CRYPTYDE,
INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
See
the accompanying notes to the condensed consolidated financial statements.
CRYPTYDE,
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
For
the three and six months ended June 30, 2022 and 2021 (Unaudited)
See
the accompanying notes to the condensed consolidated financial statements.
CRYPTYDE,
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For
the six months ended June 30, 2022 and 2021:
See
the accompanying notes to the condensed consolidated financial statements.
CRYPTYDE,
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For
the six months ended June 30, 2022 and 2021 (Unaudited)
See
the accompanying notes to the condensed consolidated financial statements.
CRYPTYDE,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
the six months ended June 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 sells mining equipment in the blockchain industry. Prior to the Separation (as defined below), the
Company was 100%
owned by Vinco Ventures, Inc. (“Vinco” or “Former Parent”).
As
of June 30, 2022, Cryptyde, Inc. had two wholly-owned subsidiaries: Ferguson Containers, Inc. and BlockHiro, LLC (“BH”).
Ferguson Containers, Inc. owns 100% of Cryptyde Shared Services, LLC. Cryptyde owns 51% of CW Machines, LLC which is consolidated under
the voting interest entity model. Under the voting interest entity model, control is presumed by the holder of a majority voting interest
unless noncontrolling shareholders have substantive participating rights.
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 June 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 six months ended June 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 $46,705 and $0 as of June 30, 2022 and December 31, 2021, respectively. There were two customers
who represented 22% and 13% of total accounts receivable as of June 30, 2022.
CRYPTYDE,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
the six months ended June 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: 3 to 5 years for office
equipment, 5 to 7 years for furniture and fixtures, 6 to 10 years for machinery and equipment, 10 to 15 years for building improvements,
5 years for software, 5 years for molds, 5 to 7 years for vehicles and 40 years for buildings. When fixed assets are retired or otherwise
disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the statements
of operations for the respective period. Minor additions and repairs are expensed in the period incurred. Major additions and repairs
which extend the useful life of existing assets are capitalized and depreciated using the straight-line method over their remaining estimated
useful lives.
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 not record any impairment charges related to long-lived assets during the six
months ended June 30, 2022 and 2021.
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.
CRYPTYDE,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
the six months ended June 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 59% of total revenues for the six months ended June 30, 2022.
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 six months ended June
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.
Earnings
Per Share. The
Company follows ASC 260 when reporting Earnings Per Share resulting in the presentation of basic and diluted earnings per share. Basic
net (loss) income per common share is computed by dividing net (loss) income by the weighted average number of vested common shares outstanding
during the period. Diluted net income per common share is computed by dividing net income by the weighted average number vested of common
shares, plus the net impact of common shares (computed using the treasury stock method), if dilutive, resulting from the exercise of
dilutive securities. In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock
equivalents because their inclusion would be anti-dilutive. As of June 30, 2022 and December 31, 2021, the Company excluded the common
stock equivalents summarized below, which entitle the holders thereof to ultimately acquire shares of common stock, from its calculation
of earnings per share, as their effect would have been anti-dilutive.
SCHEDULE
OF EARNINGS PER SHARE COMMON STOCK EQUIVALENTS ANTI DILUTIVE
| |
2022 | | |
2021 | |
| |
| | |
| |
Warrants for Former Parent warrant holders | |
| 8,720,190 | | |
| - | |
Convertible shares under notes payable | |
| 3,333,333 | | |
| - | |
Warrants for noteholders and placement agent | |
| 3,866,666 | | |
| - | |
Warrants for equity investors and placement agent | |
| 1,740,000 | | |
| - | |
Shares to be issued | |
| 300,000 | | |
| - | |
Total common stock equivalents | |
| 17,960,189 | | |
| - | |
Income
Taxes. The Company accounts for income taxes under the provisions of the FASB ASC Topic 740 “Income Taxes” (“ASC
Topic 740”). The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of items that
have been included or excluded in the condensed consolidated financial statements or tax returns. Deferred tax assets and liabilities
are determined on the basis of the difference between the tax basis of assets and liabilities and their respective financial reporting
amounts (“temporary differences”) at enacted tax rates in effect for the years in which the temporary differences are expected
to reverse. The Company utilizes a recognition threshold and measurement process for financial statement recognition and measurement
of a tax position taken or expected to be taken in a tax return. Management has evaluated and concluded that there were no material uncertain
tax positions requiring recognition in the Company’s condensed consolidated financial statements as of June 30, 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.
CRYPTYDE,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
the six months ended June 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 $98,736
with no cumulative-effect adjustment.
Recent
Accounting Pronouncements. As of June 30, 2022, there were no recently adopted accounting pronouncements that had a material effect
on the Company’s condensed consolidated financial statements.
CRYPTYDE,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
the six months ended June 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 June 30, 2022 and December 31, 2021:
SCHEDULE
OF ACCOUNTS RECEIVABLE
| |
2022 | | |
2021 | |
| |
| | |
| |
Trade accounts receivable | |
$ | 1,138,253 | | |
$ | 867,027 | |
Less: allowance for doubtful accounts | |
| (46,705 | ) | |
| - | |
Total accounts receivable | |
$ | 1,091,548 | | |
$ | 867,027 | |
4.
INVENTORIES
Inventories
consist of the following at June 30, 2022 and December 31, 2021:
SCHEDULE
OF INVENTORIES
| |
2022 | | |
2021 | |
| |
| | |
| |
Raw materials | |
$ | 24,636 | | |
$ | 13,366 | |
Finished goods | |
| 125,453 | | |
| 97,298 | |
Total inventories | |
$ | 150,089 | | |
$ | 110,664 | |
5.
OTHER CURRENT ASSETS
Other
current assets consist of the following at June 30, 2022 and December 31, 2021:
SCHEDULE OF OTHER CURRENT ASSETS
| |
2022 | | |
2021 | |
| |
| | |
| |
Vendor deposits | |
$ | 4,937,655 | | |
$ | 6,999,955 | |
Prepaid software deposit | |
| 242,200 | | |
| - | |
Other | |
| 42,399 | | |
| 81,738 | |
Total other current assets | |
$ | 5,222,254 | | |
$ | 7,081,693 | |
As
of June 30, 2022 and December 31, 2021, the Company had deposits with a vendor, Wattum Management, Inc., of $3,012,655 and $6,999,955,
respectively, related to a contract for the delivery of mining equipment. Wattum Management, Inc. is a partner in CW Machines, LLC.
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 5% per annum and matures on October 12, 2026 with the entire
outstanding principal and accrued interest due at maturity date. The Note is secured by assets of Wattum Management, Inc. At June 30,
2022 and December 21, 2021, the principal amount of the loan held for investment was $4,000,000 and $4,000,000, respectively.
CRYPTYDE,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
the six months ended June 30, 2022 and 2021
(Unaudited)
7.
PROPERTY AND EQUIPMENT, NET
Property
and equipment consist of the following at June 30, 2022 and December 31, 2021:
SCHEDULE OF PROPERTY AND EQUIPMENT
| |
2022 | | |
2021 | |
| |
| | |
| |
Land | |
$ | - | | |
$ | - | |
Building and building improvements | |
| 781,985 | | |
| 781,985 | |
Equipment and machinery | |
| 4,640,416 | | |
| 4,621,878 | |
Furniture and fixtures | |
| 260,426 | | |
| 260,426 | |
Vehicles | |
| 567,927 | | |
| 533,867 | |
Property plant and equipment, gross | |
| 6,250,745 | | |
| 6,198,156 | |
Less: accumulated depreciation | |
| (5,308,769 | ) | |
| (5,190,386 | ) |
Total property and equipment, net | |
$ | 941,985 | | |
$ | 1,007,770 | |
Depreciation
and amortization expense was $118,384 and $65,624 for the six months ended June 30, 2022 and 2021, respectively.
8.
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued
expenses and other current liabilities consist of the following at June 30, 2022 and December 31, 2021:
SCHEDULE OF ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
| |
2022 | | |
2021 | |
| |
| | |
| |
Customer deposits | |
$ | 3,076,764 | | |
$ | 6,999,980 | |
Payroll and related benefits | |
| 161,262 | | |
| - | |
Professional fees | |
| 152,000 | | |
| - | |
Placement agent fees | |
| 1,520,000 | | |
| - | |
Other | |
| 21,674 | | |
| 7,551 | |
Total accrued expenses and other current liabilities | |
$ | 4,931,700 | | |
$ | 7,007,531 | |
9.
DUE TO AND FROM FORMER PARENT
As
of June 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 June 30, 2022 and December 31, 2021, the net amount due to Former Parent was $7,226,700
and $4,198,546,
respectively. The payment due to the Former Parent is currently being negotiated.
CRYPTYDE,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
the six months ended June 30, 2022 and 2021
(Unaudited)
10.
NOTE PAYABLE
Principal
due under the note payable was as follows at June 30, 2022 and December 31, 2021:
SCHEDULE OF LINE OF CREDIT AND NOTE PAYABLE
| |
2022 | | |
2021 | |
| |
| | |
| |
Note payable | |
| - | | |
| 27,644 | |
Less: note payable, current portion | |
| - | | |
| (15,530 | ) |
Note payable, net of current portion | |
$ | - | | |
$ | 12,114 | |
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 June 30, 2022 and December 31, 2021:
SCHEDULE
OF CONVERTIBLE NOTE PAYABLE
| |
2022 | | |
2021 | |
| |
| | |
| |
Note payable | |
| 33,333,333 | | |
| - | |
Less: debt discount | |
| (7,798,881 | ) | |
| - | |
Note payable, net | |
$ | 25,534,452 | | |
$ | - | |
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 is 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, and, 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. Please see Note 15. Subsequent Events for further
information.
The
fair value was estimated using the Black Scholes option pricing models with the following assumptions:
SCHEDULE
OF FAIR VALUE OF OPTION WITH ASSUMPTIONS
| |
Dividend Yield | | |
Expected Volatility | | |
Risk-free Interest Rate | | |
Expected Life | |
Hudson Bay Warrant; May 2022 | |
| 0.00 | % | |
| 140.29 | % | |
| 2.92 | % | |
| 2.5 years | |
Palladium Capital Warrant; May 2022 | |
| 0.00 | % | |
| 140.29 | % | |
| 2.92 | % | |
| 2.5 years | |
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 100% by Cryptyde, Inc. and Ferguson Containers, Inc., respectively. The Company pays corporate federal, state and local taxes on
income allocated to it from BlockHiro, LLC and Cryptyde Shared Services, LLC.
CW
Machines, LLC is a limited liability company for income tax purposes and is owned 51% by Cryptyde, Inc. The Company pays corporate federal,
state and local taxes on income allocated to it from CW Machines, LLC.
Ferguson
Containers is taxed as a corporation and pays corporate federal, state and local taxes on income.
Income
tax benefit for the six months ended June 30, 2022 and 2021 is $172,997
and $11,802,
respectively. The income tax benefit is related to the reversal of accrued taxes. The Company has recorded a full valuation
allowance on net operating losses.
There
are no unrecognized tax benefits and no accruals for uncertain tax positions.
CRYPTYDE,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
the six months ended June 30, 2022 and 2021
(Unaudited)
13.
STOCKHOLDERS’ EQUITY
Common
Stock. Prior to the Separation, Vinco Ventures, Inc. owned 100%
of the issued and outstanding common stock of Cryptyde, Inc. Effective June 29, 2022, the Company separated from its former parent
company, Vinco Ventures, Inc., and the distribution of its common stock was completed. As of June 30, 2022 and December 31, 2021,
the Company had 21,815,166
and 10,000
issued and outstanding shares of common stock, respectively.
On June 29, 2022, Vinco Ventures, Inc. distributed
100% of the shares of our common stock held by Vinco to holders of shares of Vinco common stock, subject to certain conditions.. 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. The total number shares of our common stock issued related to the distribution
was18,805,243.
On May 18, 2022, the Company issued warrants to warrant
holders of the Former Parent to purchase up to 10,220,193 shares of Common Stock with an initial exercise price of $0.001 per share of
Common Stock (the “Replacement Warrants”). The Replacement Warrants have been recorded within stockholders’ equity.
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) 1,500,000
shares of Common Stock, and (ii) a warrant (the “Equity Investor Warrant”) to purchase up to 1,500,000
shares of Common Stock with an exercise price of $8.00
per share of Common Stock (the “Equity Private Placement”). In addition, the Company issued a warrant to the placement
agent to purchase up to 240,000 shares of Common Stock with an initial exercise price of $8.00 per share of Common Stock. The
transaction closed on May 20, 2022. The consideration paid to Cryptyde under the Equity Private Placement was $12,000,000.
The Equity Private Placement contains covenants on the part of Cryptyde, including that Cryptyde will reserve for the purpose of
issuance at least 100% of the maximum number of shares of Common Stock issuable upon conversion of the Equity Investor Warrant. In
addition, under the Equity Private Placement, Cryptyde will grant the Equity Investor certain rights to participate in any
Subsequent Placements for the same duration as the participation right pursuant to the Note Securities Purchase Agreement. Please see Note
15. Subsequent Events for further information.
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 $98,736
using a discount rate of 4.5%.
There are no other material operating leases. The Company has elected not to recognize right-of-use assets and lease liabilities arising
from short-term leases.
Rent
expense for the six months ended June 30, 2022 and 2021 was $63,700 and $53,400, respectively. Rental payments are expensed in the statements
of comprehensive income in the period to which they relate.
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 300,000
shares of common stock of Cryptyde, Inc. (“Cryptyde Shares”). The Company recorded $609,000 of share-based compensation related to the Cryptyde Shares.
Milestone
1: In the event that the Company generates a minimum of $5,500,000 in annualized booked revenues from the operation of the Musician &
Artist Platform (“Attributed Revenue”) ending eight (8) months following the Effective Date (“Tranche 1 Milestone Date”),
the Emmersive Parties shall receive 100,000 restricted Cryptyde Shares (“Tranche One”) within thirty (30) after the Tranche
1 Milestone Date. In the event that the Company does not satisfy this milestone for any reason by the Tranche 1 Milestone Date, the Emmersive
Parties shall have no rights to the additional Cryptyde Shares.
Milestone
2: After the Effective Date, in the event the Company generates a minimum of $26,500,000 in annualized Attributed Revenues in any three-calendar
month period ending on or before September 30, 2023, from the Musician & Artist Platform, the Emmersive Parties shall receive an
additional 100,000 restricted Cryptyde Shares (“Tranche Two”). In the event Milestone Two is achieved, then Milestone One
shall also be deemed to have been achieved. In the event that the Company does not satisfy Milestone Two for any reason by September
30, 2023, the Emmersive Parties shall have no rights to Tranche Two.
Milestone
3: After the Effective Date in the event that Buyer generates a minimum of $60,000,000 in annualized Attributed Revenues in any three-calendar-month
period ending on or before September 30, 2024, from the Musician & Artist Platform, the Emmersive Parties shall receive an additional
100,000 restricted Cryptyde Shares (“Tranche Three”). In the event Milestone Three is achieved, then Milestones One and Two
shall also be deemed to have been achieved. In the event that the Company does not satisfy Milestone Three for any reason by September
30, 2024, time being of the essence, the Emmersive Parties shall have no rights to Tranche Three. In the event that the Company satisfies
Milestone Three in the time prescribed they shall have the right to receive an additional 100,000 restricted shares of Cryptyde Shares
(“Bonus Tranche”). In the event that the Company does not satisfy Milestone Three for any reason, the Emmersive Parties shall
have no rights to the Bonus Tranche.
None of the above milestones were met as of June 30, 2022.
CRYPTYDE,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
the six months ended June 30, 2022 and 2021
(Unaudited)
15.
SUBSEQUENT EVENTS
On July 28, 2022,
Cryptyde, Inc. (the “Company”) entered into an Amendment Agreement (the “2022 Amendment Agreement”) with
Hudson Bay Master Fund, Ltd. (the “Investor”) to amend that certain Securities Purchase Agreement (as amended, the
“SPA”) dated as of January 26, 2022, by and between the Company and the Investor, that certain Senior Secured
Convertible Note in an aggregate principal amount of $33,333,333
(as amended, the “Note”) issued pursuant to the SPA, and that certain Registration Rights Agreement dated as of January
26, 2022, by and between the Company and the Investor (the “RRA”).
Pursuant
to the 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 SPA (the “Restricted Funds Account”) and, going forward, must deposit 50%
of any Warrant Exercise Cash (as defined in the 2022 Amendment Agreement) into the Restricted Funds Account. As required by the 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 2022 Amendment Agreement, the conversion price of the balance of the Note that remains was voluntarily adjusted
to $1.06 (the “Adjustment”). The 2022 Amendment Agreement also amended the RRA 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 SPA, 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 SPA has
been adjusted in accordance with Section 3(c) of the warrant. The Company addressed this requirement by filing a registration statement
on Form S-1 dated August 12, 2022 (the “August S-1”) with the Securities and Exchange Commission. Under the August S-1, the
Company registered 15,050,315 shares 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.
In connection with the Adjustment, under the terms
of the Equity Investor Warrants, warrants (the “Palladium January 2022 Purchase Agreement Warrants”) exercisable into 533,333
shares of our common stock issued to Palladium Capital Group, LLC (“Palladium”), warrants exercisable into 240,000 shares
of our common stock issued to Palladium (together with the Palladium January 2022 Purchase Agreement Warrants, the “Palladium Warrants”)
and certain warrants issued to the Investor to purchase up to 3,333,333 shares of our common stock (the “January 2022 Warrants”),
the exercise price of the Equity Investor Warrants, the Palladium Warrants and the January 2022 Warrants have been reduced to match the
conversion price of $1.06 applicable to the Note.
The 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 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 2022 Amendment Agreement.
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 Bitcoin Mining Services 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 Bitcoin Mining Services Business. The Packaging Business includes
Ferguson Containers and has been operating for over 50 years. The Bitcoin Mining Services 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.
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. TYDE intends
to finalize a digital coin minting platform in 2022. TYDE believes its digital coin minting platform will enable TYDE to, together with
partners and clients, quickly and efficiently create digital coins for use with projects in established consumer facing industries.
Bitcoin
Mining Services Business – CW Machines, LLC
CW
Machines, LLC, a Nevada limited liability company formed on October 2, 2021, was formed to hold the Bitcoin Mining Services Business.
The Bitcoin Mining Services 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 and co-location services.
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”), 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”). The
entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the third anniversary of the
date the note was issued, May 5, 2022 (the “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 on
the transactions contemplated by the Note Securities Purchase Agreement on May 5, 2022. At the closing, Cryptyde issued to the Note
Investor the Warrant to purchase up to 3,333,333 shares of Cryptyde Common Stock with an exercise price of $10.00 per share. In
connection with the Note Private Placement, Cryptyde also entered into a Registration Rights Agreement (the “Registration
Rights Agreement”) with the Note Investor, and on May 5, 2022, 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.
Please see Note 15. Subsequent Events for further information.
On
January 26, 2022, the Company, entered into a Securities Purchase Agreement (the “Equity Private Placement”) with an accredited
investor (the “Equity Investor”) for the issuance of (i) 1,500,000 shares of Common Stock, and (ii) a warrant (the “Equity
Investor Warrant”) to purchase up to 1,500,000 shares of Common Stock with an exercise price of $8.00 per share of Common Stock
(the “Equity Private Placement”). The consideration paid to Cryptyde under the Equity Private Placement was $12,000,000.
Cryptyde and the Equity Investor closed on the transactions contemplated by the Equity Private Placement on May 20, 2022. At the closing,
Cryptyde issued to the Equity Investor 1,500,000 shares of Cryptyde Common Stock and a warrant to purchase up to 1,500,000 shares of
Cryptyde Common Stock with an exercise price of $8.00 per share. The Equity Private Placement contains covenants on the part of Cryptyde,
including that Cryptyde will reserve for the purpose of issuance at least 100% of the maximum number of shares of Common Stock issuable
upon conversion of the Equity Investor Warrant. In addition, under the Equity Private Placement, Cryptyde granted the Equity Investor
certain rights to participate in any Subsequent Placements for the same duration as the participation right pursuant to the Note Securities
Purchase Agreement. Please see Note 15. Subsequent Events for further information.
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.
Copies
of each of the Note Securities Purchase Agreement, Registration Rights Agreement, form of Pledge Agreement, Equity Securities
Purchase Agreement, form of Equity Investor Warrant, Hudson Bay Master Fund Ltd. Warrants dated May 18, 2022, Palladium Capital
Group, LLC Warrants dated May 18, 2022, CVI Investments, Inc. Warrants dated May 18, 2022, Armistice Capital Master Fund Ltd
Warrants dated May 18, 2022, BHP Capital NY, Inc. Warrants dated May 20, 2022 and the 2022 Amendment Agreement are attached to as
Exhibits 10.10, 10.11, 10.14, 10.15, 10.16, 10.18, 10.19, 10.20, 10.21, 10.22 and 10.23, respectively.
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.
Other
Income
Other
income includes the gain on disposal of the building located in Washington, New Jersey.
Results
of Operations
Three
Months Ended June 30, 2022 versus Three Months Ended June 30, 2021
The
following table sets forth information comparing the components of net (loss) income for the three months ended June 30, 2022 and 2021:
| |
Three Months Ended June 30, | | |
Period over Period
Change | |
| |
2022 | | |
2021 | | |
$ | | |
% | |
| |
| | |
| | |
| | |
| |
Revenues, net | |
$ | 7,345,959 | | |
$ | 2,006,694 | | |
$ | 5,339,265 | | |
| 266.07 | % |
Cost of revenues | |
| 6,546,875 | | |
| 1,404,289 | | |
| 5,142,586 | | |
| 366.21 | % |
Gross profit | |
| 799,084 | | |
| 602,405 | | |
| 196,679 | | |
| 32.65 | % |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
Selling, general and administrative | |
| 4,292,308 | | |
| 646,419 | | |
| 3,645,889 | | |
| 564.01 | % |
Operating (loss) | |
| (3,493,224 | ) | |
| (44,014 | ) | |
| (3,449,210 | ) | |
| 7,836.62 | % |
| |
| | | |
| | | |
| | | |
| | |
Other (expense) income: | |
| | | |
| | | |
| | | |
| | |
Rental income | |
| - | | |
| 28,703 | | |
| (28,703 | ) | |
| -100.00 | % |
Interest income | |
| 454 | | |
| 13,674 | | |
| (13,220 | ) | |
| -96.68 | % |
Other income | |
| 53,013 | | |
| - | | |
| 53,013 | | |
| 100.00 | % |
Total other income, net | |
| 53,467 | | |
| 42,377 | | |
| 11,090 | | |
| 26.17 | % |
Loss before income taxes | |
| (3,439,757 | ) | |
| (1,637 | ) | |
| (3,438,120 | ) | |
| 210,025.65 | % |
Income tax expense (benefit) | |
| 17,000 | | |
| (460 | ) | |
| 17,460 | | |
| -3,795.65 | % |
Net loss | |
| (3,456,757 | ) | |
| (1,177 | ) | |
| (3,455,580 | ) | |
| 293,592.18 | % |
Revenue
For
the three months ended June 30, 2022, revenues increased by $5,339,265 or 266.07%, as compared to the three months ended June 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.
Cost
of Revenues
For
the three months ended June 30, 2022, cost of revenues increased by $5,142,586 or 366.21%, as compared to the three months ended June
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 three months ended June 30, 2022, gross profit increased by $196,679, or 32.65%, as compared to the three months ended June 30, 2021.
The increase was primarily a result of the increase in revenues offset by the increased costs of materials and production.
Operating
Expenses
Selling,
general and administrative expenses were $4,292,308 and $646,419 for the three months ended June 30, 2022 and 2021, respectively, representing
an increase of $3,645,889, or 469.80%. The increase was primarily the result of an increase in payroll costs and operating costs as a
standalone public company and stock-based compensation of $609,000.
Rental
Income
Rental
income was $0 and $28,703 for the three months ended June 30, 2022 and 2021, respectively, representing a decrease of $28,703. 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
income
Interest
income was $454 for the three months ended June 30, 2022, versus $13,674 for the three months ended June 30, 2021. The decrease in
interest income was related to repayment of outstanding lines of credit as well as the outstanding notes payable.
Total other income
Total other
income was $53,467 for the three months ended June 30, 2022 versus $42,377 for the three months ended June 30, 2021. The increase was related
to the interest earned on the note receivable with Wattum Management.
Income
tax expense
Income
tax expense was $17,000 for the three months ended June 30, 2022, versus a income tax benefit of $460 for the three months ended June
30, 2021, respectively. The increase was a result of state taxes related to Ferguson Containers, Inc.
Net
loss
Net
loss was $2,892,836 and $1,177 for the three months ended June 30, 2022 and 2021, respectively. The increase in net loss was a result
of the increase in selling, general and administrative expenses.
Six
Months Ended June 30, 2022 versus Six Months Ended June 30, 2021
The
following table sets forth information comparing the components of net (loss) income for the six months ended June 30, 2022 and 2021:
| |
Six Months Ended June 30, | | |
Period over Period
Change | |
| |
2022 | | |
2021 | | |
$ | | |
% | |
| |
| | |
| | |
| | |
| |
Revenues, net | |
$ | 11,065,606 | | |
$ | 3,764,346 | | |
$ | 7,301,280 | | |
| 193.96 | % |
Cost of revenues | |
| 9,721,258 | | |
| 2,687,447 | | |
| 7,033,811 | | |
| 261.73 | % |
Gross profit | |
| 1,344,348 | | |
| 1,076,899 | | |
| 267,449 | | |
| 24,84 | % |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
Selling, general and administrative | |
| 6,214,103 | | |
| 1,140,474 | | |
| 5,073,629 | | |
| 444.87 | % |
Operating (loss) | |
| (4,869,755 | ) | |
| (63,575 | ) | |
| (4,806,180 | ) | |
| 7,559.86 | % |
| |
| | | |
| | | |
| | | |
| | |
Other (expense) income: | |
| | | |
| | | |
| | | |
| | |
Rental income | |
| - | | |
| 54,407 | | |
| (54,407 | ) | |
| -100.00 | % |
Interest income (expense) | |
| 325 | | |
| (32,818 | ) | |
| 33,143 | | |
| -100.99 | % |
Other income | |
| 102,532 | | |
| - | | |
| 102,532 | | |
| 100.00 | % |
Total other income, net | |
| 102,857 | | |
| 21,589 | | |
| 81,268 | | |
| 376.43 | % |
Loss before income taxes | |
| (4,766,898 | ) | |
| (41,986 | ) | |
| (4,808,884 | ) | |
| 11,453.54 | % |
Income tax expense (benefit) | |
| (172,997 | ) | |
| (11,802 | ) | |
| (161,195 | ) | |
| 1,365.83 | % |
Net loss | |
| (4,593,901 | ) | |
| (30,184 | ) | |
| (4,563,717 | ) | |
| 15,119.66 | % |
Revenue
For
the six months ended June 30, 2022, revenues increased by $7,301,280, or 193.96%, as compared to the three months ended June 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.
Cost
of Revenues
For
the six months ended June 30, 2022, cost of revenues increased by $7,033,811, or 261.73%, as compared to the six months ended June
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 six months ended June 30, 2022, gross profit increased by $267,449, or 24.84%, as compared to the six months ended June 30, 2021.
The increase was primarily a result of the increase in revenues offset by the increased costs of materials and production.
Operating
Expenses
Selling,
general and administrative expenses were $6,214,103 and $1,140,474 for the six months ended June 30, 2022 and 2021, respectively, representing
an increase of $5,073,629, or 391,47%. The increase was primarily the result of an increase in payroll costs, professional fees and other operating costs as a
standalone public company and stock-based compensation of $609,000.
Rental
Income
Rental
income was $0 and $54,407 for the six months ended June 30, 2022 and 2021, respectively, representing a decrease of $54,407. 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
income was $325 for the six months ended June 30, 2022, versus interest expense of ($32,818) for the six months ended June 30, 2021. The decrease in interest
expense was related to repayment of outstanding lines of credit as well as the outstanding notes payable.
Total other
income
Total other
income was $102,857 for the six months ended June 30, 2022 versus $21,589 for the six months ended June 30, 2021. The increase was related
to the interest earned on the note receivable with Wattum Management.
Income
tax expense
Income
tax benefit was $172,997 for the six months ended June 30, 2022, versus $11,802 for the six months ended June 30, 2021, respectively.
The increase was a result of the increase in loss before income taxes.
Net
loss
Net
loss was $4,029,980 and $30,184 for the six months ended June 30, 2022 and 2021, respectively. The increase in net loss was a result
of the increase in selling, general and administrative expenses.
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 $7 million, the Company has no significant debt obligations.
The
Company currently has approximately $40 million in cash from Vinco, the Equity Private Placement, and the Note Private Placement. 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 Six Months Ended June 30, | |
| |
2022 | | |
2021 | |
Cash (used in) provided by: | |
| | | |
| | |
Operating Activities | |
$ | (5,894,179 | ) | |
$ | (246,647 | ) |
Investing Activities | |
| (52,599 | ) | |
| (33,133 | ) |
Financing Activities | |
| 45,001,510 | | |
| 323,684 | |
Net increase in cash and restricted cash | |
$ | 39,054,732 | | |
$ | 43,904 | |
Cash
Flows for the Six Months Ended June 30, 2022 and 2021
Operating
Activities
Net
cash (used in) operating activities was ($5,894,179) during the six months ended June 30, 2022, which consisted primarily of a net loss of
$4,593,901 offset by non-cash depreciation expense of $118,384 and
changes in assets and liabilities of $2,074,367. Net cash (used in) operating activities was ($246,647) during the six months ended June 30, 2021, which
consisted primarily of a net loss of $30,184 offset by non-cash depreciation expense of $65,624, and inventories of $13,091.
Investing
Activities
Net
cash (used in) investing activities was ($52,599) during the six months ended June 30, 2022 compared to ($33,333) for the six months
ended June 30, 2021. This increase consisted of more cash used for property and equipment purchases during the six months ended June
30, 2022 versus 2021.
Financing
Activities
Net
cash provided by financing activities was $45,001,510 during the six months ended June 30, 2022 compared to $323,684 for
the six months ended June 30, 2021. This increase was largely attributable to proceeds from the issuance of debt of $30,000,000 and
proceeds from the issuance of common stock of $12,001,000.
Cryptyde,
Inc. has required funding from the Former Parent to launch operations. Ferguson Containers has historically been 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 June 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.
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; |
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● |
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. |
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.
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.
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 |
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● |
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; |
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● |
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); |
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● |
during
the two-year period following the Distribution Date, we may not liquidate or merge, consolidate, or amalgamate with any other person; |
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● |
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; |
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● |
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); |
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● |
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 |
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● |
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.