that have historically been held at the Vinco corporate level but are specifically identifiable or otherwise attributable to us.
All intercompany transactions between us and Vinco have been included in our financial statements and are considered to be settled in our consolidated financial statements at the time the Separation became effective. The total net effect of the settlement of these intercompany transactions is reflected in our unaudited pro forma combined balance sheets as “Due to/from Former Parent.”
The historical costs and expenses reflected in our financial statements for Ferguson Containers include an allocation for certain corporate shared service functions historically provided by Vinco including executive oversight, accounting, treasury, tax, legal, human resources, occupancy, procurement, information technology and other shared services. These expenses have been allocated to us on the basis of direct usage when identifiable, with the remainder allocated on a pro rata basis based on sales, headcount, tangible assets or other measures considered to be a reasonable reflection of the historical utilization levels of these services.
Our management believes the assumptions underlying our Ferguson Containers financial statements, including the assumptions regarding the allocation of general corporate expenses from Vinco are reasonable. Nevertheless, our financial statements may not include all of the actual expenses that would have been incurred had we operated as a stand-alone company during the periods presented and may not reflect what our actual results of operations, financial position and cash flows would have been if we had operated as a stand-alone company during the periods presented. Actual costs that would have been incurred if we had operated as a stand-alone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure. Following the Separation, we now perform these functions using our own resources or purchased services.
Cryptyde is comprised of the Packaging Business, the Web3 Business, and the BTC Mining Hardware Business. The Packaging Business includes Ferguson Containers and has been operating for over 50 years. The BTC Mining Hardware Business is a joint venture through CW Machines, LLC and began operating in October 2021. The joint venture is accounted for as a variable interest entity and is fully consolidated with Cryptyde, Inc. The Web3 business expects to begin offering Web3 products in 2022.
| 22 |
The Packaging Business – Ferguson Containers
Ferguson Containers manufactures and sells custom packaging for a variety of products. In our experience, packaging has the capability to “tell” the products’ story, generating increased product awareness, promote brand image, and drive unit growth. Senior management has more than 100 years of combined experience marketing, producing and delivering packaging materials. A hallmark of our operation is our quick production cycle. We can often begin a production run within minutes of receipt of an order. Many of our products are manufactured from 100% post-consumer recycled material. When production is complete, we typically ship the product using our own trucks rather than relying on a common carrier. Ferguson Containers does not have long-term agreements with its customers, and instead manufactures and sells its packaging products subject to purchase orders from its customers.
The Web3 Business – BlockHiro, LLC
BlockHiro, LLC, a Nevada limited liability company was formed on November 8, 2021, was formed to hold the Web3 Business. The Web3 Business plans to use decentralized blockchain technology in established consumer facing industries such as video games, music, and art.
BTC Mining Hardware Business – CW Machines, LLC
CW Machines, LLC, a Nevada limited liability company formed on October 2, 2021, was formed to hold the BTC Mining Hardware Business. The BTC Mining Hardware Business, CW Machines, LLC, through a joint venture with Wattum Management Inc. and BBA Technology Inc., is focused on bringing Bitcoin mining to the consumer level by offering Bitcoin mining equipment. The Company is currently not anticipating any near term BTC mining equipment sales for the remainder of the 2022. We will continue evaluating the current market conditions and adjust as market opportunities arise to sell more BTC mining equipment in the future.
Forever 8 Fund, LLC Membership Interest Purchase Agreement and Related Agreements
On September 14, 2022, the “Company entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) by and among the Company, Forever 8 Fund, LLC, a Delaware limited liability company focused on purchasing inventory for e-commerce retailers (“Forever 8”), the members of Forever 8 set forth on the signature pages thereto (the “Sellers”) and Paul Vassilakos, solely in his capacity as representative of the Sellers (the “Sellers’ Representative”), pursuant to which, and in accordance with the terms and conditions set forth therein, the Company is to acquire 100% of the issued and outstanding membership interests of Forever 8 (including all rights and benefits associated with such membership interests, the “Membership Interests”) from the Sellers (the “Acquisition”).
As previously disclosed, the Company and an accredited investor (the “Investor”) previously entered into that certain securities purchase agreement (as amended, the “SPA”) dated as of January 26, 2022, pursuant to which the Company issued to the Investor a secured convertible note in the initial aggregate principal amount of $33,333,333 (as amended, the “Note”) and warrants (as amended, the “Warrants”) representing the right to acquire shares of the Company’s common stock, $0.001 par value per share. In connection with the SPA, the Company and the Investor entered into that certain registration rights agreement dated January 26, 2022 (as amended the “RRA”). The Company and the Investor entered into that certain Amendment Agreement dated July 28, 2022 (as amended, the “Amendment Agreement”) which, among other things, required the Company to repurchase a portion of the principal amount of the Note and amended certain terms of the SPA, RRA, and Note. The SPA, Note and Amendment Agreement contain certain restrictions on the actions of the Company which would have prohibited entry into the Purchase Agreement. Accordingly, on September 14, 2022 the Company and the Investor entered into a waiver (the “Waiver”) to permit, subject to the terms and conditions set forth therein, the entry into the Purchase Agreement in consideration for the mutual execution at Closing of a subordination agreement by and among the Investor, the Preferred Members and the Company (the “Subordination Agreement”), a form of which is attached as Exhibit 10.3 hereto. Pursuant to the Waiver, the conversion price and exercise price of the Note and the Warrants, respectively, were voluntarily and irrevocably adjusted to equal $1.00, subject to further adjustment as set forth therein. As a result of the price adjustment feature, the number of shares of the Company’s common stock issuable upon exercise of the Warrants was increased, as discussed further below under Item 3.02.
Pursuant to the Purchase Agreement, consideration to be paid to the Sellers will consist of (i) an aggregate of 7,000,000 non-voting preferred membership units of Forever 8 (the “Initial Base Preferred Units”), subject to adjustments discussed below, (ii) convertible promissory notes in an aggregate principal amount of $27.5 million (the “Promissory Notes”), and (iii) the right to receive potential earnout amounts as discussed below. In addition, $4.6 million in cash shall be transferred to Forever 8 to pay off certain obligations of Forever 8.
| 23 |
In the event that the volume weighted average price (“VWAP”) of the Company’s common stock for the later of (i) the 15 trading days immediately prior to the date the Put Right pursuant to Section 7(b) of the Amended Operating Agreement (as defined below) is exercisable and (ii) the 15 trading days following the Company’s filing of its Annual Report on Form 10-K for the fiscal year ending December 31, 2022 is less than $3.07, then Sellers shall be entitled to receive an additional number of Preferred Units (“Additional Base Preferred Units” and together with the Initial Base Preferred Units, the “Total Base Preferred Unit Consideration”) such that the Total Base Preferred Unit Consideration multiplied by the Additional Base Preferred Unit VWAP equals $21.5 million; provided that in no event shall more than 3,750,000 Additional Base Preferred Units be issued.
As indicated below, the Purchase Agreement provides that the Sellers are entitled to receive three potential earnout payments (the “Earnout Consideration). The Earnout Consideration is payable to the Sellers in cash or, at the Company’s election, in up to 7,000,000 additional Preferred Units, upon the achievement of certain performance thresholds relating to cumulative collected revenues (each, an “Earn-Out Target”).
If the Company elects to issue additional Preferred Units upon the achievement of any Earn-Out Target and the VWAP of the Company’s common stock for the 15 trading days preceding the date that any Earn-Out Target is achieved (the “Earn-Out VWAP”) is (A) with respect to the first Earn-Out Target, less than $5.00, (B) with respect to the second Earn-Out Target, less than $6.00 or (C) with respect to the third Earn-Out Target, less than $5.00, then Sellers shall be entitled to receive an additional number of additional Preferred Units (the “True-up Units” and together with the additional Preferred Units, the “Total Additional Preferred Units”) such that the Total Additional Preferred Units multiplied by the Earn-Out VWAP equals (x) $15 million for the first Earn-Out Target, (y) $12 million for the second Earn-Out Target and (z) $10 million for the third Earn-Out Target; provided that in no event shall more than 4.5 million True-up Units be issued for the first Earn-Out Target, in no event shall more than 4.0 million True-up Units be issued for the Second Earn-Out Target and in no event shall more than 3.0 million True-up Units be issued for the Third Earn-Out Target.
The Purchase Agreement will close upon the satisfaction of certain conditions of the parties detailed in Article VII of the Purchase Agreement that are typical for transactions of this type. As a condition precedent to the closing of the Purchase Agreement, Forever 8’s existing operating agreement will be amended and restated. In particular, the amended and restated operating agreement (the “Operating Agreement”) will provide for a put right for designated members (the “Preferred Members”). The Preferred Members (who will be the Sellers) will have a put right to cause Forever 8 to redeem certain Preferred Units, from time to time on or after the six month anniversary following the transactions contemplated by the Purchase Agreement. Upon exercise of the put right, each Initial Base Preferred Unit (as defined in the Purchase Agreement) shall be exchanged for one share of common stock of the Company (each, a “TYDE Share”).
The Preferred Members have a put right, on terms and conditions set forth in Section 7.01 of the Operating Agreement, to cause the Company to redeem the Preferred Units as follows:
(a) starting on the later of (i) six (6) months following the closing of the Purchase Agreement and (ii) the Threshold Date (as defined in the Subordination Agreement), one (1) TYDE Share per Initial Base Preferred Unit being redeemed up to a maximum of 6,281,949 Initial Base Preferred Units;
(b) upon the satisfaction of (i) the receipt of Shareholder Approval on or prior to June 30, 2023, (ii) six (6) months following the closing of the Purchase Agreement and (iii) the occurrence of the Threshold Date, one (1) TYDE Share per Initial Base Preferred Units that could not be converted due to the 6,281,949 unit limit in Section 7.01(a) of the Operating Agreement (such shares being an aggregate of 718,051 Initial Base Preferred Units being defined as the “Extra Initial Base Preferred Units”) being redeemed, and one (1) TYDE Share per Additional Base Preferred Unit being redeemed;
(c) if Shareholder Approval is not obtained on or before June 30, 2023, subject to both (i) six (6) months following the closing of the Purchase Agreement and (ii) the terms of the Subordination Agreement, a cash payment equal to the difference between $3.07 minus the Additional Base Preferred Unit VWAP (as defined in the Purchase Agreement with it being subject to a $2.00 floor) (such difference being the “Additional Base Preferred Unit Cash Catch Up Amount”) with the Additional Base Preferred Unit Cash Catch Up Amount being multiplied by each Extra Initial Base Preferred Unit and each Additional Base Preferred Unit being redeemed;
(d) upon the satisfaction of (i) the receipt of Shareholder Approval on or prior to June 30, 2023, (ii) six (6) months following the time a Preferred Unit issued in connection with the first Earn-Out Target is earned under Section 1.04 of the Purchase Agreement and (iii) the occurrence of the Threshold Date, one (1) TYDE Share per Earnout One Unit being redeemed;
| 24 |
(e) if Shareholder Approval has not been obtained on or before June 30 2023, subject to both (i) six (6) months following the time an Earnout One Unit is earned under Section 1.04 of Purchase Agreement and (ii) the terms of the Subordination Agreement, a cash payment equal to the amount of $15,000,000 divided by the number of Earnout One Units (the “Earnout One Unit Redemption Amount”) with such Earnout One Unit Redemption Amount then being multiplied by each Earnout One Unit being redeemed;
(f) upon the satisfaction of (i) the receipt of Shareholder Approval on or prior to June 30, 2023, (ii) six (6) months following the time a Preferred Unit issued in connection with the second Earn-Out Target is earned under Section 1.04 of the Purchase Agreement and (iii) the occurrence of the Threshold Date, one (1) TYDE Share per Earnout Two Unit being redeemed;
(g) if Shareholder Approval has not been obtained on or before June 30 2023, subject to both (i) six (6) months following the time an Earnout Two Unit is earned under Section 1.04 of the Purchase Agreement and (ii) the terms of the Subordination Agreement, a cash payment equal to the amount of $12,000,000 divided by the number of Earnout Two Units (the “Earnout Two Unit Redemption Amount”) with such Earnout Two Unit Redemption Amount then being multiplied by each Earnout Two Unit being redeemed;
(h) upon the satisfaction of (i) the receipt of Shareholder Approval on or prior to June 30, 2023, (ii) six (6) months following the time a Preferred Unit issued in connection with the third Earn-Out Target is earned under Section 1.04 of the Purchase Agreement and (iii) the occurrence of the Threshold Date, one (1) TYDE Share per Earnout Three Unit being redeemed;
(i) if Shareholder Approval has not been obtained on or before June 30 2023, subject to both (i) six (6) months following the time an Earnout Three Unit is earned under Section 1.04 of the Purchase Agreement and (ii) the terms of the Subordination Agreement, a cash payment equal to the amount of $10,000,000 divided by the number of Earnout Three Units (the “Earnout Three Unit Redemption Amount”) with such Earnout Three Unit Redemption Amount then being multiplied by each Earnout Three Unit being redeemed.
Pursuant to the Operating Agreement, the Company will agree, subject to the terms of the Subordination Agreement, to unconditionally guarantee the payment, when due, of obligations pursuant to the put right. The Company shall satisfy these obligations to the Preferred Members either in cash or, if Shareholder Approval has been obtained, through the issuance and delivery to each Preferred Member of one share of the Company’s common stock per Preferred Unit held by each Preferred Member.
Upon closing of the Purchase Agreement, the Company will issue the Promissory Notes. The Promissory Notes shall bear interest at the rate per annum equal to (i) ten (10%) for the first twelve (12) months of the Promissory Notes and (ii) twelve percent (12%) thereafter until the maturity date of the Promissory Notes (the “Note Maturity Date”). The Note Maturity Date shall be the date that is the later of (i) 91 days after the Maturity Date (as defined in the Investor Note (as defined below)) of the Senior Secured Convertible Note issued by the Company in favor of the Investor on May 5, 2022 (the “Investor Note”) and (ii) three years following the date of closing. Subject to the terms of the Subordination Agreement, the Promissory Notes may be prepaid in full or in part at any time without premium or penalty, provided, however, that the Company agrees that, subject to the terms of the Subordination Agreement which specifically permit such prepayments in accordance therewith, it will make prepayments on the Promissory Notes and all other Seller Notes (as defined in the Promissory Notes) in amounts equal to the pro rata amount of the outstanding principal amount of the Seller Notes as a whole, as follows: (i) after Section 4(d) of the Amendment Agreement is satisfied such that excess cash may be removed from the Control Account, 50% of the cash proceeds of warrants exercised for common stock of the Company until an aggregate amount of $10 million in prepayments is made on the Seller Notes from such warrant exercises, (ii) 25% of all gross proceeds received by Company in any and all debt and equity capital raises by the Company (excluding warrant exercises) from and after the date of the Purchase Agreement and (iii) at least an aggregate of $11.5 million (including any prepayments made pursuant to clauses (i-ii) above) within the first twelve (12) months of the issuance of the Promissory Notes.
So long as the Company has received Shareholder Approval and the Threshold Date has been reached, at any time commencing after the 12-month anniversary of the date of the Promissory Notes, the holder of the Promissory Notes may, in its sole and absolute discretion, convert all or part of the Promissory Notes into shares of common stock of the Company (the “Conversion Shares”) at a per share conversion price equal to the VWAP of a share of common stock of the Company for the ten trading days immediately preceding the conversion notice being provided to the Company by the holder of the Promissory Notes (the “Conversion Price”), with the Conversion Price being subject to a conversion price floor of $2.00 per share of common stock. If the VWAP is less than $2.00 and the holder converts all or part of the Note at $2.00 per share, then the holder shall be entitled to receive an additional Promissory Note with the same economic terms as the original Promissory Note in a principal amount equal to (A) $2.00 minus the VWAP multiplied by (B) the number of Conversion Shares issued upon the conversion.
| 25 |
Financing
On November 11, 2021, the Company entered into an Amendment Agreement (the “2021 Amendment Agreement”) by and among Vinco Ventures, Inc., Hudson Bay Master Fund Ltd. and the Company. In connection with the 2021 Amendment Agreement on May 18, 2022, the Company issued to Hudson Bay Master Fund Ltd. warrants exercisable into 8,652,419 shares of the Company’s common stock with an exercise price of $0.001 per share.
On January 26, 2022, the Company, entered into a Securities Purchase Agreement (the “Note Securities Purchase Agreement”) with an accredited investor (the “Note Investor”) for the issuance and sale of a Senior Convertible Note with an initial principal amount of $33,333,333 (the “Note”) at a conversion price of $10.00 per share of Cryptyde’s common stock, par value $0.001 (the “Common Stock”) with a purchase amount of $30,000,000 and an original issue discount of $3,333,333, a warrant (the “Warrant”) to purchase up to 3,333,333 shares of Common Stock with an initial exercise price of $10.00 per share of Common Stock (the “Note Private Placement”). In addition, the Company issued a warrant to the placement agent to purchase up to 533,333 shares of Common Stock with an initial exercise price of $10.00 per share of Common Stock. The warrants vest immediately, expiring on May 16, 2027 and had an estimated fair value of $3,905,548. The Company recorded a debt discount of $7,798,881 which consists of the original issue discount of $3,333,333, the fair value of the warrants of $3,905,548 and placement agent fees of $560,000. The discount will be amortized over the term of the convertible note payable. The entire outstanding principal balance and any outstanding fees or interest shall be due and payable in full on the third anniversary of the date the note was issued, May 5, 2022 (“Maturity Date”). The Note shall not bear interest, provided, however, that the Note will bear interest at 18% per annum upon the occurrence of an event of default. Cryptyde and the Note Investor closed the transaction contemplated by the Note Securities Purchase Agreement on May 5, 2022. In connection with the Note Private Placement, Cryptyde also entered into a Registration Rights Agreement (the “Registration Rights Agreement”) with the Note Investor, upon the closing, entered into a Security Agreement, a Pledge Agreement and various ancillary certificates, disclosure schedules and exhibits in support thereof prior to the closing of the Purchase Agreement.
On May 18, 2022, in connection with its spin-off and based upon Vinco warrants exercisable into Vinco common stock, the Company issued to Palladium Capital Group, LLC, CVI Investments, Inc. and Armistice Capital Master Fund Ltd. warrants exercisable into 767,774, 500,000 and 300,000 shares, respectively, of the Company’s common stock at an exercise price of $0.001 per share.
On July 28, 2022, the Company entered into an Amendment Agreement (the “July 2022 Amendment Agreement”) with the Note Investor to amend the Note Securities Purchase Agreement, the Note, and that certain Registration Rights Agreement.
Pursuant to the July 2022 Amendment Agreement, the Company released an aggregate of $29,000,000 (the “Released Funds”) from the restricted funds account maintained in accordance with the Note Securities Purchase Agreement (the “Restricted Funds Account”) and, going forward, must deposit 50% of any Warrant Exercise Cash (as defined in the July 2022 Amendment Agreement) into the Restricted Funds Account. As required by the July 2022 Amendment Agreement, the Company used $22,000,000 of the Released Funds to repurchase from the Investor $22,000,000 of the principal of the Note. Pursuant to the July 2022 Amendment Agreement, the conversion price of the balance of the Note that remains was voluntarily adjusted to $1.06 (the “Adjustment”). The July 2022 Amendment Agreement also amended the Registration Rights Agreement. to require the Company to register (i) the number of shares of common stock equal to 200% of the shares issuable upon conversion of the Note and (ii) the number of shares of common stock equal to 200% of the shares issuable upon exercise of the warrant issued under the Note Securities Purchase Agreement, assuming all cash has been released from the Restricted Funds Account and the number of shares of common stock issuable upon exercise of the Warrant issued under the Note Securities Purchase Agreement has been adjusted in accordance with Section 3(c) of the warrant. The July 2022 Amendment Agreement requires the Company to register additional shares of its common stock underlying the Note. Accordingly, the Company filed a registration statement on Form S-1 dated August 12, 2022 (the “August S-1”) with the Securities and Exchange Commission. The August S-1, includes 15,050,315 shares of the Company’s common stock issuable upon the conversion of the Note as a result of the Adjustment. As of the date of this Quarterly Report, the August S-1 has not yet been declared effective.
As a result of the Adjustment, the exercise price of (i) warrants to purchase up to 773,333 shares of the Company’s common stock held by Palladium Capital Group, LLC, (ii) warrants to purchase up to 3,333,333 shares of the Company’s common stock held by the Investor, and (iii) warrants to purchase up to 1,500,000 shares of the Company’s common stock held by BHP Capital NY, Inc. was adjusted to $1.06 per share of the Company’s common stock.
The July 2022 Amendment Agreement amends the Note to permit the Company to enter into technology license agreements which obligate the Company to make cash payments of up to $10,000,000 (the “Cash Payment”) and Common Stock issuances of up to 250,000 restricted shares, provided (i) the Cash Payments are not due until at least two years after the signing of such license agreements, and (ii) the Company must enter into an intercreditor agreement in connection with each license agreement. The 2022 Amendment Agreement also amends the Note to increase the permitted amount of a lien on indebtedness of the Company from $500,000 to $10,000,000.
The July 2022 Amendment Agreement grants the holder of the Note the right, at any time after December 27, 2023, to force the Company to redeem all or any portion of the outstanding principal, interest or penalties on the Note.
The parties also amended the Company’s carve out to its financing standstill as set forth in the July 2022 Amendment Agreement.
On September 14, 2022, the Company and the Note Investor entered into a waiver (the “Waiver”) to permit, subject to the terms and conditions set forth therein, the entry into a purchase agreement for Forever 8 Fund, LLC. Pursuant to the Waiver, the conversion price and exercise price of the Note and the Warrants, respectively, were voluntarily and irrevocably adjusted to equal $1.00, subject to further adjustment as set forth therein. As a result of the price adjustment feature, the number of shares of the Company’s common stock issuable upon exercise of the Warrants and conversion of the Notes was increased upon the acquisition of Forever 8 Fund, LLC on October 1, 2022.
As a result of the adjustment of the Note and Warrant conversion and exercise price, respectively, in the Waiver, the exercise price of (i) warrants to purchase up to 773,333 shares of the Company’s common stock held by Palladium Capital Group, LLC, (ii) warrants to purchase up to 3,333,333 shares of the Company’s common stock held by the Investor, and (iii) warrants to purchase up to 1,500,000 shares of the Company’s common stock held by BHP Capital NY, Inc. was adjusted to $1.00 per share of the Company’s common stock.
| 26 |
Key Components of our Results of Operations
Revenues
We sell corrugated custom packaging to a wide array of customers. In addition, we will generate revenues from the sales of Bitcoin mining equipment offered through CW Machines, LLC and Web3 Products and services offered through BlockHiro, LLC.
Cost of Revenues
Our cost of revenues includes inventory costs, materials and supplies costs, internal labor costs and related benefits, subcontractor costs, depreciation, overhead and shipping and handling costs. In addition, we will incur costs to purchase Bitcoin mining equipment which will be resold to customers and costs from the development of Web3 products and services.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist of selling, marketing, advertising, payroll, administrative, finance and professional expenses.
Rental Income
We earned rental income from a month-to-month lease on a portion of the building located in Washington, New Jersey that we previously owned. The building was sold in August 2021.
Interest Expense and Income, Net
Interest expense includes the cost of our borrowings under our debt arrangements. Interest income includes the interest earned under our notes receivable.
| 27 |
Other Income
Other income includes the gain on disposal of the building located in Washington, New Jersey.
Results of Operations
Three Months Ended September 30, 2022 versus Three Months Ended September 30, 2021
The following table sets forth information comparing the components of net (loss) income for the three months ended September 30, 2022 and 2021:
Three Months Ended September 30, | Period over Period Change | |||||||||||||||
| 2022 | 2021 | $ | % | |||||||||||||
| Revenues, net | $ | 4,701,929 | $ | 2,002,982 | $ | 2,698,947 | 134.75 | % | ||||||||
| Cost of revenues | 4,281,947 | 1,432,506 | 2,849,441 | 198.91 | % | |||||||||||
| Gross profit | 419,982 | 570,476 | (150,494 | ) | -26.38 | % | ||||||||||
| Operating expenses: | ||||||||||||||||
| Selling, general and administrative | 4,189,311 | 205,217 | 3,984,094 | 1,941.41 | % | |||||||||||
| Operating (loss) income | (3,769,329 | ) | 365,259 | (4,134,488 | ) | -1,131.96 | % | |||||||||
| Other (expense) income: | ||||||||||||||||
| Rental income | - | 17,136 | (17,136 | ) | -100.00 | % | ||||||||||
| Interest (expense) | (5,803,083 | ) | (14,509 | ) | (5,788,574 | ) | 39,896.44 | % | ||||||||
| Loss on issuance of warrants | (25,318,519 | ) | - | (25,318,519 | ) | 100.00 | % | |||||||||
| Other income | 39,199 | 475,419 | (436,220 | ) | -91.75 | % | ||||||||||
| Total other (expense) income, net | (31,082,403 | ) | 478,046 | (31,560,449 | ) | -6,601.97 | % | |||||||||
| (Loss) income before income taxes | (34,851,732 | ) | 843,305 | (35,695,037 | ) | -4,232.76 | % | |||||||||
| Income tax expense (benefit) | - | 236,202 | (236,202 | ) | -100.00 | % | ||||||||||
| Net (loss) income | $ | (34,851,732 | ) | $ | 607,103 | $ | (35,458,835 | ) | $ | -540.66 | % | |||||
Revenue
For the three months ended September 30, 2022, revenues increased by $2,698,947 or 134.75%, as compared to the three months ended September 30, 2021. The increase was primarily the result of increased sales due to shipment of goods to customers related to the sale of mining equipment of $3,076,824. The Company is currently not anticipating any near term BTC mining equipment sales.
Cost of Revenues
For the three months ended September 30, 2022, cost of revenues increased by $2,849,441 or 198.91%, as compared to the three months ended September 30, 2021. The increase was largely attributable to the increase in total revenues as well as increased costs of materials and production.
Gross Profit
For the three months ended September 30, 2022, gross profit decreased by $150,494, or 26.38%, as compared to the three months ended September 30, 2021. The decrease was largely attributable to higher cost of goods related to the sale of mining equipment which generates lower margins.
| 28 |
Operating Expenses
Selling, general and administrative expenses were $4,189,311 and $205,217 for the three months ended September 30, 2022 and 2021, respectively, representing an increase of $3,984,094, or 1,941.41%. The increase was largely attributable to the increase in professional fees, payroll costs, insurance expense, rent expense and operating costs as a standalone public company as well as stock-based compensation of $815,125.
Rental Income
Rental income was $0 and $17,136 for the three months ended September 30, 2022 and 2021, respectively, representing a decrease of $17,136. The decrease was related to no longer receiving rental income due to the sale of the building in Washington, New Jersey in August 2021.
Interest Expense
Interest expense was $5,803,083 for the three months ended September 30, 2022, versus $14,509 for the three months ended September 30, 2021. The increase in interest expense was largely attributable to the amortization of debt issuance costs related to borrowing under the convertible notes payable.
Total other (expense) income
Total other (expense) income was ($31,082,403) for the three months ended September 30, 2022 versus $478,046 for the three months ended September 30, 2021. The increase in total other income (expense) was largely attributable to the loss on issuance of warrants and amortized interest expense.
Income tax expense
Income tax expense was $0 for the three months ended September 30, 2022, versus an income tax expense of $236,202 for the three months ended September 30, 2021, respectively. The decrease in income tax expense for the three months ended September 30, 2022 was a result of state taxes related to Ferguson Containers, Inc. for the three months ended September 30, 2021.
Net (loss) income
Net loss was ($34,851,732) for the three months ended September 30, 2022, versus net income of $607,103 for the three months ended September 30, 2021. The increase in net loss was a result of the increase in selling, general and administrative expenses and loss on issuance of warrants.
Nine Months Ended September 30, 2022 versus Nine Months Ended September 30, 2021
The following table sets forth information comparing the components of net (loss) income for the nine months ended September 30, 2022 and 2021:
Nine Months Ended September 30, | Period over Period Change | |||||||||||||||
| 2022 | 2021 | $ | % | |||||||||||||
| Revenues, net | $ | 15,767,535 | $ | 5,767,328 | $ | 10,000,207 | 173.39 | % | ||||||||
| Cost of revenues | 14,003,205 | 4,119,953 | 9,883,252 | 239.89 | % | |||||||||||
| Gross profit | 1,764,330 | 1,647,375 | 116,955 | 7.10 | % | |||||||||||
| Operating expenses: | ||||||||||||||||
| Selling, general and administrative | 10,403,414 | 1,345,691 | 9,057,723 | 673.09 | % | |||||||||||
| Operating (loss) income | (8,639,084 | ) | 301,684 | (8,940,768 | ) | -2,963.62 | % | |||||||||
| Other (expense) income: | ||||||||||||||||
| Rental income | - | 71,543 | (71,543 | ) | -100.00 | % | ||||||||||
| Interest (expense) | (5,802,758 | ) | (47,327 | ) | (5,755,431 | ) | 12,160.99 | % | ||||||||
| Loss on issuance of warrants | (25,318,519 | ) | - | (25,318,519 | ) | -100.00 | % | |||||||||
| Other income | 141,731 | 475,419 | (333,688 | ) | -70.19 | % | ||||||||||
| Total other (loss) income, net | (30,979,546 | ) | 499,635 | (31,479,181 | ) | -6,300.44 | % | |||||||||
| (Loss) income before income taxes | (39,618,630 | ) | 801,319 | (40,419,949 | ) | -5,044.18 | % | |||||||||
| Income tax expense (benefit) | (172,997 | ) | 224,400 | (397,397 | ) | -177.09 | % | |||||||||
| Net (loss) income | (39,445,633 | ) | 576,919 | (40,032,552 | ) | -6,939.02 | % | |||||||||
| 29 |
Revenue
For the nine months ended September 30, 2022, revenues increased by $10,000,207, or 173.39%, as compared to the three months ended September 30, 2021. The increase was primarily the result of increased sales due to shipment of goods to customers related to the sale of mining equipment of $9,590,100. The Company is currently not anticipating any near term BTC mining equipment sales.
Cost of Revenues
For the nine months ended September 30, 2022, cost of revenues increased by $9,883,252, or 239.89%, as compared to the nine months ended September 30, 2021. The increase was primarily attributable to the increase in total revenues as well as increased costs of materials and production.
Gross Profit
For the nine months ended September 30, 2022, gross profit increased by $116,955, or 7.10%, as compared to the nine months ended September 30, 2021. The increase was primarily a result of the increase in revenues offset by higher cost of goods related to the sale of mining equipment which generates lower margins.
Operating Expenses
Selling, general and administrative expenses were $10,403,414 and $1,345,691 for the nine months ended September 30, 2022 and 2021, respectively, representing an increase of $9,057,723, or 673.09%. The increase was primarily the result of an increase in professional fees, payroll costs, insurance expense, rent expense and other operating costs as a standalone public company as well as stock-based compensation of $1,424,125.
Rental Income
Rental income was $0 and $71,543 for the nine months ended September 30, 2022 and 2021, respectively, representing a decrease of $71,543. The decrease was related to no longer receiving rental income due to the sale of the building in Washington, New Jersey in August 2021.
Interest Expense
Interest expense was $5,802,758 for the nine months ended September 30, 2022, versus interest expense of $47,327 for the nine months ended September 30, 2021. The increase in interest expense was related to amortization of debt issuance costs related to borrowing under the convertible notes payable.
Total other (expense) income
Total other (expense) income was ($30,979,546) for the nine months ended September 30, 2022 versus $499,635 for the nine months ended September 30, 2021. The increase in total other expense was largely attributable to the loss on issuance of warrants and amortized interest expense.
| 30 |
Income tax expense
Income tax benefit was ($172,997) for the nine months ended September 30, 2022, versus income tax expense of $224,400 for the nine months ended September 30, 2021, respectively. The increase was a result of the increase in loss before income taxes.
Net (loss) income
Net (loss) income was ($39,445,633) and $576,919 for the nine months ended September 30, 2022 and 2021, respectively. The increase in net loss was a result of the increase in selling, general and administrative expenses and loss on issuance of warrants.
Liquidity and Capital Resources
Cryptyde, Inc. has required funding from the Former Parent to fund its operations. In addition, other than those that relate to the Note Private Placement, which currently amount to approximately $9.7 million, the Company has no significant debt obligations.
The Company currently has approximately $6.6 million in cash. The Company believes it will have sufficient funds for the next 12 months to accomplish its strategic plan.
Cash Flows
Since inception, Cryptyde, Inc. and its subsidiaries have primarily used its available cash to fund its operations. The following table sets forth a summary of cash flows for the periods presented:
For the Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash (used in) provided by: | ||||||||
| Operating Activities | $ | (15,172,272 | ) | $ | 347,919 | |||
| Investing Activities | (82,644 | ) | 775,263 | |||||
| Financing Activities | 20,969,662 | (641,918 | ) | |||||
| Net increase in cash and restricted cash | $ | 5,714,746 | $ | 481,264 | ||||
| 31 |
Cash Flows for the Nine Months Ended September 30, 2022 and 2021
Operating Activities
Net cash (used in) operating activities was ($15,172,272) during the nine months ended September 30, 2022, which consisted primarily of a net loss of $39,445,633 offset by non-cash depreciation expense of $177,756 and changes in assets and liabilities of ($8,497,732). Net cash provided by operating activities was $347,919 during the nine months ended September 30, 2021, which consisted primarily of net income of $576,919 offset by non-cash depreciation expense of $98,435, and inventories of $73,760.
Investing Activities
Net cash (used in) provided by investing activities was ($82,644) during the nine months ended September 30, 2022 compared to $775,263 for the nine months ended September 30, 2021. The decrease is largely attributable to the sale of land and building during the nine months ended September 30, 2021 versus 2022.
Financing Activities
Net cash provided by (used in) financing activities was $20,969,662 during the nine months ended September 30, 2022 compared to ($641,918) for the nine months ended September 30, 2021. This increase was largely attributable to proceeds from the issuance of convertible notes payable of $7,000,000 and proceeds from the issuance of common stock of $12,192,152.
Cryptyde, Inc. has required funding from the Former Parent to launch operations. Ferguson Containers has historically had positive cash flows from operations. Since inception, Ferguson Containers Inc.’s operations have been funded principally through its operations.
Contractual Obligations and Commitments
The Company has no debt covenants that require certain financial information to be met.
Off-Balance Sheet Arrangements
The Company did not have any off-balance sheet arrangements as of September 30, 2022.
Critical Accounting Policies and Significant Judgments and Estimates
This discussion and analysis of the Company’s financial condition and results of operations is based on the Company’s combined financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America, or U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported periods. In accordance with U.S. GAAP, the Company bases its estimates on historical experience and on various other assumptions the Company believes are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
For information on the Company’s significant accounting policies please refer to Note 2 to the Company’s Financial Statements included in this Quarterly Report.
| 32 |
THE SEPARATION
General
Prior to the Separation, we were a wholly owned subsidiary of Vinco. As described in this section, “The Separation”, we have separated from Vinco and have become a separate company traded on the Nasdaq. The effective date of the Separation was June 29, 2022.
Vinco has distributed 100% of the shares of our common stock held by Vinco to holders of shares of Vinco common stock, subject to certain conditions. The distribution of our common stock took place on June 29, 2022 (the “Distribution Date”). On the Distribution Date, each holder of Vinco common stock received one share of Cryptyde common stock for every ten shares of Vinco common stock held at the close of business on the Record Date, as described below.
Reasons for the Separation
The Vinco board of directors believes that separating the Cryptyde Businesses from the remainder of Vinco is in the best interests of Vinco and its stockholders for a number of reasons, including:
| ● | Distinct Focus. Each company will benefit from a distinct strategic and management focus on its specific operational and growth priorities. Vinco is expected to continue operations of its media focused business; Vinco will operate the Cryptyde Businesses. Because each company will have smaller portfolio of businesses, management of each company is expected to better allocate time and resources to identifying and executing operational and growth strategies; |
| ● | Differentiated Investment Opportunities. Each company will offer differentiated and compelling investment opportunities based on its particular operating and financial model, allowing it to more closely align with its natural investor type. Cryptyde seeks to attract investors looking to invest in companies bringing Web3, and blockchain technology generally, into consumer facing industries, such as music and art, while also maintaining the stability that comes with an established business, such as the Packaging Business. Whereas Vinco will likely appeal to investors looking to invest in a global media business; |
| ● | Optimized Balance Sheet and Capital Allocation Priorities. Each company will operate with a capital structure and capital deployment strategy tailored to its specific business model and growth strategies without having to compete with the other for investment capital. Cryptyde will monitor the performance and opportunities of the Cryptyde Businesses and allocate capital in a manner designed to grow Cryptyde. Vinco will continue allocating resources towards its media business; |
| ● | Direct Access to Capital Markets. Each company will have its own equity structure that will afford it direct access to the capital markets and allow it to capitalize on its unique growth opportunities appropriate to its business; |
| ● | Alignment of Incentives with Performance Objectives. Each company will be able to offer incentive compensation arrangements for employees that are more directly tied to the performance of its business and may enhance employee hiring and retention by, among other things, improving the alignment of management and employee incentives with performance and growth objectives. Cryptyde expects to incentivize management and employees with both cash and equity compensation upon attaining earnings, market capitalization, and user count goals. By tailoring management’s and employees’ incentive to the performance of the Cryptyde Businesses, rather than the businesses that remain with Vinco, Cryptyde hopes to advance the Cryptyde Businesses faster than should they remain with Vinco; and |
| ● | Incremental Stockholder Value. Each company will benefit from the investment community’s ability to value its businesses independently within the context of its particular industry with the anticipation that, over time, the aggregate market value of the companies will be higher, on a fully distributed basis and assuming the same market conditions, than if Vinco were to remain under its current configuration. |
| 33 |
Vinco’s board of directors also considered potentially negative factors in evaluating the Separation, including risks relating to the creation of a new public company, possible increased administrative costs and one-time separation costs, but concluded that the potential benefits of the Separation outweighed these factors. The anticipated benefits of the spin-off are based on a number of assumptions, and there can be no assurance that such benefits will materialize to the extent anticipated, or at all. In the event the Separation does not result in such benefits, the costs associated with the Separation could have an adverse effect on each company individually and in the aggregate. For more information, see the Section “Risk Factors.”
Share Issuance Ration
For every ten shares of Vinco common stock owned as of the close of business on the Record Date, each holder received one share of our common stock on the Distribution Date.
Treatment of Fractional Shares
Nevada Agency & Transfer Company, acting as the distribution agent (the “Distribution Agent”), did not distribute any fractional shares of our common stock to Vinco stockholders. As soon as practicable on or after the Distribution Date, the Distribution Agent, instead, aggregated fractional shares into whole shares, sold the whole shares in the open market at prevailing prices, and distributed the net cash proceeds from the sales, net of brokerage fees and commissions, transfer taxes, and other costs, and after making appropriate deductions of the amounts required to be withheld for U.S. federal income tax purposes, if any, pro rata to each stockholder that would otherwise have been entitled to receive a fractional share in connection with the Distribution. The Distribution Agent determined when, how, through which broker-dealers, and at what prices to sell the aggregated fractional shares. Recipients of cash in lieu of fractional shares were not entitled to any minimum sale price for the fractional shares or to any interest on the amounts of payments made in lieu of fractional shares.
Treatment of Outstanding Equity Compensation Awards
The following discussion describes the treatment of Vinco equity awards in connection with the Separation. The treatment described below became effective as of the Distribution Date.
Holders of Vinco awards whose post-Separation employer is Cryptyde received as a replacement of the Vinco awards, an identical award with respect to approximately 1/10 of a share of our common stock for each share of Vinco common stock underlying the Vinco award, such that the resulting Cryptyde award had an intrinsic value immediately following the consummation of the Distribution equal to the intrinsic value of the existing Vinco award immediately prior to the consummation of the Distribution, taking into account any necessary adjustments to the exercise price of the new awards, if applicable, to maintain such intrinsic value. To the extent the existing Vinco award was subject to vesting based upon continued service with Vinco, the new awards also remained subject to the same vesting conditions based upon continued employment with the holder’s post-Separation employer. In addition, to the extent the existing Vinco award was subject to the achievement of certain Vinco performance-based target goals, appropriate adjustments were made to such target goals and incorporated into the new awards to reflect equivalent TYDE performance-based target goals.
There are currently no unvested equity awards held by employees of Vinco that are remaining with Vinco after the Separation.
Fractional Interests
To the extent any adjustments made to outstanding Vinco awards resulted in fractional share interests, the fractional interests were rounded down to the nearest whole share, and we made a cash payment to our respective employees and/or directors in lieu of such fractional interests.
Results of the Separation
After the Separation, we are an independent, publicly traded company that directly or indirectly holds the assets and legal entities, subject to any related liabilities, associated with the Cryptyde Businesses previously conducted by Vinco.
| 34 |
Incurrence of Debt
In connection with the Separation, we incurred debt from the Note Private Placement. We may continue to incur further debt in the ordinary course of business.
Regulatory Approvals
We were required to complete the necessary registration under the federal securities laws of our common stock to be issued in connection with the Distribution. We were also required to complete the applicable listing requirements on Nasdaq for such shares. Other than these requirements, no other material governmental or regulatory filings or approvals were necessary to consummate the Distribution.
Agreements with Vinco
In connection with the Separation, we entered into a Separation and Distribution Agreement and other agreements with Vinco to effect the Separation and provide a framework for our relationship with Vinco after the Separation. These agreements provide for the allocation between us and our subsidiaries, on the one hand, and Vinco and its subsidiaries, on the other hand, of the assets, liabilities, legal entities, and obligations associated with the Cryptyde Businesses, on the one hand, and the other current Vinco businesses, on the other hand, and govern the relationship between our company and our subsidiaries, on the one hand, and Vinco and its subsidiaries, on the other hand, subsequent to the Separation.
The Separation and Distribution Agreement contains many of the key provisions related to our Separation from Vinco and the Distribution of our shares of common stock to Vinco stockholders.
The forms of the principal agreements described below are included as Exhibits 2.1 and 10.1 to this Quarterly Report. The following descriptions of these agreements are summaries of the material terms of these agreements.
Separation and Distribution Agreement
The Separation and Distribution Agreement governs the overall terms of the Separation. Generally, the Separation and Distribution Agreement includes Vinco’s and our agreements relating to the internal restructuring steps taken to complete the Separation, including the assets, legal entities, and rights transferred, liabilities assumed, and related matters.
Subject to the receipt of required governmental and other consents and approvals and the satisfaction of other closing conditions, in order to accomplish the Separation, the Separation and Distribution Agreement provides, as applicable, for Vinco and us to transfer specified assets between the companies that operate the Cryptyde Businesses, on the one hand, and Vinco’s other current businesses, on the other hand, after the Distribution Date. The determination of the assets transferred between the companies has been made by Vinco in its sole discretion. The Separation and Distribution Agreement requires Vinco and us to use reasonable efforts to obtain consents, approvals, and amendments required to assign the assets, legal entities, and liabilities that are transferred pursuant to the Separation and Distribution Agreement.
Unless otherwise provided in the Separation and Distribution Agreement or any of the related ancillary agreements, all assets have been transferred on an “as is, where is” basis. Generally, if the transfer of any assets or any claim or right or benefit arising thereunder required a consent that was not obtained before the Distribution, or if the transfer or assignment of any such asset or such claim or right or benefit arising thereunder was ineffective or adversely affected the rights of the transferor thereunder so that the intended transferee did not in fact receive all such rights, the party retaining any asset that otherwise would have been transferred now holds such asset in trust for the use and benefit of the party entitled thereto and retains such liability for the account of the party by whom such liability is to be assumed, and has taken such other action as has been reasonably requested by the party to which such asset was to be transferred, or by whom such liability was to be assumed, as the case may be, in order to place such party, insofar as reasonably possible, in the same position as would have existed had such asset or liability been transferred prior to the consummation of the Distribution.
In addition, Vinco was given the right to determine the date and terms of the Separation and was given the right, at any time until completion of the Distribution, to determine to abandon or modify the Distribution and to terminate the Separation and Distribution Agreement.
In addition, the Separation and Distribution Agreement governs the treatment of indemnification, insurance, and litigation responsibility and management of the Cryptyde Businesses, on the one hand, and Vinco’s other current businesses, on the other hand, after the Distribution Date. Generally, the Separation and Distribution Agreement provides for uncapped cross-indemnities primarily designed to place financial responsibility for the obligations and liabilities of our business with us and financial responsibility for the obligations and liabilities of Vinco’s other current businesses with Vinco, in either case after applicable insurance coverage (which generally are occurrence policies) intended to cover such obligations and liabilities and whether incurred prior to, on, or after the Distribution Date. We and Vinco have each agreed to indemnify the other for any liabilities caused by a material misstatement or omission in materials supplied by one of us to the other regarding the business, operations, financial results, stockholder communications, risks, management, management compensation levels, and stock ownership of the applicable company. The Separation and Distribution Agreement also establishes procedures for handling claims subject to indemnification and related matters.
| 35 |
Tax Matters Agreement
In connection with the Separation, we and Vinco entered into a Tax Matters Agreement that contains certain tax matters arrangements (the “Tax Matters Agreement”) and governs the parties’ respective rights, responsibilities, and obligations with respect to taxes, including taxes arising in the ordinary course of business and taxes, if any, incurred as a result of the failure of the Transfer and the Distribution to qualify for tax-free treatment for U.S. federal income tax purposes. The Tax Matters Agreement also sets forth the respective obligations of the parties with respect to the filing of tax returns, the administration of tax contests, and assistance and cooperation on tax matters.
In general, the Tax Matters Agreement governs the rights and obligations that we and Vinco have after the Separation with respect to taxes for both pre- and post-closing periods. Under the Tax Matters Agreement, we generally are responsible for (i) any of our taxes for all periods prior to and after the Distribution and (ii) any taxes of Vinco for periods prior to the Distribution to the extent attributable to the Cryptyde Businesses. Vinco generally is responsible for any of the taxes of Vinco other than taxes for which we are responsible.
The Tax Matters Agreement further provides as follows:
| ● | We will generally indemnify Vinco against taxes arising in the ordinary course of business for which we are responsible under the Tax Matters Agreement; and | |
| ● | Vinco will indemnify us against any taxes of Vinco other than taxes for which we are responsible. |
In addition to the indemnification obligations described above, the indemnifying party generally is required to indemnify the indemnified party against any interest, penalties, additions to tax, losses, assessments, settlements, or judgments arising out of or incident to the event giving rise to the indemnification obligation, along with costs incurred in any related contest or proceeding.
The Tax Matters Agreement also generally prohibits us and our affiliates from taking certain actions that could cause the Transfer and the Distribution to fail to qualify for their intended tax treatment, including the following:
| ● | during the two-year period following the Distribution Date (or otherwise pursuant to a “plan” within the meaning of Section 355(e) of the Code), we may not cause or permit certain business combinations or transactions to occur; | |
| ● | during the two-year period following the Distribution Date, we may not discontinue the active conduct of our business (within the meaning of Section 355(b)(2) of the Code); | |
| ● | during the two-year period following the Distribution Date, we may not liquidate or merge, consolidate, or amalgamate with any other person; | |
| ● | during the two-year period following the Distribution Date, we may not sell or otherwise dispose of more than 30% of our consolidated gross assets; | |
| ● | during the two-year period following the Distribution Date, we may not purchase any of our common stock, other than pursuant to certain open market repurchases of less than 20% of our common stock (in the aggregate); | |
| ● | during the two-year period following the Distribution Date, we may not amend our Certificate of Incorporation (or other organizational documents) or take any other action affecting the voting rights of our common stock; and | |
| ● | more generally, we may not take any action that could reasonably be expected to cause the Transfer and the Distribution and to fail to qualify as tax-free transactions for U.S. federal income tax purposes. |
In the event that the Transfer and the Distribution fail to qualify for their intended tax treatment, in whole or in part, and Vinco is subject to tax as a result of such failure, the Tax Matters Agreement will determine whether Vinco must be indemnified for any such tax by us.
| 36 |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Due to being a Smaller Reporting Company, the Company is not required to provide information under this Item 3.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Principal Executive Officer and Principal Financial and Accounting Officer has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report. Based on such evaluation, the Company’s Principal Executive Officer and Principal Financial and Accounting Officer have concluded that, as of the end of such period covered by this Quarterly Report, the Company’s disclosure controls and procedures were not effective to provide reasonable assurance that information that it is required to disclose in reports that the Company files with the SEC is recorded, processed, summarized and reported within the time periods specified by the Exchange Act rules and regulations due to the reasons set forth below.
As of December 31, 2021, management identified the following material weakness in our internal control over financial reporting: the Company was unable to provide a timely financial reporting package in connection with the year end audit. This was primarily the result of the Company’s limited accounting personnel. This also limits the extent to which the Company can segregate incompatible duties and has a lack of controls in place to ensure that all material transactions and developments impacting the financial statements are reflected. There is a risk under the current circumstances that intentional or unintentional errors could occur and not be detected.
Management has concluded that the material weakness described above currently exists as of September 30, 2022. The Company plans to engage with outside consultants to strengthen its capabilities and help the Company in the design and assessment of its internal controls over financial reporting to further reduce and remediate existing control deficiencies during 2022 and 2023.
Changes in Internal Control over Financial Reporting
During the nine months ended September 30, 2022, there were no changes in our internal control over financial reporting that materially affected our internal control over financial reporting as of September 30, 2022.
| 37 |
PART II
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Company is party to legal actions that are routine and incidental to its business. However, based upon available information and in consultation with legal counsel, management does not expect the ultimate disposition of any or a combination of these actions to have a material adverse effect on the Company’s assets, business, cash flow, condition (financial or otherwise), liquidity, prospects and\or results of operations.
ITEM 1A. RISK FACTORS
Our business and common stock are subject to a number of risks and uncertainties The discussion of such risks and uncertainties may be found under “Risk Factors” in the Form S-1 filed with the Securities and Exchange Commission on August 12, 2022, which is supplemented by the risk factor set forth below.
If we fail to comply with the continued listing requirements of NASDAQ, we would face possible delisting, which would result in a limited public market for shares of our common stock. and make obtaining future debt or equity financing more difficult for us.
Our common stock is traded and listed on the NASDAQ Capital Market under the symbol “TYDE”. The common stock may be delisted if we fail to maintain certain NASDAQ listing requirements.
On October 5, 2022, we received a written notice (the “Notice”) from The Nasdaq Stock Market LLC (“Nasdaq”) that the Company is not in compliance with the minimum bid price requirement of $1.00 per share set forth in Nasdaq Rules for continued listing on Nasdaq.
Based on the closing bid price of the Company’s listed securities for the 31 consecutive business days from August 22, 2022 to October 4, 2022, the Company no longer meets the minimum bid price requirement set forth in Listing Rule 5550(a)(2). The Notice is only a notification of deficiency, not of imminent delisting, and has no current effect on the listing or trading of the Company’s securities on the Nasdaq Capital Market.
In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company has been provided 180 calendar days, or until April 3, 2023, to regain compliance with Nasdaq Listing Rule 5550(a)(2). To regain compliance, the Company’s common shares must have a closing bid price of at least $1.00 for a minimum of 10 consecutive business days.
The Company intends to resolve the deficiency and regain compliance with the Nasdaq listing rules; however, there is no guaranty that the Company will be able to do so. Ultimately, if the Company is not able to resolve the deficiency and regain compliance with the Nasdaq listing rules, the Company’s common stock may be delisted.
We cannot assure you that we will continue to comply with the requirements for continued listing on the NASDAQ Capital Market in the future. If our common stock loses its status on the NASDAQ Capital Market, the common stock would likely trade in the over-the-counter market. If our shares were to trade on the over-the-counter market, selling the common stock could be more difficult because smaller quantities of shares would likely be bought and sold, transactions could be delayed, and security analysts’ coverage of us may be reduced. In addition, in the event the common stock is delisted, broker-dealers have certain regulatory burdens imposed upon them, which may discourage broker-dealers from effecting transactions in the common stock, further limiting the liquidity of the common stock. These factors could result in lower prices and larger spreads in the bid and ask prices for the common stock. Such delisting from the NASDAQ Capital Market and continued or further declines in our share price could also greatly impair our ability to raise additional necessary capital through equity or debt financing and could significantly increase the ownership dilution to shareholders caused by our issuing equity in financing or other transactions.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities; Uses of Proceeds from Registered Securities
On August 29, 2022, the Company issued 300,000 shares of common stock to Emmersive Entertainment for the settlement of the Former Parent’s earnout shares valued at $609,000 based on the fair value of the underlying shares on the vesting date. The amount was recorded as shared-based compensation included in selling, general and administrative expenses.
On September 7, 2022, the Company issued 112,500 shares of common stock to vendors for compliance and investor relation services valued at $152,125 based on the fair value of the underlying shares on the vesting date. The issuance was made pursuant to the exemption from the registration requirement contained in Section 4(a)(2) of the Securities Act.
On September 27, 2022, the Company approved the issuance of 975,000 shares of restricted stock units to employees for services provided valued at $663,000 based on the fair value of the underlying restricted stock units. The issuance of 695,000 of such units was made pursuant an exemption provided in Section 4(a)(2) under the Securities Act and Rule 506(b) promulgated thereunder. The issuance of 280,000 of such units was made pursuant to the exemption from the registration requirement contained in Section 4(a)(2) of the Securities Act.
| 38 |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
| 39 |
ITEM 6. EXHIBITS
(b) Exhibits
The following documents are filed as exhibits hereto:
| 40 |
| + | Management contract or compensatory plan or arrangement. |
| # | Schedules and/or exhibits have been omitted from this filing pursuant to Item 601(a)(5) of Regulation S-K. We agree to furnish supplementally a copy of any omitted schedule or exhibit to the Securities and Exchange Commission upon request. |
| 41 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: November 14, 2022
| CRYPTYDE, INC. | ||
| By: | /s/ Brian McFadden | |
| Name: | Brian McFadden | |
| Title: | Chief Executive Officer | |
| CRYPTYDE, INC. | ||
| By: | /s/ Brett Vroman | |
| Name: | Brett Vroman | |
| Title: | Chief Financial Officer | |
| 42 |