UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2021March 31, 2022
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File No. 001-39500
Creatd, Inc.
(Exact name of registrant as specified in its charter)
Nevada | 87-0645394 | |
(State or other jurisdiction of incorporation) | (I.R.S. Employer Identification No.) |
2050 Center Avenue Suite 640419 Lafayette Street, 6th Floor
New York, NY 10003
Fort Lee, New Jersey 07024
(Address of principal executive offices)
(201) 258-3770
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, par value $0.001 | CRTD | The Nasdaq Stock Market LLC | ||
Common Stock Purchase Warrants | CRTDW | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of a “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes ☐ No ☒
As of August 13, 2021,May 16, 2022, the registrant had 13,848,05720,140,413 shares of its common stock, par value $0.001 per share, outstanding.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2021MARCH 31, 2022
TABLE OF CONTENTS
i
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND
OTHER INFORMATION CONTAINED IN THIS REPORT
This Quarterly Report on Form 10-Q (this “Form 10-Q”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. You can find many (but not all) of these statements by looking for words such as “approximates,” “believes,” “hopes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,” “plans,” “would,” “should,” “could,” “may” or other similar expressions in this Form 10-Q. In particular, these include statements relating to future actions; prospective products, applications, customers and technologies; future performance or results of anticipated products; anticipated expenses; and projected financial results. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:
● | our ability to continue as a going concern; |
● | our operating expenses exceed our revenues and will likely continue to do so for the foreseeable future; |
● | our ability to obtain additional capital, which may be difficult to raise as a result of our limited operating history or any number of other reasons; |
● | our ability to provide digital content that is useful to users; |
● | our ability to retain existing users or add new users; |
● | competition from traditional media companies; |
● | general economic conditions and events and the impact they may have on us and our users; and |
● | other factors discussed in this Form 10-Q. |
We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Form 10-Q, particularly in the “Risk Factors” section, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make or collaborations or strategic partnerships we may enter into.
You should read this Form 10-Q and the documents that we have filed as exhibits to this Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Unless otherwise stated or the context otherwise requires, the terms “Creatd,” “we,” “us,” “our” and the “Company” refer collectively to Creatd, Inc. and its subsidiaries.
ii
PART I –- FINANCIAL INFORMATION
Item 1. Financial Statements.
Creatd, Inc.
March 31, 2022
June 30, 2021
Index to the Condensed Consolidated Financial Statements
Creatd, Inc.
Condensed Consolidated Balance Sheets
June 30, 2021 | December 31, 2020 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Current Assets | ||||||||
Cash | $ | 2,124,656 | $ | 7,906,782 | ||||
Accounts receivable, net | 284,419 | 90,355 | ||||||
Prepaid expenses and other current assets | 888,788 | 23,856 | ||||||
Total Current Assets | 3,297,863 | 8,020,993 | ||||||
Property and equipment, net | 60,412 | 56,258 | ||||||
Intangible assets | 1,493,864 | 960,611 | ||||||
Goodwill | 1,037,992 | 1,035,795 | ||||||
Deposits and other assets | 148,450 | 191,836 | ||||||
Marketable securities | - | 62,733 | ||||||
Minority investment in business | 367,096 | 217,096 | ||||||
Operating lease right of use asset | 199,441 | 239,158 | ||||||
Total Assets | $ | 6,605,118 | $ | 10,784,480 | ||||
Liabilities and Stockholders’ Deficit | ||||||||
Current Liabilities | ||||||||
Accounts payable and accrued liabilities | $ | 2,952,353 | $ | 2,638,688 | ||||
Derivative liabilities | 436,295 | 42,231 | ||||||
Convertible Notes, net of debt discount and issuance costs | 67,048 | 897,516 | ||||||
Current portion of operating lease payable | 95,579 | 79,816 | ||||||
Note payable - related party, net of debt discount | 7,890 | - | ||||||
Note payable, net of debt discount and issuance costs | 1,054,600 | 1,221,539 | ||||||
Deferred revenue | 208,517 | 88,637 | ||||||
Total Current Liabilities | 4,822,282 | 4,968,427 | ||||||
Non-current Liabilities: | ||||||||
Note payable | 34,036 | 213,037 | ||||||
Convertible Notes | 2,099,400 | - | ||||||
Operating lease payable | 102,231 | 157,820 | ||||||
Total Non-current Liabilities | 2,235,667 | 370,857 | ||||||
Total Liabilities | 7,057,949 | 5,339,284 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ Equity | ||||||||
Series E Preferred stock, $0.001 par value, 1,048 and 7,738 shares issued and outstanding, respectively | 1 | 8 | ||||||
Common stock par value $0.001: 100,000,000 shares authorized; 11,857,675 issued and 11,852,018 outstanding as of June 30, 2021 and 8,736,378 issued and 8,727,028 outstanding as of December 31, 2020 | 11,858 | 8,737 | ||||||
Additional paid in capital | 87,131,333 | 77,505,013 | ||||||
Subscription receivable | - | (40,000 | ) | |||||
Less: Treasury stock, 5,657 and 5,657 shares, respectively | (62,406 | ) | (62,406 | ) | ||||
Accumulated deficit | (87,544,953 | ) | (71,928,922 | ) | ||||
Accumulated other comprehensive income | (45,097 | ) | (37,234 | ) | ||||
Total Creatd, Inc. Stockholders’ Equity | (509,264 | ) | 5,445,196 | |||||
Non-controlling interest in consolidated subsidiary | 56,433 | - | ||||||
(452,831 | ) | 5,445,196 | ||||||
Total Liabilities and Stockholders’ Equity | $ | 6,605,118 | $ | 10,784,480 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Creatd, Inc.
Condensed Consolidated Statements of Comprehensive Loss (Unaudited)
For the Three Months Ended | For the Three Months Ended | For the Six Months Ended | For the Six Months Ended | |||||||||||||
June 30, 2021 | June 30, 2020 | June 30, 2021 | June 30, 2020 | |||||||||||||
Net revenue | $ | 970,857 | $ | 322,540 | $ | 1,714,770 | $ | 615,682 | ||||||||
Operating expenses | ||||||||||||||||
Research and development | 56,598 | 35,705 | 385,450 | 171,275 | ||||||||||||
Marketing | 4,194,524 | 422,733 | 6,237,179 | 855,564 | ||||||||||||
Stock based compensation | 1,940,250 | 1,602,649 | 3,510,489 | 1,994,792 | ||||||||||||
General and administrative | 3,160,280 | 1,796,705 | 5,908,444 | 2,955,252 | ||||||||||||
Total operating expenses | 9,351,652 | 3,857,792 | 16,041,562 | 5,976,883 | ||||||||||||
Loss from operations | (8,380,795 | ) | (3,535,252 | ) | (14,326,792 | ) | (5,361,201 | ) | ||||||||
Other income (expenses) | ||||||||||||||||
Other income | - | 14,229 | - | 77,785 | ||||||||||||
Interest expense | (60,760 | ) | (491,206 | ) | (259,431 | ) | (866,736 | ) | ||||||||
Accretion of debt discount and issuance cost | (354,199 | ) | (140,274 | ) | (851,364 | ) | (327,221 | ) | ||||||||
Derivative expense | - | - | (100,502 | ) | - | |||||||||||
Change In derivative liability | (65,442 | ) | - | (262,831 | ) | - | ||||||||||
Impairment of investment | (62,733 | ) | - | (62,733 | ) | - | ||||||||||
Gain (loss) on settlement of vendor liabilities | - | - | 92,909 | (126,087 | ) | |||||||||||
Gain on marketable securities | - | 10,042 | - | 10,042 | ||||||||||||
Gain (loss) on extinguishment of debt | 82,431 | 470 | 286,009 | (534,570 | ) | |||||||||||
Gain on Forgiveness of debt | 279,022 | - | 279,022 | - | ||||||||||||
Other expenses, net | (181,681 | ) | (606,739 | ) | (878,921 | ) | (1,766,787 | ) | ||||||||
Loss before income tax provision | (8,562,476 | ) | (4,141,991 | ) | (15,205,713 | ) | (7,127,988 | ) | ||||||||
Income tax provision | - | - | - | - | ||||||||||||
Net loss | $ | (8,562,476 | ) | $ | (4,141,991 | ) | $ | (15,205,713 | ) | $ | (7,127,988 | ) | ||||
Non-controlling interest in net loss | 432 | - | 432 | - | ||||||||||||
Net Loss attributable to Creatd, Inc. | (8,562,044 | ) | (4,141,991 | ) | (15,205,281 | ) | (7,127,988 | ) | ||||||||
Deemed dividend | (410,750 | ) | - | (410,750 | ) | - | ||||||||||
Net loss attributable to common shareholders | (8,972,794 | ) | (4,141,991 | ) | (15,616,031 | ) | (7,127,988 | ) | ||||||||
Comprehensive loss | ||||||||||||||||
Net loss | (8,562,476 | ) | (4,141,991 | ) | (15,205,713 | ) | (7,127,988 | ) | ||||||||
Currency translation gain (loss) | (552 | ) | (19,291 | ) | (7,863 | ) | (28,530 | ) | ||||||||
Comprehensive loss | $ | (8,563,028 | ) | $ | (4,161,282 | ) | $ | (15,213,576 | ) | $ | (7,156,518 | ) | ||||
Per-share data | ||||||||||||||||
Basic and diluted loss per share | $ | (0.81 | ) | $ | (1.30 | ) | $ | (1.49 | ) | $ | (2.28 | ) | ||||
Weighted average number of common shares outstanding | 11,081,354 | 3,194,321 | 10,465,815 | 3,122,926 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Creatd, Inc.
Condensed Consolidated Statement of Changes in Stockholders’ Equity (Deficit)
For the Three Months Ended June 30, 2021 (Unaudited)
Series E | Additional | Non- | Other | |||||||||||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Treasury stock | Paid In | Accumulated | Controlling | Comprehensive | Stockholders’ | |||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Interest | Income | Equity | ||||||||||||||||||||||||||||||||||
Balance, April 1, 2021 | 1,088 | $ | 1 | 10,925,026 | $ | 10,925 | 5,657 | $ | (62,406 | ) | $ | 80,633,380 | $ | (78,572,159 | ) | $ | - | $ | (44,545 | ) | $ | 1,965,196 | ||||||||||||||||||||||
Stock based compensation | - | - | 89,050 | 89 | - | - | 2,064,575 | - | - | - | 2,064,664 | |||||||||||||||||||||||||||||||||
Conversion of warrants to stock | - | - | 18,259 | 18 | - | - | (18 | ) | - | - | - | - | ||||||||||||||||||||||||||||||||
Stock warrants issued with note payable | - | - | - | - | - | - | 1,601,452 | - | - | - | 1,601,452 | |||||||||||||||||||||||||||||||||
Cash received for common stock | - | - | 750,000 | 750 | - | - | 2,212,750 | - | - | - | 2,213,500 | |||||||||||||||||||||||||||||||||
Shares issued for prepaid services | - | - | 10,000 | 10 | - | - | 34,490 | - | - | - | 34,500 | |||||||||||||||||||||||||||||||||
Common stock issued upon conversion of notes payable | - | - | 55,631 | 56 | - | - | 173,964 | - | - | - | 174,020 | |||||||||||||||||||||||||||||||||
Conversion of preferred series E to stock | (40 | ) | - | 9,709 | 10 | - | - | (10 | ) | - | - | - | - | |||||||||||||||||||||||||||||||
Foreign currency translation adjustments | - | - | - | - | - | - | - | - | - | (552 | ) | (552 | ) | |||||||||||||||||||||||||||||||
Non-controlling interest in consolidated subsidiary from acquisition | - | - | - | - | - | - | - | - | 56,865 | - | 56,865 | |||||||||||||||||||||||||||||||||
Dividends | - | - | - | - | - | - | 410,750 | (410,750 | ) | - | - | - | ||||||||||||||||||||||||||||||||
Net loss for the three months ended June 30, 2021 | - | - | - | - | - | - | - | (8,562,044 | ) | (432 | ) | - | (8,562,476 | ) | ||||||||||||||||||||||||||||||
Balance, June 30, 2021 | 1,048 | $ | 1 | 11,857,675 | $ | 11,858 | 5,657 | $ | (62,406 | ) | $ | 87,131,333 | $ | (87,544,953 | ) | $ | 56,433 | $ | (45,097 | ) | $ | (452,831 | ) |
March 31, 2022 | December 31, 2021 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Current Assets | ||||||||
Cash | $ | 3,229,627 | $ | 3,794,734 | ||||
Accounts receivable, net | 390,605 | 337,440 | ||||||
Inventory | 436,981 | 106,403 | ||||||
Prepaid expenses and other current assets | 274,840 | 236,665 | ||||||
Total Current Assets | 4,332,053 | 4,475,242 | ||||||
Property and equipment, net | 139,479 | 102,939 | ||||||
Intangible assets | 2,520,373 | 2,432,841 | ||||||
Goodwill | 1,383,785 | 1,374,835 | ||||||
Deposits and other assets | 914,700 | 718,951 | ||||||
Minority investment in businesses | 50,000 | 50,000 | ||||||
Operating lease right of use asset | - | 18,451 | ||||||
Total Assets | $ | 9,340,390 | $ | 9,173,259 | ||||
Liabilities and Stockholders’ Deficit | ||||||||
Current Liabilities | ||||||||
Accounts payable and accrued liabilities | $ | 4,832,103 | $ | 3,730,540 | ||||
Convertible Notes, net of debt discount and issuance costs | - | 159,193 | ||||||
Current portion of operating lease payable | - | 18,451 | ||||||
Note payable, net of debt discount and issuance costs | 1,151,087 | 1,278,672 | ||||||
Deferred revenue | 211,676 | 234,159 | ||||||
Total Current Liabilities | 6,194,866 | 5,421,015 | ||||||
Non-current Liabilities: | ||||||||
Note payable | 35,905 | 63,992 | ||||||
Total Non-current Liabilities | 35,905 | 63,992 | ||||||
Total Liabilities | 6,230,771 | 5,485,007 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ Equity | ||||||||
Common stock par value $0.001: 100,000,000 shares authorized; 19,915,090 issued and 19,909,433 outstanding as of March 31, 2021 and 16,691,170 issued and 16,685,513 outstanding as of December 31, 2021 | 19,915 | 16,691 | ||||||
Additional paid in capital | 117,949,487 | 111,563,618 | ||||||
Subscription receivable | - | - | ||||||
Less: Treasury stock, 5,657 and 5,657 shares, respectively | (62,406 | ) | (62,406 | ) | ||||
Accumulated deficit | (115,977,464 | ) | (109,632,574 | ) | ||||
Accumulated other comprehensive income | (83,222 | ) | (78,272 | ) | ||||
Total Creatd, Inc. Stockholders’ Equity | 1,846,310 | 1,807,057 | ||||||
Non-controlling interest in consolidated subsidiaries | 1,263,309 | 1,881,195 | ||||||
3,109,619 | 3,688,252 | |||||||
Total Liabilities and Stockholders’ Equity | $ | 9,340,390 | $ | 9,173,259 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Creatd, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
For the Three Months Ended | For the Three Months Ended | |||||||
March 31, 2022 | March 31, 2021 | |||||||
Net revenue | $ | 1,348,738 | $ | 743,913 | ||||
Cost of revenue | 1,572,170 | 867,150 | ||||||
Gross margin (loss) | (223,432 | ) | (123,237 | ) | ||||
Operating expenses | ||||||||
Research and development | 226,654 | 328,852 | ||||||
Marketing | 2,092,021 | 2,042,655 | ||||||
Stock based compensation | 1,080,792 | 1,570,239 | ||||||
General and administrative | 3,386,385 | 1,881,014 | ||||||
Total operating expenses | 6,785,852 | 5,822,760 | ||||||
Loss from operations | (7,009,284 | ) | (5,945,997 | ) | ||||
Other income (expenses) | ||||||||
Other income | 99 | - | ||||||
Interest expense | (13,896 | ) | (198,671 | ) | ||||
Accretion of debt discount and issuance cost | (23,477 | ) | (497,165 | ) | ||||
Derivative expense | - | (100,502 | ) | |||||
Change in derivative liability | 3,729 | (197,389 | ) | |||||
Settlement of vendor liabilities | 14,525 | 92,909 | ||||||
Gain on extinguishment of debt | 147,256 | 203,578 | ||||||
Other expenses, net | 128,236 | (697,240 | ) | |||||
Loss before income tax provision | (6,881,048 | ) | (6,643,237 | ) | ||||
Income tax provision | - | - | ||||||
Net loss | (6,881,048 | ) | (6,643,237 | ) | ||||
Non-controlling interest in net loss | 617,886 | - | ||||||
Net Loss attributable to Creatd, Inc. | (6,263,162 | ) | (6,643,237 | ) | ||||
Deemed dividend | (81,728 | ) | - | |||||
Net loss attributable to common shareholders | $ | (6,344,890 | ) | $ | (6,643,237 | ) | ||
Comprehensive loss | ||||||||
Net loss | (6,881,048 | ) | (6,643,237 | ) | ||||
Currency translation gain (loss) | (4,950 | ) | (7,311 | ) | ||||
Comprehensive loss | $ | (6,885,998 | ) | $ | (6,650,548 | ) | ||
Per-share data | ||||||||
Basic and diluted loss per share | $ | (0.36 | ) | $ | (0.68 | ) | ||
Weighted average number of common shares outstanding | 17,707,951 | 9,836,443 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Creatd, Inc.
Condensed Consolidated Statement of Changes in Stockholders’ Equity (Deficit)
For the Three Months Ended March 31, 2022
(Unaudited)
Series E Preferred Stock | Common Stock | Treasury stock | Additional Paid In | Accumulated | Non- Controlling | Other Comprehensive | Stockholders’ | |||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Interest | Income | Equity | ||||||||||||||||||||||||||||||||||
Balance, January 1, 2022 | 500 | $ | - | 16,691,170 | $ | 16,691 | (5,657 | ) | $ | (62,406 | ) | $ | 111,563,618 | $ | (109,632,574 | ) | $ | 1,881,195 | $ | (78,272 | ) | $ | 3,688,252 | |||||||||||||||||||||
Stock based compensation | - | - | 18,171 | 18 | - | - | 1,067,591 | - | - | - | 1,067,609 | |||||||||||||||||||||||||||||||||
Shares issued for prepaid services | - | - | 50,000 | 50 | - | - | 68,950 | - | - | - | 69,000 | |||||||||||||||||||||||||||||||||
Cash received for common stock and warrants, net of $115,000 of issuance costs | - | - | 3,046,314 | 3,046 | - | - | 4,994,254 | - | - | - | 4,997,300 | |||||||||||||||||||||||||||||||||
Common stock issued upon conversion of notes payable | - | - | 109,435 | 110 | - | - | 173,346 | - | - | - | 173,456 | |||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | - | - | - | - | - | - | - | - | - | (4,950 | ) | (4,950 | ) | |||||||||||||||||||||||||||||||
Dividends | - | - | - | - | - | - | 81,728 | (81,728 | ) | - | - | - | ||||||||||||||||||||||||||||||||
Net loss for the three months ended March 31, 20222 | - | - | - | - | - | - | - | (6,263,162 | ) | (617,886 | ) | - | (6,881,048 | ) | ||||||||||||||||||||||||||||||
Balance, March 31, 2022 | 500 | $ | - | 19,915,090 | $ | 19,915 | (5,657 | ) | $ | (62,406 | ) | $ | 117,949,487 | $ | (115,977,464 | ) | $ | 1,263,309 | $ | (83,222 | ) | $ | 3,109,619 |
The accompanying notes are an integral part of these consolidated financial statements.
Creatd, Inc.
Condensed Consolidated Statement of Changes in Stockholders’ Equity (Deficit)
For the Three Months Ended March 31, 2021 (Unaudited)
For the Six Months Ended June 30, 2021 (Unaudited)
Series E | Additional | Other | ||||||||||||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Treasury stock | Paid In | Subscription | Accumulated | Comprehensive | Stockholders’ | |||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Receivable | Deficit | Income | Equity | ||||||||||||||||||||||||||||||||||
Balance, January 1, 2021 | 7,738 | $ | 8 | 8,736,378 | $ | 8,737 | (5,657 | ) | $ | (62,406 | ) | $ | 77,505,013 | $ | (40,000 | ) | $ | (71,928,922 | ) | $ | (37,234 | ) | $ | 5,445,196 | ||||||||||||||||||||
Stock based compensation | - | - | 112,261 | 112 | - | - | 1,345,803 | - | - | - | 1,345,915 | |||||||||||||||||||||||||||||||||
Shares issued for prepaid services | - | - | 40,000 | 40 | - | - | 191,960 | - | - | - | 192,000 | |||||||||||||||||||||||||||||||||
Shares issued to settle vendor liabilities | - | - | 44,895 | 45 | - | - | 181,341 | - | - | - | 181,386 | |||||||||||||||||||||||||||||||||
Common stock issued upon conversion of notes payable | - | - | 65,328 | 65 | - | - | 142,735 | - | - | - | 142,800 | |||||||||||||||||||||||||||||||||
Exercise of warrants to stock | - | - | 302,434 | 302 | - | - | 1,272,370 | - | - | - | 1,272,672 | |||||||||||||||||||||||||||||||||
Cash received for preferred series E and warrants | 40 | - | - | - | - | - | (4,225 | ) | 40,000 | - | - | 35,775 | ||||||||||||||||||||||||||||||||
Conversion of preferred series E to stock | (6,690 | ) | (7 | ) | 1,623,730 | 1,624 | - | - | (1,617 | ) | - | - | - | - | ||||||||||||||||||||||||||||||
Foreign currency translation adjustments | - | - | - | - | - | - | - | - | - | (7,311 | ) | (7,311 | ) | |||||||||||||||||||||||||||||||
Net loss for the three months ended March 31, 2021 | - | - | - | - | - | -- | - | - | (6,643,237 | ) | - | (6,643,237 | ) | |||||||||||||||||||||||||||||||
Balance, March 31, 2021 | 1,088 | $ | 1 | 10,925,026 | $ | 10,925 | (5,657 | ) | $ | (62,406 | ) | $ | 80,633,380 | $ | - | $ | (78,572,159 | ) | $ | (44,545 | ) | $ | 1,965,196 |
Series E | Additional | Non- | Other | |||||||||||||||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Treasury stock | Paid In | Subscription | Accumulated | Controlling | Comprehensive | Stockholders’ | ||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Receivable | Deficit | Interest | Income | Equity | |||||||||||||||||||||||||||||||||||||
Balance, January 1, 2021 | 7,738 | $ | 8 | 8,736,378 | $ | 8,737 | 5,657 | $ | (62,406 | ) | $ | 77,505,013 | $ | (40,000 | ) | $ | (71,928,922 | ) | $ | - | $ | (37,234 | ) | $ | 5,445,196 | |||||||||||||||||||||||
Stock based compensation | - | - | 201,311 | 201 | - | - | 3,410,380 | - | - | - | - | 3,410,581 | ||||||||||||||||||||||||||||||||||||
Shares issued for prepaid services | - | - | 50,000 | 50 | - | - | 226,450 | - | - | - | - | 226,500 | ||||||||||||||||||||||||||||||||||||
Shares issued to settle vendor liabilities | - | - | 44,895 | 45 | - | - | 181,341 | - | - | - | - | 181,386 | ||||||||||||||||||||||||||||||||||||
Common stock issued upon conversion of notes payable | - | - | 120,959 | 121 | - | - | 316,699 | - | - | - | - | 316,820 | ||||||||||||||||||||||||||||||||||||
Exercise of warrants to stock | - | - | 320,693 | 321 | - | - | 1,272,350 | - | - | - | - | 1,272,671 | ||||||||||||||||||||||||||||||||||||
Cash received for common | - | - | 750,000 | 750 | - | - | 2,212,750 | - | - | - | - | 2,213,500 | ||||||||||||||||||||||||||||||||||||
Cash received for preferred series E and warrants | 40 | - | - | - | - | - | (4,225 | ) | 40,000 | - | - | - | 35,775 | |||||||||||||||||||||||||||||||||||
Conversion of preferred series E to stock | (6,730 | ) | (7 | ) | 1,633,439 | 1,633 | - | - | (1,626 | ) | - | - | - | - | - | |||||||||||||||||||||||||||||||||
Stock warrants issued with note payable | - | - | - | - | - | - | 1,601,451 | - | - | - | - | 1,601,451 | ||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | - | - | - | - | - | - | - | - | - | - | (7,863 | ) | (7,863 | ) | ||||||||||||||||||||||||||||||||||
Non-controlling interest in consolidated subsidiary from acquisition | - | - | - | - | - | - | - | - | - | 56,865 | - | 56,865 | ||||||||||||||||||||||||||||||||||||
Dividends | - | - | - | - | - | - | 410,750 | - | (410,750 | ) | - | - | - | |||||||||||||||||||||||||||||||||||
Net loss for the six months ended June 30, 2021 | - | - | - | - | - | - | - | - | (15,205,281 | ) | (432 | ) | - | (15,205,713 | ) | |||||||||||||||||||||||||||||||||
Balance, June 30, 2021 | 1,048 | $ | 1 | 11,857,675 | $ | 11,858 | 5,657 | $ | (62,406 | ) | $ | 87,131,333 | $ | - | $ | (87,544,953 | ) | $ | 56,433 | $ | (45,097 | ) | $ | (452,831 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Creatd, Inc.
Creatd, Inc.
Condensed Consolidated StatementStatements of Changes in Stockholders’ Equity (Deficit)Cash Flows
(Unaudited)
For the Three Months Ended | For the Three Months Ended | |||||||
March 31, 2022 | March 31, 2021 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (6,881,048 | ) | $ | (6,643,237 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 141,892 | 41,199 | ||||||
Accretion of debt discount and issuance cost | 23,477 | 497,165 | ||||||
Share-based compensation | 1,080,491 | 1,570,239 | ||||||
Bad debt expense | 92,987 | - | ||||||
Settlement of vendor liabilities | (14,525 | ) | (92,908 | ) | ||||
Change in fair value of derivative liability | (3,729 | ) | 197,389 | |||||
Derivative expense | - | 100,502 | ||||||
Gain on extinguishment of debt | (147,256 | ) | (203,578 | ) | ||||
Non cash lease expense | 18,451 | 19,709 | ||||||
Changes in operating assets and liabilities: | ||||||||
Prepaid expenses | (6,373 | ) | (391,918 | ) | ||||
Inventory | (136,213 | ) | - | |||||
Accounts receivable | (139,388 | ) | (61,374 | ) | ||||
Deposits and other assets | (195,749 | ) | - | |||||
Deferred revenue | (22,483 | ) | 60,123 | |||||
Accounts payable and accrued expenses | 1,170,738 | (370,528 | ) | |||||
Operating lease liability | (18,451 | ) | (19,421 | ) | ||||
Net Cash Used In Operating Activities | (5,037,179 | ) | (5,296,638 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Cash paid for property and equipment | (44,927 | ) | (12,637 | ) | ||||
Deposits | - | (100,000 | ) | |||||
Cash paid for minority investment in business | - | (100,000 | ) | |||||
Cash acquired from acquisition | 44,977 | - | ||||||
Purchases of digital assets | (51,000 | ) | - | |||||
Net Cash Used In Investing Activities | (50,950 | ) | (212,637 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from the exercise of warrant | - | 1,312,672 | ||||||
Net proceeds from issuance of notes | 463,559 | 85,500 | ||||||
Repayment of notes | (932,888 | ) | (43,716 | ) | ||||
Repayment of convertible notes | - | (941,880 | ) | |||||
Proceeds from issuance of common stock and warrants | 4,997,301 | - | ||||||
Net Cash Provided By Financing Activities | 4,527,972 | 412,576 | ||||||
Effect of exchange rate changes on cash | (4,950 | ) | (7,311 | ) | ||||
Net Change in Cash | (565,107 | ) | (5,104,010 | ) | ||||
Cash – Beginning of period | 3,794,734 | 7,906,752 | ||||||
Cash – End of period | $ | 3,229,627 | $ | 2,802,742 | ||||
SUPPLEMENTARY CASH FLOW INFORMATION: | ||||||||
Cash Paid During the Year for: | ||||||||
Income taxes | $ | - | $ | - | ||||
Interest | $ | 139,000 | $ | 55,276 | ||||
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
Settlement of vendor liabilities | $ | 20,297 | $ | 168,667 | ||||
Issuance of common stock for prepaid services | $ | 69,000 | $ | 155,178 | ||||
Deferred offering costs | $ | - | $ | 4,225 | ||||
Common stock and warrants issued upon conversion of notes payable | $ | 173,456 | $ | 142,800 |
For the Three Months Ended June 30, 2020 (Unaudited)
Additional | Other | |||||||||||||||||||||||||||||||
Common Stock | Treasury stock | Paid In | Accumulated | Comprehensive | Stockholders’ | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Income | Equity | |||||||||||||||||||||||||
Balance, April 1, 2020 | 3,140,894 | $ | 3,141 | 159,850 | $ | (367,174 | ) | $ | 37,754,638 | $ | (47,566,434 | ) | $ | (15,234 | ) | $ | (10,191,063 | ) | ||||||||||||||
Shares Issued with note payable | 5,424 | 5 | - | - | 27,292 | - | - | 27,297 | ||||||||||||||||||||||||
Coversion of warrants to stock | 2,239 | 2 | - | - | (10,002 | ) | - | - | (10,000 | ) | ||||||||||||||||||||||
Conversion of options to stock | 229,491 | 229 | - | - | 1,405,435 | - | - | 1,405,664 | ||||||||||||||||||||||||
Stock warrants issued with note payable | - | - | - | - | 247,281 | - | - | 247,281 | ||||||||||||||||||||||||
Cancellation of Treasury stock | (50,650 | ) | (51 | ) | (151,951 | ) | 349,030 | (348,979 | ) | - | - | - | ||||||||||||||||||||
Purchase of treasury stock | - | - | 14,484 | (42,018 | ) | - | - | - | (42,018 | ) | ||||||||||||||||||||||
Foreign currency translation adjustments | - | - | - | - | - | - | (19,291 | ) | (19,291 | ) | ||||||||||||||||||||||
Net loss for the three months ended June 30, 2020 | - | - | - | - | - | (4,141,991 | ) | - | (4,141,991 | ) | ||||||||||||||||||||||
Balance, June 30, 2020 | 3,327,398 | $ | 3,326 | 22,383 | $ | (60,162 | ) | $ | 39,075,665 | $ | (51,708,425 | ) | $ | (34,525 | ) | $ | (12,724,121 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Creatd, Inc.
Condensed Consolidated Statement of Changes in Stockholders’ Equity (Deficit)
For the Six Months Ended June 30, 2020 (Unaudited)
Additional | Other | |||||||||||||||||||||||||||||||
Common Stock | Treasury stock | Paid In | Accumulated | Comprehensive | Stockholders’ | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Income | Equity | |||||||||||||||||||||||||
Balance, Jan 1, 2019 | 3,059,646 | $ | 3,060 | 159,850 | $ | (367,174 | ) | $ | 36,391,818 | $ | (44,580,437 | ) | $ | (5,995 | ) | $ | (8,558,728 | ) | ||||||||||||||
Shares issued with notes payable | 8,107 | 8 | - | - | 58,928 | - | - | 58,936 | ||||||||||||||||||||||||
Shares issued for services | 50,000 | 50 | - | - | 584,948 | - | - | 584,998 | ||||||||||||||||||||||||
Shares issued to settle vendor liabilities | 23,565 | 24 | - | - | 235,611 | - | - | 235,635 | ||||||||||||||||||||||||
Conversion of warrants to stock | 7,239 | 7 | - | - | (4,235 | ) | - | - | (4,228 | ) | ||||||||||||||||||||||
Conversion of options to stock | 229,491 | 229 | - | - | 1,405,435 | - | - | 1,405,664 | ||||||||||||||||||||||||
Stock warrants issued with note payable | - | - | - | - | 752,138 | - | - | 752,138 | ||||||||||||||||||||||||
Cancellation of Treasury stock | (50,650 | ) | (51 | ) | (151,951 | ) | 349,030 | (348,979 | ) | - | - | - | ||||||||||||||||||||
Purchase of treasury stock | - | - | 14,484 | (42,018 | ) | - | - | - | (42,018 | ) | ||||||||||||||||||||||
Foreign currency translation adjustments | - | - | - | - | - | - | (28,530 | ) | (28,530 | ) | ||||||||||||||||||||||
Net loss for the six months ended June 30, 2020 | - | - | - | - | - | (7,127,988 | ) | - | (7,127,988 | ) | ||||||||||||||||||||||
Balance, June 30, 2020 | 3,327,398 | $ | 3,327 | 22,383 | $ | (60,162 | ) | $ | 39,075,664 | $ | (51,708,425 | ) | $ | (34,525 | ) | $ | (12,724,121 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Creatd, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)March 31, 2022
For the Six Months Ended | For the Six Months Ended | |||||||
June 30, 2021 | June 30, 2020 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (15,205,713 | ) | $ | (7,127,988 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 91,042 | 76,939 | ||||||
Impairment of investment | 62,733 | - | ||||||
Accretion of debt discount and issuance cost | 851,364 | 327,221 | ||||||
Share-based compensation | 3,510,489 | 1,994,792 | ||||||
Bad debt expense | - | 34,737 | ||||||
Gain on marketable securities | - | (10,042 | ) | |||||
Gain on Forgiveness of debt | (279,022 | ) | - | |||||
(Gain) loss on settlement of vendor liabilities | (92,909 | ) | 126,087 | |||||
Change in fair value of derivative liability | 262,831 | - | ||||||
Derivative Expense | 100,502 | - | ||||||
(Gain) loss on extinguishment of debt | (286,009 | ) | 534,570 | |||||
Non cash lease expense | 39,717 | 34,969 | ||||||
Changes in operating assets and liabilities: | ||||||||
Prepaid expenses | (742,565 | ) | - | |||||
Accounts receivable | (186,420 | ) | (60,350 | ) | ||||
Deposits and other assets | 63,356 | (2,137 | ) | |||||
Deferred revenue | 119,209 | 5,268 | ||||||
Accounts payable and accrued expenses | 734,643 | 1,213,615 | ||||||
Operating lease liability | (39,826 | ) | (33,064 | ) | ||||
Net Cash Used In Operating Activities | (10,996,578 | ) | (2,885,383 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Cash paid for property and equipment | (25,650 | ) | (6,339 | ) | ||||
Deposits | (100,000 | ) | (166,283 | ) | ||||
Cash paid for minority investment in business | (150,000 | ) | (30,000 | ) | ||||
Cash consideration for acquisition, net | (469,768 | ) | - | |||||
Net Cash Used In Investing Activities | (745,418 | ) | (202,622 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from the exercise of warrant | 1,312,672 | - | ||||||
Net proceeds from issuance of notes | 199,788 | 1,349,094 | ||||||
Repayment of notes | (276,838 | ) | (58,226 | ) | ||||
Proceeds from issuance of demand loan | - | 250,000 | ||||||
Proceeds from issuance of convertible note | 3,460,491 | 1,920,460 | ||||||
Repayment of convertible notes | (941,880 | ) | (75,000 | ) | ||||
Proceeds from issuance of note payable - related party | - | 152,989 | ||||||
Repayment of note payable - related party | - | (327,773 | ) | |||||
Proceeds from issuance of common stock and warrants | 2,213,500 | - | ||||||
Purchase of treasury stock and warrants | - | (62,018 | ) | |||||
Net Cash Provided By Financing Activities | 5,967,733 | 3,149,526 | ||||||
Effect of exchange rate changes on cash | (7,863 | ) | (28,530 | ) | ||||
Net Change in Cash | (5,782,126 | ) | 32,991 | |||||
Cash - Beginning of Period | 7,906,782 | 11,637 | ||||||
Cash - End of period | $ | 2,124,656 | $ | 44,628 | ||||
SUPPLEMENTARY CASH FLOW INFORMATION: | ||||||||
Cash Paid During the Period for: | ||||||||
Income taxes | $ | - | $ | - | ||||
Interest | $ | 55,276 | $ | 55,859 | ||||
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
Settlement of vendor liabilities | $ | 168,667 | $ | 109,548 | ||||
Warrants issued with debt | $ | 1,601,452 | $ | 752,136 | ||||
Shares issued with debt | $ | - | $ | 58,935 | ||||
Issuance of common stock for prepaid services | $ | 226,500 | $ | 585,000 | ||||
Cancellation of Treasury stock | $ | - | $ | 349,030 | ||||
Conversion of note payable and interest into convertible notes | $ | - | $ | 385,000 | ||||
Conversion of Demand loan into notes payable | $ | - | $ | 150,000 | ||||
Deferred offering costs | $ | 4,225 | $ | - | ||||
Common stock and warrants issued upon conversion of notes payable | $ | 316,820 | $ | - |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Creatd, Inc.
June 30, 2021
Notes to the Condensed Consolidated Financial Statements
Note 1 – Organization and Operations
Creatd, Inc., formerly Jerrick Media Holdings, Inc. (“we,” “us,” the “Company,” or “Creatd”), is a technology company focused on the development of digital communities, marketing branded digital content,providing economic opportunities for creators, which it accomplishes through its four main business pillars: Creatd Labs, Creatd Partners, Creatd Ventures, and e-commerce opportunities.Creatd Studios. Creatd’s content distribution platform,flagship product, Vocal, delivers a robust long-form, digital publishing platform organized into highly engaged niche-communities capable of hosting all forms of rich media content. Through Creatd’s proprietary algorithm dynamics, Vocal enhances the visibility of content and maximizes viewership, providing advertisers access to target markets that most closely match their interests.
The Company was originally incorporated under the laws of the State of Nevada on December 30, 1999 under the name LILM, Inc. The Company changed its name on December 3, 2013 to Great Plains Holdings, Inc. as part of its plan to diversify its business.
On February 5, 2016 (the “Closing Date”), GTPH, GPH Merger Sub, Inc., a Nevada corporation and wholly-owned subsidiary of GTPH (“Merger Sub”), and Jerrick Ventures, Inc., a privately-held Nevada corporation headquartered in New Jersey (“Jerrick”), entered into an Agreement and Plan of Merger (the “Merger”) pursuant to which the Merger Sub was merged with and into Jerrick, with Jerrick surviving as a wholly-owned subsidiary of GTPH (the “Merger”). GTPH acquired, pursuant to the Merger, all of the outstanding capital stock of Jerrick in exchange for issuing Jerrick’s shareholders (the “Jerrick Shareholders”), pro-rata, a total of 475,000 shares of GTPH’s common stock. In connection therewith, GTPH acquired 33,415 shares of Jerrick’s Series A Convertible Preferred Stock (the “Jerrick Series A Preferred”) and 8,064 shares of Series B Convertible Preferred Stock (the “Jerrick Series B Preferred”).
In connection with the Merger, on the Closing Date, GTPH and Kent Campbell entered into a Spin-Off Agreement (the “Spin-Off Agreement”), pursuant to which Mr. Campbell purchased from GTPH (i) all of GTPH’s interest in Ashland Holdings, LLC, a Florida limited liability company, and (ii) all of GTPH’s interest in Lil Marc, Inc., a Utah corporation, in exchange for the cancellation of 39,091 shares of GTPH’s Common Stock held by Mr. Campbell. In addition, Mr. Campbell assumed all debts, obligations and liabilities of GTPH, including any existing prior to the Merger, pursuant to the terms and conditions of the Spin-Off Agreement.
Upon closing of the Merger on February 5, 2016, the Company changed its business plan to that of Jerrick.
Effective February 28, 2016, GTPH entered into an Agreement and Plan of Merger (the “Statutory Merger Agreement”) with Jerrick, pursuant to which GTPH became the parent company of Jerrick Ventures, LLC, a wholly-owned operating subsidiary of Jerrick (the “Statutory Merger”) and GTPH changed its name to Jerrick Media Holdings, Inc. to better reflect its new business strategy.
On September 11, 2019, the Company acquired 100% of the membership interests of Seller’s Choice, LLC, a New Jersey limited liability company (“Seller’s Choice”). Seller’s Choice is a digital e-commerce agency based in New Jersey (see Note 4).Jersey.
On September 9, 2020, the Company filed a certificate of amendment with the Secretary of State of the State of Nevada to change our name to “Creatd, Inc.”, which became effective on September 10, 2020.
On June 4, 2021, the Company acquired 89% of the membership interests of Plant Camp, LLC, a Delaware limited liability company (“Plant Camp”)., which the Company subsequently rebranded as Camp. Plant Camp is a CPG company thatdirect-to-consumer (DTC) food brand which creates healthy upgrades to kid-friendly foods.classic comfort food favorites. The results of Plant Camp’s operations have bene included since the date of acquisition in the Statements of Operations.
On July 20, 2021, the Company acquired 44% of the membership interests of WHE Agency, Inc. WHE Agency, Inc, is a talent management and public relations agency based in New York. WHE Agency, Inc, has been consolidated due to the Company’s ownership of 55% voting control, and the results of operations have been included since the date of acquisition in the Statements of Operations.
On August 16, 2021, the Company acquired 16% of the membership interests of Dune, Inc. bring our total membership interests to 21%.
On October 3, 2021, the Company acquired 29% of the membership interests of Dune, Inc. bring our total membership interests to 50%. Dune, Inc. is a direct-to-consumer brand focused on promoting wellness through its range of health-oriented beverages. Dune, Inc, has been consolidated due to the Company’s ownership of 50% voting control, and the results of operations have been included since the date of acquisition in the Statements of Operations.
On March 7, 2022, the Company acquired 100% of the membership interests of Denver Bodega, LLC, d/b/a Basis, a Colorado limited liability company (“Basis”). Basis is a direct-to-consumer functional beverage brand that makes high-electrolyte mixes meant to aid hydration. Denver Bodega, LLC has been consolidated due to the Company’s ownership of 100% voting control, and the results of operations have been included since the date of acquisition in the Statement of Operations.
Note 2 – Significant Accounting Policies and Practices
Management of the Company is responsible for the selection and use of appropriate accounting policies and the appropriateness of accounting policies and their application. Critical accounting policies and practices are those that are both most important to the portrayal of the Company’s financial condition and results and require management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain. The Company’s significant and critical accounting policies and practices are disclosed below as required by the accounting principles generally accepted in the United States of America.
Basis of Presentation
The Company’s condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and following the requirements of the U.S. Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. These interim financial statements have been prepared on the same basis as the Company’s annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair statement of the Company’s financial information. These interim results are not necessarily indicative of the results to be expected for the year ending December 31, 20212022 or any other interim period or for any other future year. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2020,2021, included in the Company’s 20202021 Annual Report on Form 10-K filed with the SEC. The balance sheet as of December 31, 20202021 has been derived from audited financial statements at that date but does not include all of the information required by U.S. GAAP for complete financial statements.
Use of Estimates and Critical Accounting Estimates and Assumptions
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
These significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to these estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.
Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly. The Company uses estimates in accounting for, among other items, revenue recognition, allowance for doubtful accounts, stock-based compensation, income tax provisions, excess and obsolete inventory reserve, and impairment of intellectual property.
Actual results could differ from those estimates.
Presentation
During 2021, we adopted a change in presentation on our Condensed Consolidated Statements of Comprehensive Loss in order to present a gross profit line and allocate certain overhead expenses, the presentation of which is consistent with our peers. Under the new presentation, we began allocating overhead expenses related to cost of goods sold. Prior periods have been revised to reflect this change in presentation.
Principles of consolidation
The Company consolidates all majority-owned subsidiaries, if any, in which the parent’s power to control exists.
As of June 30, 2021,March 31, 2022, the Company’s consolidated subsidiaries and/or entities are as follows:
Name of combined affiliate | State or other jurisdiction of incorporation or organization | Company Ownership Interest | ||||
Jerrick Ventures LLC | Delaware | 100 | % | |||
Abacus Tech Pty Ltd | Australia | 100 | % | |||
Seller’s Choice, LLC | New Jersey | 100 | % | |||
Delaware | 100 | % | ||||
Give, LLC | Delaware | 100 | % | |||
Creatd Partners LLC | Delaware | 100 | % | |||
Denver Bodega, LLC | Colorado | 100 | ||||
Dune Inc. | Delaware | 50 | % | |||
Plant Camp LLC | Delaware | 89 | % | |||
Delaware | 100 | % | ||||
OG Collection LLC | Delaware | 100 | % | |||
OG Gallery, Inc. | Delaware | 100 | % | |||
VMENA LLC | Delaware | 100 | % | |||
Vocal For Brands, LLC | Delaware | 100 | % | |||
Vocal Ventures LLC | Delaware | 100 | % | |||
What to Buy, LLC | Delaware | 100 | % | |||
WHE Agency, Inc. | Delaware | 44 | % |
All inter-company balances and transactions have been eliminated. The condensed consolidated financial statements include Denver Bodega, LLC activity since March 7, 2022.
Variable Interest Entities
Management performs an ongoing assessment of its noncontrolling interests from investments in unrelated entities to determine if those entities are variable interest entities (VIEs), and if so, whether the Company is the primary beneficiary. If an entity in such a transaction, by design, meets the definition of a VIE and the Company determines that it, or a condensed consolidated subsidiary is the primary beneficiary, the Company will include the VIE in its condensed consolidated financial statements. If such an entity is deemed to not be condensed consolidated, the Company records only its investment in equity securities as a marketable security or investment under the equity method, as applicable
Fair Value of Financial Instruments
The fair value measurement disclosures are grouped into three levels based on valuation factors:
● | Level 1 – quoted prices in active markets for identical investments |
● | Level 2 – other significant observable inputs (including quoted prices for similar investments and market corroborated inputs) |
● | Level 3 – significant unobservable inputs (including our own assumptions in determining the fair value of investments) |
The Company’s Level 1 assets/liabilities include cash, accounts receivable, marketable trading securities, accounts payable, prepaid and other current assets, line of credit and due to related parties. Management believes the estimated fair value of these accounts at June 30, 2021March 31, 2022 approximate their carrying value as reflected in the balance sheets due to the short-term nature of these instruments or the use of market interest rates for debt instruments.
The Company’s Level 2 assets/liabilities include certain of the Company’s notes payable and capital lease obligations.payable. Their carrying value approximates their fair values based upon a comparison of the interest rate and terms of such debt given the level of risk to the rates and terms of similar debt currently available to the Company in the marketplace.
The Company’s Level 3 assets/liabilities include goodwill, intangible assets, marketable debt securities, equity investments at cost, and derivative liabilities, when they are recorded at fair value due to an impairment charge.liabilities. Inputs to determine fair value are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models. Unobservable inputs used in the models are significant to the fair values of the assets and liabilities.
The following table provides a summary of the relevant assets and liabilities that are measured at fair value on recurring basis:
Fair Value Measurements as of
June 30, 2021
Total | Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) | Quoted Prices for Similar Assets or Liabilities in Active Markets (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
Assets: | ||||||||||||||||
Marketable securities - debt securities | $ | - | $ | - | $ | - | $ | - | ||||||||
Total assets | $ | - | $ | - | $ | - | $ | - | ||||||||
Liabilities: | ||||||||||||||||
Derivative liabilities | $ | 436,295 | $ | - | $ | - | $ | 436,295 | ||||||||
Total Liabilities | 436,295 | $ | - | $ | - | $ | 436,295 |
The following table shows the valuation methodology and unobservable inputs for Level 3 assets and liabilities measured at fair value on recurring basis as of June 30, 2021:
Fair Value | Valuation Methodology | Unobservable Inputs | ||||||||
Marketable securities - debt securities | $ | - | Discounted cash flow analysis | Expected cash flows from the investment | ||||||
Derivative liabilities | $ | 436,295 | Monte Carlo simulations and Binomial model | Risk free rate
Expected volatility; Drift rate |
The following tabletables provides a summary of the relevant assets that are measured at fair value on non-recurring basis:
Fair Value Measurements as of
June 30, 2021March 31, 2022
Total | Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) | Quoted Prices for Similar Assets or Liabilities in Active Markets (Level 2) | Significant Unobservable Inputs (Level 3) | Total | Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) | Quoted Prices for Similar Assets or Liabilities in Active Markets (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||
Equity investments, at cost | $ | 367,096 | $ | - | $ | - | $ | 367,096 | $ | 50,000 | $ | - | $ | - | $ | 50,000 | ||||||||||||||||
Total assets | $ | 367,096 | $ | - | $ | - | $ | 367,096 | $ | 50,000 | $ | - | $ | - | $ | 50,000 |
The following table shows the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on non-recurring basis as of June 30, 2021:
Fair Value | Valuation Methodology | Unobservable Inputs | ||||||||
Equity investments, at cost | $ | 367,096 | Qualitative assessment per ASC 321-10-35 | Qualitative factors |
The Company valued the initial value of debt securities, which are investments in convertible notes receivable, by assessing the separate values of the debt and equity components for similar instruments convertible into private company equity (Level 3). The investment was initially measured at cost, which was determined to approximate fair value due to the lack of marketability of the conversion shares underlying these convertible instruments and the expected recoverability of the note principal. The key assumption affecting the level 3 fair values would be collectability of the notes. The Company monitors for impairment indicators at each balance sheet date.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
At times, cash balances may exceed the Federal Deposit Insurance Corporation (“FDIC”) or Financial Claims Scheme (“FCS”) insurable limits. The Company has never experienced any losses related to these balances. As of June 30, 2021, and DecemberMarch 31, 2020,2022, cash amounts in excess of $250,000 were not fully insured. The uninsured cash balance as of June 30, 2021March 31, 2022, was approximately $1.9$2.4 million. The Company does not believe it is exposed to significant credit risk on cash and cash equivalents.
Concentration of Credit Risk and Other Risks and Uncertainties
The Company provides credit in the normal course of business. The Company maintains allowances for credit losses on factors surrounding the credit risk of specific customers, historical trends, and other information.
The Company operates in Australia and holds total assets of $935,285 that are considered to be reasonably possible that operations located outside an entity’s home country will be disrupted in the near term.
Property and Equipment
Property and equipment are recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation is computed by the straight-line method (after taking into account their respective estimated residual values) over the estimated useful lives of the respective assets as follows:
Estimated Useful Life (Years) | ||
Computer equipment and software | 3 | |
Furniture and fixtures | 5 |
Upon sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the condensed consolidated statements of operations.
Long-lived Assets Including Goodwill and Other Acquired IntangiblesIntangible Assets
We evaluate the recoverability of property and equipment and acquired finite-lived intangible assets for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. The evaluation is performed at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Recoverability of these assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the assets are expected to generate from the use and eventual disposition. If such review indicates that the carrying amount of property and equipment and intangible assets is not recoverable, the carrying amount of such assets is reduced to fair value. We have not recorded any impairment charges for these type of assets duringDuring the sixthree months ended June 30, 2021.March 31, 2022, the Company recorded an impairment charge of $0 for intangible assets.
Acquired finite-lived intangible assets are amortized on a straight-line basis over the estimated useful lives of the assets. We routinely review the remaining estimated useful lives of property and equipment and finite-lived intangible assets. If we change the estimated useful life assumption for any asset, the remaining unamortized balance is amortized or depreciated over the revised estimated useful life. The remaining weighted average life of the intangible assets are 6.94 years.
Scheduled amortization over the next five years are as follows: |
Twelve months ending March 31, | ||||
2023 | $ | 498,641 | ||
2024 | 429,030 | |||
2025 | 325,307 | |||
2026 | 246,840 | |||
2027 | 228,499 | |||
Thereafter | 792,056 | |||
Total | $ | 2,520,373 |
Goodwill is not amortized but is subject to periodic testing for impairment in accordance with ASC Topic 350 “Intangibles – Goodwill and Other – Testing Indefinite-Lived Intangible Assets for Impairment” (“ASC Topic 350”). The Company tests goodwill for impairment on an annual basis as of the last day of the Company’s fiscal December each year or more frequently if events occur or circumstances change indicating that the fair value of the goodwill may be below its carrying amount. The Company has four reporting units. The Company uses an income-based approach to determine the fair value of the reporting units. This approach uses a discounted cash flow methodology and the ability of our reporting units to generate cash flows as measures of fair value of our reporting units.
During the year ended December 31, 20202021, the Company completed its annual impairment test of goodwill. The Company performed the qualitative assessment as permitted by ASC 350-20 and determined for three of its reporting units that the fair value of those reporting units was more likely than not greater than their carrying value, including Goodwill. However, based on this qualitative assessment, the Company determined that the carrying value of the Seller’s Choice reporting unit was more likely than not equal or greater than theits carrying value, including Goodwill. Based on completion of thisthe annual impairment test, nothe Company recorded an impairment was indicated.charge of $1,035,795 for goodwill During the year ended December 31, 2021.
Investments
Marketable securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and are reported at fair value, with unrealized gains and losses recognized in earnings. Debt securities not classified as held-to-maturity or as trading are classified as available-for-sale, and are carried at fair market value, with the unrealized gains and losses, net of tax, included in the determination of comprehensive income and reported in stockholders’ equity.
The Company accounts for its investments in available-for-sale debt securities, in accordance with sub-topic 320-10 of the FASB ASC (“Sub-Topic 320-10”). Accrued interest on these securities is included in fair value and amortized cost.
Pursuant to Paragraph 320-10-35, investments in debt securities that are classified as available for sale shall be measured subsequently at fair value in the statement of financial position. Unrealized holding gains and losses for available-for-sale securities (including those classified as current assets) shall be excluded from earnings and reported in other comprehensive income until realized.
The Company follows FASB ASC 320-10-35 to assess whether an investment in debt securities is impaired in each reporting period. An investment in debt securities is impaired if the fair value of the investment is less than its amortized cost. If the Company intends to sell the debt security (that is, it has decided to sell the security), an other-than-temporary impairment shall be considered to have occurred. If the Company more likely than not will be required to sell the security before recovery of its amortized cost basis or it otherwise does not expect to recover the entire amortized cost basis of the security, an other-than-temporary impairment shall be considered to have occurred. The Company considers the expected cash flows from the investment based on reasonable and supportable forecasts as well as several other factors to estimate whether a credit loss exists. If the Company intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss, the other-than-temporary impairment shall be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date.
The following table sets forth a summary of the changes in marketable securities - available-for-sale debt securities that are measured at fair value on a recurring basis:goodwill for the three months ended March 31, 2022.
For the three and six months ended June 30, 2021 | ||||
Total | ||||
Beginning of period | $ | 62,733 | ||
Purchase of marketable securities | - | |||
Interest due at maturity | - | |||
Other than temporary impairment | (62,733 | ) | ||
Conversion of marketable securities | - | |||
June 30, 2021 | $ | - |
For the three months ended March 31, 2022 | ||||
Total | ||||
As of January 1, 2022 | $ | 1,374,835 | ||
Goodwill acquired in a business combination | 8,950 | |||
Impairment of goodwill | - | |||
As of March 31, 2022 | 1,383,785 |
We invest in debt securities. Our investments in debt securities are subject to interest rate risk. To minimize the exposure due to an adverse shift in interest rates, we invest in securities with maturities of two years or less and maintain a weighted average maturity of one year or less. As of June 30, 2021, all of our investments had maturities between one and three years. The marketable debt security investments are evaluated for impairment if events or circumstances arise that indicate that the carrying amount of such assets may not be recoverable. During the three and six months ended June 30, 2021 the Company recognized a $62,733 impairment of the debt security.
The following table sets forth a summary of the changes in equity investments, at cost that are measured at fair value on a non-recurring basis:
For the three months ended June 30, 2021 | For the six months ended June 30, 2021 | |||||||
Total | Total | |||||||
Beginning of period | $ | 317,096 | $ | 217,096 | ||||
Purchase of equity investments | 50,000 | 150,000 | ||||||
June 30, 2021 | $ | 367,096 | $ | 367,096 |
The Company has elected to measure its equity securities without a readily determinable fair value at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. An election to measure an equity security in accordance with this paragraph shall be made for each investment separately.
The Company performed a qualitative assessment considering impairment indicators to evaluate whether these investments were impaired. Impairment indicators that the Company considered included the following: a) a significant deterioration in the earnings performance, credit rating, asset quality or business prospects of the investee; b) a significant adverse change in the regulatory, economic or technology environment of the investee; c) a significant adverse change in the general market condition of either the geographical area or the industry in which the investee operates; d) a bona fide offer to purchase or an offer by the investee to sell the investment; e) factors that raise significant concerns about the investee’s ability to continue as a going concern.
Commitments and Contingencies
The Company follows subtopic 450-20 of the FASB ASC to report accounting for contingencies. Certain conditions may exist as of the date the condensed consolidated financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or un-asserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or un-asserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s condensed consolidated financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.
Foreign Currency
Foreign currency denominated assets and liabilities are translated into U.S. dollars using the exchange rates in effect at our Condensed Consolidated Balance Sheet dates. Results of operations and cash flows are translated using the average exchange rates throughout the periods. The effect of exchange rate fluctuations on the translation of assets and liabilities is included as a component of stockholders’ equity in accumulated other comprehensive income. Gains and losses from foreign currency transactions, which are included in operating expenses, have not been significant in any period presented.
Derivative Liability
The Company evaluates its debt and equity issuances to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with paragraph 815-10-05-4 and Section 815-40-25 of the FASB Accounting Standards Codification. The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet date and recorded as either an asset or a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the condensed consolidated statement of operations as other income or expense. Upon conversion, exercise or cancellation of a derivative instrument, the instrument is marked to fair value at the date of conversion, exercise or cancellation and then the related fair value is reclassified to equity.
In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.
The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to liability at the fair value of the instrument on the reclassification date. Derivative instrument liabilities will be classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument is expected within 12 months of the balance sheet date.
The Company adopted Section 815-40-15 of the FASB Accounting Standards Codification (“Section 815-40-15”) to determine whether an instrument (or an embedded feature) is indexed to the Company’s own stock. Section 815-40-15 provides that an entity should use a two-step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument’s contingent exercise and settlement provisions. The Company changed its method of accounting for the debt and warrants through the early adoption of ASU 2017-11 during the three months ended December 31, 2017, on a retrospective basis.
The Company utilizes a Monte Carlo simulation model for the make whole feature and a binomial option model for convertible notes that have an option to convert at a variable number of shares to compute the fair value of the derivative and to mark to market the fair value of the derivative at each balance sheet date. The inputs utilized in the application of the Monte Carlo model included a starting stock price, an expected term of each debenture remaining from the valuation date to maturity, an estimated volatility, drift, and a risk-free rate. The inputs utilized in the application of the Binomial model included a stock price on valuation date, an expected term of each debenture remaining from the valuation date to maturity, an estimated volatility, and a risk-free rate. The Company records the change in the fair value of the derivative as other income or expense in the condensed consolidated statements of operations.
Shipping and Handling Costs
The Company classifies freight billed to customers as sales revenue and the related freight costs as cost or revenue.
Revenue Recognition
Under Topic 606, revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
We determine revenue recognition through the following steps:
● | identification of the contract, or contracts, with a customer; |
● | identification of the performance obligations in the contract; |
● | determination of the transaction price. The transaction price for any given subscriber could decrease based on any payments made to that subscriber. A subscriber may be eligible for payment through one or more of the monetization features offered to Vocal creators, including earnings through reads (on a cost per mile basis) and cash prizes offered to Challenge winners; |
● | allocation of the transaction price to the performance obligations in the contract; and |
● | recognition of revenue when, or as, we satisfy a performance obligation. |
Revenue disaggregated by revenue source for the three and six months ended June 30,March 31, 2022 and 2021 and 2020 consists of the following:
Three Months Ended | Six Months Ended | Three Months Ended | ||||||||||||||||||||||
June 30, | June 30, | March 31, | ||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2022 | 2021 | |||||||||||||||||||
Agency (Managed Services + Branded Content) | $ | 488,836 | $ | 258,834 | $ | 917,136 | $ | 507,085 | ||||||||||||||||
Agency (Managed Services, Branded Content, & Talent Management Services) | $ | 583,141 | $ | 428,300 | ||||||||||||||||||||
Platform (Creator Subscriptions) | 451,965 | 54,972 | 758,867 | 90,934 | 508,233 | 306,902 | ||||||||||||||||||
Ecommerce | 5,526 | - | 5,526 | - | ||||||||||||||||||||
Ecommerce (Tangible products) | 254,724 | - | ||||||||||||||||||||||
Affiliate Sales | 7,798 | 8,195 | 15,806 | 16,344 | 2,640 | 8,008 | ||||||||||||||||||
Other Revenue | 16,732 | 539 | 17,435 | 1,319 | - | 703 | ||||||||||||||||||
$ | 970,857 | $ | 322,540 | $ | 1,714,770 | $ | 615,682 | $ | 1,348,738 | $ | 743,913 |
The Company utilizes the output method to measures the results achieved and value transferred to a customer over time. Timing of revenue recognition for the three and six months ended June 30,March 31, 2022 and 2021 and 2020 consists of the following:
Three Months Ended | ||||||||
March 31, | ||||||||
2022 | 2021 | |||||||
Products and services transferred over time | $ | 1,091,374 | $ | 735,202 | ||||
Products and services transferred at a point in time | 257,364 | 8,711 | ||||||
$ | 1,348,738 | $ | 743,913 |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Products and services transferred over time | $ | 940,801 | $ | 313,806 | $ | 1,676,003 | $ | 598,019 | ||||||||
Products transferred at a point in time | 30,056 | 8,734 | 38,767 | 17,663 | ||||||||||||
$ | 970,857 | $ | 322,540 | $ | 1,714,770 | $ | 615,682 |
Agency Revenue
Managed Services
The Company provides Studio/Agency Service offerings to business-to-business (B2B) and business-to-consumer (B2C) product and service brands which encompasses a full range of digital marketing and e-commerce solutions. The Company’s services include the setup and ongoing management of clients’ websites, Amazon and Shopify storefronts and listings, social media pages, search engine marketing, and other various tools and sales channels utilized by e-commerce sellers for sales and growth optimization. Contracts are broken into three categories: Partners, Monthly Services, and Projects. Contract amounts for Partner and Monthly Services clients range from approximately $500-$7,500 per month while Project amounts vary depending on the scope of work. Partner and Monthly clients are billed monthly for the work completed within that month. Partner Clients may or may not have an additional billing component referred to as Sales Performance Fee, which is a fee based upon a previously agreed upon percentage point of the client’s total sales for the month. Some Partners may also have projects within their contracts that get billed and recognized as agreed upon project milestones are achieved. Revenue is recognized over time as service obligations and milestones in the contract are met.
Branded Content
Branded content represents the revenue recognized from the Company’s obligation to create and publish branded articles and/or branded challenges for clients on the Vocal platform and promote said stories, tracking engagement for the client. TheIn the case of branded articles, the performance obligation is satisfied when the Company successfully publishes the articles on its platform and meets any required promotional milestones as per the contract. In the case of branded challenges, the performance obligation is satisfied when the Company successfully closes the challenge and winners have been announced. The Company utilizes the completed contract method when revenue is recognized over time as the services are performed and any required milestones are met. Certain contracts contain separate milestones whereas the Company separates its performance obligations and utilizes the stand-alone selling price method and residual method to determine the estimate of the allocation of the transaction price.
Below are the significant components of a typical agreement pertaining to branded content revenue:
● | The Company collects fixed fees ranging from $10,000 to | |
● |
● | ||
● | Most contracts include provisions for clients to acquire content rights at the end of the campaign for a flat fee. |
Platform RevenueTalent Management Services
Talent Management represents the revenue recognized by WHE Agency, Inc. (“WHE”) from the Company’s obligation to manage and oversee influencer-led campaigns from the contract negotiation stage through content creation and publication. WHE acts in an agent capacity for influencers and collects a management fee of 20% of the value of an influencer’s contract with a brand. Revenue is recognized net of the 80% of the contract that is collected by the influencer and is recognized when performance obligations of the contract are met. Performance obligations are complete when milestones and deliverables of contracts are delivered to the client.
Below are the significant components of a typical agreement pertaining to talent management revenue:
● | Total gross contracts range from $500-$50,000. |
● | The Company collects fixed fees in the amount of 20% of the gross contract amount, ranging from $100 to $20,000 in net revenue per contract. |
● | The campaign is created and made live by the influencer within one month of the signed agreement, or as previously negotiated with the client. |
● | Campaigns are promoted per the contract and the customer is provided a link to the live deliverables on the influencer’s social media channels. |
● | Most billing for contracts occur 100% at execution of the performance obligation. Net payment terms vary by client. |
Platform Revenue
Creator Subscriptions
Vocal+ is a premium subscription offering for Vocal creators. In addition to joining for free, Vocal creators now have the option to sign up for a Vocal+ membership for either $9.99 monthly or $99 annually, though these amounts are occasionally subject to promotional discounts.discounts and free trials. Vocal+ subscribers receive access to value-added features such as increased rate of cost per mille (thousand) (“CPM”) monetization, a decreased minimum withdrawal threshold, a discount on platform processing fees, member badges for their profiles, access to exclusive Vocal+ Challenges, and early access to new Vocal features. Subscription revenues stem from both monthly and annual subscriptions, the latter of which is amortized over a twelve-month period. Any customer payments received are recognized over the subscription period, with any payments received in advance being deferred until they are earned.
The transaction price for any given subscriber could decrease based on any payments made to that subscriber. A subscriber may be eligible for payment through one or more of the monetization features offered to Vocal creators, including earnings through reads (on a cost per mille basis) and cash prizes offered to Challenge winners. Estimates are utilized for payments made for earnings through reads, by establishing the lifetime a subscriber has had a Vocal account, determining the percentage of that lifetime that the subscriber has been a paying customer, and applying that percentage to payments for earnings through reads in the relevant reporting period.
Affiliate Sales Revenue
Affiliate sales represents the commission the Company receives when a purchase is made through affiliate links placed within content hosted on the Vocal platform. Affiliate revenue is earned on a “click through” basis, upon referring visitors, via said links, to an affiliate’s site and having them complete a specific outcome, most commonly a product purchase. The Company uses multiple affiliate platforms, such as Skimlinks, Amazon, and Tune, to form and maintain thousands of vendor relationships. Each vendor establishes their own commission percentage, which typically range from 2-20%. The revenue is recognized upon receipt as reliable estimates could not be made.
E-Commerce Revenue
The Company’s e-commerce businesses are housed under Creatd Ventures, and currently consists of three majority-owned e-commerce companies, Camp (previously Plant Camp), Dune Glow Remedy (“Dune”), and Basis. The Company generates revenue through the sale of Camp, Dune, and Basis’ consumer products through its e-commerce distribution channels. The Company satisfies its performance obligation upon shipment of product to its customers and recognizes shipping and handling costs as a fulfillment cost. Customers have 30 days from receipt of product by its customers.an item to return unopened, unused, or damaged items for a full refund. All returns are processed within the relevant recording period and accounted for as a reduction in revenue. The Company runs discounts from time to time to promote sales, improve market penetration, and increase customer retention. Any discounts are run as coupon codes applied at the time of transaction and accounted for as a reduction in gross revenue. The Company assesses variable consideration using the most likely amount method.
Deferred Revenue
Deferred revenue consists of billings and payments from clients in advance of revenue recognition. The Company has two types of deferred revenue, subscription revenue whereas the revenue is recognized over the subscription period and contract liabilities where the performance obligation was not satisfied. The Company will recognize the deferred revenue over the next year. As of June 30, 2021, and DecemberMarch 31, 2020,2022, the Company had deferred revenue of $208,517 and $88,637, respectively.$211,676.
Accounts Receivable and Allowances
Accounts receivable are recorded and carried when the Company has performed the work in accordance with managed services, project, partner, consulting and branded content agreements. For example, we bill a managed service client monthly when we have updated their Amazon store, modified SEO or completed the other services listed in the agreement. For projects and branded content, we will bill the client and record the receivable once milestones are reached that are set in the agreement. We make estimates for the allowance for doubtful accounts and allowance for unbilled receivables based upon our assessment of various factors, including historical experience, the age of the accounts receivable balances, credit quality of our customers, current economic conditions, and other factors that may affect our ability to collect from customers. During the sixthree months ended June 30, 2021,March 31, 2022, the Company recorded $0$92,987, as a bad debt expense. As of June 30, 2021, and DecemberMarch 31, 2020,2022, the Company has an allowance for doubtful accounts of $76,340 and $80,509, respectively.$279,133.
Inventory
Inventories are stated at the lower of cost (first-in, first-out basis) or net realizable value. Inventories are periodically evaluated to identify obsolete or otherwise impaired products and are written off when management determines usage is not probable. The Company estimates the balance of excess and obsolete inventory by analyzing inventory by age using last used and original purchase date and existing sales pipeline for which the inventory could be used. As of March 31, 2022, the Company has no valuation allowance.
Stock-Based Compensation
The Company recognizes compensation expense for all equity–based payments granted in accordance with Accounting Standards Codification (“ASC”) 718 “Compensation“Compensation – Stock Compensation”. Under fair value recognition provisions, the Company recognizes equity–based compensation net of an estimated forfeiture rate and recognizes compensation cost only for those shares expected to vest over the requisite service period of the award. The company has a relatively low forfeiture rate of stock based compensation and forfeitures are recognized as they occur.
Restricted stock awards are granted at the discretion of the Company. These awards are restricted as to the transfer of ownership and generally vest over the requisite service periods.
The fair value of an option award is estimated on the date of grant using the Black–Scholes option valuation model. The Black–Scholes option valuation model requires the development of assumptions that are inputs into the model. These assumptions are the value of the underlying share, the expected stock volatility, the risk–free interest rate, the expected life of the option, the dividend yield on the underlying stock and the expected forfeiture rate. Expected volatility is benchmarked against similar companies in a similar industryvolatility is derived from the Company’s historical data over the expected option life and other appropriate factors. Risk–free interest rates are calculated based on continuously compounded risk–free rates for the appropriate term. The dividend yield is assumed to be zero as the Company has never paid or declared any cash dividends on its Common stock and does not intend to pay dividends on its Common stock in the foreseeable future. The expected forfeiture rate is estimated based on management’s best estimate. Forfeitures are recognized as they occur.
Determining the appropriate fair value model and calculating the fair value of equity–based payment awards requires the input of the subjective assumptions described above. The assumptions used in calculating the fair value of equity–based payment awards represent management’s best estimates, which involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and the Company uses different assumptions, our equity–based compensation could be materially different in the future. The Company issues awards of equity instruments, such as stock options and restricted stock units, to employees and certain non-employee directors. Compensation expense related to these awards is based on the fair value of the underlying stock on the award date and is amortized over the service period, defined as the vesting period, using the cliff straight-line method.period. The vesting period is generally one to three years. A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Company’s common stock at the date of grant is used for restricted stock units. Compensation expense is reduced for actual forfeitures as they occur.
Loss Per Share
Basic net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net loss per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. In periods when losses are reported, which is the case for the three and six months ended June 30,March 31, 2022 and 2021 and 2020 presented in these condensed consolidated financial statements, the weighted-average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive.
The Company had the following common stock equivalents at June 30, 2021March 31, 2022 and 2020:2021:
June 30, | March 31, | |||||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
Options | 2,363,187 | 452,523 | 1,891,348 | 2,350,062 | ||||||||||||
Warrants | 7,496,070 | 936,240 | 8,591,206 | 6,273,778 | ||||||||||||
Convertible notes - related party | - | 5,574 | ||||||||||||||
Convertible notes | 1,008,798 | 1,562,138 | - | 49,629 | ||||||||||||
Totals | 10,868,055 | 2,956,475 | 10,482,554 | 8,673,469 |
Reclassifications
Certain prior year amounts in the condensed consolidated financial statements and the notes thereto have been reclassified where necessary to conform to the current year'syear’s presentation. These reclassifications did not affect the prior period'speriod’s total assets, total liabilities, stockholders’ deficit, net loss or net cash used in operating activities. During the year ended December 31, 2021, we adopted a change in presentation on our condensed consolidated statements of operations and comprehensive loss in order to present a gross profit line, the presentation of which is consistent with our peers. Under the new presentation, we began allocating payroll and related expenses, professional services and creator payouts. Prior periods have been revised to reflect this change in presentation.
Recently Adopted Accounting Guidance
In December 2019,May 2021, the FASB issued authoritative guidance intended to simplify theclarify and reduce diversity in an issuer’s accounting for income taxesmodifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange. (ASU 2019-12, “Income Taxes2021-04), “Derivatives and Hedging Contracts in Entity’s Own Equity (Topic 740): Simplifying the Accounting for Income Taxes”)815). This guidance’s amendments provide measurement, recognition, and disclosure guidance eliminates certain exceptions to the general approach to the income tax accounting model and adds new guidance to reduce the complexity infor an issuer’s accounting for income taxes. This guidance is effective for annual periodsmodifications or exchanges of freestanding equity-classified written call options that remain equity classified after December 15, 2020, including interim periods within those annual periods.modification or exchange. The updated guidance, which became effective for fiscal years beginning after December 15, 2020,2021, did not have a material impact on the Company’s condensed consolidated financial statements.
Recent Accounting Guidance Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments -– Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments (“ASU-2016-13”). ASU 2016-13 affects loans, debt securities, trade receivables, and any other financial assets that have the contractual right to receive cash. The ASU requires an entity to recognize expected credit losses rather than incurred losses for financial assets. ASU 2016-13 is effective for the fiscal year beginning after December 15, 2022, including interim periods within that fiscal year. The Company is currently evaluating the impact of the new guidance on its condensed consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity’s own equity, and also improves and amends the related EPS guidance for both Subtopics. The ASU will be2020-6 is effective for annual reporting periodsthe fiscal year beginning after December 15, 2021, and2022, including interim periods within those annual periods and early adoption is permitted.that fiscal year. The Company is currently evaluating the impact of the new guidance on its condensed consolidated financial statements.
In MayJuly 2021, the FASB issued authoritative guidance intendedASU No. 2021-05, Lessors—Certain Leases with Variable Lease Payments (Topic 842), Which requires a lessor to clarify and reduce diversity inclassify a lease with variable lease payments that do not depend on an issuer’s accounting for modificationsindex or exchangesrate (hereafter referred to as “variable payments”) as an operating lease on the commencement date of freestanding equity-classified written call options that remain equity classified after modification or exchange. (ASU 2021-04), “Derivatives and Hedging Contracts in Entity’s Own Equity (Topic 815). This guidance amendments provide measurement, recognition, and disclosure guidance for an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange. This guidancethe lease if specified criteria are met. ASU 2021-05 is effective for annual periodsthe fiscal year beginning after December 15, 2021,2022, including interim periods within those annual periods.that fiscal year. The Company is currently evaluatingexpects that there would be no material impact on the impact of the new guidance on itsCompany’s condensed consolidated financial statements.statements upon the adoption of this ASU.
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations — Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805), Which aims to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in recognition and payment terms that effect subsequent revenue recognition. ASU 2021-08 is effective for the fiscal year beginning after December 15, 2022, including interim periods within that fiscal year. The Company expects that there would be no material impact on the Company’s condensed consolidated financial statements upon the adoption of this ASU.
Management does not believe that any recently issued, but not yet effective accounting pronouncements, when adopted, will have a material effect on the accompanying condensed consolidated financial statements.
Note 3 – Going Concern
The Company’s condensed consolidated financial statements have been prepared assuming that it will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
As reflected in the condensed consolidated financial statements, as of June 30, 2021,March 31, 2022, the Company had an accumulated deficit of $87.5$116 million, a net loss of $15.2$6.9 million and net cash used in operating activities of $11$5.1 million for the reporting period then ended. The Company is in default on debentures as of the date of this filing. These factors raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial statements.
On January 30, 2020, the World Health Organization declared the COVID-19 novel coronavirus outbreak a “Public Health Emergency of International Concern” and on March 10, 2020, declared it to be a pandemic. Actions taken around the world to help mitigate the spread of the coronavirus include restrictions on travel, and quarantines in certain areas, and forced closures for certain types of public places and businesses. The COVID-19 coronavirus and actions taken to mitigate it have had and are expected to continue to have an adverse impact on the economies and financial markets of many countries, including the geographical area in which the Company operates. While it is unknown how long these conditions will last and what the complete financial impact will be to the Company, capital raising efforts and our operations may be negatively affected.
The Company is attempting to further implement its business plan and generate sufficient revenues; however, its cash position may not be sufficient to support its daily operations. While the Company believes in the viability of its strategy to further implement its business plan and generate sufficient revenues and in its ability to raise additional funds by way of a public or private offering of its debt or equity securities, there can be no assurance that it will be able to do so on reasonable terms, or at all. The ability of the Company to continue as a going concern is dependent upon its ability to further implement its business plan and generate sufficient revenues and its ability to raise additional funds by way of a public or private offering.
The condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Note 4 – Equity investments, at cost
The Company has elected to measure its equity securities without a readily determinable fair value at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. An election to measure an equity security in accordance with this paragraph shall be made for each investment separately.
The Company performed a qualitative assessment considering impairment indicators to evaluate whether these investments were impaired. Impairment indicators that the Company considered included the following: a) a significant deterioration in the earnings performance, credit rating, asset quality or business prospects of the investee; b) a significant adverse change in the regulatory, economic or technology environment of the investee; c) a significant adverse change in the general market condition of either the geographical area or the industry in which the investee operates; d) a bona fide offer to purchase or an offer by the investee to sell the investment; e) factors that raise significant concerns about the investee’s ability to continue as a going concern.
On October 2, 2020, the Company converted $102,096 of its marketable debt security into 119,355 shares of preferred stock or a 1.3% equity investment in a private company.
On October 23, 2020, the Company entered into an equity interest purchase agreement whereas the Company purchased 3.8% ownership of a private company for $115,000.Inventory
On February 17, 2021,Inventory was comprised of the Company entered into a membership interest purchase agreement whereas the Company purchased another 3.3% ownership of a private company for $100,000.following at March 31, 2022 and December 31, 2021:
March 31, 2022 | December 31, 2021 | |||||||
Raw Materials | $ | 16,904 | $ | - | ||||
Packaging | 20,342 | 2,907 | ||||||
Finished goods | 399,735 | 103,496 | ||||||
$ | 436,981 | $ | 106,403 |
Note 5 – Property and Equipment
On May 21, 2021,Property and equipment stated at cost, less accumulated depreciation and amortization, consisted of the Company entered into a common stock purchase agreement whereas the Company purchased 10.0% ownership of a private company for $50,000.following:
March 31, 2022 | December 31, 2021 | |||||||
Computer Equipment | $ | 376,436 | $ | 353,880 | ||||
Furniture and Fixtures | 124,787 | 102,416 | ||||||
Leasehold Improvements | 11,456 | 11,457 | ||||||
512,679 | 467,753 | |||||||
Less: Accumulated Depreciation | (373,200 | ) | (364,814 | ) | ||||
$ | 139,479 | $ | 102,939 |
On May 27,
Depreciation expense was $8,386 and $10,047 for the three months ended March 31, 2022 and 2021, the Company made a deposit of $110,000 towards future ownership in a private company. As of June 30, 2021, had no voting control nor equity in the private company related to this deposit.respectively.
Note 56 – Notes Payable
Notes payable as of June 30, 2021March 31, 2022 and December 31, 20202021 is as follows:
Outstanding Principal as of | Outstanding Principal as of | ||||||||||||||||||||||||||||
June 30, 2021 | December 31, 2020 | Interest Rate | Maturity Date | March 31, 2022 | December 31, 2021 | Interest Rate | Maturity Date | ||||||||||||||||||||||
Seller’s Choice Note | $ | 660,000 | $ | 660,000 | 30 | % | September 2020 | $ | - | $ | 660,000 | 30 | % | September 2020 | |||||||||||||||
The May 2020 PPP Loan Agreement | 252,432 | 412,500 | 1 | % | April 2022 | ||||||||||||||||||||||||
The April 2020 PPP Loan Agreement | - | 282,432 | 1 | % | May 2022 | 198,577 | 198,577 | 1 | % | May 2022 | |||||||||||||||||||
The October 2020 Loan Agreement | 56,796 | 55,928 | 14 | % | July 21 | ||||||||||||||||||||||||
The November 2020 Loan Agreement | - | 23,716 | 14 | % | May 2021 | ||||||||||||||||||||||||
The February 2021 Loan Agreement | 85,372 | - | 14 | % | July 21 | ||||||||||||||||||||||||
The April 2021 Loan Agreement | 41,585 | - | 10 | % | October 22 | ||||||||||||||||||||||||
The First December 2021 Loan Agreement | 140,931 | 185,655 | 10 | % | June 2023 | ||||||||||||||||||||||||
The Second December 2021 Loan Agreement | 323,094 | 313,979 | 14 | % | June 2022 | ||||||||||||||||||||||||
The First February 2022 Loan Agreement | 337,163 | - | - | % | June 2023 | ||||||||||||||||||||||||
The Second February 2022 Loan Agreement | 164,123 | - | 14 | % | June 2022 | ||||||||||||||||||||||||
First Denver Bodega LLC Loan | 50,000 | - | |||||||||||||||||||||||||||
Second Denver Bodega LLC Loan | 15,724 | - | |||||||||||||||||||||||||||
1,096,185 | 1,434,576 | 1,229,612 | 1,358,211 | ||||||||||||||||||||||||||
Less: Debt Discount | (7,549 | ) | - | (42,620 | ) | (15,547 | ) | ||||||||||||||||||||||
Less: Debt Issuance Costs | - | - | - | - | |||||||||||||||||||||||||
1,088,636 | 1,434,576 | 1,186,992 | 1,342,664 | ||||||||||||||||||||||||||
Less: Current Debt | (1,054,600 | ) | (1,221,539 | ) | (1,151,087 | ) | (1,278,672 | ) | |||||||||||||||||||||
Total Long-Term Debt | $ | 34,036 | $ | 213,037 | $ | 35,905 | $ | 63,992 |
Seller’s Choice Note
On September 11, 2019, the Company entered into Seller’s Choice Purchase Agreement with Home Revolution LLC (see Note 4).LLC. As a part of the consideration provided pursuant to the Seller’s Choice Acquisition, the Company issued the Seller’s Choice Note to the Seller in the principal amount of $660,000. The Seller’s Choice Note bears interest at a rate of 9.5% per annum and is payable on March 11, 2020 (the “Seller’s Choice Maturity Date”) at which time all outstanding principal, accrued and unpaid interest and other amounts become due. Upon maturity the Company utilized an automatic extension up to 6 months. This resulted in a 5% increase in the interest rate every month the Seller’s Choice Note is outstanding. As of June 30,December 31, 2021, the Company is in default on the Seller’s Choice note.
DuringOn March 3, 2022, after substantial motion practice, Creatd successfully settled the six months ended June 30, 2021,dispute with Home Revolution, LLC for a total of $799,000, which includes $660,000 of note principal and $139,000 of accrued interest. The matter has been dismissed. As part of the settlement the Company accrued interestrecorded a Gain on extinguishment of $98,186.debt of $147,256.
The April 2020 PPP Loan Agreement
On April 30, 2020, the Company was granted a loan with a principal amount of $282,432 (the “Loan”), pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was enacted on March 27, 2020. The Loan, which was in the form of a Note dated April 30, 2020, matures on April 30, 2022, and bears interest at a fixed rate of 1.00% per annum, payable monthly commencing on October 30, 2020. The Note may be prepaid by the Company at any time prior to maturity without payment of any premium. Funds from the Loan may only be used to retain workers and maintain payroll or make mortgage payments, lease payments and utility payments.
During the sixthree months ended June 30, 2021,March 31, 2022, the Company accrued interest of $1,145.$490.
During the six months ended June 30, 2021, the Company repaid $30,000 in principal.
The Company is in the process of returning the funds received from the Loan.
When the applications for PPP first opened up, there was limited available funding and much confusion surrounding the application process. The Company initially submitted its application for the May 2020 PPP Loan in early April but received no response in the aftermath of submitting the application. After consulting multiple advisors, the Company made the decision to apply elsewhere, due to the rampant media coverage of institutions running out of funding and the Company’s need for the capital and belief that if 2 separate loans were approved, the remaining application could simply be withdrawn.
Therefore, in late April, the company proceeded with applying for the April 2020 PPP Loan. After some conflicting communications regarding acceptance, the Company attempted to contact the lender to clarify but got no response. After continued attempts to follow up with both lenders, the Company received approval for the May 2020 PPP Loan and funding for the April 2020 PPP Loan on the same day, followed the next day by the funding of the May 2020 PPP Loan. The Company immediately separated the funds for the April 2020 PPP Loan into a separate reserved bank account with the intention of returning the funds. However, after several attempts to contact the lender with no response, the Company was faced with difficulty raising funds in the early-Covid economy and made the decision to utilize the funds for operations and pursue an installment repayment plan when they were able to reach the lender. As of the date of this filing, the Company has begun making repayments on the loan, absent a formal installment agreement due to difficulties reaching the lender. The Company intends to complete repayment before the end of 2021.
As each company is only permitted one loan under the CARES Act, there is a possibility the loan may be called by the SBA and the Company would have to repay the loan in full at such time.
The May 2020 PPPFirst December 2021 Loan Agreement
On May 4, 2020, Jerrick Ventures, LLC (“Jerrick Ventures”), the Company’s wholly-owned subsidiary, was granted a loan from PNC Bank, N.A. with a principal amount of $412,500, pursuant to the Paycheck Protection Program (the “PPP”). The Loan, which was in the form of a Note dated May 4, 2020, matures on May 4, 2022, and bears interest at a fixed rate of 1.00% per annum, payable monthly commencing on November 4, 2020. The Note may be prepaid by Jerrick Ventures at any time prior to maturity without payment of any premium. Funds from the Loan may only be used to retain workers and maintain payroll or make mortgage payments, lease payments and utility payments. Jerrick Ventures intends to use the entire Loan amount for qualifying expenses. Under the terms of the PPP, certain amounts of the Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act.
During the six months ended June 30, 2021, the Company accrued interest of $1,017.
During the six months ended June 30, 2021, the Company repaid $136,597 in principal and was forgiven $275,903 of principal and $3,119 of accrued interest.
The October 2020 Loan Agreement
On October 6, 2020, the Company entered into a secured loan agreement (the “October 2020 Loan Agreement”) with a lender (the “October 2020 Lender”), whereby the October 2020 Lender issued the Company a secured promissory note of A$74,300 AUD or $56,796 United States Dollars (the “October 2020 Note”). Pursuant to the October 2020 Loan Agreement, the October 2020 Note has an effective interest rate of 14%. The maturity date of the October 2020 Note is September 30,December 3, 2021, (the “October 2020 Maturity Date”) at which time all outstanding principal, accrued and unpaid interest and other amounts due under the October 2020 Loan Agreement are due. The loan is secured by the Australian research & development credit.
During the six months ended June 30, 2021, the Company accrued A$5,158 in interest.
The November 2020 Loan Agreement
On November 24, 2020, the Company entered into a loan agreement (the “November 2020“First December 2021 Loan Agreement”) with a lender (the “November 2020“First December 2021 Lender”) whereby the November 2020First December 2021 Lender issued the Company a promissory note of $34,000$191,975 (the “November 2020“First December 2021 Note”). Pursuant to the November 2020First December 2021 Loan Agreement, the November 2020First December 2021 Note has an effective interest rate of 14%9%. The maturity date of the November 2020First December 2021 Note is May 25,June 3, 2023 (the “First December 2021 (the “November 2020 Maturity Date”), at which time all outstanding principal, accrued and unpaid interest and other amounts due under the November 2020First December 2021 Note are due.
During the sixthree months ended June 30, 2021,March 31, 2022, the Company repaid $23,716$44,725 in principal and $4,736 of accrued interest.principal.
The FebruarySecond December 2021 Loan Agreement
On February 24,December 14, 2021, the Company entered into a secured loan agreement (the “February“Second December 2021 Loan Agreement”) with a lender (the “February“Second December 2021 Lender”), whereby the FebruarySecond December 2021 Lender issued the Company a secured promissory note of A$111,683$438,096 AUD or $85,372$329,127 United States Dollars (the “February“Second December 2021 Note”). Pursuant to the FebruarySecond December 2021 Loan Agreement, the FebruarySecond December 2021 Note has an effective interest rate of 14%. The maturity date of the FebruarySecond December 2021 Note is July 31, 2021June 30, 2022 (the “February“Second December 2021 Maturity Date”) at which time all outstanding principal, accrued and unpaid interest and other amounts due under the FebruarySecond December 2021 Loan Agreement are due. The loan is secured by the Australian research & development credit.
During the sixthree months ended June 30, 2021,March 31, 2022, the Company accrued A$ 5,398$15,123 AUD in interest.
The April 2021First February 2022 Loan Agreement
On April 9, 2021,February 22, 2022, the Company entered into a secured loan agreement (the “April 2021“First February 2022 Loan Agreement”) with a lender (the “April 2021“First February 2022 Lender”), whereby the April 2021First February 2022 Lender issued the Company a secured promissory note of $128,110$222,540 AUD or $159,223 United States Dollars (the “April 2021“First February 2022 Note”). Pursuant to the April 2021First February 2022 Loan Agreement, the April 2021First February 2022 Note has an effective interest rate of 11%14%. The maturity date of the April 2021First February 2022 Note is October 8,June 30, 2022 (the “April 2021“First February 2022 Maturity Date”), at which time all outstanding principal, accrued and unpaid interest and other amounts due under the April 2021 NoteFirst February 2022 Loan Agreement are due. The loan is secured by the Australian research & development credit.
During the sixthree months ended June 30, 2021,March 31, 2022, the Company accrued $3,158 AUD in interest.
The Second February 2022 Loan Agreement
On February 22, 2022, the Company entered into a loan agreement (the “Second February 2022 Loan Agreement”) with a lender (the “Second February 2022 Lender”), whereby the Second February 2022 Lender issued the Company a promissory note of $337,163 (the “Second February 2022 Note”). Pursuant to the Second February 2022 Loan Agreement, the Second February 2022 Note has an effective interest rate of 11%. The maturity date of the Second February 2022 Note is February 22, 2023 (the “Second February 2022 Maturity Date”). The Company is required to make 10 monthly payment of $37,425.
The Company recorded a $37,163 debt discount relating to an original issue discount. The debt discount is being accreted over the life of the note to accretion of debt discount and issuance cost.
Denver Bodega LLC Notes payable
On March 7, 2022, The Company acquired five note payable agreements from the acquisition of Denver Bodega LLC. See note 12. The total liabilities of these notes amounted to $293,888. During the three months ended March 31, 2022, the Company repaid $86,525 in principal.$228,164. As of March 31, 2022, the Company has two notes outstanding. The First Denver Bodega LLC Loan has a principal balance of $50,000, bears interest at 5%, and requires 36 monthly payments of $1,496. The second Denver Bodega LLC Loan has a principal balance of $15,724 and has a maturity date of April 16, 2022.
Note 67 – Convertible NoteNotes Payable
Convertible notes payable as of June 30, 2021, and December 31, 2020 is as follows:
Outstanding Principal as of | Warrants granted | |||||||||||||||||||||||||
June 30, 2021 | December 31, 2020 | Interest Rate | Conversion Price | Maturity Date | Quantity | Exercise Price | ||||||||||||||||||||
The September 2020 convertible Loan Agreement | $ | - | $ | 341,880 | 12 | % | - | (*) | September-21 | 85,555 | 5 | |||||||||||||||
The First December 2020 convertible Loan Agreement | - | 600,000 | 12 | % | - | (*) | December-21 | - | - | |||||||||||||||||
The October 2020 convertible Loan Agreement | - | 169,400 | 6 | % | - | (*) | October-21 | - | - | |||||||||||||||||
The Second December 2020 convertible Loan Agreement | 169,400 | 169,400 | 6 | % | - | (*) | December-21 | - | - | |||||||||||||||||
The May 2021 Loan | 4,666,669 | - | - | % | 5.00 | (*) | November-22 | 1,090,908 | 4.500 | |||||||||||||||||
4,836,069 | 1,280,680 | |||||||||||||||||||||||||
Less: Debt Discount | (2,174,294 | ) | (309,637 | ) | ||||||||||||||||||||||
Less: Debt Issuance Costs | (495,327 | ) | (73,527 | ) | ||||||||||||||||||||||
2,166,448 | 897,516 | |||||||||||||||||||||||||
Less: Current Debt | (67,048 | ) | (897,516 | ) | ||||||||||||||||||||||
Total Long-Term Debt | $ | 2,099,400 | $ | - |
The First July 20202021 Convertible Loan Agreement
On July 01, 2020,6, 2021, the Company entered into a loan agreement (the “First July 2020“July 2021 Loan Agreement”) with an individual (the “First July 2020“July 2021 Lender”), whereby the First July 20202021 Lender issued the Company a promissory note of $68,000$168,850 (the “First July 2020“July 2021 Note”). Pursuant to the First July 20202021 Loan Agreement, the First July 20202021 Note has interest of tensix percent (10%(6%). The First July 20202021 Note matures on June 29, 2021.the first (12th) month anniversary of its issuance date.
Upon default or 180 days after issuance the First July 20202021 Note is convertible into shares of the Company’s common stock, par value $.001$0.001 per share (“Conversion Shares”) equal to 61% multiplied by75% of average the lowest tradethree trading prices of the Company’s common stock duringon the twenty (15) consecutive tradingfifteen-trading day period immediately preceding the date of the respective conversion.tconversion.
The Company recorded a $15,850 debt discount relating to an original issue discount and $3,000 of debt issuance costs related to fees paid to vendors relating to the offering. The debt discount and debt issuance costs are being accreted over the life of the note to accretion of debt discount and issuance cost.
During the sixthree months ended June 30,March 31, 2022, the July 2021 the First July 2020 Note became convertible. Due to the fact that these convertible notes have an option to convert at a variable amount, they are subject to derivative liability treatment. The Company has applied ASC 815, due to the potential for settlement in a variable quantity of shares. The conversion feature has been measured at fair value using a Binomial model at the conversion date and the period end.date. The conversion feature of First July 20202021 Note gave rise to a derivative liability of $112,743. The Company recorded $68,000 as a debt discount and $44,743 was recorded to derivative expense. The debt discount is charged to accretion of debt discount over the remaining term of the convertible note.
During the six months ended June 30, 2021 the Company converted $68,000 in principal and $3,400 in interest into 35,469 shares of the Company’s common stock.
The August 2020 Convertible Loan Agreement
On August 17, 2020, the Company entered into a loan agreement (the “August 2020 Loan Agreement”) with an individual (the “August 2020 Lender”), whereby the August 2020 Lender issued the Company a promissory note of $68,000 (the “August 2020 Note”). Pursuant to the August 2020 Loan Agreement, the August 2020 Note has interest of twelve percent (12%). The August 2020 Note matures on August 17, 2021.
Upon default or 180 days after issuance the August 2020 Convertible Note is convertible into shares of the Company’s common stock, par value $.001 per share (“Conversion Shares”) equal to 61% multiplied by the lowest trade of the common stock during the twenty (15) consecutive trading day period immediately preceding the date of the respective conversion.
The Company recorded a $3,000 debt discount relating to original issue discount associated with this note. The debt discount is being accreted over the life of the note to accretion of debt discount and issuance cost.t
During the six months ended June 30, 2021, the August 2020 Note became convertible. Due to the fact that these convertible notes have an option to convert at a variable amount, they are subject to derivative liability treatment. The Company has applied ASC 815, due to the potential for settlement in a variable quantity of shares. The conversion feature has been measured at fair value using a Binomial model at the conversion date and the period end. The conversion feature of August 2020 Note gave rise to a derivative liability of $120,759. The Company recorded $65,000 was recorded as a debt discount and $55,759 was recorded to derivative expense. The debt discount is charged to accretion of debt discount over the remaining term of the convertible note.
During the six months ended June 30, 2021 the Company converted $68,000 in principal and $3,400 in interest into 29,859 shares of the Company’s common stock.
The September 2020 Convertible Loan Agreement
On September 23, 2020, the Company entered into a loan agreement (the “September 2020 Loan Agreement”) with an individual (the “September 2020 Lender”), whereby the September 2020 Lender issued the Company a promissory note of $385,000 (the “September 2020 Note”). Pursuant to the September 2020 Loan Agreement, the September 2020 Note has interest of twelve percent (12%). The September 2020 Note matures on September 23, 2021.
Upon default or 180 days after issuance the Second July 2020 Note is convertible into shares of the Company’s common stock, par value $.001 per share equal to the closing bid price of the Company’s common stock on the trading day immediately preceding the date of the respective conversion.
The Company recorded a $68,255 debt discount relating to original issue discount associated with this note. The Company recorded a $146,393 debt discount relating to 85,555 warrants issued to investors based on the relative fair value of each equity instrument on the dates of issuance. The debt discount is being accreted over the life of the note to accretion of debt discount and issuance cost.
During the six months ended June 30, 2021 the Company repaid $341,880 in principal and $46,200 in interest.
The October 2020 Convertible Loan Agreement
On October 2, 2020, the Company entered into a loan agreement (the “October 2020 Loan Agreement”) with an individual (the “October 2020 Lender”), whereby the October 2020 Lender issued the Company a promissory note of $169,400 (the “October 2020 Note”). Pursuant to the October 2020 Loan Agreement, the October 2020 Note has interest of six percent (6%). The October 2020 Note matures on the first (12th) month anniversary of its issuance date.
Upon default or 180 days after issuance the October 2020 Note is convertible into shares of the Company’s common stock, par value $0.001 per share (“Conversion Shares”) equal to 75% of average the lowest three trading prices of the Company’s common stock on the fifteen-trading day immediately preceding the date of the respective conversion.
The Company recorded a $19,400 debt discount relating to original issue discount associated with this note. The debt discount is being accreted over the life of the note to accretion of debt discount and issuance cost.
During the six months ended June 30, 2021 the Second July 2020 Note became convertible. Due to the fact that these convertible notes have an option to convert at a variable amount, they are subject to derivative liability treatment. The Company has applied ASC 815, due to the potential for settlement in a variable quantity of shares. The conversion feature has been measured at fair value using a Binomial model at the conversion date and the period end. The conversion feature of Second July 2020 Note gave rise to a derivative liability of $74,860.$100,532. The Company recorded this as a debt discount. The debt discount is charged to accretion of debt discount over the remaining term of the convertible note.
During the sixthree months ended June 30, 2021March 31, 2022, the Companynote holder converted $169,400 in$168,850 of principal and $4,620 in$4,605 of interest into 55,631 shares of the Company’s common stock.
The First December 2020 convertible Loan Agreement
On December 9, 2020, the Company entered into a loan agreement (the “First December 2020 Loan Agreement”) with an individual (the “First December 2020 Lender”), whereby the First December 2020 Lender issued the Company a promissory note of $600,000 (the “First December 2020 Note”). Pursuant to the First December 2020 Loan Agreement, the First December 2020 Note has interest of twelve percent (12%). As additional consideration for entering in the First December 2020 convertible Loan Agreement, the Company issued 45,000109,435 shares of the Company’s common stock. The First December 2020 unamortized debt discount of $96,803 was recorded to extinguishment of debt due to conversion.
Note matures on the first (12th) month anniversary of its issuance date. 8 – Related Party
Upon default the First December 2020 Note is convertible into shares of the Company’s common stock, par value $.001 per share (“Conversion Shares”) equal to the closing bid price of the Company’s common stock on the trading day immediately preceding the date of the respective conversion.Equity raises
The Company recorded a $110,300 debt discount relatingDuring the three months ended March 31, 2022, the company conducted two equity raises in which officers, directors, employees, and an affiliate of an officer cumulatively invested $421,001 for 240,571 shares of common stock and 240,571 warrants to original issue discount associated with this note. The Company recorded a $113,481 debt discount relating to 45,000 shares issued to investors based on the relative fair value of each equity instrument on the dates of issuance. The debt discount is being accreted over the life of the note to accretion of debt discount and issuance cost.purchase common stock.
Officer compensation
During the sixthree months ended June 30,March 31, 2022 and 2021, the Company repaid $600,000 in principalpaid $35,637 and $4,340 in interest.
$20,082, respectively for living expenses for officers of the Company.
The Second December 2020 Convertible Loan Agreement
On December 30, 2020, the Company entered into a loan agreement (the “Second December 2020 Loan Agreement”) with an individual (the “Second December 2020 Lender”), whereby the Second December 2020 Lender issued the Company a promissory note of $169,400 (the “Second December 2020 Note”). Pursuant to the Second December 2020 Loan Agreement, the Second December 2020 Note has interest of six percent (6%). The Second December 2020 Note matures on the first (12th) month anniversary of its issuance date.
Upon default the Second December 2020 Note is convertible into shares of the Company’s common stock, par value $0.001 per share (“Conversion Shares”) equal to 75% of average the lowest three trading prices of the Company’s common stock on the fifteen-trading day immediately preceding the date of the respective conversion.
The Company recorded a $18,900 debt discount relating to original issue discount associated with this note. The debt discount is being accreted over the life of the note to accretion of debt discount and issuance cost.
During the six months ended June 30, 2021 the Second December 2020 Note became convertible. Due to the fact that these convertible notes have an option to convert at a variable amount, they are subject to derivative liability treatment. The Company has applied ASC 815, due to the potential for settlement in a variable quantity of shares. The conversion feature has been measured at fair value using a Binomial model at the conversion date and the period end. The conversion feature of Second December 2020 Note gave rise to a derivative liability of $108,880. The Company recorded this as a debt discount. The debt discount is charged to accretion of debt discount over the remaining term of the convertible note.
The May 2021 Convertible Note Offering
On May 14, 2021, the Company conducted multiple closings of a private placement offering to accredited investors (the “May 2021 Convertible Note Offering”) of units of the Company’s securities by entering into subscription agreements with “accredited investors” (the “May 2021 Investors”) for aggregate gross proceeds of $3,690,491. The May 2021 convertible notes are convertible into shares of the Company’s common stock, par value $.001 per share at a conversion price of $5.00 per share. As additional consideration for entering in the May 2021 Convertible Note Offering, the Company issued 1,090,908 warrants of the Company’s common stock. The May 2021 Convertible Note matures on November 14, 2022.
The Company recorded a $1,601,452 debt discount relating to 1,090,908 warrants issued to investors based on the relative fair value of each equity instrument on the dates of issuance. The debt discount is being accreted over the life of these notes to accretion of debt discount and issuance cost.
The Company recorded a $666,669 debt discount relating to an original issue discount and $539,509 of debt issuance costs related to fees paid to vendors relating to the offering. The debt discount and debt issuance costs are being accreted over the life of the note to accretion of debt discount and issuance cost.
Note 7 – Related Party
Notes payable
Notes payable – related party as of June 30, 2021 and December 31, 2020 is as follows:
Outstanding Principal as of | Warrants granted | |||||||||||||||||||||
June 30, 2021 | December 31, 2020 | Interest Rate | Maturity Date | Quantity | Exercise Price | |||||||||||||||||
The September 2020 Goldberg Loan Agreement | 16,705 | 16,705 | 7 | % | September 2022 | - | - | |||||||||||||||
The September 2020 Rosen Loan Agreement | 3,295 | 3,295 | 7 | % | September 2022 | - | - | |||||||||||||||
20,000 | 20,000 | |||||||||||||||||||||
Less: Debt Discount | (12,110 | ) | (17,068 | ) | ||||||||||||||||||
Less: Debt Issuance Costs | - | - | ||||||||||||||||||||
7,890 | 2,932 | |||||||||||||||||||||
Less: Current Debt | (7,890 | ) | (2,932 | ) | ||||||||||||||||||
$ | - | $ | - |
The September 2020 Goldberg Loan Agreement
On September 15, 2020, the Company entered into a loan agreement (the “September 2020 Goldberg Loan Agreement”) with Goldberg whereby the Company issued a promissory note of $16,705 (the “September 2020 Goldberg Note”). Pursuant to the September 2020 Goldberg Loan Agreement, the September 2020 Goldberg Note has an interest rate of 7%. The maturity date of the September 2020 Goldberg Note is September 15, 2022 (the “September 2020 Goldberg Maturity Date”), at which time all outstanding principal, accrued and unpaid interest and other amounts due under note are due. The September 2020 Goldberg Loan is secured by the tangible and intangible property of the Company.
Since the September 2020 Goldberg Note has a make-whole provision if the shares of the Company’s common stock issued to the lender in accordance with the Lender’s Exchange Agreement (see note 11) have a value equal to or less than $6,463,363 determined by using the lowest VWAP of the last 30 days prior to September 14, 2021. The principal amount of the September 2020 Goldberg Note shall increase by 200% of the difference between the initial consideration and the September 14, 2021 value. The Company has applied ASC 815, due to the potential for settlement in a variable quantity of shares. The make-whole feature gave rise to a derivative liability of $2,557,275, of which $2,540,570 was recorded as a loss on extinguishment of debt and $16,705 as a debt discount. The debt discount is being accreted over the life of the note to accretion of debt discount and issuance cost. The derivative liability is marked to market as of June 30, 2021, and the change in derivative liability is recorded on Condensed Consolidated Statements of Comprehensive Loss. See note 8.
During the six months ended June 30, 2021 the Company accrued interest of $580.
The September 2020 Rosen Loan Agreement
On September 15, 2020, the Company entered into a loan agreement (the “September 2020 Rosen Loan Agreement”) with Rosen whereby the Company issued a promissory note of $3,295 (the “September 2020 Rosen Note”). Pursuant to the September 2020 Rosen Loan Agreement, the September 2020 Rosen Note has an interest rate of 7%. The maturity date of the September 2020 Rosen Note is September 15, 2022 (the “September 2020 Rosen Maturity Date”), at which time all outstanding principal, accrued and unpaid interest and other amounts due under the note are due. The September 2020 Rosen Loan is secured by the tangible and intangible property of the Company.
Since the September 2020 Rosen Note has a make-whole provision if the shares of the Company’s common stock issued to the lender in accordance with the Lender’s Exchange Agreement (see note 11) have a value equal to or less than $1,274,553 determined by using the lowest VWAP of the last 30 days prior to September 14, 2021. The principal amount of the September 2020 Rosen Note shall increase by 200% of the difference the initial consideration and the September 14, 2021 value. The Company has applied ASC 815, due to the potential for settlement in a variable quantity of shares. The make-whole feature of gave rise to a derivative liability of $504,413, of which $501,118 was recorded as a loss on extinguishment of debt and $3,295 as a debt discount. The debt discount is being accreted over the life of the note to accretion of debt discount and issuance cost. The derivative liability is marked to market as of June 30, 2021, and the change in derivative liability is recorded on Condensed Consolidated Statements of Comprehensive Loss. See note 8.
During the six months ended June 30, 2021 the Company accrued interest of $114.
Officer compensation
During the six months ended June 30, 2021 the Company paid $72,328 for living expenses for officers of the Company.
Note 89 – Derivative Liabilities
The Company has identified derivative instruments arising from a make-whole feature in the Company’s notes payable at June 30, 2021. For the terms of the make-whole features see the September 2020 Rosen Loan Agreement and the September 2020 Goldberg Loan Agreement in Note 7. The Company has also identified derivative instruments arising from convertible notes that have an option to convert at a variable number of shares in the Company’s convertible notes payable at June 30, 2021.during the three months ended March 31, 2022. For the terms of the conversion features see Note 7. The Company had no derivative assets measured at fair value on a recurring basis as of June 30, 2021.March 31, 2022.
The Company utilizes a Monte Carlo simulation model for the make whole feature and a binomial option model for convertible notes that have an option to convert at a variable number of shares to compute the fair value of the derivative and to mark to market the fair value of the derivative at each balance sheet date. The inputs utilized in the application of the Monte Carlo model included a starting stock price, an expected term of each debenture remaining from the valuation date to maturity, an estimated volatility, drift, and a risk-free rate. The inputs utilized in the application of the Binomial model included a stock price on valuation date, an expected term of each debenture remaining from the valuation date to maturity, an estimated volatility, and a risk-free rate. The Company records the change in the fair value of the derivative as other income or expense in the condensed consolidated statements of operations.
Risk-free interest rate: The Company uses the risk-free interest rate of a U.S. Treasury Note adjusted to be on a continuous return basis to align with the Monte Carlo simulation model and binomial model.
Dividend yield: The Company uses a 0% expected dividend yield as the Company has not paid dividends to date and does not anticipate declaring dividends in the near future.
Volatility: The Company calculates the expected volatility based on the company’s historical stock prices with a look back period commensurate with the period to maturity.
Expected term: The Company’s remaining term is based on the remaining contractual maturity of the convertible notes.
The following are the changes in the derivative liabilities during the three and six months ended June 30, 2021.March 31, 2022.
Three Months Ended June 30, 2021 | ||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||
Derivative liabilities as April 1, 2021 | $ | - | $ | - | $ | 344,404 | ||||||
Addition | - | - | 108,880 | |||||||||
Extinguishment | (82,431 | ) | ||||||||||
Changes in fair value | - | - | 65,442 | |||||||||
Derivative liabilities as June 30, 2021 | $ | - | $ | - | $ | 436,295 |
Three Months Ended March 31, 2022 | ||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||
Derivative liabilities as January 1, 2022 | $ | - | $ | - | $ | - | ||||||
Addition | - | - | 100,532 | |||||||||
Changes in fair value | - | - | (3,729 | ) | ||||||||
Extinguishment | - | - | (96,803 | ) | ||||||||
Derivative liabilities as March 31, 2022 | $ | - | $ | - | $ | - |
Six Months Ended June 30, 2021 | ||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||
Derivative liabilities as January 1, 2021 | $ | - | $ | - | $ | 42,231 | ||||||
Addition | - | - | 417,241 | |||||||||
Extinguishment | (286,009 | ) | ||||||||||
Changes in fair value | - | - | 262,831 | |||||||||
Derivative liabilities as June 30, 2021 | $ | - | $ | - | $ | 436,295 |
Note 910 – Stockholders’ Equity
Shares Authorized
Prior to July 13, 2020, theThe Company wasis authorized to issue up to thirty-fiveone hundred and twenty million (35,000,000)(120,000,000) shares of capital stock, of which fifteenone hundred million (15,000,000)(100,000,000) shares are designated as common stock, par value $0.001 per share, and twenty million (20,000,000) are designated as “blank check” preferred stock, par value $0.001 per share. The designations, rights, and preferences of such preferred stock are to be determined by the Company’s board of directors.
On July 13, 2020, the Company filed the Second Amended and Restated Articles of Incorporation with the Secretary of State of the State of Nevada, which authorize the issuance of 100,000,000 shares of common stock, and 20,000,000 shares of preferred stock.Preferred Stock
On August 17, 2020, following board of directors approval, the Company filed a Certificate of Change to its Articles of Incorporation (the “Amendment”), with the Secretary of State of the State of Nevada to effectuate a one-for-twenty (1:3) reverse stock split (the “Reverse Stock Split”) of its common stock, par value $0.001 per share, without any change to its par value. The Amendment became effective on August 17, 2020. No fractional shares were issued in connection with the Reverse Stock Split as all fractional shares were “rounded up” to the next whole share. As a result, all share information in the accompanying condensed consolidated financial statements has been adjusted as if the reverse stock split happened on the earliest date presented.
Preferred Stock
Series E Convertible Preferred Stock
On December 29, 2020 theThe Company entered into securities purchase agreements with thirty-three accredited investors whereby the Investors have agreed to purchase from the Company an aggregate of 7,778has designated 8,000 shares of the Company’s Series E Convertible Preferred Stock, par value $0.001 per sharestock and 2,831,715 warrants to purchasehas 500 shares issued and outstanding as of the Company’s common stock, par value $0.001 per share. March 31, 2022.
The shares of Series E Preferred Stock ishave a stated value of $1,000 per share and are convertible into a totalCommon Stock at the election of 1,887,810 sharesthe holder of Common Stock. The combined purchase price of one Conversion Share and one and a half warrant was $4.12. The aggregate purchase price for the Series E Preferred Stock, at any time following the Original Issue Date at a price of $4.12 per share, subject to adjustment. Each holder of Series E Preferred Stock shall be entitled to receive, with respect to each share of Series E Preferred Stock then outstanding and warrants was $7,777,777. The Company has recorded $817,353 to stock issuance costs, whichheld by such holder, dividends on an as-converted basis in the same form as dividends actually paid on shares of the Common Stock when, as and if such dividends are partpaid on shares of Additional Paid-in Capital.the Common Stock.
The warrantsholders of Series E Preferred Stock shall be paid pari passu with the holders of Common Stock with respect to payment of dividends and rights upon liquidation and shall have no voting rights. In addition, as further described in the Series E Designation, as long as any of the shares of Series E Preferred Stock are exercisable foroutstanding, the Company shall not, without the affirmative vote of the holders of a termmajority of five-years from the datethen outstanding shares of issuance, at an exercise price of $4.50 per share. The warrants provide for cashless exerciseSeries E Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the extentSeries E Preferred Stock or alter or amend this Series E Designation, (b) amend its certificate of incorporation or other charter documents in any manner that there is no registration statement available foradversely affects any rights of the underlyingholders of the Series E Preferred Stock, (c) increase the number of authorized shares of Series E Preferred Stock, or (d) enter into any agreement with respect to any of the foregoing.
Each share of Series E Preferred Stock shall be convertible, at any time and from time to time at the option of the holder of such shares, into that number of shares of Common Stock.Stock determined by dividing the Series E Stated Value by the Conversion Price, subject to certain beneficial ownership limitations.
The placement agent for the transaction and received cash compensation equal to 10% of the aggregate purchase price and warrants to purchase 471,953 shares of the Company’s common stock, at an exercise price of $5.15 per share (the “PA Warrants”). The PA Warrants are exercisable for a term of five-years from the date of issuance.
During the six months ended June 30, 2021, the Company received the $40,000 of the subscription receivable for the Series E Convertible Preferred Stock. The Company has recorded $4,225 to stock issuance costs, which are part of Additional Paid-in Capital.
During the six months ended June 30, 2021, investors converted 6,730 shares of the Company’s Series E Convertible Preferred Stock into 1,633,439 shares of the Company’s common stock.
Common Stock
On January 14, 2021,1, 2022, the Company issued 30,0008,590 shares of its restricted common stock to settle outstanding vendor liabilities of $20,297. In connection with this transaction the Company also recorded a gain on settlement of vendor liabilities of $369.
On January 6, 2022, the Company issued 8,850 shares of its restricted common stock to consultants in exchange for services at a fair value of $133,200.$19,736.
On January 20, 2021,February 24, 2022, the Company issued 40,00050,000 shares of its restricted common stock to consultants in exchange for a yearfour months of services at a fair value of $192,000. On May 24, 2021, the Company amended the contract and issued and additional 10,000$69,000. These shares of its restricted common stock. these shares had a fair value of $34,500. The shares issued to the consultant were recorded as common stock issued for prepaid services and will be expensed over the life of the consulting contract to share based payments. During the sixthree months ended June 30, 2021March 31, 2022 the Company recorded $99,908$33,110 to stock-based compensation expense related to these shares.share based payments.
On FebruaryMarch 1, 2021,2022, the Company entered into securities purchase agreements with twenty-eight accredited investors whereby, at the closing, such investors purchased from the Company an aggregate of 1,401,457 shares of the Company’s common stock and (ii) 1,401,457 warrants to purchase shares of common stock, for an aggregate purchase price of $2,452,550. Such warrants are exercisable for a term of five-years from the date of issuance, at an exercise price of $1.75 per share. The Company has recorded $40,000 to stock issuance costs, which are part of Additional Paid-in Capital.
On March 7, 2022, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with thirteen accredited investors resulting in the raise of $2,659,750 in gross proceeds to the Company. Pursuant to the terms of the Purchase Agreement, the Company agreed to sell in a registered direct offering an aggregate of 1,519,857 shares of the Company’s common stock together with warrants to purchase an aggregate of 1,519,857 shares of Common Stock at an exercise price of $1.75 per share. The warrants are immediately exercisable and will expire on March 9, 2027. The Company has recorded $75,000 to stock issuance costs, which are part of Additional Paid-in Capital.
On March 30, 2022, the Company issued 50,000731 shares of its restricted common stock to consultants in exchange for services at a fair value of $196,000.
On February 3, 2021, the Company issued 1,929 shares of its restricted common stock to consultants in exchange for services at a fair value of $8,198.
$863.
On February 8, 2021, the Company entered into a consulting agreement whereas the Company issued a total of 2,092 shares of common stock in exchange for services at a fair value of $7,502.
On February 18, 2021, the Company issued 10,000 shares of its restricted common stock to consultants in exchange for services at a fair value of $48,000.
On February 18, 2021, the Company issued 10,417 shares of its restricted common stock to consultants in exchange for services at a fair value of $50,002.
On February 26, 2021, the Company issued 291 shares of its restricted common stock to consultants in exchange for services at a fair value of $1,499.
On March 17, 2021, the Company issued 9,624 shares of its restricted common stock to consultants in exchange for services at a fair value of $49,371.
On March 28, 2021, the Company issued 31,782 shares of its restricted common stock to settle outstanding vendor liabilities of $125,000.
On March 31, 2021, the Company issued 13,113 shares of its restricted common stock to settle outstanding vendor liabilities of $43,667. In connection with this transaction the Company also recorded a loss on settlement of vendor liabilities of $12,719.
On April 10, 2021, the Company issued 16,275 shares of its restricted common stock to consultants in exchange for services at a fair value of $69,332.
On April 21, 2021, the Company entered into a consulting agreement whereas the Company issued a total of 1,048 shares of common stock in exchange for services at a fair value of $3,587.
On June 17, 2021, the Company entered into an underwriting agreement with The Benchmark Company LLC, pursuant to which we agreed to sell to the Underwriter in a firm commitment underwritten public offering an aggregate of 750,000 shares of the Company’s common stock, at a public offering price of $3.40 per share. The Company also granted the Underwriter a 30-day option to purchase up to an additional 112,500 shares of Common Stock to cover over-allotments, if any. The Offering closed on June 21, 2021. The net proceeds to the Company from the equity raise was $2,213,500. As part of the underwriting agreement the Company issued 46,667 warrants of the Company’s common stock to Benchmark. The warrants have an exercise price $5.40 and a term of five years.
Stock Options
The Company applied fair value accounting for all share-based payments awards. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model.
The assumptions used for options granted during the six months ended June 30, 2021, are as follows:
2021 | |||
The following is a summary of the Company’s stock option activity:
Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (in years) | Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (in years) | |||||||||||||||||||
Balance – December 31, 2020 – outstanding | 541,021 | 12.75 | 3.27 | |||||||||||||||||||||
Balance – January 1, 2022 – outstanding | 2,902,619 | 7.07 | 4.71 | |||||||||||||||||||||
Granted | 1,825,500 | 6.37 | 6.21 | - | - | - | ||||||||||||||||||
Exercised | - | - | - | - | - | - | ||||||||||||||||||
Forfeited/Cancelled | (3,334 | ) | 15.00 | - | (19,093 | ) | 15.36 | - | ||||||||||||||||
Balance – June 30, 2021 – outstanding and exercisable | 2,363,187 | 7.82 | 5.13 | |||||||||||||||||||||
Balance – March 31, 2022 – outstanding | 2,883,526 | 7.02 | 4.48 | |||||||||||||||||||||
Balance – March 31, 2022 – exercisable | 1,891,348 | 7.60 | 4.27 |
Option Outstanding | Option Outstanding | Option Exercisable | Option Outstanding | Option Exercisable | ||||||||||||||||||||||||||||||||||||||||
Exercise price | Exercise price | Number Outstanding | Weighted Average Remaining Contractual Life (in years) | Weighted Average Exercise Price | Number Exercisable | Weighted Average Remaining Contractual Life (in years) | Exercise price | Number Outstanding | Weighted Average Remaining Contractual Life (in years) | Weighted Average Exercise Price | Number Exercisable | Weighted Average Remaining Contractual Life (in years) | ||||||||||||||||||||||||||||||||
$ | 7.82 | 2,363,187 | 5.13 | 12.73 | 537,687 | 3.82 | 7.02 | 2,883,526 | 4.48 | 7.60 | 1,891,348 | 4.27 |
During the year ended December 31, 2018 the Company granted options of 11,667 to consultants that has a fair value of $57,123. As of the date of this filing the company has not issued these options and they are recorded as an accrued liability on the Condensed Consolidated Balance Sheet.
Stock-based compensation for stock options has been recorded in the condensed consolidated statements of operations and totaled $2,552,855,$1,027,083, for the sixthree months ended June 30, 2021.March 31, 2022.
As of June 30, 2021,March 31, 2022, there was $ 6,122,329$1,649,068 of total unrecognized compensation expense related to unvested employee options granted under the Company’s share-based compensation plans that is expected to be recognized over a weighted average period of approximately 1.230.89 year.
Warrants
The Company applied fair value accounting for all share-based payments awards. The fair value of each warrant granted is estimated on the date of grant using the Black-Scholes option-pricing model.
The assumptions used for warrants granted during the six months ended June 30, 2020 are as follows:Warrant Activities
June 30, 2021 | ||||
Exercise price | $ | 4.50 | ||
Expected dividends | 0 | % | ||
Expected volatility | 237.14 | % | ||
Risk free interest rate | 0.82 | % | ||
Expected life of warrant | 5 years |
The following is a summary of the Company’s warrant activity:
Warrant | Weighted Average Exercise Price | |||||||
Balance – January 1, 2022 – outstanding | 5,658,830 | 4.98 | ||||||
Granted | 2,988,487 | 2.12 | ||||||
Exercised | - | - | ||||||
Forfeited/Cancelled | (13,611 | ) | 12.00 | |||||
Balance – December 31, 2021 – outstanding | 8,633,706 | 3.82 | ||||||
Balance – December 31, 2021 – exercisable | 8,591,206 | $ | 3.81 |
Warrants Outstanding | Warrants Exercisable | |||||||||||||||||||||
Exercise price | Number Outstanding | Weighted Average Remaining Contractual Life (in years) | Weighted Average Exercise Price | Number Exercisable | Weighted Average Exercise Price | |||||||||||||||||
$ | 3.82 | 8,633,706 | 4.01 | 3.81 | 8,591,206 | 4.01 |
Warrant Activities
The following is a summary of the Company’s warrant activity:
Warrant | Weighted Average Exercise Price | |||||||
Balance – December 31, 2020 – outstanding | 6,130,948 | 4.96 | ||||||
Granted | 1,751,892 | 5.68 | ||||||
Exercised | (376,214 | ) | 4.67 | |||||
Forfeited/Cancelled | (10,556 | ) | 24.00 | |||||
Balance – June 30, 2021 – outstanding | 7,496,070 | 4.88 | ||||||
Balance – June 30, 2021 – exercisable | 7,496,070 | $ | 4.88 |
Warrants Outstanding | Warrants Exercisable | |||||||||||||||||||
Exercise price | Number Outstanding | Weighted Average Remaining Contractual Life (in years) | Weighted Average Exercise Price | Number Exercisable | Weighted Average Exercise Price | |||||||||||||||
$ | 4.88 | 7,496,070 | 4.33 | 4.88 | 7,496,070 | 4.33 |
During the sixthree months ended June 30, 2021, the Company issued 320,693 shares of common stock to a certain warrant holder upon the cashless exercise of a warrant to purchase 376,214 shares of common stock. The Company received $1,272,672 in connection with the exercise of the warrant.
During the six months ended June 30, 2021, a total of 486,516 warrants were issued in connection with the Series E Convertible Preferred Stock raise.
During the six months ended June 30, 2021, a total of 1,090,908 warrants were issued with convertible notes (See Note 6 above). The warrants have a grant date fair value of $3,067,617 using a Black-Scholes option-pricing model and the above assumptions.
During the six months ended June 30, 2021,March 31, 2022, some of the Company’s warrants had a resetdown-round provision triggered that also resulted in an additional 127,80167,173 warrants to be issued. A deemed dividend of $410,750$81,728 was recorded to the Statements of Comprehensive Loss.
On June 17, 2021, the Company issued 46,667 warrants in connection with the underwriting agreement.
Share-based awards, restricted stock award (“RSAs”)
On February 4, 2021 the Board resolved that, the Company shall pay each member of the Board, for each calendar quarter during which such member continues to serve on the Board, compensation as a group amounts to $62,500 per quarter. The shares vest one year after issuance.
A summary of the activity related to RSUs for the six months ended June 30, 2021 is presented below:
shares | fair value | |||||||
Stock-based compensation for RSA’s has been recorded in the consolidated statements of operations and totaled $291,035, for the six months ended June 30, 2021.
Note 1011 – Commitments and Contingencies
The CARES Act lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 (“2017 Tax Act”). Corporate taxpayers may carry back net operating losses (NOLs) originating between 2018 and 2020 for up to five years, which was not previously allowed under the 2017 Tax Act. The CARES Act also eliminates the 80% of taxable income limitations by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018, 2019 or 2020. Taxpayers may generally deduct interest up to the sum of 50% of adjusted taxable income plus business interest income (30% limit under the 2017 Tax Act) for 2019 and 2020. The CARES Act allows taxpayers with alternative minimum tax credits to claim a refund in 2020 for the entire amount of the credits instead of recovering the credits through refunds over a period of years, as originally enacted by the 2017 Tax Act.Litigation
In addition, the CARES Act raises the corporate charitable deduction limit to 25% of taxable income and makes qualified improvement property generally eligible for 15-year cost-recovery and 100% bonus depreciation. The enactment of the CARES Act did not result in any material adjustments to our income tax provision for the year ended December 31, 2020.
On March 26, 2020 and April 30, 2020, the Company received 2 separate loans pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the CARES Act.
When the applications for PPP first opened up, there was limited available funding and much confusion surrounding the application process. The Company initially submitted its application for the May 2020 PPP Loan in early April but received no response in the aftermath of submitting the application. After consulting multiple advisors, the Company made the decision to apply elsewhere, due to the rampant media coverage of institutions running out of funding and the Company’s need for the capital and belief that if 2 separate loans were approved, the remaining application could simply be withdrawn.
Therefore, in late April, the company proceeded with applying for the April 2020 PPP Loan. After some conflicting communications regarding acceptance, the Company attempted to contact the lender to clarify but got no response. After continued attempts to follow up with both lenders, the Company received approval for the May 2020 PPP Loan and funding for the April 2020 PPP Loan on the same day, followed the next day by the funding of the May 2020 PPP Loan. The Company immediately separated the funds for the April 2020 PPP Loan into a separate reserved bank account with the intention of returning the funds. However, after several attempts to contact the lender with no response, the Company was faced with difficulty raising funds in the early-Covid economy and made the decision to utilize the funds for operations and pursue an installment repayment plan when they were able to reach the lender. As of the date of this filing, the Company has begun making repayments on the loan, absent a formal installment agreement due to difficulties reaching the lender. The Company intends to complete repayment before the end of 2021.
As each company is only permitted one loan under the CARES Act, there is a possibility the loan may be called by the SBA and the Company would have to repay the loan in full at such time.
As of June 30, 2021, the May 2020 PPP Loan is no longer outstanding, as during the six months ended June 30, 2021, the Company repaid $136,597 in principal and was forgiven $275,903 of principal and $3,119 of accrued interest. As of June 30, 2021 there was $255,426 in principal outstanding on the April 2020 PPP Loan.
Litigation
On or about June 25, 2020, Home Revolution, LLC (“Home Revolution”) filed a lawsuit in the United States District Court for the District of New Jersey, Home Revolution, LLC, et al.al. v. Jerrick Media Holdings, Inc. et al.al., Case No. 2:20-cv-07775-JMV-MF. The Complaint alleges, among other things, that Creatd, Inc. breached the Membership Interest Purchase Agreement, as modified, and ancillary transaction documents in connection with the acquisition of Seller’s Choice, LLC, from Home Revolution in September 2019. The Complaint additionally alleges violation of the New Jersey Uniform Securities Law, violations of the Exchange Act and Rule 10b-5 thereunder, fraud, equitable accounting, breach of fiduciary duty, conversion and unjust enrichment. After filing the Complaint but prior to our Answer date, Home Revolution moved by order to show causePlaintiff also sought to have a receiver appointed by the Court to take over Creatd’s operations. After substantial motion practice, Creatd successfully settled this dispute from June 2020 for a total of $799,000, which includes $660,000 of note principal and $139,000 of accrued interest. The matter has been dismissed as of March 3, 2022.
We submitted an opposition,On or about August 30, 2021, Robert W. Monster and after oral arguments on August 13, 2020,Anonymize, Inc. (“Monster”) filed a lawsuit in the United States District Court for the Western District of Washington at Seattle, Robert W. Monster, et al. v. Creatd, Inc., et al. (Western District of Washington at Seattle 2:21-CV-1177). The Complaint alleges, among other things, that action for Declaratory Judgment under 28 U.S.C. § 2201 that Monster’s registration and use of the internet domain name VOCL.COM (the “Domain Name”) does not violate Creatd’s rights under the Anticybersquatting Consumer Protection Act (“ACPA”), 15 U.S.C. § 1125(d), or otherwise under the Lanham Act, 15 U.S.C. § 1051 et seq. Creatd claims trademark rights and certain other rights with respect to the term and the domain name VOCL.COM. Monster seeks a determination by the Court deniedthat Monster’s registration and/or use of VOCL.COM is not, and has not been in violation of the receiver request in its entirety. We then filedACPA, and that Plaintiffs’ use of VOCL.COM constitutes neither a Motion to Dismiss on August 14, 2020 on a numberviolation of grounds, the most significant of which is that this is a simple (alleged) breach of Promissory Note case. Creatd is current on all paymentsACPA nor trademark infringement or dilution under the Note, and because both parties are New Jersey entities a mere breach of contract and/or collection-based case is not appropriately venued in federal court. Upon receipt of our Motion to Dismiss, Home Revolution submitted an Amended Complaint, presumably in an effort to cure the problems with the Complaint which we identified in the Motion to Dismiss. Home Revolution has subsequently initiated a series of atypical procedures and, as a result, has (without following the Federal Rules of Civil Procedure) moved for both default and to submit yet another newly Amended Complaint (the one precludes the other and vice versa).
After we submitted a motion to clear up the above, the Court reinstated the matter to the docket and permitted Plaintiff to file the Second Amended Complaint (we had no objection). We have filed a motion to dismiss the Second Amended Complaint. That will take some time to be decided. We expect no major event to occur for the next 12 months. Finally, we believeLanham Act. Creatd believes the lawsuit lacks merit and will vigorously challenge the action. At this time, we are unable to estimate potential damage exposure, if any, related to the litigation.
Lease Agreements
On May 5, 2018, the Company signed a 5-year lease for approximately 2,300 square feetAppointment of office space at 2050 Center Avenue Suite 640, Fort Lee, New Jersey 07024. Commencement date of the lease is June 1, 2018. The total amount due under this lease is $411,150.Directors
On April 1, 2019, the Company signed a 4-year lease for approximately 796 square feet of office space at 2050 Center Avenue Suite 660, Fort Lee, New Jersey 07024. Commencement date of the lease is April 1, 2019. The total amount due under this lease is $108,229.
The components of lease expense were as follows:
Three Months Ended June 30, 2021 | ||||
Operating lease cost | $ | 20,117 | ||
Short term lease cost | 3,714 | |||
Total net lease cost | $ | 23,831 |
On February 17, 2022, the Board of Directors (the “Board”) of the Company appointed Joanna Bloor, Brad Justus, and Lorraine Hendrickson to serve as members of the Board. Ms. Bloor has been nominated to, and will serve as, chair of the Compensation Committee, and to be a member of the Audit Committee and Nominating & Corporate Governance Committee. Mr. Justus has been nominated, and will serve as, chair of the Nominating & Corporate Governance Committee, and to be a member of the Compensation Committee and Audit Committee. Ms. Hendrickson has been nominated to, and will serve as, chair of the Audit Committee and to be a member of the Compensation and Nominating & Corporate Governance Committee.
Six Months Ended June 30, 2021 | ||||
Operating lease cost | $ | 39,826 | ||
Short term lease cost | 7,428 | |||
Total net lease cost | $ | 47,254 |
Departure of Directors
Supplemental cash flowOn February 17, 2022, the Board received notice that effective immediately, Mark Standish resigned as Chair of the Board, Chair of the Audit Committee and other information relatedas a member of the Compensation Committee and Nominating & Corporate Governance Committee; Leonard Schiller resigned as member of the Board, Chair of the Compensation Committee and as a member of the Audit Committee and Nominating & Corporate Governance Committee; and LaBrena Martin resigned as a member of the Board, Chair of the Nominating & Corporate Governance Committee and as a member of the Audit Committee and Compensation Committee. Such resignations are not the result of any disagreement with the Company on any matter relating to leases was as follows:the Company’s operations, policies or practices.
June 30, 2021 | ||||
Total future minimum payments required under the lease as of December 31, 2020 are as follows:Management Restructuring
Twelve Months Ending December 31, | ||||
2021 | $ | 55,348 | ||
2022 | 114,627 | |||
2023 | 53,094 | |||
Total | $ | 223,069 |
On February 17, 2022, the Board of the Company approved the restructuring of the Company’s senior management team to eliminate the Co-Chief Executive Officer role, appointing Jeremy Frommer as Executive Chairman and Founder, and appointing Laurie Weisberg as Chief Executive Officer (the “Second Restructuring”). Prior to the Second Restructuring, Mr. Frommer and Ms. Weisberg served as the Company’s co-Chief Executive Officers and Ms. Weisberg served as the Company’s Chief Operating Officer. The Second Restructuring does not impact the role or functions of the Company’s Chief Financial Officer, Chelsea Pullano, or the role or functions of the Company’s President and Chief Operating Officer, Justin Maury.
Rent expenseNasdaq Notice of Delisting
On January 4, 2021, the Company received a letter from the staff of The Nasdaq Capital Market (the “Exchange”) notifying the Company that the Exchange had determined to delist the Company’s common stock and warrants from the Exchange based on the Company’s non-compliance with the Exchange’s (i) $5 million stockholders’ equity requirement for initial listing pursuant to Nasdaq Listing Rule 5505(b), (ii) the $2.5 million stockholders’ equity requirement or any of the alternatives for continued listing pursuant to Nasdaq Listing Rule 5550(b), and (iii) the Company’s failure to provide material information to the Exchange pursuant to Nasdaq Listing Rule 5250(a)(1).
On February 11, 2021, the Company met with the Exchange’s Hearings Panel (the “Panel”) with respect to such determination, in accordance with the Exchange’s rules and, pursuant to such request by the Company to appeal, the delisting of the Company’s securities and the Form 25 Notification of Delisting filing was stayed pending the Panel’s decision.
On March 9, 2021, the Exchange notified the Company that the Panel had determined to continue the listing of the Company on the Exchange. Notwithstanding the Panel’s determination to continue the listing of the Company’s securities on the Exchange, the Panel issued a public reprimand letter to the Company, pursuant to Listing Rule 5815(c)(1)(D), based on its finding “that the Company failed to meet the initial listing criteria with respect to stockholders’ equity and failed to provide Nasdaq with material information with respect to that deficiency.” Specifically, the Panel found that the Company failed to comply with Listing Rule 5250(a)(1), requiring it to notify Nasdaq of certain significant developments that led to the Company’s prior representations about its ability to satisfy the initial listing requirements being inaccurate. In reaching its determination to continue the listing of the Company on Nasdaq, the Panel acknowledged that the Company has since demonstrated compliance with the initial listing requirement for stockholders’ equity and all other applicable initial listing requirements. The Panel also determined that the violations were inadvertent and that the Company had relied on advice of counsel at the time in its interactions with the Nasdaq staff (“Staff”). The Panel also acknowledged the Company’s efforts to implement structural changes within the Company to avoid similar misstatements in the future and that would allow for proper accounting and disclosure on an ongoing basis.
On March 1, 2022, the Company received a letter (the “Letter”) from the staff of The Nasdaq Capital Market (the “Exchange”) notifying the Company that the Exchange has determined to delist the Company’s common stock from the Exchange based on the Company’s Market Value of Listed Securities for the six months30-consecutive day period between January 15, 2022 and February 25, 2022 falling short of the requirements under Listing Rule 5550(b)(2) (the “Rule”). Although a 180-day period is typically allowed for an issuer to regain compliance, the Company is not eligible to use such compliance period, as the Exchange had instituted a Panel Monitor through March 9, 2022.
The Company pursued an appeal to the Nasdaq Hearings Panel (the “Panel”) of such determination, in accordance with the Exchange’s rules and, pursuant to such request by the Company to appeal, the delisting of the Company’s securities and the Form 25 Notification of Delisting filing was stayed pending the Panel’s decision.
On April 22, 2022, the Exchange notified the Company that the Panel has determined to continue the listing of the Company on the Exchange, subject to the following conditions: (i) on or before May 16, 2022, the Company will file its Quarterly Report on Form 10-Q for the period ended June 30, 2021March 31, 2022 demonstrating compliance with Nasdaq Listing Rule 550(b)(1) requiring shareholders’ equity of $2.5 million and 2020 was $53,869(ii) on or before August 29, 2022, the Company will file a Form 8-K documenting the successful completion of any fund-raising activity that has taken place since April 14, 2022 and $59,168, respectively. the Company’s long-term compliance with the continued listing requirements of the Nasdaq Capital Market.
The Panel has advised that August 29, 2022 represents the full extent of the Panel’s discretion to grant continued listing during the time the Company is non-compliant and should the Company fail to demonstrate compliance by such date, the Panel will issue a final delist determination and the Company will be suspended from trading on the Exchange.
Note 1112 – AcquisitionAcquisitions
Denver Bodega, LLC d/b/a Basis
On June 1, 2021,March 7, 2022, the Company entered into a Membership Interest Purchase Agreement (the “MIPA”“Agreement”) with Angela Hein (“Hein”)Henry Springer and Heidi Brown (“Brown”, and together with Hein,Kyle Nowak (collectively the “Sellers”“Sellers”), pursuant to whichwhereby the Purchaser acquired 490,863 common units (the “Membership Interests”) of Plant CampCompany purchased a majority stake in Denver Bodega, LLC, a DelawareColorado limited liability company (“Plant Camp”) fromwhose product is Basis, a direct-to-consumer functional beverage brand that makes high-electrolyte mixes meant to aid hydration. Pursuant to the Sellers, resulting in the Purchaser owning 33%Agreement, Creatd acquired all of the issued and outstanding equitymembership interests of Plant Camp. The Membership Interests were purchasedDenver Bodega, LLC for $175,000.consideration of one dollar ($1.00), as well as the Company’s payoff, assumption, or satisfaction of certain debts and liabilities.
On June 4, 2021, the Company, entered into a MIPA with Sellers, pursuant to which the Purchaser acquired 841,005 common units of Plant Camp from the Sellers, resulting in the Purchaser owning a total of 89% of the issued and outstanding equity of Plant Camp. The additional Membership Interests were purchased for $300,000.
The following sets forth the components of the purchase price:
Purchase price: | ||||||||
Cash paid to seller | $ | 300,000 | $ | 1 | ||||
Fair value of equity investment purchased on June 1, 2021 | 175,000 | |||||||
Total purchase price | 475,000 | 1 | ||||||
Assets acquired: | ||||||||
Cash | 5,232 | 44,977 | ||||||
Accounts Receivable | 7,645 | 2,676 | ||||||
Inventory | 19,970 | 194,365 | ||||||
Total assets acquired | 32,847 | 242,018 | ||||||
Liabilities assumed: | ||||||||
Accounts payable and accrued expenses | 5,309 | 127,116 | ||||||
Deferred Revenue | 671 | |||||||
Loan Payable | 100,000 | |||||||
Notes payable | 293,888 | |||||||
Total liabilities assumed | 105,980 | 421,004 | ||||||
Net assets acquired | (73,133 | ) | ||||||
Non-controlling interest in consolidated subsidiary | 56,865 | |||||||
Net liabilities acquired | (178,986 | ) | ||||||
Excess purchase price | $ | 604,998 | $ | 178,987 |
The excess purchase price amounts are provisional and may be adjusted during the one-year measurement period as required by U.S. GAAP. The following table provides a summary of the preliminary allocation of the excess purchase price.
Goodwill | $ | 2,198 | $ | 8,950 | ||||
Trade Names & Trademarks | 105,500 | 8,949 | ||||||
Know-How and Intellectual Property | 422,000 | 107,392 | ||||||
Website | 51,300 | 8,949 | ||||||
Customer Relationships | 24,000 | 44,747 | ||||||
Excess purchase price | $ | 604,998 | $ | 178,987 |
The goodwill represents the assembled workforce, acquired capabilities, and future economic benefits resulting from the acquisition.
The following presents the unaudited pro-forma combined results of operations of the Company with Plant Camp, WHE, Dune, and Denver Bodega as if the entities were combined on January 1, 2021.
Three Months Ended | ||||
March 31, | ||||
2022 | ||||
Revenues | $ | 1,482,270 | ||
Net loss attributable to common shareholders | $ | (6,352,445 | ) | |
Net loss per share | $ | (0.36 | ) | |
Weighted average number of shares outstanding | 17,707,951 |
Three Months Ended | ||||
March 31, | ||||
2021 | ||||
Revenues | $ | 1,143,732 | ||
Net loss attributable to common shareholders | $ | (6,592,675 | ) | |
Net loss per share | $ | (0.66 | ) | |
Weighted average number of shares outstanding | 10,060,946 |
Note 13 – Segment Information
We operate in three reportable segments: Creatd Labs, Creatd Ventures, and Creatd Partners. Our segments were determined based on the economic characteristics of our products and services, our internal organizational structure, the manner in which our operations are managed and the criteria used by our Chief Operating Decision Maker (CODM) to evaluate performance, which is generally the segment’s operating losses.
Operations of: | Products and services provided: | |
Creatd Labs | Creatd Labs is the segment focused on development initiatives. Creatd Labs houses the Company’s proprietary technology, including its flagship platform, Vocal, as well as oversees the Company’s content creation framework, and management of its digital communities. Creatd Labs derives revenues from Vocal creator subscriptions, platform processing fees and technology licensing fees. | |
Creatd Ventures | Creatd Ventures builds, develops, and scales e-commerce brands. This segment generates revenues through product sales of its two majority-owned direct-to-consumer brands, Camp and Dune Glow Remedy. | |
Creatd Partners | Creatd Partners fosters relationships between brands and creators through its suite of agency services, including content marketing (Vocal for Brands), performance marketing (Seller’s Choice), and influencer marketing (WHE Agency). Creatd Partners derives revenues in the form of brand fees and talent management commissions. |
The following tables present certain financial information related to our reportable segments and Corporate:
As of March 31, 2022 | ||||||||||||||||||||
Creatd Labs | Creatd Ventures | Creatd Partners | Corporate | Total | ||||||||||||||||
Accounts receivable, net | $ | - | $ | 7,649 | $ | 382,956 | $ | - | $ | 390,605 | ||||||||||
Prepaid expenses and other current assets | 45,815 | - | - | 229,025 | 274,840 | |||||||||||||||
Deposits and other assets | 839,114 | - | - | 75,586 | 914,700 | |||||||||||||||
Intangible assets | - | 1,733,673 | 724,459 | 62,241 | 2,520,373 | |||||||||||||||
Goodwill | - | 34,089 | 1,349,696 | - | 1,383,785 | |||||||||||||||
Inventory | - | 436,981 | - | - | 436,981 | |||||||||||||||
All other assets | - | - | - | 3,419,106 | 3,419,106 | |||||||||||||||
Total Assets | $ | 884,929 | $ | 2,212,392 | $ | 2,457,111 | $ | 3,785,958 | $ | 9,340,390 | ||||||||||
Accounts payable and accrued liabilities | $ | 22,784 | $ | 1,129,605 | $ | 19,985 | $ | 3,659,729 | $ | 4,832,103 | ||||||||||
Note payable, net of debt discount and issuance costs | 487,217 | 65,724 | - | 634,051 | 1,186,992 | |||||||||||||||
Deferred revenue | 161,112 | 43,545 | 7,019 | - | 211,676 | |||||||||||||||
All other Liabilities | - | - | - | - | ||||||||||||||||
Total Liabilities | $ | 671,113 | $ | 1,238,874 | $ | 27,004 | $ | 4,293,780 | $ | 6,230,771 |
As of December 31, 2021 | ||||||||||||||||||||
Creatd Labs | Creatd Ventures | Creatd Partners | Corporate | Total | ||||||||||||||||
Accounts receivable, net | $ | - | $ | 2,884 | $ | 334,556 | $ | - | $ | 337,440 | ||||||||||
Prepaid expenses and other current assets | 48,495 | - | - | 188,170 | 236,665 | |||||||||||||||
Deposits and other assets | 626,529 | - | - | 92,422 | 718,951 | |||||||||||||||
Intangible assets | - | 1,637,924 | 783,676 | 11,241 | 2,432,841 | |||||||||||||||
Goodwill | - | 25,139 | 1,349,696 | - | 1,374,835 | |||||||||||||||
Inventory | - | 106,403 | - | - | 106,403 | |||||||||||||||
All other assets | - | - | - | 3,966,124 | 3,966,124 | |||||||||||||||
Total Assets | $ | 675,024 | $ | 1,772,350 | $ | 2,467,928 | $ | 4,257,957 | $ | 9,173,259 | ||||||||||
Accounts payable and accrued liabilities | $ | 9,693 | $ | 766,253 | $ | 6,232 | $ | 2,948,362 | $ | 3,730,540 | ||||||||||
Note payable, net of debt discount and issuance costs | 313,979 | - | - | 1,028,685 | 1,342,664 | |||||||||||||||
Deferred revenue | 161,112 | 13,477 | 59,570 | - | 234,159 | |||||||||||||||
All other Liabilities | - | - | - | 177,644 | 177,644 | |||||||||||||||
Total Liabilities | $ | 484,784 | $ | 779,730 | $ | 65,802 | $ | 4,154,691 | $ | 5,485,007 |
For the three months ended March 31, 2022 | ||||||||||||||||||||
Creatd Labs | Creatd Ventures | Creatd Partners | Corporate | Total | ||||||||||||||||
Net revenue | $ | 508,268 | $ | 254,690 | $ | 585,780 | $ | - | $ | 1,348,738 | ||||||||||
Cost of revenue | 706,196 | 409,969 | 456,005 | - | 1,572,170 | |||||||||||||||
Gross margin (loss) | (197,928 | ) | (155,279 | ) | 129,775 | - | (223,432 | ) | ||||||||||||
Research and development | 134,876 | - | 91,778 | - | 226,654 | |||||||||||||||
Marketing | 970,484 | 1,013,706 | - | 107,831 | 2,092,021 | |||||||||||||||
Stock based compensation | 251,907 | 226,298 | 248,548 | 354,039 | 1,080,792 | |||||||||||||||
General and administrative not including depreciation, amortization, or Impairment | 218,766 | 288,272 | 378,492 | 2,358,963 | 3,244,493 | |||||||||||||||
Depreciation and amortization | - | 71,271 | 31,599 | 39,022 | 141,892 | |||||||||||||||
Total operating expenses | $ | 1,576,033 | $ | 1,599,547 | $ | 750,417 | $ | 2,859,855 | $ | 6,785,852 | ||||||||||
Interest expense | (13,229 | ) | - | - | (667 | ) | (13,896 | ) | ||||||||||||
All other expenses | - | - | - | 142,132 | 142,132 | |||||||||||||||
Other expenses, net | (13,229 | ) | 141,465 | 128,236 | ||||||||||||||||
Loss before income tax provision | $ | (1,787,190 | ) | $ | (1,754,826 | ) | $ | (728,474 | ) | $ | (2,610,558 | ) | $ | (6,881,048 | ) |
For the three months ended March 31, 2021 | ||||||||||||||||
Creatd Labs | Creatd Partners | Corporate | Total | |||||||||||||
Net revenue | $ | 167,983 | $ | 575,930 | $ | - | $ | 743,913 | ||||||||
Cost of revenue | 242,134 | 625,016 | - | 867,150 | ||||||||||||
Gross margin | (74,151 | ) | (49,086 | ) | - | (123,237 | ) | |||||||||
Research and development | 195,691 | 133,161 | - | 328,852 | ||||||||||||
Marketing | 1,736,257 | 204,266 | 102,132 | 2,042,655 | ||||||||||||
Stock based compensation | 365,985 | 361,105 | 843,149 | 1,570,239 | ||||||||||||
General and administrative not including depreciation, amortization, or Impairment | 124,053 | 214,627 | 1,501,135 | 1,932,552 | ||||||||||||
Depreciation and amortization | 2,753 | 9,175 | 29,271 | 41,199 | ||||||||||||
Total operating expenses | $ | 2,424,740 | $ | 922,333 | $ | 2,475,687 | $ | 5,822,760 | ||||||||
Interest expense | (24,596 | ) | - | (174,075 | ) | (198,671 | ) | |||||||||
All other expenses | - | - | (498,569 | ) | (498,569 | ) | ||||||||||
Other expenses, net | (24,596 | ) | - | (672,644 | ) | (697,240 | ) | |||||||||
Loss before income tax provision | $ | (2,523,487 | ) | $ | (971,419 | ) | $ | (3,148,331 | ) | $ | (6,643,237 | ) |
Note 1214 – Subsequent Events
Employment Agreements
On July 20, 2021,April 5, 2022, upon the Company entered into a Stock Purchase Agreement to purchase 44% ownership and 55% of voting powerrecommendation of the issuedCompensation Committee of the Board, the Board approved employment agreements with, and outstandingequity issuances for, (i) Jeremy Frommer, Executive Chairman, who will receive (a) an signing award of $80,000, (b) an annual salary of $420,000; (c) 121,000 options, to vest immediately with a strike price of $1.75, and (d) 50,000 shares of WHE Agency, Inc., (“WHE”). The aggregate closing consideration was $935,000, which consiststhe Company’s restricted common stock; (ii) Laurie Weisberg, Chief Executive Officer, who will receive (a) an annual salary of $475,000; (b) 121,000 options, to vest immediately with a combinationstrike price of $144,750 in cash$1.75, and $790,250 in(c) 50,000 shares of the formCompany’s restricted common stock; (iii) Justin Maury, Chief Operating Officer & President, who will receive (a) an annual salary of 224,503$475,000 (b) 81,000 options, to vest immediately with a strike price of $1.75, and (c) 50,000 shares of the Company’s restricted common stock; and (iv) Chelsea Pullano, Chief Financial Officer, who will receive (a) an annual salary of $250,000; (b) 37,000 options, to vest immediately with a strike price of $1.75, and (c) 35,000 shares of the Company’s restricted common stock at a price of $3.52 per share. Based on(collectively, the purchase price of $935,000 for 44% ownership, the fair value of the non-controlling interest would be approximately $1,190,000.“Executive Employment Arrangements”).
WHE is a talent management and public relations agency dedicatedPursuant to the representation and management of family- and lifestyle-focused influencers and digital creators. The transaction leverages the existing synergies between Creatd and WHE, specifically enabling WHE to utilize the Vocal platform and technology to further expand its creator network, introduce new verticals, and deepen existing brand ties. At the same time, the addition of WHE enables Creatd to expand its existing agency offerings, specifically within the scope of influencer marketing. With WHE in its portfolio, Creatd has expanded the pool of talent available to partner with its brand clients. Additionally, the transaction created immense opportunity for Creatd in terms of both human capital and market expansion. First, the transaction enables Creatd to enhance its own talent pool; gaining access to WHE’s highly skilled talent managers and brand liaisons fuels new capacity for innovation and growth. Second, WHE’s influencers work with a large set of brand partners, all of whom stand to benefit by working with Creatd Partners on Vocal for Brands marketing campaigns. Integrating WHE and its influencer network into Creatd provides Creatd the benefit of a significantly expanded customer base.
The required separate audited financials and pro forma condensed interim statements will be completed and filed as soon as practicable, and in any event not later than October 3, 2021.
Subsequent to June 30, 2021, a total of 1,062,574 warrants were exercised, resulting in the cancellation of 1,062,574 warrants, the issuance of 954,568 shares of common stock, and gross proceeds of $4,199,396 to the Company.
Subsequent to June 30, 2021, a total of $3,525,000 in principal of convertible notes converted into shares of common stock, resulting in the issuance of 705,000 shares of common stock.
Subsequent to June 30, 2021, 438 shares of Series E Preferred Stock converted into common stock, resulting in the issuance of 106,311 shares of common stock.
On July 8, 2021, the Company made a deposit of $100,000 towards future ownership in a private company related to the Memorandum of Understanding announced on August 2, 2021, below. At this time, the Company has no voting control nor equity in the private company related to this deposit.
On July 28, 2021,Executive Employment Arrangements, the Company entered into a non-binding Memorandumexecutive employment agreements with each of Understanding to purchase a majority stake in direct-to-consumer company, Wobble Wedge®the respective executives as of April 5, 2022 (the “Executive Employment Agreements”). Wobble Wedges®, sold through both direct-to-consumer (DTC)The Executive Employment Agreements contain customary terms, conditions and wholesale avenues, are an interlocking modular system of tapered shims that are adaptable to hundreds of uses. Pursuant to the MOU, Creatd intends to acquire a 55% equity stake in Wobble Wedge, in exchange for a combination of cash and stock consideration totaling $500,000. The Company expects to execute definitive agreements in early fourth quarter 2021 and to close shortly thereafter, subject to the completion of due diligence and other closing conditions.
On August 2, 2021, the Company entered into a Memorandum of Understanding to acquire a majority equity stake in Dune, Inc., a direct-to-consumer brand focused on promoting wellness through its range of health-oriented beverages. Pursuant to the MOU, Creatd intends to acquire a 50.4% equity stake in Dune in exchange for a combination of cash and stock. The Company expects to execute definitive agreements early in the fourth quarter 2021 and to close shortly thereafter, subject to the completion of due diligence and other closing conditions.rights.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This Form 10-Q and other reports filed by Creatd, Inc. (the “Company”), from time to time with the SEC (collectively, the “Filings”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the Filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks relating to the Company’s business, industry, and the Company’s operations and results of operations. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.
Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. The following discussion should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this Form 10-Q.
We intend for this discussion to provide information that will assist in understanding our financial statements, the changes in certain key items in those financial statements, and the primary factors that accounted for those changes, as well as how certain accounting principles affect our financial statements. This discussion should be read in conjunction with our financial statements and accompanying notes for the year ended December 31, 2020,2021, which are included in the Company’s Annual Report on Form 10-K that was filed with the SEC on March 31, 2021.April 6, 2022.
Overview
Creatd, Inc. (“CRTD,” “the Company,” or “Creatd”) is a technology company focused on providingwhose mission is to provide economic opportunities for creators. to creators and brands by multiplying the impact of platforms, people, and technology.
We accomplish this throughoperate four main business pillars:segments, or ‘pillars’: Creatd Labs, Creatd Partners, Creatd Ventures, and Creatd Studios. Together, Creatd'sCreatd’s pillars work together to create multiplea flywheel effects and growth drivers,effect, supporting our core vision of creating a viable ecosystem for all stakeholders in the creator economy.
Creator-Centric Strategy
Our purpose is to empower creators to prosper through exceptional tools, built-in communities, and opportunities for monetization and audience expansion. This creator-first approach is the foundation of our culture and mission, and how we choose to allocate our resources. It governs our business model and shapes the value we provide for each of our stakeholders across Creatd’s four pillars.
Creatd Labs our first pillar,
Creatd Labs is dedicated to building a home base for creatorsthe development of all kinds. Creatd Labstechnology products that support the creator economy. This pillar houses ourCreatd’s proprietary technology platforms, including Creatd’s flagship product, Vocal. This pillar is operated through our wholly-owned subsidiary, Abacus Tech Pty Ltd.
Vocal
Vocal was designed to serve as a home base for digital creators of all shapes and its 39 niche communities. Vocal is an all-in-one platform where creators can share their stories, build an audience, and earn money. To date, over 1 million creators now call Vocal their home,sizes, from bloggers to podcasters, makers, musicians, photographers, and more. Vocal’s robust, proprietary technology platform provides these creators with best-in-class tools, niche (topic-specific) communities, and monetization opportunities.
Vocal facilitates creators’ monetization in numerous different ways, including i) by rewarding creators for each ‘read’ their story receives; ii) via Vocal Challenges, through which creators can win cash and other rewards; iii) by awarding Bonuses; iv) by connecting creators with brands for opportunities to collaborate on Vocal for Brands branded content campaigns; v) through ‘Subscribe,’ which enables creators to receive payment directly from their audience via monthly subscriptions and one-off microtransactions; vi) via Vocal’s Ambassador Program, which enables creators to receive additional rewards whenever they refer a new Vocal+ member.
Vocal+
Vocal+ is Vocal’s premium membership program. Subscribers pay a membership fee to access additional premium features on the platform, including: a higher rate of earnings per read, Vocal+ Challenge eligibility, use of a ‘Quick Edit’ feature for published stories, ability to receive monthly pledges from their fans, and more. The current cost of a Vocal+ membership is either $9.99 per month or $99 annually. From time to time, the Company offers Vocal+ subscriptions at a discount for a predetermined number of months as a promotion for new subscribers.
Moderation and Compliance
One of the key differentiating factors between Vocal and most other user-generated content platforms is the fact that each story submitted to Vocal is run through the Company’s proprietary moderation process before it goes live on the platform. The decision to implement moderation into the submission process was in direct response to the rise of misinformation and bad actors on many social platforms. In response to these inherent pitfalls within the content landscape, Vocal’s proprietary moderation system combines the algorithmic detection of copyrighted material, hate speech, graphic violence, and nudity with human-led curation to ensure the quality and safety of each story published on Vocal, thus fostering a safe and trustworthy environment for creators, audiences, and brands.
Trust and safety are paramount to the Vocal ecosystem. We follow best practices when handling personally identifiable information, with guidance from the European Union’s General Data Protection Regulation (GDPR), the California Consumer Privacy Act (CCPA), and the Digital Millennium Copyright Act (DMCA).
Platform Compliance Policies include:
● | Human-led, technology-assisted moderation of every story submitted; |
● | Algorithmic detection of hate speech, nudity, and copyright infringement; |
● | Brand, creator, and audience safety enforced through community watch; and |
● | The rejection of what we consider toxic content, with the understanding that diverse opinions are encouraged. |
Technology Development
Vocal’s proprietary technology is built on Keystone, the same underlying open-source framework used by industry leaders such as Atlassian, a $43-billion Australian technology company. Some of the key differentiating elements of Vocal’s technology are speed, sustainability, and scalability. The Company continues to invest heavily in research and development to continuously improve and innovate its platform, with the goal of optimizing the user experience for creators.
Additionally, the Vocal platform and its underlying technology allows us to maintain an advantageous capital-light infrastructure. By using cloud service providers, we are able to focus on platform and revenue growth rather than building and maintaining the costly internal infrastructures that have materially affected so many legacy media platforms.
Vocal’s technology has been specifically designed and built to scale without a material corresponding increase in operational costs. While our users can embed rich media, such as video, audio, and product links, into their Vocal stories, the rich media content is hosted elsewhere (such as YouTube, Instagram, Vimeo, Shopify, Spotify, etc.). Thus, our platform can accommodate rich media content of all kinds without bearing the financial or operational costs associated with hosting the rich media itself. In addition to the benefits this framework affords to the Company, it provides the additional benefit to our content creators, in that a creator can increase their monetization; for example, a creator can embed their YouTube video into a Vocal story and thus derive earnings from both platforms when their video is viewed.
Creatd Partners
Creatd Partners Creatd’s second pillar, fosters relationshipshouses the Company’s agency businesses, with the goal of fostering partnerships between creators and brands. This pillar houses Creatd’s three primary agency businesses:Creatd Partners’ offerings include: Vocal for Brands (content marketing), WHE Agency (influencer marketing), and Seller’s Choice (performance marketing), and WHE Agency (influencer marketing). Creatd Partners leverages its network of brands and influencers, along with resources from across Creatd, to help direct-to-consumer brands achieve conversions and reach their target audiences, while driving success for all of Creatd’s stakeholders.
Creatd Ventures, our third pillar, invests in creators and helps them evolve into entrepreneurs, by providing needed capital, operational resources, and marketing expertise. This pillar houses Creatd's portfolio of e-commerce businesses, both majority and minority-owned, including Plant Camp, Untamed Photographer, with additional transactions still in progress. The ideal candidate for a Creatd Ventures partnership is an individual that shares in our mission of serving the creator economy and are accretive to our pillars.
Creatd Studios is our fourth pillar, focused on identifying opportunities to leverage Creatd’s stories–including those from Vocal creators and from our owned IP library–for transmedia production and adaptation to print, podcasts, TV, film, digital video, games, comics, and more. Housed under Creatd Studios is Creatd’s intellectual property and legacy media assets, including acquired artwork, photographs and media memorabilia. Creatd Studios represents an initiative by Creatd to revitalize and transform this content, by partnering with the entertainment and publishing industries on bespoke productions, while utilizing Vocal’s technology, data, and marketing capabilities for optimal distribution.
Creatd Labs
Creatd Labs is building the home base for creators.
Vocal
Vocal, Creatd’s flagship product, is a robust, proprietary technology platform that provides best-in-class tools, safe and curated communities, and monetization opportunities that enable creators to find a receptive audience and get rewarded. Creators of all types call Vocal their home, from bloggers to podcasters, makers, musicians, photographers, and more.
Vocal+ is Creatd’s premium subscription membership program. Vocal+ members pay a membership fee for premium features, including receiving increased earnings for their content, reduced platform processing fees for Tips received, a Vocal+ badge on their creator page, eligibility to participate in exclusive Vocal+ Challenges, and more. Creators may sign up for a Vocal+ membership when they create an account, or they can upgrade an existing Vocal Free account to a Vocal+ account at any time.
Since its initial launch in 2016, Vocal has grown to be one of the fastest growing communities for content creators of all shapes and sizes. As of June 30, 2021, Vocal had reached over 1 million freemium creators and over 30,000 Vocal+ paid subscribers across its 39 owned and operated niche communities. Subsequent to the second quarter 2021, the Company announced that Vocal reached a new high with over 1.1 million freemium creators.
Vocal provides a broad stage for creators to connect with fans and find new audiences. In addition to enabling access to millions of unique monthly visitors, the platform provides creators with a full suite of tools and services for content creation, discovery, distribution, and monetization.
Why Over 1 Million Creators Choose Vocal:
Creatd Partners
Creatd Partners fosters relationships between brands and creators through its agency services, which encompass content marketing, performance marketing, and influencer marketing.
Vocal for Brands
All brands have a story to tell, and ourwe leverage Vocal’s creator community helpsto help them tell it. Vocal for Brands, Creatd's internalCreatd’s content marketing studio, specializes in pairing leading brands with authentic Vocal creators and influencers to produce marketing campaigns that are non-interruptive, engaging, and direct-response driven.
Further, Vocal for Brands campaigns leverage Vocal’s first-party data and technology, which enables our team to createthe creation of highly targeted and segmented audiences for Vocal for Brands campaigns, and help the brand reach their ideal audience. Brands can access story performance data, engagement data, behavioral data, and sentiment data, all of which is used to further optimize the campaign’s success. The combination of Vocal’s hyper-engaged audiences, user-generated communities, and brand-safe environment help brands achieve maximum ROAS (return on ad spend).optimized campaign results.
Vocal for Brands typically collects fixed fees ranging from $30,000In addition to $50,000, depending on campaign duration and specific client objectives.
branded story campaigns Additionally, brands can opt to collaborate with Vocal on a sponsored Challenge, prompting the creation of high-quality stories that are centered around the brand’s mission and further disseminated through creators’ respective social channels and promotional outlets.
Seller’s Choice
In addition to Vocal for Brands, Creatd supports brands by providing managed and performance marketing services through Seller’s Choice. an in-house marketing agency for DTC (direct-to-consumer) and e-commerce clients. Acquired by Creatd in September 2019, Seller’s Choice provides direct-to-consumer brands with design, development, strategy, and sales optimization services. Its status as an Amazon Solution Provider and its weighty operational structure made it an ideal candidate for acquisition in late 2019. Creatd’s business model is built to absorb distressed operational infrastructures, integrate the few best components, and shed the non-essential costs.
WHE Agency
The WHE Agency (“WHE”), acquired by Creatd in 2021, was founded by Tracy Willis with the goal of supporting top creators and influencers, by connecting them with leading family and lifestyle brands and global audiences. Today, WHE represents a roster of over 60100 creators across numerous verticals, including family and lifestyle-focused creators, that collectively reach an audience of over 55 million.lifestyle, music, entertainment, and celebrity categories. Since acquiring WHE, the Company has facilitated partnerships on influencers’ behalf with leading brands including CBS, Amazon, Target, Disney, Warby Parker, CVS, Kay Jewelers, Walmart, Gerber, Masterclass, Procter & Gamble, Nike, and NFL, among others.
Seller’s Choice
Seller’s Choice is Creatd Partners’ performance marketing agency specializing in DTC (direct-to-consumer) and e-commerce clientele. Seller’s Choice provides direct-to-consumer brands with design, development, strategy, and sales optimization services.
Creatd Ventures
Creatd Ventures houses Creatd'sCreatd’s portfolio of DTC e-commerce businesses, both majority and minority-owned as well as associated e-commerce technology and infrastructure.businesses. The Company supports founders by providing capital, as well as a host of services including design and development, marketing and distribution, and go-to-market strategy. Currently, the Creatd Ventures portfolio includes:
● | Camp, previously Plant Camp, a DTC food brand which creates healthy upgrades to classic comfort food favorites. Each of | |
● | |||
Opportunistic Acquisition Strategy
Creatd’s extensive brand and founder network creates a positively-selected pool of potential targets for opportunistic e-commerce ventures. The ideal candidate is one that shares in our mission of serving the creator economy and that is aligned with our pillars.
Investment framework:
● |
CreatdCreatd Studios
The goal of Creatd Studios is to elevate creators’ stories to TV, film, books, podcasts, video, and more.
With millions of compelling stories in its midst, Creatd’s technology surfaces the best candidates for transmedia adaptations, through community and creator data insights. Then, Creatd Studios helps creators tell their existing stories in new ways, by partnering them with entertainment and publishing studios to create unique content experiences that accelerate earnings, discoverability, and open doors.
● | Transmedia Assets: With millions of compelling stories in its midst, Creatd’s technology surfaces the best candidates for transmedia adaptations, through community and creator data insights. Then, Creatd Studios helps creators tell their existing stories in new ways, by partnering them with entertainment and publishing studios to create unique content experiences that accelerate earnings, discoverability, and open doors. In 2022, Creatd Studios announced numerous upcoming production projects, including the upcoming publication of a print book featuring the winning stories from Vocal’s ‘Vocal+ Fiction Awards’ Challenge, and the launch of a new podcast, with two miniseries currently in production. |
● | OG Gallery: The OG Collection is an extensive library of original artwork and imagery from the archives of some of the most iconic magazines of the 20th century. OG Gallery is an exploratory initiative aimed at identifying opportunities to propel the OG Collection into a new technological sphere: the NFT marketplace. |
Acquired by Creatd's founders, the OG Collection is an extensive libraryApplication of original artworkFirst-Party Data
Creatd’s business intelligence and imagerymarketing teams identify and target individual creators, communities, and brands, utilizing empirical data harnessed from the archivesVocal platform. The team’s ability to apply its proprietary first-party data works to reduce acquisition costs for new creators and to help provide brands with conversions and an ideal targeted audience. In this way, our ability to apply first-party data is one of somethe value-drivers for the Company across its four business pillars.
Importantly, we do not sell the collected data, that being a common monetization opportunity for many other businesses. Instead, we use our collected first-party data for the purposes of bettering the platform. Specifically, our data helps us understand the behaviors and attributes that are common among the creators, brands, and audiences within our ecosystem. We then pair our first-party Vocal data with third-party data from distribution platforms such as Facebook and Snapchat to provide a more granular profile of our creators, brands, and audiences.
It is through generating this valuable first-party data that we can continually enrich and refine our targeting capabilities for branded content promotion and creator acquisition, and specifically, to reduce our creator acquisition costs (CAC) and subscriber acquisition costs (SAC).
Competition
The idea for Vocal came as a response to what Creatd’s founders recognized as systemic flaws inherent to the digital media industry and its operational infrastructures. The depreciating value of digital media business models built on legacy technology platforms created a unique opportunity for the development of a creator-centric platform that could appeal to a global community and, at the same time, be capable of acquiring undervalued complimentary technology assets.
Creatd’s founders built the Vocal platform upon the general thesis that a closed and safe ecosystem utilizing first-party data to increase efficiencies could create a sustainable and defensible business model. Vocal was strategically developed to provide value for content creators, readers, and brands, and to serve as a home for the ever-increasing amount of digital content being produced and the libraries of digital assets lying dormant.
Vocal is most commonly discussed as a combination of:
● | Medium, a platform for writers built by former Twitter founder Ev Williams; |
● | Reddit, a social news aggregation, web content rating, and discussion website; and |
● | Patreon, a membership platform that provides business tools for content creators to run a subscription service. |
Creatd does not view Vocal as a substitute or competitor to segment-specific content platforms, such as Vimeo, YouTube, Instagram, or SoundCloud. We don’t want to replace anyone; we built Vocal to be accretive to the entire digital ecosystem. In fact, one of the most iconic magazinespowerful components of our technology is the fact that Vocal makes it easy for creators to embed their existing published content, including videos, songs, podcasts, photographs, and more, directly into Vocal. We see this as a growth opportunity by building partnerships with the world’s greatest technology companies and to further spread our roots deeper into the digital landscape.
Acquisition Strategy
Creatd’s hybrid finance and design culture is key to its acquisition strategy. Acquisition targets are companies that meet a set of opportunistic or financial standards or that are part of specific digital environments that are accretive and can seamlessly integrate into Creatd’s existing revenue lines. Creatd will continue to make strategic acquisitions when presented with opportunities that are in the interest of shareholder value.
Recent Developments
Nasdaq Notice of Delisting; Continued Listing
On March 1, 2022, the Company received a letterfrom the staff of The Nasdaq Capital Market (the “Exchange”) notifying the Company that the Exchange has determined to delist the Company’s common stock from the Exchange based on the Company’s Market Value of Listed Securities for the 30-consecutive day period between January 15, 2022 and February 25, 2022 falling short of the 20th century. OG Galleryrequirements under Listing Rule 5550(b)(2) (the “Rule”). Although a 180-day period is typically allowed for an exploratory initiative aimed at identifying opportunitiesissuer to propelregain compliance, the OG CollectionCompany was not eligible to use such compliance period, as the Exchange had instituted a Panel Monitor through March 9, 2022.
The Company pursued an appeal to the Nasdaq Hearings Panel (the “Panel”) of such determination, in accordance with the Exchange’s rules and, pursuant to such request by the Company to appeal, the delisting of the Company’s securities and the Form 25 Notification of Delisting filing was stayed pending the Panel’s decision.
On April 22, 2022, the Exchange notified the Company that the Panel has determined to continue the listing of the Company on the Exchange, subject to the following conditions: (i) on or before May 16, 2022, the Company will file its Quarterly Report on Form 10-Q for the period ended March 31, 2022 demonstrating compliance with Nasdaq Listing Rule 550(b)(1) requiring shareholders’ equity of $2.5 million and (ii) on or before August 29, 2022, the Company will file a Form 8-K documenting the successful completion of any fund-raising activity that has taken place since April 14, 2022 and the Company’s long-term compliance with the continued listing requirements of the Nasdaq Capital Market.
The Panel has advised that August 29, 2022 represents the full extent of the Panel’s discretion to grant continued listing during the time the Company is non-compliant and should the Company fail to demonstrate compliance by such date, the Panel will issue a final delist determination and the Company will be suspended from trading on the Exchange.
Registered Direct Offering
On March 7, 2022, the Company entered into a new technological sphere:securities purchase agreement (the “Purchase Agreement”) with thirteen accredited investors resulting in the NFT marketplace.raise of $2,659,750 in gross proceeds to the Company. Pursuant to the terms of the Purchase Agreement, the Company agreed to sell in a registered direct offering an aggregate of 1,519,857 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”) together with warrants to purchase an aggregate of 1,519,857 shares of Common Stock (the “Warrants”) at an exercise price of $1.75 per share (collectively, the “Registered Direct Offering”). The warrants are immediately exercisable and will expire on March 9, 2027.
The Registered Direct Offering closed on March 9, 2022. Gross proceeds to the Company from the Registered Director Offering were $2,659,750, before deducting offering expenses, which will be used for general corporate purposes, including working capital.
The shares of Common Stock were offered and sold by the Company pursuant to a prospectus supplement filed with the Securities and Exchange Commission (the “SEC”), in connection with a takedown from the Company’s effective shelf registration statement on Form S-3, which was filed with the SEC on November 25, 2020 and subsequently declared effective on April 23, 2021 (File No. 333-250982).
Private Placement Financing
On March 1, 2022, the Company entered into securities purchase agreements with twenty-eight (28) accredited investors whereby, at the closing, such investors purchased from the Company an aggregate of (i) 1,401,457 shares of the Company’s common stock, par value $0.001 per share and (ii) 1,401,457 warrants to purchase shares of common stock, for an aggregate purchase price of $2,452,550 (the “Private Placement Financing”). Such warrants are exercisable for a term of five-years from the date of issuance, at an exercise price of $1.75 per share, and provide for cashless exercise to the extent that there is no registration statement available for the underlying shares of common stock. The Benchmark Company, LLC acted as exclusive financial advisor for the Company in connection with the Private Placement Financing and is entitled to receive 125,000 shares of common stock as compensation for its services. The closing of the Private Placement Financing occurred on March 1, 2022.
Results of Operations
Liquidity and Capital Resources
The following table summarizes total current assets, liabilities and working capital at June 30, 2021March 31, 2022 compared to December 31, 2020:2021:
June 30, 2021 | December 31, 2020 | Increase / (Decrease) | March 31, 2022 | December 31, 2021 | Increase / (Decrease) | |||||||||||||||||||
Current Assets | $ | 3,297,863 | $ | 8,020,993 | $ | (4,723,130 | ) | $ | 4,332,053 | $ | 4,475,242 | $ | (143,189 | ) | ||||||||||
Current Liabilities | $ | 4,822,282 | $ | 4,968,427 | $ | (146,145 | ) | $ | 6,194,866 | $ | 5,421,015 | $ | 773,851 | |||||||||||
Working Capital (Deficit) | $ | (1,524,419 | ) | $ | 3,052,566 | $ | (4,576,985 | ) | $ | (1,862,813 | ) | $ | (945,773 | ) | $ | (917,040 | ) |
At June 30, 2021,March 31, 2022, we had a working capital (deficit)deficit of $(1,524,419)$1,862,813 as compared to a working capital deficit of $3,052,566$945,773 at December 31, 2020, a decrease2021, an increase in working capital deficit of $4,576,985.$917,040. The decreaseincrease is primarily attributable to a reduction in cash and an increase in derivative liability, deferred revenue,accounts payable due in part to marketing-related payables as well as payables for legal and notes payable.accounting fees addressing one-time corporate matters. This was offset by an increase in prepaid expense and a decrease in accounts payable and convertible notes payable.
Net Cash
Net Cash
Net cash used in operating activities for the sixthree months ended June 30,March 31, 2022, and 2021, was $5,037,179 and 2020, was $10,996,578 and $2,885,383,$5,296,638, respectively. The net loss for the sixthree months ended June 30,March 31, 2022, and 2021 was $6,881,048 and 2020 was $15,205,713$6,643,237, respectively. The decrease in net cash used in first quarter 2022 reflects a decrease in research and $7,127,988, respectively. This change is primarily attributable to the net loss for the current perioddevelopment expenses, offset by share-based paymentsan increase in general and administrative costs including consulting, legal, and accounting fees. Going forward, as the amount of $3,510,488Company plans to employees and consultants for services rendered,simultaneously grow revenue while improving operational efficiency, it is anticipated that the accretion of debt discount and debt issuance costs of $851,365 due to the incentives given with debentures, and a gain on extinguishment of debt of $279,022Company’s net cash used in addition to a change in accounts payable and accrued expenses of $734,643.operating activities will consistently decrease throughout 2022.
Net cash used in investing activities for the sixthree months ended June 30, 2021,March 31, 2022, was $745,418.$50,950. This is primarily attributable to the purchase of Plant Camp, property and equipment, deposits on investments related todigital assets within the Memorandum of Understanding with Dune, Inc., and cash paid forCompany’s NFT infrastructure, as well as the purchase of investments.property and equipment.
Net cash provided by financing activities for the sixthree months ended June 30,March 31, 2022, and 2021 was $4,527,972 and 2020 was $5,967,733 and $3,149,526.$412,576, respectively. During the sixthree months ended June 30, 2021,March 31, 2022, the Company’s operations were predominantly financed by net proceeds of $4,997,301 from the sale of common stock and warrants, which were partially offset by the repayments of notes payable. Similarly, the Company’s financing activity for the three months ended March 31, 2021, generated $1,312,672 from the exerciseexercises of warrants, the proceeds from loans and notes of $3,660,279, and proceeds from the issuance of stock and warrants to fund operations, the proceeds of which were partially offset by the repayment of notes and loans of $1,218,718. Similarly, the Company’s financing activity for the six months ended June 30, 2020, generated $3,269,554 from loans and notes, the proceeds of which were partially offset from repayment of notes of $460,999.$985,596.
Summary of Statements of Operations for the Three Months Ended June 30, 2021,March 31, 2022, and 2020:2021:
Three Months Ended June 30, | Three Months Ended March 31, | |||||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
Revenue | $ | 970,857 | $ | 322,540 | $ | 1,348,738 | $ | 743,913 | ||||||||
Operating Expenses | $ | (9,351,652 | ) | $ | (3,857,792 | ) | ||||||||||
Cost of revenue | $ | 1,572,170 | $ | 867,150 | ||||||||||||
Operating expenses | $ | (6,785,852 | ) | $ | (5,822,760 | ) | ||||||||||
Loss from operations | $ | (8,380,795 | ) | $ | (3,535,252 | ) | $ | (7,009,284 | ) | $ | (5,945,997 | ) | ||||
Other Expenses | $ | (181,681 | ) | $ | (606,739 | ) | ||||||||||
Other income (expenses) | $ | 128,236 | $ | (697,240 | ) | |||||||||||
Net loss | $ | (8,562,476 | ) | $ | (4,141,991 | ) | $ | (6,881,048 | ) | $ | (6,643,237 | ) | ||||
Loss per common share – basic and diluted | $ | (0.81 | ) | $ | (1.30 | ) | $ | (0.36 | ) | $ | (0.68 | ) |
Revenue
Revenue was $970,857totaled $1,348,738 for the three months ended June 30, 2021,March 31, 2022, as compared to $322,540$743,913 for the comparable three months ended June 30, 2020,March 31, 2021, an increase of $648,317.$604,825. The 81% year-over-year increase in quarterly revenue is attributable to the steady growth of Vocal+ membershipsboth Creatd Partners (influencer and content marketing) which increased 36% year-over-year, as well as growthCreated Labs (Vocal and technology development) which experienced a 66% increase in revenue generated as compared to the prior first quarter 2021. In addition, Creatd Ventures (e-Commerce) generated sales totaling $254,724, indicating continued revenue momentum within this segment following its initial launch with the acquisition of Plant Camp in mid-2021. Going forward, the Company anticipates continued momentum as Creatd Partners expands its influencer marketing capabilities and methodically increases its average revenue per brand campaign; as Creatd Labs increases conversion from freemium to Vocal+ subscriptions with advancements in its technology development and offerings; as Creatd Ventures expands the marketing visibility of its March 2022 acquisition of its latest direct-to-consumer brand acquisition, Basis, and establishes new and expanded distribution of Dune and Camp. In addition, during 2022, Creatd anticipates its first material revenue contribution from its fourth business segment Creatd Studios (Transmedia production).
Cost of Revenue
Cost of revenue for the three months ended March 31, 2022, were $1,572,170 as compared to $867,150 for the three months ended March 31, 2021. The increase of $705,020 in cost of revenue is related to the establishment and operational launch of Creatd Ventures, which recently began contributing material revenues. Additionally, the increase is attributable to expansion of the Company’s agency businesses, Vocal for Brandsmoderation and Seller’s Choice, which have experienced an acceleration in revenues.content development teams, a byproduct of increased Vocal+ membership volume combined with the additional sales and talent management personnel associated with Creatd Partners. The Company expects the gross margin to improve over time as it continues to grow and improve upon a self-sustaining, organically driven revenue model across its business segments.
Operating Expenses
Operating expenses for the three months ended June 30, 2021,March 31, 2022, were $9,351,652$6,785,852 as compared to $3,857,792$5,822,760 for the three months ended June 30, 2020.March 31, 2021. The increase of $5,493,860$963,092 in operating expenses is mainly related to a $3.8 milliongeneral and administrative (“G&A”) cost increases, predominantly due to an increase in marketing expenditure. The vast majority ofheadcount and related personnel expenses as well as costs related to the over $4 millionCompany’s expanded presence in marketing went toward significant research,key markets, which contributed to an increase in office rent and related moving expenses. G&A was further impacted by a non-recurring increase in consulting expenses, site development, and experimentation utilizing our internal data to generaterecruiting fees. The year-over-year increase in first quarter G&A was offset in part by a lower creator acquisition cost, resulting in significant Vocal+ membership growth, with the Company ending the quarter having achieved a new milestone of over 30,000 Vocal+ members. We expect marketing expenditure to significantly decrease in future quarters, beginning in Q3 2021, as the Company moves from a research and development phase into an execution phase with its newly refined marketing strategy.expenditure and stock based compensation.
Additionally,During the increased operatingfirst quarter 2022, the company’s non-cash charges totaled $1,080,792, a $489,447 decrease from first quarter 2021. This amount represents stock based compensation expenses duringrelated to the quarter are partially attributablevesting of past stock option grants to a $1.3 million increasesenior management and board members, which vest over multiple years, and stock-based fees to service providers that opted for stock in compensation, including a $338,000 increase in stock-based compensation to consultants, directors, and employees. Given the Company’s current cash level and its near completionlieu of its current acquisition pipeline, the Company should see a significant reduction in its financing-related expenditures and other transaction-related fees in upcoming quarters.cash.
The Company expects expenditures to decrease over coming quarters as the Company normalizes its marketing costs and scrutinizes many of the contributing expenses within G&A.
Loss from Operations
Loss from operations for the three months ended June 30, 2021,March 31, 2022, was $8,380,795$7,009,284 as compared to $3,535,252$5,945,997 for the three months ended June 30, 2020.March 31, 2021. The $1,063,287 increase in the loss from operations this quarter primarily reflects an increase in marketingthe nearly doubling year over year of Company personnel to 60 professionals. In addition, short-term consulting and redundancies in new staff members and outsourced costsother services that will be eliminated over time.were required during the quarter to address one-time needs heightened expenses. Going forward, the Company expects the loss from operations to decrease as revenues continue to levels that reflect these eliminations, as well as a reduction in marketing expenditures.increase and expenses achieve normalcy levels.
Other Income and Expenses(Expenses)
Other expensesincome (expenses) for the three months ended June 30, 2021, was $181,681March 31, 2022, were $128,236 as compared to $606,739$(697,240) for the three months ended June 30, 2020.March 31, 2021. The decreaseincrease in secondfirst quarter 20212022 other expensesincome was predominantly due to a gain on forgiveness of debt of $279,022 related to the forgiveness of the May 2020 PPP Loan, and a reductiondecrease in interest expense. This was offset by an increase in derivative expense, change in fair value of derivative liability, and accretion of debt discount and issuance cost.cost, an elimination of derivative expense, and a decrease in interest expense.
Net Loss
Net loss for the three months ended March 31, 2022, was $6,881,048, as compared to a net loss of $6,643,237 for the three months ended March 31, 2021.
Net loss attributable to common shareholders for the three months ended June 30, 2021,March 31, 2022, was $8,972,794,$6,334,890, or loss per share of $0.81,$0.36, as compared to a net loss attributable to common shareholders of $4,141,991,$6,643,237, or loss per share of $1.30,$0.68, for the three months ended June 30, 2020.March 31, 2021.
Off-Balance Sheet Arrangements
As of March 31, 2022, we had no off-balance sheet arrangements.
Summary of Statements of Operations for the Six Months Ended June 30, 2021, and 2020:
Six Months Ended June 30, | ||||||||
2021 | 2020 | |||||||
Revenue | $ | 1,714,770 | $ | 615,682 | ||||
Operating Expenses | $ | (16,041,562 | ) | $ | (5,976,883 | ) | ||
Loss from operations | $ | (14,326,792 | ) | $ | (5,361,201 | ) | ||
Other Expenses | $ | (878,921 | ) | $ | (1,766,787 | ) | ||
Net loss | $ | (15,205,713 | ) | $ | (7,127,988 | ) | ||
Loss per common share – basic and diluted | $ | (1.49 | ) | $ | (2.28 | ) |
Revenue
Revenue was $1,714,770 for the six months ended June 30, 2021, as compared to $615,682 for the comparable six months ended June 30, 2020, an increase of $1,099,088. The year-over-year increase in quarterly revenue is attributable to the steady growth of Vocal+ memberships as well as growth in the Company’s agency businesses, Vocal for Brands and Seller’s Choice, which have experienced an acceleration in revenues.
Operating Expenses
Operating expenses for the six months ended June 30, 2021, were $16,041,562 as compared to $5,976,883 for the six months ended June 30, 2020. The increase of $10,064,679 in operating expenses is mainly related to a $5.4 million increase in marketing expenditure. The increased marketing expenditure went toward significant research, development, and experimentation utilizing our internal data to generate a lower creator acquisition cost, resulting in significant Vocal+ membership growth, with the Company ending the second quarter 2021 having achieved a new milestone of over 30,000 Vocal+ members. We expect marketing expenditure to significantly decrease in future quarters, beginning in Q3 2021, as the Company moves from a research and development phase into an execution phase with its newly refined marketing strategy.Significant Accounting Policies
Additionally, the increased operating expenses during this six-month period are partially attributable to and a $3.9 million increase in compensation, including a $2 million increase in stock-based compensation to consultants, directors, and employees. Given the Company’s current cash level and its near completion of its current acquisition pipeline, the Company should see a significant reduction in its financing-related expenditures and other transaction-related fees in upcoming quarters.
Loss from Operations
Loss from operations for the six months ended June 30, 2021, was $14,326,792 as compared to $5,361,201 for the six months ended June 30, 2020. The increase in the loss from operations this quarter primarily reflects an increase in marketing and redundancies in new staff members and outsourced costs that will be eliminated over time. Going forward, the Company expects the loss from operations to decrease to levels that reflect these eliminations, as well as a reduction in marketing expenditures.
Other Income and Expenses
Other expenses for the six months ended June 30, 2021, was $878,921 as compared to $1,766,787 for the six months ended June 30, 2020. The decrease in other expenses was predominantly due to a gain on forgiveness of debt of $279,022, gain on extinguishment of debt of $286,009 and a reduction in interest expense. This was offset by an increase in derivative expense, change in fair value of derivative liability, and accretion of debt discount and issuance cost.
Net Loss
Net loss attributable to common shareholders for the six months ended June 30, 2021, was $15,616,031, or loss per share of $1.49, as compared to a net loss attributable to common shareholders of $7,127,988, or loss per share of $2.28, for the six months ended June 30, 2020.
Off-Balance Sheet Arrangements
As of June 30, 2021, we had no off-balance sheet arrangements.
Significant Accounting Policies
Our significant accounting policies are described in Note 2 of the Financial Statements. During the three and six months ended June 30, 2021, we were not required to make any material estimates and assumptions that affect the reported amounts and related disclosures of assets, liabilities, revenue and expenses. However, ifIf we complete an acquisition, we will be required to make estimates and assumptions typical of other companies. For example, we will be required to make critical accounting estimates related to valuation and accounting for business combinations. The estimates will require us to rely upon assumptions that were highly uncertain at the time the accounting estimates are made, and changes in them are reasonably likely to occur from period to period. Changes in estimates used in these and other items could have a material impact on our financial statements in the future. Our estimates will be based on our experience and our interpretation of economic, political, regulatory, and other factors that affect our business prospects. Actual results may differ significantly from our estimates. For detailed information regarding our critical accounting policies and estimates, see our financial statements and notes thereto included in this Report and in our Annual Report on Form 10-K for the year ended December 31, 2020.2021. There have been no material changes to our critical accounting policies and estimates from those disclosed in our most recent Annual Report on Form 10-K.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no material changes in our exposures to market risk since December 31, 2020.2021. For details on the Company’s interest rate, foreign currency exchange, and credit risks, see “Item 7A. Quantitative and Qualitative Information About Market Risks” in our 20202021 Annual Report.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial 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 Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report (the “Evaluation Date”). Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures are not effective.
Changes in Internal Control Over Financial Reporting
There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2021March 31, 2022, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. However, during second quarterthroughout 2021 and into 2022, the Company continuedcontinues the complete review of all of its financial procedures and controls that was requisitioned and begun during 2020 and is continuing the process of updating and optimizing its infrastructure around these controls. Over the past year, the Company has hired additional finance and accounting personnel, significantly improving the segregation of duties within that department and providing additional bandwidth for management to focus on improving controls and procedures. This review is ongoing, and the Company believes that this process will continue to positively affect our internal control over financial reporting in the future.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.
On or about June 25, 2020, Home Revolution, LLC (“Home Revolution”) filed a lawsuit in the United States District Court for the District of New Jersey, (the “Court”), entitled Home Revolution, LLC, et alal. v. Jerrick Media Holdings, Inc. et al,al., Case No. 2:20-cv-07775-JMV-MF (the “Action”).20-cv-07775-JMV-MF. The complaint for the lawsuitComplaint alleges, among other things, that the CompanyCreatd, Inc. breached the Membership Interest Purchase Agreement, as modified, and ancillary transaction documents in connection with the acquisition of Seller’s Choice, LLC, from Home Revolution in September 2019. The complaintComplaint additionally alleges violation of the New Jersey Uniform Securities Law, violations of the Exchange Act and Rule 10b-5 thereunder, fraud, equitable accounting, breach of fiduciary duty, conversion and unjust enrichment. After filing the Complaint but prior to our Answer date, Home Revolution moved by order to show causePlaintiff also sought to have a receiver appointed by the Court to take over Creatd’s operations.
We submitted an opposition, After substantial motion practice, Creatd successfully settled this dispute from June 2020 for a total of $799,000, which includes $660,000 of note principal and after oral arguments$139,000 of accrued interest. The matter has been dismissed on August 13, 2020, the Court denied the receiver request in its entirety. We then filed a Motion to Dismiss on August 14, 2020, on a number of grounds, the most significant of which is that this is a simple (alleged) breach of Promissory Note case. Creatd is current on all payments under the Note, and because both parties are New Jersey entities a mere breach of contract and/or collection-based case is not appropriately venued in federal court. Upon receipt of our Motion to Dismiss, Home Revolution submitted an Amended Complaint, presumably in an effort to cure the problems with the Complaint which we identified in the Motion to Dismiss. Home Revolution has subsequently initiated a series of atypical procedures and, as a result, has (without following the Federal Rules of Civil Procedure) moved for both default and to submit yet another newly Amended Complaint (the one precludes the other and vice versa). March 3, 2022.
After we submittedOn or about August 30, 2021, Robert W. Monster and Anonymize, Inc. (“Monster”) filed a motionlawsuit in the United States District Court for the Western District of Washington at Seattle, Robert W. Monster, et al. v. Creatd, Inc., et al. (Western District of Washington at Seattle 2:21-CV-1177). The Complaint alleges, among other things, that action for Declaratory Judgment under 28 U.S.C. § 2201 that Monster’s registration and use of the internet domain name VOCL.COM (the “Domain Name”) does not violate Creatd’s rights under the Anticybersquatting Consumer Protection Act (“ACPA”), 15 U.S.C. § 1125(d), or otherwise under the Lanham Act, 15 U.S.C. § 1051 et seq. Creatd claims trademark rights and certain other rights with respect to clear up the above,term and the domain name VOCL.COM. Monster seeks a determination by the Court reinstatedthat Monster’s registration and/or use of VOCL.COM is not, and has not been in violation of the matter toACPA, and that Plaintiffs’ use of VOCL.COM constitutes neither a violation of the docket and permitted Plaintiff to fileACPA nor trademark infringement or dilution under the Second Amended Complaint (we had no objection). We have filed a motion to dismiss the Second Amended Complaint. That will take some time to be decided. We expect no major event to occur for the next 12 months. Finally, we believeLanham Act. Creatd believes the lawsuit lacks merit and will vigorously challenge the action. At this time, we are unable to estimate potential damage exposure, if any, related to the litigation.
Item 1A. Risk Factors.
Our business, financial condition, results of operations, and cash flows may be impacted by a number of factors, many of which are beyond our control, including those set forth in our most recent Annual Report on Form 10-K for the year ended December 31, 2020,2021, the occurrence of any one of which could have a material adverse effect on our actual results.
There have been no material changes to the Risk Factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020.2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the three months ended June 30, 2021,March 31, 2022, we issued securities that were not registered under the Securities Act and were not previously disclosed in a Current Report on Form 8-K or Quarterly Report on Form 10-Q as listed below. All of the securities discussed in this Item 2 were issued in reliance on the exemption under Section 4(a)(2) of the Securities Act.
Board IssuancesConsultant Shares
During the sixthree months ended June 30, 2021,March 31, 2022, the Company issued 69,635 shares of common stock and options to purchase 352,500 shares of common stock to members of the board of directors under the Jerrick Media Holdings, Inc. 2020 Omnibus Equity Incentive Plan. The options have an exercise price ranging from $2.55 - $14.10, vest on the one year anniversary and expire 5 years from the date of vesting.
Consultant Shares
During the three months ended June 30, 2021, the Company issued 29,415113,420 shares of Common Stock to consultants and employees.
Debt Conversion
During the three months ended June 30, 2021,March 31, 2022, a lender converted $169,400$168,850 in promissory notes into 55,631109,435 shares of Common Stock.
Item 3. Defaults Upon Senior Securities.
There has been no default in the payment of principal, interest, sinking or purchase fund installment, or any other material default, with respect to any indebtedness of the Company.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
There is no other information required to be disclosed under this item which was not previously disclosed.
Item 6. Exhibits.
* | Filed herewith |
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# | This certification is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act. |
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CREATD, INC. | |||
Date: | By: | /s/ | |
Name: | |||
Title: | Chief Executive Officer | ||
(Principal Executive Officer) |
Date: | By: | /s/ Chelsea Pullano |
Name: | Chelsea Pullano | |
Title: | Chief Financial Officer | |
(Principal Financial and Accounting Officer) |
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