8-K: Everything Blockchain Sells Key Assets to DataRock Technologies in $3.3 Million Deal

Everything Blockchain Inc. has agreed to sell its EBControl and BuildDB software solutions to DataRock Technologies for $3.3 million, including debt assumption and royalty payments.

Summary

• Everything Blockchain Inc. has entered into an agreement to sell its EBControl and BuildDB software solutions to DataRock Technologies for a total consideration of $3.3 million.
• The deal includes the forgiveness of a $1,302,956 senior secured promissory note, the assumption of $1,148,802 in vendor debt, a $250,000 prepaid royalty, the assumption of $654,935 in accrued payroll, benefits, and bonuses, and a 2.5% royalty on future sales of the assets.
• As a result of this transaction, Everything Blockchain expects to record a $20 million impairment of its goodwill and intangible assets related to the sold software solutions.
• The company is working with its auditors to reflect this impairment in the next Form 10Q filing.

Sentiment

Score: 3

Explanation: The sentiment is negative due to the significant asset impairment and the sale of key software assets, despite the reduction in debt and liabilities. The company's financial health appears to be weak.

Positives

• The sale allows Everything Blockchain to eliminate $1,302,956 in debt through the forgiveness of a senior secured promissory note.
• The company will reduce its vendor debt by $1,148,802.
• The deal includes the assumption of $654,935 in accrued payroll, benefits, and bonuses, reducing immediate liabilities.
• The company will receive a 2.5% royalty on future sales of the assets, providing a potential future revenue stream.

Negatives

• The company will record a significant $20 million impairment of goodwill and intangible assets.
• The sale of key software assets may impact the company's future revenue potential.
• The company has defaulted on a $1,302,956 senior secured promissory note.

Risks

• The $20 million impairment will negatively impact the company's financial statements.
• The company's future revenue may be affected by the sale of its EBControl and BuildDB software solutions.
• The company is reliant on a 2.5% royalty from future sales of the assets, which may not materialize as expected.
• The company has a history of defaulting on debt obligations.

Future Outlook

The company will receive a 2.5% royalty on future sales of the assets, providing a potential future revenue stream. The company will need to address the $20 million impairment in its next Form 10Q filing.

Management Comments

• The company is currently working with its auditors to address the impairment which will be reflected on the financials in the next Form 10Q.

Industry Context

This asset sale reflects a strategic move by Everything Blockchain to divest certain assets, potentially to focus on other areas or to address financial challenges. It is not uncommon for companies to sell assets to raise capital or streamline operations, especially in the technology sector.

Comparison to Industry Standards

• The sale of software assets for a combination of debt forgiveness, debt assumption, and royalty payments is a relatively common practice in the tech industry, particularly for companies facing financial difficulties.
• The $20 million impairment is significant and suggests that the assets were overvalued on the company's books, which is not uncommon for early-stage technology companies.
• Comparable companies that have sold assets in similar situations include those in the software and technology sectors that have faced financial constraints or strategic shifts, such as smaller SaaS companies selling off non-core assets to larger players.
• The royalty agreement is a common way for sellers to maintain some upside potential from the sold assets, similar to deals seen in the pharmaceutical and technology industries where intellectual property is licensed or sold with ongoing royalty payments.

Related Party Transactions

• The principle of DataRock, Craig T. Stevens, is a former member of the company's Board of Directors and was a holder of a senior secured promissory note with the company.

Stakeholder Impact

• Shareholders will likely be negatively impacted by the $20 million impairment.
• Employees may be affected by the sale of the software assets.
• Creditors will see a reduction in the company's debt through the assumption of liabilities by DataRock.

Next Steps

• The company will need to reflect the $20 million impairment in its next Form 10Q filing.
• The company will need to manage the ongoing royalty agreement with DataRock Technologies.

Key Dates

Keywords

Asset Sale, Software Solutions, Debt Assumption, Royalty Agreement, Impairment, EBControl, BuildDB, DataRock Technologies, Intellectual Property