Eightco Holdings Inc.: Form 10-Q for the period ended Mar 31, 2025

As explained above, unless otherwise indicated, the terms “we,” “us,” “our,” “our Company,” and “the Company” refer to Eightco Holdings 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

As used herein, “Eightco” and the “Company” refer to Eightco Holdings Inc. and subsidiaries and/or where applicable, its management, a Delaware corporation originally incorporated on September 21, 2021 (date of inception) under the laws of the State of Nevada. On March 9, 2022, the Company converted to a Delaware corporation pursuant to a plan of conversion entered into with the Former Parent. On April 4, 2023, the Company changed its name to Eightco Holdings Inc. from Cryptyde, Inc. and its stock symbol to “OCTO.” 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”). We no longer intend to generate revenue from our Web 3 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.

On June 29, 2022, the Company separated from its former parent company, Vinco Ventures Inc. (“Vinco”). As previously announced, we concluded a spin-off from Vinco (the “Separation”) and continue operating our Web3 Business, our BTC Mining Hardware Business and our Packaging Business. The Separation occurred concurrently with the distribution (the “Distribution”) of our common stock to stockholders of Vinco as of May 18, 2022 (the “Record Date”) at a ratio of one share of our common stock for every ten shares of Vinco common stock held by the Vinco stockholders. Following the Separation, we are an independent, publicly traded company, and Vinco retains no ownership interest in our Company.

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 Eightco Businesses, on the one hand, and Vinco’s other current 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, following the Separation. In addition to the Separation and Distribution Agreement, the other principal agreements entered into with Vinco include a Tax Matters Agreement and certain commercial agreements.

Employment Agreements

Paul Vassilakos Employment Agreement

In connection with Mr. Vassilakos’ appointment as the Executive Chairman and Chief Executive Officer of the Company, on March 17, 2024, the Company and Mr. Vassilakos entered into an Employment Agreement (the “Vassilakos Employment Agreement”), which supersedes and replaces the Employment Agreement dated October 16, 2022, by and between Mr. Vassilakos, the Company and Forever 8. The Vassilakos Employment Agreement provides for an initial term of two years, unless earlier terminated in accordance therein, and automatic renewals for successive one (1) year terms unless either party provides timely written notice otherwise.

Pursuant to the terms of the Vassilakos Employment Agreement, Mr. Vassilakos will be entitled to a base salary payable at the annualized rate of $300,000 per year (the “Vassilakos Base Salary”). Mr. Vassilakos is eligible for an annual cash bonus opportunity equal to up to 75% of the Vassilakos Base Salary and awards of restricted stock units up to 100% of the Vassilakos Base Salary, subject to the terms and conditions of the Incentive Plan and the Company’s form of restricted stock unit agreement (the “Vassilakos Bonus”), based on certain milestones to be determined in the sole and absolute discretion of the Board. Mr. Vassilakos may also be eligible for additional compensation in the sole and complete discretion of the Board or the Compensation Committee of the Board.

In the event the Company terminates Mr. Vassilakos’ employment without cause (as defined in the Vassilakos Employment Agreement), Mr. Vassilakos will receive (i) the Accrued Obligations (as defined in the Vassilakos Employment Agreement) and (ii) severance in the amount of equal to the Vassilakos Base Salary for twelve (12) months, less applicable payroll deductions and tax withholdings. In addition, this termination will cause the vesting of all equity awards subject to the terms of the Incentive Plan held by Mr. Vassilakos and entitle Mr. Vassilakos to reimbursement of premiums associated with the continuation of health insurance benefits provided under the Vassilakos Employment Agreement during the remaining Term of Employment (as defined in the Vassilakos Employment Agreement).

A complete copy of the Vassilakos Employment Agreement is included as an exhibit to this Annual Report.

Brian McFadden Employment Agreement

Brian McFadden was previously employed as the Chief Executive Officer of the Company.

On February 26, 2024, the Company and Mr. McFadden entered into General Release and Severance Agreement (the “McFadden Severance Agreement”), effective as of the eighth day following the McFadden Severance Agreement in connection with Mr. McFadden’s resignation as Chief Executive Officer of the Company, effective as of December 31, 2023. Pursuant to the McFadden Severance Agreement, Mr. McFadden was eligible to receive $146,683 in accrued but unpaid base salary through the separation date in four quarterly payments of $36,670.75 each, less all applicable tax withholdings, by December 31, 2024.

In consideration of the McFadden Severance Agreement, the release therein and Mr. McFadden’s resignation as Chief Executive Officer of the Company, the Company agreed to provide Mr. McFadden severance pay in the gross amount of amount of $422,500, less all lawful and authorized withholdings and deductions (the “Severance Payment”), which Severance Payment was to be paid in four quarterly installments of $105,625 per each installment, payable at the Company’s option in either cash or Common Stock, with the payment to be made as follows: (i) as of the Effective Date of the separation, on which such date Mr. McFadden shall be granted, in lieu of cash, 128,811 fully-vested restricted shares of the Common Stock at a price of $0.82 per share, which such shares of Common Stock subject to the terms and conditions of the Company’s 2022 Long-Term Incentive Plan (the “Plan”), and as of each of (ii) April 1, 2024, (iii) July 1, 2024, and (iv) October 1, 2024, payable at the Company’s option, in either cash or Common Stock. The shares of Common Stock to be issued to Mr. McFadden under installments (ii), (iii) and (iv), if applicable, shall be fully vested and the number of shares to be issued shall be determined based on the volume weighted average trading price of the Common Stock on the principal exchange on which the Common Stock is listed or admitted to trade during the period of 10 trading days immediately prior to the date of such issuance.

Pursuant to the McFadden Severance Agreement, the Company also agreed to reimburse to Mr. McFadden the premiums associated with the continuation of Mr. McFadden’s health insurance for the period commencing on the Separation Date through December 31, 2024, pursuant to applicable law, and approved but unpaid business expenses through the Separation Date within 30 days following the Effective Date of the separation.

Pursuant to the terms of the McFadden Severance Agreement, Mr. McFadden was to remain a director of the Company’s board from the Separation Date through March 2024, at which time Mr. McFadden would resign from the Board. On March 17, 2024, the Board approved the entry by the Company into the First Amendment to the McFadden Severance Agreement to amend Mr. McFadden’s end date of service on the Board to March 17, 2024.

A copy of the complete McFadden Severance Agreement is included as an exhibit to this Annual Report.

Brett Vroman Employment Agreement

Pursuant to the terms of the Vroman Employment Agreement, Mr. Vroman is employed as the Chief Financial Officer of the Company. Mr. Vroman’s employment under the Vroman Employment Agreement was to last until September 27, 2024, unless earlier terminated pursuant to the terms of the agreement.

Pursuant to the terms of Mr. Vroman’s employment agreement, Mr. Vroman was to receive, subject to approval by the Board, an annual grant of 180,000 restricted stock units convertible into shares of the Company’s common stock, which shall be immediately vested and subject to the terms and conditions of the Company’s 2022 Long-Term Incentive Plan. This reflects an increase from the 135,000 shares provided to Mr. Vroman under the March Vroman Agreement. Mr. Vroman will be entitled to a base salary payable at the annualized rate of $292,000 per year (the “Vroman Base Salary”), which reflects an increase from the $250,000 provided to Mr. Vroman under the March Vroman Agreement. Mr. Vroman is eligible for an annual cash bonus opportunity equal to 100% of the Vroman Base Salary (the “Vroman Bonus”) based on the achievement of performance goals as determined by the Company’s audit committee and the Board. The Vroman Bonus reflects a decrease on a percentage basis from the maximum 150% of base salary provided for in the March Vroman Agreement.

In addition, Mr. Vroman shall under some circumstances be entitled to receive additional shares of the Company’s common stock contingent upon the satisfaction of certain additional performance goals. Mr. Vroman shall be entitled to receive a maximum total of 990,000 shares upon full satisfaction of certain corporate growth achievements based upon a review of the Company’s audited financial statements and subject to the approval of the Board. This reflects an increase over the March Vroman Agreement, which provided that Mr. Vroman would be eligible to receive a maximum of 450,000 shares in connection with revenue growth. Mr. Vroman shall be eligible to receive a one-time bonus of 180,000 shares in the event that the Company achieves a positive cash flow based on a review of the Company’s audited financial statements and subject to the review of the Board. The March Vroman Agreement provided for a substantially similar bonus in connection with cash flow. Mr. Vroman shall be eligible to receive a bonus of a maximum aggregate of 1,600,000 shares in the event that certain market capitalization milestones are met based on a review of the Company’s audited financial statements and subject to approval by the Board. This reflects an increase above the maximum aggregate of 1,575,000 shares provided for in connection with meeting market capitalization milestones under the March Vroman Agreement. Subsequent to receiving the maximum aggregate 1,600,000 shares provided for under the first three market capitalization milestones, Mr. Vroman will be eligible to receive additional bonuses of 135,000 shares for each doubling in market capitalization of the Company over the market capitalization recorded at the prior bonus threshold, provided such increase is sustained for a period of at least three consecutive trading days. Though specific milestone thresholds and timing requirements vary, the March Vroman Agreement contained a substantially similar provision with respect to a continuing market capitalization bonus. Mr. Vroman may also be eligible for additional compensation in the sole and complete discretion of the Board.

Mr. Vroman will be eligible to participate in all health, medical, dental and life insurance policies offered to employees of the Company, and the Company will pay all applicable premiums. The Company will reimburse Mr. Vroman up to $10,000 per year as a car allowance, reimburse Mr. Vroman up to $2,500 for home office expenses and reimburse Mr. Vroman for all reasonable out-of-pocket expenses incurred by him in the conduct of the Company’s business. The Vroman Employment Agreement provides Mr. Vroman with four (4) weeks of paid vacation and five (5) days of paid personal time. The Vroman Employment Agreement also provides Mr. Vroman with liability insurance coverage and shall reimburse certain financial planning expenses incurred by Mr. Vroman. All terms provided in this paragraph are substantially similar to those provided in the March Vroman Agreement.

In the event the Company terminates Mr. Vroman’s employment without cause (as defined in the Vroman Employment Agreement), Mr. Vroman will receive (i) the Accrued Obligation (as defined in the Vroman Employment Agreement) and (ii) severance in the amount of equal to the Vroman Base Salary for twenty-four (24) months. In addition, this termination will cause the vesting of all Eightco common stock held by Mr. Vroman and entitle Mr. Vroman to reimbursement of premiums associated with the continuation of health insurance benefits provided under the Vroman Employment Agreement during the remaining Term of Employment (as defined in the Vroman Employment Agreement).

On February 26, 2024, the Company and Brett Vroman entered into General Release and Severance Agreement (the “Vroman Severance Agreement”), effective as of the eighth date following the Vroman Severance Agreement in connection with the termination of the amended and restated employment agreement, by and between the Company and Mr. Vroman, effective as of September 27, 2022. Pursuant to the Vroman Severance Agreement, as of the Separation Date, the Vroman Employment Agreement shall terminate, and no party shall have any further obligation or liability thereunder except as related to any obligations that survive employment termination, including but not limited to the obligations set forth under the Employee Confidential Disclosure, Invention Assignment, Non-Competition, Non-Solicitation and Non-Interference Agreement, attached to the Vroman Employment Agreement.

Pursuant to the Vroman Severance Agreement, the Company will provide Mr. Vroman with (i) back pay wages through the Separation Date in the amount of $151,615.46, less all lawful and authorized withholdings and deductions, to be paid as soon as practicable following the Vroman Effective Date and (ii) severance of 24 months of Mr. Vroman’s base salary, less all lawful and authorized withholdings and deductions, under the Vroman Employment Agreement. Pursuant to the Vroman Severance Agreement, the Company shall also reimburse to Mr. Vroman the premiums associated with the continuation of Mr. Vroman’s health insurance for the period commencing on the Separation Date through December 31, 2024, pursuant to applicable law, expenses in accordance with the Company’s expense reimbursement policy, and the full vesting of any earned shares of Common Stock. The Vroman Severance Agreement also provides for a mutual waiver and release of any claims in connection with Mr. Vroman’s employment, separation and departure from the Company, and for certain customary covenants regarding confidentiality.

Additionally, on February 22, 2024, the Company and CXO Lite, LLC, a limited liability company organized under the laws of Pennsylvania, of which Mr. Vroman is the sole member, entered into a consulting agreement (the “CXO Lite Consulting Agreement”) pursuant to which Mr. Vroman shall be engaged and continue to serve the Company as its Chief Financial Officer.

A copy of the complete Vroman Severance Agreement and CXO Lite Consulting Agreement are included as an exhibits to this Annual Report.

Kevin O’Donnell Employment Agreement and Separation Agreement

On February 22, 2024, the Board appointed Kevin O’Donnell as Interim Chief Executive Officer of the Company, effective as of the Separation Date, to serve until a successor is chosen and qualified, or until his earlier resignation or removal.

On March 17, 2024, Kevin O’Donnell resigned as Executive Chairman and Interim Chief Executive Officer of the Company, effective immediately. Mr. O’Donnell’s resignation was not the result of any disagreement regarding any matter relating to the Company’s operations, policies, or practices.

In connection with Mr. O’Donnell’s resignation from these positions, on March 17, 2024, the Company and Kevin O’Donnell entered into a General Release and Severance Agreement (the “O’Donnell Severance Agreement”), effective as of March 17, 2024 (the “O’Donnell Effective Date”). The O’Donnell Severance Agreement terminated of the amended and restated employment agreement, by and between the Company and Mr. O’Donnell, effective as of October 21, 2022 (the “O’Donnell Employment Agreement”). Pursuant to the O’Donnell Severance Agreement, as of the O’Donnell Effective Date, the O’Donnell Employment Agreement shall terminate forever, and no party shall have any further obligation or liability thereunder except as related to any obligations that survive employment termination, including but not limited to the obligations set forth under the Employee Confidential Disclosure, Invention Assignment, Non-Competition, Non-Solicitation and Non-Interference Agreement, attached to the O’Donnell Employment Agreement.

Pursuant to the O’Donnell Severance Agreement, the Company will provide Mr. O’Donnell with (i) back pay wages through the Separation Date in the amount of $138,000, less all lawful and authorized withholdings and deductions, to be paid as soon as practicable following the O’Donnell Effective Date and (ii) severance equal to 24 months of Mr. O’Donnell’s base salary, less all lawful and authorized withholdings and deductions, under the O’Donnell Employment Agreement. Pursuant to the O’Donnell Severance Agreement, the Company shall also provide Mr. O’Donnell with (i) reimbursement of the premiums associated with the continuation of Mr. O’Donnell’s health insurance for the period commencing on the Separation Date through and including September 27, 2024, pursuant to applicable law, (ii) reimbursement of expenses in accordance with the Company’s expense reimbursement policy, and (iii) the full vesting of any earned, outstanding and unvested shares of Common Stock subject to the Plan (as define below). The O’Donnell Severance Agreement also provides for a mutual waiver and release of any claims in connection with Mr. O’Donnell’s employment, separation and departure from the Company, and for certain customary covenants regarding confidentiality.

Recent Financings

February 2024 Private Placement

On February 26, 2024, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain investors (the “Investors”), pursuant to which the Company sold to the Investors an aggregate of 865,856 shares (the “Shares”) of the Company’s common stock at a purchase price of $0.82 per Share (the “Private Placement”). The Company received aggregate gross proceeds from the Private Placement of approximately $0.71 million. The Shares are being offered and sold in reliance on the exemption from registration under the Securities Act of 1933, as amended, provided by Section 4(a)(2) and Regulation D promulgated thereunder for transactions not involving a public offering.

The Purchase Agreement contains representations and warranties of the Company and the Investors that are typical for transactions of this type. The Purchase Agreement also contains covenants on the part of the Company that are typical for transactions of this type.

Series A Financing

On May 30, 2023, Forever 8 (the “Borrower”) entered into a Loan and Security Agreement (the “Agreement”) with several individuals, financial institutions and entities as lenders. Under the terms of the Agreement, each lender will severally (and not jointly) make available to Borrower, in an amount not to exceed its respective Commitment, a Loan Advance amount to be determined by the lender (as such amount may be increased, the “Aggregate Commitment”) in the aggregate, of which (x) a certain amount will be deposited into an account of the Borrower in accordance with its written instructions (the “Initial Loan Advance”) and (y) the remaining balance of the Aggregate Commitment after deducting the Initial Loan Advance shall be deposited into the Escrow Account (the “Escrow Funds”). The Borrower may, at any time, request an advance for all or a portion of the Escrow Funds (each such advance, a “Subsequent Draw”).

The Borrower issued a Promissory Note to each of the lenders in the amount of the lender’s respective Initial Loan Advance. The principal balance of the Initial Loan Advance and each Subsequent Draw shall bear interest thereon from the Closing Date and applicable Advance Date, respectively, at 15.00% per annum. The Borrower shall pay each lender, according to its Applicable Percentage, an unused commitment fee on the actual daily amount of the Unused Commitment Amount during the immediately preceding calendar quarter at the rate of five percent (5.00%) per annum (the “Unused Commitment Fee”). In the event any payment is not paid on or within five (5) Business Days of the scheduled payment date, an amount equal to two percent (2.00%) of the past due amount shall be payable on demand, in addition to interest accruing. In addition, upon the occurrence and during the continuation of an Event of Default hereunder, the Initial Loan Advance and all Subsequent Draws, including principal, interest, compounded interest, and professional fees thereupon, shall upon the election of the lenders, bear interest at the Interest Rate, plus five (5) percentage points. In the event any interest is not paid when due hereunder, delinquent interest shall be added to principal and shall bear interest on interest, compounded.

As security for the prompt and complete payment when due (whether on the payment dates or otherwise) of all the Secured Obligations, Borrower granted to the lenders a security interest in all of Borrower’s right, title, and interest in and to all Inventory or Equipment and machinery, in each case, purchased (or refinanced) with the proceeds of the Initial Loan Advance and any Subsequent Draw, and, to the extent not otherwise included, all Proceeds of each of the foregoing and all products, additions, increases and accessions to, substitutions and replacements for, and rents, profits and products of each of the foregoing.

As of the date of this filing, $2,375,000 has been committed by the lenders.

Series B Financing

On October 6, 2023, the Borrower entered into a Series B Loan and Security Agreement (the “Series B Agreement”) with an individual as lender. Under the terms of the Series B Agreement, the lender will make available to Borrower, in an amount not to exceed its respective Commitment, a Loan Advance amount to be determined by the lender (as such amount may be increased, the “Aggregate Commitment”) in the aggregate, of which (x) a certain amount will be deposited into an account of the Borrower in accordance with its written instructions (the “Initial Loan Advance”) and (y) the remaining balance of the Aggregate Commitment after deducting the Initial Loan Advance shall be deposited into the Escrow Account (the “Escrow Funds”). The Borrower may, at any time, request a Subsequent Draw for all or a portion of the Escrow Funds.

The Borrower issued a Promissory Note to the lender in the amount of the lender’s Initial Loan Advance. The principal balance of the Initial Loan Advance and each Subsequent Draw shall bear interest thereon from the Closing Date and applicable Advance Date, respectively, at 15.00% per annum. The Borrower shall pay the lender, according to its Applicable Percentage, an Unused Commitment Fee on the actual daily amount of the Unused Commitment Amount during the immediately preceding calendar quarter at the rate of five percent (5.00%) per annum. In the event any payment is not paid on or within five (5) Business Days of the scheduled payment date, an amount equal to two percent (2.00%) of the past due amount shall be payable on demand, in addition to interest accruing. In addition, upon the occurrence and during the continuation of an Event of Default hereunder, the Initial Loan Advance and all Subsequent Draws, including principal, interest, compounded interest, and professional fees thereupon, shall upon the election of the lender, bear interest at the Interest Rate, plus five (5) percentage points. In the event any interest is not paid when due hereunder, delinquent interest shall be added to principal and shall bear interest on interest, compounded.

As security for the prompt and complete payment when due (whether on the payment dates or otherwise) of all the Secured Obligations, Borrower granted to the lender a security interest in all of Borrower’s right, title, and interest in and to all Inventory or Equipment and machinery, in each case, purchased (or refinanced) with the proceeds of the Initial Loan Advance and any Subsequent Draw, and, to the extent not otherwise included, all Proceeds of each of the foregoing and all products, additions, increases and accessions to, substitutions and replacements for, and rents, profits and products of each of the foregoing.

From October 12, 2023, through February 26, 2024, the Borrower entered into Lender Joinder Agreements (the “Joinder Agreement”) with several individuals and entities as subsequent lenders. Under the terms of the Joinder Agreement, the subsequent lenders agreed to become a lender and be bound by the terms of the Series B Agreement as a lender pursuant to the Series B Agreement.

As of the date of this filing, $175,000 has been committed by the lender and subsequent lenders.

Series C Financing

On October 19, 2023, the Borrower entered into a Series C Loan and Security Agreement (the “Series C Agreement”) with an individual as lender. Under the terms of the Series C Agreement, the lender will make available to Borrower, in an amount not to exceed its Commitment, a Loan Advance amount to be determined by the lender (as such amount may be increased, the “Aggregate Commitment”) in the aggregate, of which (x) a certain amount will be deposited into an account of the Borrower in accordance with its written instructions (the “Initial Loan Advance”) and (y) the remaining balance of the Aggregate Commitment after deducting the Initial Loan Advance shall be deposited into the Escrow Account (the “Escrow Funds”). The Borrower may, at any time, request a Subsequent Draw for all or a portion of the Escrow Funds.

The Borrower issued a Promissory Note to the lender in the amount of the lender’s Initial Loan Advance. The principal balance of the Initial Loan Advance and each Subsequent Draw shall bear interest thereon from the Closing Date and applicable Advance Date, respectively, at 18.00% per annum. The Borrower shall pay the Lender, according to its Applicable Percentage, an Unused Commitment Fee on the actual daily amount of the Unused Commitment Amount during the immediately preceding calendar quarter at the rate of five percent (5.00%) per annum. In the event any payment is not paid on or within five (5) Business Days of the scheduled payment date, an amount equal to two percent (2.00%) of the past due amount shall be payable on demand, in addition to interest accruing. In addition, upon the occurrence and during the continuation of an Event of Default hereunder, the Initial Loan Advance and all Subsequent Draws, including principal, interest, compounded interest, and professional fees thereupon, shall upon the election of the lender, bear interest at the Interest Rate, plus five (5) percentage points. In the event any interest is not paid when due hereunder, delinquent interest shall be added to principal and shall bear interest on interest, compounded.

As security for the prompt and complete payment when due (whether on the payment dates or otherwise) of all the Secured Obligations, Borrower granted to the lender a security interest in all of Borrower’s right, title, and interest in and to all Inventory or Equipment and machinery, in each case, purchased (or refinanced) with the proceeds of the Initial Loan Advance and any Subsequent Draw, and, to the extent not otherwise included, all Proceeds of each of the foregoing and all products, additions, increases and accessions to, substitutions and replacements for, and rents, profits and products of each of the foregoing.

As of the date of this filing, $7,225,000 has been committed by the lender.

Series D Financing

On March 15, 2024, the Borrower entered into the Series D Loan and Security Agreement (the “Series D Agreement”), with the lenders party thereto from to time for an amount of up to $5,000,000.

In connection with the Series D Agreement, on March 15, 2024, Forever 8 also entered into a Subordination Agreement (the “Subordination Agreement”) with each of the lenders, the several individuals, financial institutions or entities from time to time party thereto (collectively, the “Senior Lenders”) and the collateral agent for the Senior Lenders. Forever 8 additionally entered into an Intercreditor Agreement (the “Intercreditor Agreement”) with the lenders party thereto and the collateral agent for such lenders. As of the date of this filing, a total of $0 has been committed by the lender.

May 2023 Debt Exchange

On May 30, 2023, the Borrower entered into a Debt Exchange Agreement (the “Debt Agreement”) with two Lenders for funds advanced to the Borrower pursuant to secured promissory notes (the “Old Notes”), executed by the Borrower in favor of the Lenders during 2021. Under the terms of the Debt Agreement, the Old Notes were exchanged for new Notes (“New Notes”) as per the terms of the Loan and Security Agreement dated May 30, 2023. The principal of the New Notes issued under the Debt Agreement is $1,650,000.

March 2023 Offering

On March 15, 2023, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with Hudson Bay Master Fund Ltd. (“Hudson Bay”) for the issuance and sale of a Senior Secured Convertible Note with an initial principal amount of $5,555,000 (the “Hudson Note”) at a conversion price of $6.245 per share of the Company’s common stock, and a warrant (the “Hudson Warrant”) to purchase up to 889,512 shares of Common Stock with an initial exercise price of $6.245 per share of Common Stock (the “Private Placement”). The purchase price of the Hudson Note and the Hudson Warrant is $5 million.

The entire outstanding principal balance on the Hudson Note and any outstanding fees or interest was due and payable in full on January 15, 2024 (“Maturity Date”). The Hudson Note did not bear interest, provided, however, that the Hudson Note would bear interest at 18% per annum upon the occurrence of an event of default. The Hudson Note was paid in full on February 26, 2024. Additionally, the Company redeemed all of the Hudson Warrants for $660,000 on October 23, 2023. Palladium Capital Group, LLC acted as placement agent for the Private Placement. For the acting as placement agent in the Private Placement, the Placement Agent received (i) cash compensation of $400,000 (8% of the gross proceeds to the Company) and (ii) a warrant to purchase up to 71,161 shares of Common Stock (8% of the shares of Common Stock underlying the Hudson Note).

The Company repaid the full amount under the Hudson Note and redeemed the Hudson Warrant in 2024. See “Note 16 – Convertible Note Payable” in the accompanying financial statements for further information.

Critical Accounting Policies and Significant Judgments and Estimates

There have been no changes to our critical accounting policies during the nine months ended September 30, 2023. Critical accounting policies and the significant accounting estimates made in accordance with such policies are regularly discussed with the Audit Committee of the Company’s board of directors. Those policies are discussed under “Critical Accounting Policies” in our “Management’s Discussion and Analysis of the Financial Condition and Results of Operations” included in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022, as well as in our consolidated financial statements and the footnotes thereto, included in the Annual Report on Form 10-K.

Key Components of our Results of Operations

Revenues

We generate the majority of our revenues from inventory financing through our wholly owned subsidiary, Forever 8. In addition, we will generate revenues from the sale of corrugated custom packaging to a wide array of customers.

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.

Restructuring and Severance Expenses

Restructuring and severance expenses consist of costs associated with organizational changes, including employee severance payments, benefits continuation, contract terminations, asset impairments, and other expenses related to restructuring initiatives.

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.

Gain on Forgiveness of Earnout

Gain on forgiveness of earnout includes the gain recognized related to the forfeiture of the earnout rights by the Sellers of Forever 8.

Other Income

Other income includes the interest income received the Wattum Note.

Results of Operations

Three Months Ended March 31, 2025 versus Three Months Ended March 31, 2024

Continuing Operations

The following table sets forth information comparing the components of net (loss) income from continuing operations for the three months ended March 31, 2025 and 2024:

Revenue

For the three months ended March 31, 2025, revenues increased by $1,955,290 or 24.57%, as compared to the three months ended March 31, 2024. The increase was attributable to the increased sale of goods from revenue derived from the inventory management solutions business due to the Company’s additional access to capital versus the reduction in capital in 2024 due to the repayment of its outstanding convertible notes payable.

Cost of Revenues

For the three months ended March 31, 2025, cost of revenues increased by $2,531,041 or 38.53%, as compared to the three months ended March 31, 2024. The increase was largely attributable to the increase in total revenues for our inventory management solutions business as well as the mix of products sold being lower margin.

Gross Profit

For the three months ended March 31, 2025, gross profit decreased by $575,751 or 41.45%, as compared to the three months ended March 31, 2024. The decrease was largely attributable to lower margin product sales in the inventory management solutions business.

Operating Expenses

Selling, general and administrative expenses were $2,229,425 and $3,127,943 for the three months ended March 31, 2025 and 2024, respectively, representing a decrease of $898,518, or 28.73%. The decrease was largely attributable to the decrease in professional fees, payroll costs, insurance expense, and rent expense.

Restructuring and severance were $0 and $1,414,838 for the three months ended March 31, 2025 and 2024, respectively, representing a decrease of $1,414,838, or 100.00%. The decrease was largely attributable to the completion of the restructuring plan.

Interest Expense

Interest expense was $1,288,803, for the three months ended March 31, 2025, versus $1,198,771 for the three months ended March 31, 2024. The increase in interest expense was largely attributable to the additional borrowings under the lines of credit.

Gain on forgiveness of earnout

Gain on forgiveness of earnout was $0 for the three months ended March 31, 2025 versus $6,100,000 for the three months ended March 31, 2024. The full amount of the earnout rights were forgiven in 2024.

Income tax expense

Income tax (benefit) expense was $(28,793) and $0 for the three months ended March 31, 2025 and 2024, respectively. The benefit relates to foreign income tax credits earned.

Net income (loss)

Net income (loss) was $(2,654,279) for the three months ended March 31, 2025, versus $1,774,135 for the three months ended March 31, 2024. The decrease in net income was largely attributable the Company’s prior recognition of the gain on forgiveness of earnout.

Discontinued Operations

On November 22, 2024, the Company entered into an Asset Purchase Agreement to sell substantially all of the assets of Ferguson Containers, Inc., the Company’s Corrugated Packaging Business. As a result of this agreement, Ferguson Containers has been classified as a discontinued operation for all periods presented in the consolidated financial statements.

Revenue and operating results from Ferguson Containers are excluded from continuing operations and presented as a single line item in the consolidated statements of operations. Ferguson Containers generated revenues of $6.8 million and $7.7 million and operating income of $0.4 million and $0.7 million for the years ended December 31, 2024 and 2023, respectively.

The Company closed on the transaction on April 7, 2025.

The following table sets forth information comparing the components of net (loss) income from discontinued operations for the three months ended March 31, 2025 and 2024:

Revenue

For the three months ended March 31, 2025, revenues totaled $1,773,929, an increase of $112,806, or 6.79%, compared to $1,661,123 for the three months ended March 31, 2024. The increase was primarily due to higher order volume from customers.

Cost of Revenues

Cost of revenues was $1,276,685 for the three months ended March 31, 2025, compared to $1,164,371 for the same period in 2024, representing an increase of $112,314, or 9.65%. The increase was primarily driven by a shift in product mix toward lower-margin corrugated materials.

Gross Profit

Gross profit was relatively flat at $497,244 for the three months ended March 31, 2025, compared to $496,752 in the prior-year period, reflecting a nominal increase of $492, or 0.10%. The stability in gross profit reflects the offsetting impact of higher revenues and increased cost of revenues tied to lower-margin product sales.

Operating Expenses

Selling, general and administrative expenses were $393,013 for the three months ended March 31, 2025, compared to $334,016 for the three months ended March 31, 2024, representing an increase of $58,997, or 17.66%. The increase was primarily due to higher payroll-related costs and a $23,013 bad debt charge recorded during the current period. There were no restructuring or severance expenses in either period.

Net income

Net income was $105,553 for the three months ended March 31, 2025, compared to $166,828 for the same period in 2024, a decrease of $61,275, or 36.73%. The decline was primarily driven by increased operating expenses.

Liquidity and Capital Resources

As reflected in the accompany financial statements for the three months ended March 31, 2025, the Company had net loss of $2.5 million and as of March 31, 2025, had stockholders’ equity of $9.3 million and approximately $0.4 million in cash and cash equivalents as compared to $0.2 million at December 31, 2024. The Company expects that its current cash and cash equivalents are not sufficient to support its projected operating requirements for at least the next 12 months from this date. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern within one year of the date that the financial statements are issued.

The Company expects to need additional capital in order to maintain revenues at current levels. Any additional equity financing, if available, may not be on favorable terms and would likely be significantly dilutive to the Company’s current stockholders, and debt financing, if available, may involve restrictive covenants. The Company’s ability to access capital when needed is not assured and, if not achieved on a timely basis, will likely have a materially adverse effect on our business, financial condition and results of operations.

Cash Flows

Since inception, Eightco 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:

Cash Flows for the Three Months Ended March 31, 2025 and 2024

Operating Activities

Net cash provided by operating activities was 999,824 during the three months ended March 31, 2025, which consisted primarily of a net loss of $2,548,725, offset by depreciation and amortization of $612,664, amortization of debt issuance costs of $250,000 and changes in assets and liabilities of $2,685,885.

Net cash used in operating activities was $723,376 during the three months ended March 31, 2025, which consisted primarily of net income of $4,947,859, depreciation and amortization of $605,796, amortization of debt issuance costs of $587,750 and changes in assets and liabilities of ($798,719) offset largely by a gain on forgiveness of earnout of $6,100,000.

Investing Activities

Net cash provided by investing activities was $44,647 during the three months ended March 31, 2025 compared to $0 for the three months ended March 31, 2024. The increase in net cash provided by investing activities is largely attributable to purchases of long-lived assets.

Financing Activities

Net cash used in financing activities was $759,937 during the three months ended March 31, 2025 compared to $($3,715,767) for the three months ended March 31, 2024. This decrease was largely attributable to less repayments of debt instruments most notably the convertible notes payable in the amount of $4,915,000 paid in 2024.

The Company did not have any off-balance sheet arrangements as of March 31, 2025.

Known Trends, Events, Uncertainties and Factors That May Affect Future Operations

The impact of general economic conditions, actual and projected, including inflation, rising interest rates, lower consumer confidence, volatile capital markets, supply chain disruptions, uncertainty and volatility in the financial services sector and the impact of the Hamas-Israel and Russia-Ukraine conflicts, and government and business responses thereto, on the global economy and regional economies.

Contractual Obligations and Commitments

The Company has no debt covenants that require certain financial information to be met.

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.

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, 2024, 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 March 31, 2025. 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 2025.

Changes in Internal Control over Financial Reporting

During the three months ended March 31, 2025, there were no changes in our internal control over financial reporting that materially affected our internal control over financial reporting as of March 31, 2025.

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 Company’s annual report on Form 10-K filed with the SEC on April 15, 2025. There have been no material changes to these risks during the three months ended March 31, 2025.