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: March 31 2022, 2023
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.) |
419 Lafayette Street, 6th Floor
New York, NY 10003
(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 | ||
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 May 16, 2022,18, 2023, the registrant had 20,140,41391,245,572 shares of its common stock, par value $0.001 per share, outstanding.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 20222023
TABLE OF CONTENTS
| Page | |||
| Special Note Regarding Forward-Looking Statements and Other Information Contained in this Report | ii | ||
| PART I - FINANCIAL INFORMATION | |||
| Item 1. | Financial Statements | 1 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | ||
| Item 4. | Controls and Procedures | ||
| PART II - OTHER INFORMATION | |||
| Item 1. | Legal Proceedings | ||
| Item 1A. | Risk Factors | ||
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | ||
| Item 3. | Defaults Upon Senior Securities | ||
| Item 4. | Mine Safety Disclosures | ||
| Item 5. | Other Information | ||
| Item 6. | Exhibits | ||
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, 20222023
Index to the Condensed Consolidated Financial Statements
1
Creatd, Inc.
Condensed Consolidated Balance Sheets
| March 31, 2023 | December 31, 2022 | |||||||||||||||
| March 31, 2022 | December 31, 2021 | (Unaudited) | ||||||||||||||
| (Unaudited) | ||||||||||||||||
| Assets | ||||||||||||||||
| Current Assets | ||||||||||||||||
| Cash | $ | 3,229,627 | $ | 3,794,734 | $ | 172,052 | $ | 706,224 | ||||||||
| Accounts receivable, net | 390,605 | 337,440 | ||||||||||||||
| Accounts receivable, Net | 244,353 | 239,423 | ||||||||||||||
| Inventory | 436,981 | 106,403 | 256,257 | 404,970 | ||||||||||||
| Prepaid expenses and other current assets | 274,840 | 236,665 | 274,081 | 128,547 | ||||||||||||
| Total Current Assets | 4,332,053 | 4,475,242 | 946,743 | 1,479,164 | ||||||||||||
| Property and equipment, net | 139,479 | 102,939 | 201,939 | 212,545 | ||||||||||||
| Intangible assets | 2,520,373 | 2,432,841 | 231,284 | 230,084 | ||||||||||||
| Goodwill | 1,383,785 | 1,374,835 | 46,460 | 46,460 | ||||||||||||
| Deposits and other assets | 914,700 | 718,951 | 1,052,954 | 797,231 | ||||||||||||
| Minority investment in businesses | 50,000 | 50,000 | ||||||||||||||
| Operating lease right of use asset | - | 18,451 | 1,995,956 | 2,054,265 | ||||||||||||
| Total Assets | $ | 9,340,390 | $ | 9,173,259 | $ | 4,475,336 | $ | 4,819,749 | ||||||||
| Liabilities and Stockholders’ Deficit | ||||||||||||||||
| Current Liabilities | ||||||||||||||||
| Accounts payable and accrued liabilities | $ | 4,832,103 | $ | 3,730,540 | $ | 11,109,340 | $ | 7,565,720 | ||||||||
| Convertible Notes, net of debt discount and issuance costs | - | 159,193 | 4,497,023 | 5,369,599 | ||||||||||||
| Current portion of operating lease payable | - | 18,451 | 287,542 | 326,908 | ||||||||||||
| Note payable, net of debt discount and issuance costs | 1,151,087 | 1,278,672 | 1,570,601 | 1,645,680 | ||||||||||||
| Derivative Liability | 58,970 | - | ||||||||||||||
| Deferred revenue | 211,676 | 234,159 | 253,348 | 299,409 | ||||||||||||
| Total Current Liabilities | 6,194,866 | 5,421,015 | 17,776,824 | 15,207,316 | ||||||||||||
| Non-current Liabilities: | ||||||||||||||||
| Note payable | 35,905 | 63,992 | 32,020 | 38,014 | ||||||||||||
| Operating lease payable | 2,018,789 | 2,077,618 | ||||||||||||||
| Total Non-current Liabilities | 35,905 | 63,992 | 2,050,809 | 2,115,632 | ||||||||||||
| Total Liabilities | 6,230,771 | 5,485,007 | 19,827,633 | 17,322,948 | ||||||||||||
| Commitments and contingencies | ||||||||||||||||
| Commitments and contingencies (Note 10) | ||||||||||||||||
| 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 | ||||||||||||||
| Stockholders’ Deficit | ||||||||||||||||
| Preferred stock, $0.001 par value, 20,000,000 shares authorized | ||||||||||||||||
| Series E Preferred stock, $0.001 par value, 8,000 shares authorized, 450 and 450 shares outstanding as of March 31, 2023 and December 31, 2022, respectively | ||||||||||||||||
| Common stock par value $0.001: 1,500,000,000 shares authorized; 86,533,654 issued and 86,440,281 outstanding as of March 31, 2023, and 39,062,386 issued and 38,969,013 outstanding as of December 31, 2022 | 86,534 | 39,062 | ||||||||||||||
| Additional paid in capital | 117,949,487 | 111,563,618 | 152,688,839 | 134,570,600 | ||||||||||||
| Subscription receivable | - | - | ||||||||||||||
| Less: Treasury stock, 5,657 and 5,657 shares, respectively | (62,406 | ) | (62,406 | ) | ||||||||||||
| Less: Treasury stock, 93,373 and 93,373 shares, as of March 31, 2023 and December 31, 2022, respectively | (78,456 | ) | (78,456 | ) | ||||||||||||
| Accumulated deficit | (115,977,464 | ) | (109,632,574 | ) | (168,385,954 | ) | (146,142,373 | ) | ||||||||
| Accumulated other comprehensive income | (83,222 | ) | (78,272 | ) | ||||||||||||
| Total Creatd, Inc. Stockholders’ Equity | 1,846,310 | 1,807,057 | ||||||||||||||
| Accumulated other comprehensive loss | (10,212 | ) | (140,183 | ) | ||||||||||||
| Total Creatd, Inc. Stockholders’ Deficit | (15,699,249 | ) | (11,751,350 | ) | ||||||||||||
| Non-controlling interest in consolidated subsidiaries | 1,263,309 | 1,881,195 | 346,952 | (751,849 | ) | |||||||||||
| 3,109,619 | 3,688,252 | (15,352,297 | ) | (12,503,199 | ) | |||||||||||
| Total Liabilities and Stockholders’ Equity | $ | 9,340,390 | $ | 9,173,259 | ||||||||||||
| Total Liabilities and Stockholders’ Deficit | $ | 4,475,336 | $ | 4,819,749 | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-1
Creatd, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
| For the Three Months Ended | For the Three Months Ended | |||||||
| March 31, 2023 | March 31, 2022 | |||||||
| Net revenue | $ | 986,145 | $ | 1,348,738 | ||||
| Cost of revenue | 1,012,687 | 1,572,170 | ||||||
| Gross margin (loss) | (26,542 | ) | (223,432 | ) | ||||
| Operating expenses | ||||||||
| Compensation | 4,114,523 | 1,662,830 | ||||||
| Research and development | 131,626 | 226,654 | ||||||
| Marketing | 535,521 | 2,092,021 | ||||||
| Stock based compensation | 7,328,044 | 1,080,792 | ||||||
| General and administrative | 1,575,359 | 1,723,555 | ||||||
| Total operating expenses | 13,685,073 | 6,785,852 | ||||||
| Loss from operations | (13,711,615 | ) | (7,009,284 | ) | ||||
| Other income (expenses) | ||||||||
| Other income | 12,000 | 99 | ||||||
| Interest expense | (65,370 | ) | (13,896 | ) | ||||
| Accretion of debt discount and issuance cost | (2,155,159 | ) | (23,477 | ) | ||||
| Derivative liability | (58,970) | 3,729 | ||||||
| Settlement of vendor liabilities | 23,589 | 14,525 | ||||||
| Gain on extinguishment of debt | - | 147,256 | ||||||
| Other income (expenses), net | (2,243,910 | ) | 128,236 | |||||
| Loss before income tax provision | (15,955,525 | ) | (6,881,048 | ) | ||||
| Income tax provision | - | - | ||||||
| Net loss | (15,955,525 | ) | (6,881,048 | ) | ||||
| Non-controlling interest in net loss | 49,190 | 617,886 | ||||||
| Net Loss attributable to Creatd, Inc. | (15,906,335 | ) | (6,263,162 | ) | ||||
| Deemed dividend | (6,337,246 | ) | (81,728 | ) | ||||
| Net loss attributable to common shareholders | $ | (22,243,581 | ) | $ | (6,344,890 | ) | ||
| Comprehensive loss | ||||||||
| Net loss | (15,955,525 | ) | (6,881,048 | ) | ||||
| Currency translation gain (loss) | 129,971 | (4,950 | ) | |||||
| Comprehensive loss | $ | (15,825,554 | ) | $ | (6,885,998 | ) | ||
| Per-share data | ||||||||
| Basic and diluted loss per share | $ | (0.35 | ) | $ | (0.36 | ) | ||
| Weighted average number of common shares outstanding | 63,491,732 | 17,707,951 | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 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 | ||||||
F-2
Creatd, Inc.
Condensed Consolidated Statement of Changes in Stockholders’ Equity (Deficit)
| Series E Preferred Stock | Common Stock | Treasury stock | Additional Paid In | Accumulated | Non-Controlling | Other Comprehensive | Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Interest | Income | (Deficit) | ||||||||||||||||||||||||||||||||||
| Balance, January 1, 2023 | 450 | $ | - | 39,062,386 | $ | 39,062 | (93,373 | ) | $ | (78,456 | ) | $ | 134,570,600 | $ | (146,142,373 | ) | $ | (751,849 | ) | $ | (140,183 | ) | $ | (12,503,199 | ) | |||||||||||||||||||
| Stock based compensation | - | - | 31,118,098 | 31,118 | - | - | 7,260,113 | - | - | - | 7,291,231 | |||||||||||||||||||||||||||||||||
| Shares issued for prepaid services | - | - | 1,250,000 | 1,250 | - | - | 212,500 | - | - | - | 213,750 | |||||||||||||||||||||||||||||||||
| Shares issued for acquisition of Non-controlling interest in consolidated subsidiaries | - | - | 1,325,794 | 1,326 | - | - | (899,317 | ) | - | 897,991 | - | - | ||||||||||||||||||||||||||||||||
| BCF issued with convertible note | - | - | - | - | - | - | 2,000,000 | - | - | - | 2,000,000 | |||||||||||||||||||||||||||||||||
| Exercise of warrants to stock | 3,767,925 | 3,768 | - | - | 749,925 | - | - | - | 753,693 | |||||||||||||||||||||||||||||||||||
| Stock warrants issued with note payable | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||
| Cash received for common stock | - | - | 3,062,600 | 3,063 | - | - | 1,046,937 | - | - | - | 1,050,000 | |||||||||||||||||||||||||||||||||
| Common stock issued upon conversion of convertible notes | - | - | 6,946,851 | 6,947 | - | - | 1,410,835 | - | - | - | 1,417,782 | |||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | - | - | - | - | - | - | - | - | - | 129,971 | 129,971 | |||||||||||||||||||||||||||||||||
| Sale of minority interest in OG Collection INC | - | - | - | - | - | - | 250,000 | - | 250,000 | |||||||||||||||||||||||||||||||||||
| Dividends | - | - | - | - | - | - | 6,337,246 | (6,337,246 | ) | - | - | - | ||||||||||||||||||||||||||||||||
| Net loss for the three months ended March 31, 2023 | - | - | - | - | - | - | - | (15,906,335 | ) | (49,190 | ) | - | (15,955,525 | ) | ||||||||||||||||||||||||||||||
| Balance, March 31, 2023 | 450 | $ | - | 86,533,654 | $ | 86,534 | (93,373 | ) | $ | (78,456 | ) | $ | 152,688,839 | $ | (168,385,954 | ) | $ | 346,952 | $ | (10,212 | ) | $ | (15,352,297 | ) | ||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-3
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’ | 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 | 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 | 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 | - | - | 18,171 | 18 | - | - | 1,067,591 | - | - | - | 1,067,609 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for prepaid services | - | - | 50,000 | 50 | - | - | 68,950 | - | - | - | 69,000 | - | - | 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 | - | - | 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 | - | - | 109,435 | 110 | - | - | 173,346 | - | - | - | 173,456 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | - | - | - | - | - | - | - | - | - | (4,950 | ) | (4,950 | ) | - | - | - | - | - | - | - | - | - | (4,950 | ) | (4,950 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends | - | - | - | - | - | - | 81,728 | (81,728 | ) | - | - | - | - | - | - | - | - | - | 81,728 | (81,728 | ) | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss for the three months ended March 31, 20222 | - | - | - | - | - | - | - | (6,263,162 | ) | (617,886 | ) | - | (6,881,048 | ) | - | - | - | - | - | - | - | (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 | 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)
| 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 | |||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-4
Creatd, Inc.
Condensed Consolidated Statements of 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 | For the Three Months Ended | |||||||
| March 31, 2023 | March 31, 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (15,955,525 | ) | $ | (6,881,048 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 9,406 | 141,892 | ||||||
| Accretion of debt discount and issuance cost | 2,155,159 | 23,477 | ||||||
| Share-based compensation | 7,291,231 | 1,080,491 | ||||||
| Derivative Expense | 58,970 | - | ||||||
| Currency Translation | 129,971 | (4,950 | ) | |||||
| Bad debt expense | 75,874 | 92,987 | ||||||
| Settlement of vendor liabilities | (23,589 | ) | (14,525 | ) | ||||
| Change in fair value of derivative liability | - | (3,729 | ) | |||||
| Gain on extinguishment of debt | - | (147,256 | ) | |||||
| Non-cash lease expense | - | 18,451 | ||||||
| Accounts receivable | (80,804 | ) | (139,388 | ) | ||||
| Inventory | 148,713 | (136,213 | ) | |||||
| Prepaid expenses | 68,216 | (6,373 | ) | |||||
| Deposits and other assets | (255,723 | ) | (195,749 | ) | ||||
| Operating lease right of use asset | (39,886 | ) | ||||||
| Accounts payable and accrued liabilities | 3,605,990 | 1,170,738 | ||||||
| Deferred revenue | (46,061 | ) | (22,483 | ) | ||||
| Operating lease liability | - | (18,451 | ) | |||||
| Net Cash Used In Operating Activities | (2,858,058 | ) | (5,042,129 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Cash paid for property and equipment | - | (44,927 | ) | |||||
| Cash received from the sale of minority interest in OG Collection Inc | 250,000 | - | ||||||
| Cash consideration for acquisition | - | 44,977 | ||||||
| Purchases of digital assets | - | (51,000 | ) | |||||
| Net Cash Provided By (Used In) Investing Activities | 250,000 | (50,950 | ) | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from the exercise of warrant | 753,693 | - | ||||||
| Net proceeds from issuance of notes | 312,688 | 463,559 | ||||||
| Repayment of notes | (620,353 | ) | (932,888 | ) | ||||
| Proceeds from issuance of convertible note | 2,125,000 | - | ||||||
| Repayment of convertible notes | (1,547,142 | ) | - | |||||
| Proceeds from issuance of common stock and warrants | 1,050,000 | 4,997,301 | ||||||
| Net Cash Provided By Financing Activities | 2,073,886 | 4,527,972 | ||||||
| Net Change in Cash | (534,172 | ) | (570,057 | ) | ||||
| Cash - Beginning of period | 706,224 | 3,794,734 | ||||||
| Cash - End of period | $ | 172,052 | $ | 3,224,677 | ||||
| SUPPLEMENTARY CASH FLOW INFORMATION: | ||||||||
| Cash Paid During the Year for: | ||||||||
| Interest | $ | 65,370 | $ | 139,000 | ||||
| SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Conversion of marketable debt securities into equity securities | $ | - | $ | 20,297 | ||||
| Deemed dividend | $ | 6,337,246 | $ | - | ||||
| Shares issued for acquisition of NCI in consolidated subsidiaries | $ | 899,317 | $ | - | ||||
| Beneficial conversion feature on convertible notes | $ | 2,000,000 | $ | - | ||||
| Issuance of common stock for prepaid services | $ | 213,750 | $ | 69,000 | ||||
| Common stock and warrants issued upon conversion of notes payable | $ | 1,417,782 | $ | 142,800 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-5
Creatd, Inc.
March 31, 20222023
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 providing economic opportunities for creators, which it accomplishes through its four main business pillars: Creatd Labs, Creatd Partners, Creatd Ventures, and Creatd Studios. Creatd’s 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.agency.
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 direct-to-consumer (DTC) food brand which creates healthy upgrades to classic comfort food favorites. The results of Plant Camp’s operations have benebeen 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.York (“WHE”).
On January 9, 2023, the Company acquired an additional 51% of the equity interest in WHE Agency, Inc,Inc. bringing our total ownership to 95%. WHE 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.
OnBetween October 21, 2020, and August 16, 2021, the Company acquired 16%21% 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.
On October 3, 2021, the Company acquired an additional 29% of the membership interests of Dune, Inc,Inc., bringing our total membership interests to 50%.
On January 25, 2023, the Company acquired an additional 23% equity interest in Dune, Inc. bringing our total ownership to 85%. 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.
On August 1, 2022, the Company acquired 51% of the membership interests of Orbit Media LLC, a New York limited liability company. Orbit is an app-based stock trading platform designed to empower a new generation of investors.
F-6
On February 3, 2023, the Company acquired an additional 5% of the membership interests of Orbit Media, LLC., bringing our total membership interests to 56%. Orbit has been consolidated due to the Company’s ownership of 51% voting control, and the results of operations have been included since the date of acquisition in the Statement of Operations.
On September 13, 2022, the Company acquired 100% of the membership interests of Brave Foods, LLC, a Maine limited liability company. Brave is a plant-based food company that provides convenient and healthy breakfast food products. Brave Foods, 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.
On December 13, 2022, an investor entered into a Subscription Agreement whereby it purchased from OG Collection, Inc., a subsidiary of the Company (“OG”), 150,000 shares of common stock of OG for a purchase price of $750,000, and, in connection therewith OG, the Company, and the Investor entered into a Shareholder Agreement.
February 1, 2023, an investor entered into a Subscription Agreement whereby it purchased from OG Collection, Inc., a subsidiary of the Company (“OG”), 50,000 shares of common stock of OG for a purchase price of $250,000, and, in connection therewith OG, the Company, and the Investor entered into a Shareholder Agreement.
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, 20222023, 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, 2021,2022, included in the Company’s 20212022 Annual Report on Form 10-K filed with the SEC. The balance sheet as of December 31, 20212022, 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 statementsConsolidated 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.
F-7
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. All consolidated subsidiaries report based on a year ending of December 31.
As of March 31, 2022,2023, 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 | % | |||
| 100 | % | |||||
| Delaware | % | |||||
| Delaware | % | |||||
| % | ||||||
| % | ||||||
As of March 31, 2023, Creatd Ventures, LLC (formerly Creatd Partners, LLC) is operating three DBAs for Brave Foods, Plant Camp, and Basis (formerly Denver Bodega, LLC).
All other previously consolidated subsidiaries have been dissolved.
All inter-company balances and transactions have been eliminated. The condensed consolidated financial statements include Denver Bodega, LLC activity since March 7, 2022, Orbit Media LLC activity since August 1, 2022, and Brave Foods, LLC activity since September 13, 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 applicableapplicable.
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) |
F-8
The Company’s Level 1 assets/liabilities include cash, accounts receivable, marketable trading securities, accounts payable, marketable trading securities, prepaid and other current assets, line of credit and due to related parties. Management believes the estimated fair value of these accounts at March 31, 20222023 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. 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, equity investments at cost, and derivative 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 tables providesprovide a summary of the relevant assetsliabilities that are measured at fair value on non-recurringa recurring basis:
Fair Value Measurements as of
March 31, 20222023
| 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 | $ | 50,000 | $ | - | $ | - | $ | 50,000 | ||||||||
| Total assets | $ | 50,000 | $ | - | $ | - | $ | 50,000 | ||||||||
| 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) | |||||||||||||
| Liabilities: | ||||||||||||||||
| Derivative liabilities | $ | 58,970 | $ | - | $ | - | $ | 58,970 | ||||||||
| Total Liabilities | $ | 58,970 | $ | - | $ | - | $ | 58,970 | ||||||||
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 March 31, 2022, cash amounts in excess of $250,000 were not fully insured. The uninsured cash balance as of March 31, 2022,2023, was approximately $2.4 million.$0. 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$968,331. It is reasonably possible that operations located outside an entity’s home country will be disrupted in the near term.
F-9
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 | |||
| Leasehold Improvements | 3 | |||
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 Intangible Assets
We evaluate the recoverability of property and equipment, and acquired finite-lived intangible assets and, purchased infinite life digital 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. Digital assets accounted for as intangible assets are subject to impairment losses if the fair value of digital assets decreases other than temporarily below the carrying value. The fair value is measured using the quoted price of the crypto asset at the time its fair value is being measured. 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. During the three months ended March 31, 2022,2023, 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 6.94is 9.81 years.
| Scheduled amortization over the next five years are as follows: |
Twelve months ending March 31,
| 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 | ||
| 2024 | $ | 32,097 | ||
| 2025 | 28,743 | |||
| 2026 | 20,961 | |||
| 2027 | 20,961 | |||
| 2028 | 20,961 | |||
| Thereafter | 51,482 | |||
| Total | 175,205 | |||
| Intangible assets not subject to amortization | 22,783 | |||
| Total Intangible Assets | $ | 197,988 |
Amortization expense was $8,024 and $133,504 for the three months ended March 31, 2023 and 2022, respectively.
Goodwill
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.
F-10
During the year ended December 31, 2021,2022, the Company completed its annual impairment testtests of goodwill. The Company performed the qualitative assessment as permitted by ASC 350-20 and determined for threeone of its reporting units that the fair value of thosethat reporting unitsunit was more likely than not greater than theirits carrying value, including Goodwill. However, based on this qualitative assessment, the Company determined that the carrying value of the Seller’s ChoiceDenver Bodega, Dune, Plant Camp, and WHE Agency reporting unitunits was more likely than not greater than itstheir carrying value, including Goodwill. Based on the completion of the annual impairment test,tests, the Company recorded an impairment charge of $1,035,795$1,433,815 for goodwill Duringfor the yearyears ended December 31, 2021.2022.
During the three months ended March 31, 2023, the Company did not acquire any additional goodwill or recognize any additional impairment of goodwill.
The following table sets forth a summary of the changes in goodwill for the three months ended March 31, 2022.2023
| For the three months ended March 31, 2022 | For the Three Months | |||||||
| Total | Total | |||||||
| As of January 1, 2022 | $ | 1,374,835 | ||||||
| As of January 1, 2023 | $ | 46,460 | ||||||
| Goodwill acquired in a business combination | 8,950 | - | ||||||
| Impairment of goodwill | - | - | ||||||
| As of March 31, 2022 | 1,383,785 | |||||||
| As of March 31, 2023 | 46,460 | |||||||
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.
F-11
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 utilizes 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 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 orof revenue.
F-12
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 months ended March 31, 20222023 and 20212022 consists of the following:
| Three Months Ended | Three Months Ended | |||||||||||||||
| March 31, | March 31, | |||||||||||||||
| 2022 | 2021 | 2023 | 2022 | |||||||||||||
| Agency (Managed Services, Branded Content, & Talent Management Services) | $ | 583,141 | $ | 428,300 | $ | 246,201 | $ | 583,141 | ||||||||
| Platform (Creator Subscriptions) | 508,233 | 306,902 | 299,194 | 508,233 | ||||||||||||
| Ecommerce (Tangible products) | 254,724 | - | ||||||||||||||
| Ecommerce (Tangible Products) | 410,894 | 254,724 | ||||||||||||||
| Affiliate Sales | 2,640 | 8,008 | 986 | 2,640 | ||||||||||||
| Other Revenue | - | 703 | 28,870 | - | ||||||||||||
| $ | 1,348,738 | $ | 743,913 | $ | 986,145 | $ | 1,348,738 | |||||||||
The Company utilizes the output method to measuresmeasure the results achieved and value transferred to a customer over time. Timing of revenue recognition for the three months ended March 31, 20222023 and 20212022 consists of the following:
| Three Months Ended | Three Months Ended | |||||||||||||||
| March 31, | March 31, | |||||||||||||||
| 2022 | 2021 | 2023 | 2022 | |||||||||||||
| Products and services transferred over time | $ | 1,091,374 | $ | 735,202 | $ | 575,251 | $ | 1,091,374 | ||||||||
| Products and services transferred at a point in time | 257,364 | 8,711 | ||||||||||||||
| Products transferred at a point in time | 410,894 | 257,364 | ||||||||||||||
| $ | 1,348,738 | $ | 743,913 | $ | 986,145 | $ | 1,348,738 | |||||||||
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.
F-13
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. In 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 $110,000, with branded challenges ranging from $10,000 to $25,000 and branded articles ranging from $2,500 to | |
| ● | Branded articles are created and published, and challenges are completed, within three months of the signed agreement, or as previously negotiated with the client. |
| ● | Branded articles and challenges are promoted per the contract and engagement reports are provided to the client. | |
| ● | Most contracts include provisions for clients to acquire content rights at the end of the campaign for a flat fee. |
Talent 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 approximately 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 $500-$ |
| ● | The Company collects fixed fees in the amount of |
| ● | The campaign is created and made live by the influencer within |
| ● | 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. |
F-14
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 subject to promotional 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 forPotential revenue offset is calculated by reviewing a subscriber’s earnings in conjunction with 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 beenon a paying customer, and applying that percentage to payments for earnings through reads in the relevant reporting period.monthly and/or annual basis.
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.from views or sales of its multimedia assets. Affiliate revenue is earned on a “click through” basis, upon referring visitors via said links, to an affiliate’s siteviewing or purchasing the relevant video, book, or other media asset and having them completecompleting 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%.conversion. 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 threefour majority-owned e-commerce companies, Camp (previously Plant Camp), Dune Glow Remedy (“Dune”), Basis, and Basis.Brave. The Company generates revenue through the sale of Camp, Dune, Basis, and Basis’Brave’s 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 an item to return unopened, unused, or damaged items for a full refund.refund for Camp, Dune, and Basis, and 7 days from receipt of purchase for Brave. 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 overwithin the next year.twelve months. As of March 31, 2022,2023, the Company had deferred revenue of $211,676.$253,348.
F-15
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 three months ended March 31, 2022,2023, the Company recorded $92,987,$75,874 as a bad debt expense. As of March 31, 2022,2023, the Company has an allowance for doubtful accounts of $279,133.$600,951.
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, 2022,2023, the Company has no valuation allowance.had a reserve for obsolescence of $320,282.
Stock-Based Compensation
The Company recognizes compensation expense for all equity–based payments granted in accordance with Accounting Standards Codification (“ASC”) 718 “Compensation – Stock Compensation”. Under fair value recognition provisions, the Company recognizes equity–based compensation over the requisite service period of the award. The company has a relatively low forfeiture rate of stock basedstock-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.forfeitures are recognized as they occur. Expected volatility is volatility 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. 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. 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.
F-16
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 forFor the three months ended March 31, 2022 and 2021 presented in these condensed consolidated financial statements,2023, 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 March 31, 20222023 and 2021:2022:
| March 31, | March 31, | |||||||||||||||
| 2022 | 2021 | 2023 | 2022 | |||||||||||||
| Series E preferred | 109,223 | - | ||||||||||||||
| Options | 1,891,348 | 2,350,062 | 4,391,600 | 1,891,348 | ||||||||||||
| Warrants | 8,591,206 | 6,273,778 | 40,574,614 | 8,591,206 | ||||||||||||
| Convertible notes | - | 49,629 | 24,169,999 | - | ||||||||||||
| Totals | 10,482,554 | 8,673,469 | 69,245,436 | 10,482,554 | ||||||||||||
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’s presentation. These reclassifications did not affect the prior period’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 May 2021, the FASB issued authoritative guidance intended to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges 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’s 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. The updated guidance, which became effective for fiscal years beginning after December 15, 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. On October 16, 2019, FASB approved a final ASU delaying the effective date of ASU 2016-13 is effective for the fiscal yearsmall reporting companies to interim and annual periods beginning after December 15, 2022, including interim periods within that fiscal year.2022. 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. ASU 2020-6 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 July 2021, the FASB issued ASU No. 2021-05, Lessors—Certain Leases with Variable Lease Payments (Topic 842), Which requires a lessor to classify a lease with variable lease payments that doadoption did not depend on an index or rate (hereafter referred to as “variable payments”) as an operating lease on the commencement date of the lease if specified criteria are met. ASU 2021-05 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.statements.
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 noadoption did not have a material impact on the Company’s condensed consolidated financial statements upon the adoption of this ASU.statements.
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. F-17
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 March 31, 2022,2023, the Company had an accumulated deficit of $116$168.3 million, a net loss of $6.9$16.0 million and net cash used in operating activities of $5.1$2.9 million for the reporting period then ended. 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 – Inventory
Inventory was comprised of the following at March 31, 20222023 and December 31, 2021:2022:
| March 31, 2022 | December 31, 2021 | March 31, 2023 | December 31, 2022 | |||||||||||||
| Raw Materials | $ | 16,904 | $ | - | $ | 76,322 | $ | - | ||||||||
| Packaging | 20,342 | 2,907 | 22,787 | 34,632 | ||||||||||||
| Finished goods | 399,735 | 103,496 | 157,148 | 370,335 | ||||||||||||
| $ | 436,981 | $ | 106,403 | $ | 256,257 | $ | 404,970 | |||||||||
Note 5 – Property and Equipment
Property and equipment stated at cost, less accumulated depreciation and amortization, consisted of the following:F-18
| 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 | |||||
Depreciation expense was $8,386 and $10,047 for the three months ended March 31, 2022 and 2021, respectively.
Note 65 – Notes Payable
Notes payable as of March 31, 20222023 and December 31, 20212022 is as follows:
| Outstanding Principal as of | ||||||||||||||
| March 31, 2022 | December 31, 2021 | Interest Rate | Maturity Date | |||||||||||
| Seller’s Choice Note | $ | - | $ | 660,000 | 30 | % | September 2020 | |||||||
| The April 2020 PPP Loan Agreement | 198,577 | 198,577 | 1 | % | May 2022 | |||||||||
| 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 | - | ||||||||||||
| 1,229,612 | 1,358,211 | |||||||||||||
| Less: Debt Discount | (42,620 | ) | (15,547 | ) | ||||||||||
| Less: Debt Issuance Costs | - | - | ||||||||||||
| 1,186,992 | 1,342,664 | |||||||||||||
| Less: Current Debt | (1,151,087 | ) | (1,278,672 | ) | ||||||||||
| Total Long-Term Debt | $ | 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. 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 December 31, 2021, the Company is in default on the Seller’s Choice note.
On March 3, 2022, after substantial motion practice, Creatd successfully settled the 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 recorded a Gain on extinguishment of debt of $147,256.
Outstanding | ||||||||||||||
March 31, | December 31, | Interest | Maturity | |||||||||||
| The April 2020 PPP Loan Agreement | 198,577 | 198,577 | 5 | % | April 2022 | |||||||||
| First Denver Bodega LLC Loan | 32,645 | 38,014 | 5 | % | March 2025 | |||||||||
| The Third May 2022 Loan Agreement | 6,554 | 9,409 | - | % | November 2022 | |||||||||
| The Fourth May 2022 Loan Agreement | 30,697 | 31,701 | - | % | November 2022 | |||||||||
| The Second June 2022 Loan agreement | 39,500 | 39,500 | - | % | October 2022 | |||||||||
| The First August 2022 Loan Agreement | 130,615 | 130,615 | 14 | % | June 2023 | |||||||||
| The Second August 2022 Loan Agreement | 92,950 | 387,950 | - | % | January 2023 | |||||||||
| The First September 2022 Loan Agreement | 47,439 | 73,236 | - | % | September 2023 | |||||||||
| The Second September 2022 Loan Agreement | 658,625 | 763,625 | - | % | May 2023 | |||||||||
| The Third September 2022 Loan Agreement | 121,964 | 256,964 | - | % | April 2023 | |||||||||
| The November 2022 Loan | 34,837 | 68,211 | - | % | June 2023 | |||||||||
| The First February 2023 Loan Agreement | 325,346 | - | 14 | % | June 2023 | |||||||||
| 1,719,749 | 1,683,694 | |||||||||||||
| Less: Debt Discount | (117,128 | ) | (314,108 | ) | ||||||||||
| Less: Debt Issuance Costs | - | - | ||||||||||||
| 1,602,621 | 1,683,694 | |||||||||||||
| Less: Current Debt | (1,570,601 | ) | (1,645,680 | ) | ||||||||||
| Total Long-Term Debt | $ | 32,020 | $ | 38,014 | ||||||||||
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 three months ended March 31, 2022,2023, the Company accrued interest of $490.$2,387.
The CompanyAs of March 31, 2023, the Loan is in default, and the processlender may require immediate payment of returningall amounts owed under the funds received from the Loan.Loan or file suit and obtain judgment.
F-19
The First December 2021 Loan Agreement
On December 3, 2021, the Company entered into a loan agreement (the “First December 2021 Loan Agreement”) with a lender (the “First December 2021 Lender”) whereby the First December 2021 Lender issued the Company a promissory note of $191,975 (the “First December 2021 Note”). Pursuant to the First December 2021 Loan Agreement, the First December 2021 Note has an effective interest rate of 9%. The maturity date of the First December 2021 Note is June 3, 2023 (the “First December 2021 Maturity Date”), at which time all outstanding principal, accrued and unpaid interest and other amounts due under the First December 2021 Note are due.
During the three months ended March 31, 2022, the Company repaid $44,725 in principal.
The Second December 2021 Loan Agreement
On December 14, 2021, the Company entered into a secured loan agreement (the “Second December 2021 Loan Agreement”) with a lender (the “Second December 2021 Lender”), whereby the Second December 2021 Lender issued the Company a secured promissory note of $438,096 AUD or $329,127 United States Dollars (the “Second December 2021 Note”). Pursuant to the Second December 2021 Loan Agreement, the Second December 2021 Note has an effective interest rate of 14%. The maturity date of the Second December 2021 Note is June 30, 2022 (the “Second December 2021 Maturity Date”) at which time all outstanding principal, accrued and unpaid interest and other amounts due under the Second December 2021 Loan Agreement are due. The loan is secured by the Australian research & development credit.
During the three months ended March 31, 2022, the Company accrued $15,123 AUD in interest.
The First February 2022 Loan Agreement
On February 22, 2022, the Company entered into a secured loan agreement (the “First February 2022 Loan Agreement”) with a lender (the “First February 2022 Lender”), whereby the First February 2022 Lender issued the Company a secured promissory note of $222,540 AUD or $159,223 United States Dollars (the “First February 2022 Note”). Pursuant to the First February 2022 Loan Agreement, the First February 2022 Note has an effective interest rate of 14%. The maturity date of the First February 2022 Note is June 30, 2022 (the “First February 2022 Maturity Date”) at which time all outstanding principal, accrued and unpaid interest and other amounts due under the First February 2022 Loan Agreement are due. The Company has the option to extend the Maturity date by 60 days. The loan is secured by the Australian research & development credit.
During the year ended December 31, 2022, the Company repaid $159,223 of principal and $8,120 of interest.
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 11. The total liabilities of these notes amounted to $293,888. During the year ended December 31, 2022, the Company repaid $255,874. As of March 31, 2023, the Company has one note outstanding. This note has a principal balance of $32,645, bears interest at 5%, and requires 36 monthly payments of $1,496.
During the three months ended March 31, 2023, the Company accrued interest of $205 and made repayments of $5,367.
F-20
The Third May 2022 Loan Agreement
On May 25, 2022, the Company entered into a loan agreement (the “Third May 2022 Loan Agreement”) with a lender (the “Third May 2022 Lender”), whereby the Third May 2022 Lender issued the Company a promissory note of $27,604 (the “Third May 2022 Note”). Pursuant to the Third May 2022 Loan Agreement, the Third May 2022 Note has a flat interest fee of $3,704, for an effective interest rate of 20%. The maturity date of the Third May 2022 Note is November 23, 2022 (the “Third May 2022 Maturity Date”). The Company is required to make monthly payments of $3,067.
As of March 31, 2023, the Loan is in default. During the three months ended March 31, 2023, the Company repaid $2,855 in principal.
The Fourth May 2022 Loan Agreement
On May 26, 2022, the Company entered into a loan agreement (the “Fourth May 2022 Loan Agreement”) with a lender (the “Fourth May 2022 Lender”), whereby the Fourth May 2022 Lender issued the Company a promissory note of $45,200 (the “Fourth May 2022 Note”). Pursuant to the Fourth May 2022 Loan Agreement, the Fourth May 2022 Note has a flat interest fee of $5,200, for an effective interest rate of 17%. The maturity date of the Fourth May 2022 Note is November 23, 2022 (the “Fourth May 2022 Maturity Date”).
As of March 31, 2023, the Loan is in default. During the three months ended March 31, 2023, the Company repaid $1,004 in principal.
F-21
The Second June 2022 Loan Agreement
On June 17, 2022, the Company entered into a loan agreement (the “Second June 2022 Loan Agreement”) with a lender (the “Second June 2022 Lender”), whereby the Second June 2022 Lender issued the Company a promissory note of $104,500 (the “Second June 2022 Note”). The Note holder repaid a vendor liability of $104,500. The maturity date of the Second June 2022 Note is October 15, 2022 (the “Second June 2022 Maturity Date”).
As of March 31, 2023, this note is in default.
The First August 2022 Loan Agreement
On August 18, 2022, the Company entered into a secured loan agreement (the “First August 2022 Loan Agreement”) with a lender (the “First August 2022 Lender”), whereby the First August 2022 Lender issued the Company a secured promissory note of $193,500 AUD or $134,070 United States Dollars (the “First August 2022 Note”). Pursuant to the First August 2022 Loan Agreement, the First August 2022 Note has an effective interest rate of 14%. The maturity date of the First August 2022 Note is June 30, 2023 (the “First August 2022 Maturity Date”) at which time all outstanding principal, accrued and unpaid interest and other amounts due under the First August 2022 Loan Agreement are due. The Company has the option to extend the Maturity date by 60 days. The loan is secured by the Australian research & development credit.
During the three months ended March 31, 2022,2023, the Company accrued $3,158$7,224 AUD in interest.
The Second FebruaryAugust 2022 Loan Agreement
On February 22,August 19, 2022, the Company entered into a loan agreement (the “Second FebruaryAugust 2022 Loan Agreement”) with a lender (the “Second FebruaryAugust 2022 Lender”), whereby the Second FebruaryAugust 2022 Lender issued the Company a promissory note of $337,163$923,000 (the “Second FebruaryAugust 2022 Note”). The Company received cash proceeds of $300,100 and rolled the remaining $312,400 of principal from the June 2022 Loan Agreement. Pursuant to the Second FebruaryAugust 2022 Loan Agreement, the Second FebruaryAugust 2022 Note has a flat interest fee of $310,500, for an effective interest rate of 11%167%. The maturity date of the Second FebruaryAugust 2022 Note is February 22, 2023January 9, 2022 (the “Second FebruaryAugust 2022 Maturity Date”). The Company is required to make 10 monthlyweekly payment of $37,425.$46,150. The Second August 2022 Note is secured by officers of the Company.
The Company recorded a $37,163$310,500 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, 2023, the Company repaid $295,000 in principal.
Subsequent to March 31, 2023, the Company repaid $34,500 in principal.
F-22
The First September 2022 Loan Agreement
On September 1, 2022, the Company entered into a loan agreement (the “First September 2022 Loan Agreement”) with a lender (the “First September 2022 Lender”), whereby the First September 2022 Lender issued the Company a promissory note of $87,884 (the “First September 2022 Note”). Pursuant to the First September 2022 Loan Agreement, the First September 2022 Note has an effective interest rate of 13%. The maturity date of the First September 2022 Note is September 1, 2023 (the “First September 2022 Maturity Date”).
During the three months ended March 31, 2023 the Company repaid $228,164. $25,798 in principal.
The Second September 2022 Loan Agreement
On September 22, 2022, the Company entered into a loan agreement (the “Second September 2022 Loan Agreement”) with a lender (the “Second September 2022 Lender”), whereby the Second September 2022 Lender issued the Company a promissory note of $876,000 (the “Second September 2022 Note”). The Company received cash proceeds of $272,614 and rolled the remaining $303,386 of principal from the First May 2022 Loan Agreement. Pursuant to the Second September 2022 Loan Agreement, the Second September 2022 Note has a flat interest fee of $321,637, for an effective interest rate of 100%. The maturity date of the Second September 2022 Note is May 5, 2023 (the “Second September 2022 Maturity Date”). The Company is required to make weekly payment of $27,375. The Second September 2022 Note is secured by officers of the Company.
The Company recorded a $300,000 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.
As of March 31, 2023, the Loan is in default. During the three months ended March 31, 2023, the Company repaid $105,000 in principal.
Subsequent to March 31, 2023, the Company made repayments of $42,000 towards this note.
The Third September 2022 Loan Agreement
On September 22, 2022, the Company has two notes outstanding.entered into a loan agreement (the “Third September 2022 Loan Agreement”) with a lender (the “Third September 2022 Lender”), whereby the Third September 2022 Lender issued the Company a promissory note of $365,000 (the “Third September 2022 Note”). The First Denver Bodega LLCCompany received cash proceeds of $110,762 and rolled the remaining $129,053 of principal from the Second May 2022 Loan Agreement. Pursuant to the Third September 2022 Loan Agreement, the Third September 2022 Note has a principal balanceflat interest fee of $50,000, bears$139,524, for an effective interest at 5%, and requires 36 monthly paymentsrate of $1,496.143%. The second Denver Bodega LLC Loan has a principal balance of $15,724 and has a maturity date of April 16, 2022.the Third September 2022 Note is May 5, 2023 (the “Second September 2022 Maturity Date”). The Company is required to make weekly payment of $13,036. The Third September 2022 Note is secured by officers of the Company.
The Company recorded a $300,000 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.
As of March 31, 2023, the Loan is in default. During the three months ended March 31, 2023, the Company repaid $135,000 in principal.
Subsequent to March 31, 2023, the Company made repayments of $30,000 towards this note.
The November 2022 Loan Agreement
On November 15, 2022, the Company entered into a loan agreement (the “November 2022 Loan Agreement”) with a lender (the “November 2022 Lender”) whereby the November 2022 Lender issued the Company a promissory note of $80,325 (the “November 2022 Note”). Pursuant to the November 2022 Loan Agreement, the November 2022 Note has a flat interest fee of $16,975, for an effective interest rate of 21%. The maturity date of the November 2022 Note is June 3, 2023 (the “November 2022 Maturity Date”), at which time all outstanding principal, accrued and unpaid interest and other amounts due under the November 2022 Note are due.
During the three months ended March 31, 2023, the Company repaid $33,374 in principal.
F-23
The First February 2023 Loan Agreement
On February 13, 2023, the Company entered into a secured loan agreement (the “First February 2023 Loan Agreement”) with a lender (the “First February 2023 Lender”), whereby the First February 2023 Lender issued the Company a secured promissory note of $424,755 AUD or $321,891 United States Dollars (the “First February 2023 Note”). Pursuant to the First February 2023 Loan Agreement, the First February 2023 Note has an effective interest rate of 14%. The maturity date of the First February 2023 Note is June 30, 2023 (the “First February 2023 Maturity Date”) at which time all outstanding principal, accrued and unpaid interest and other amounts due under the First February 2023 Loan Agreement are due. The Company has the option to extend the Maturity date by 60 days. The loan is secured by the Australian research & development credit.
During the three months ended March 31, 2023, the Company accrued $7,461 AUD in interest.
Note 76 – Convertible Notes Payable
Convertible notes payable as of March 31, 2023 and December 31, 2022 is as follows:
| Outstanding Principal as of | Outstanding Principal as of | Warrants granted | ||||||||||||||||||||||||
| March 31, | December 31, | Interest | Conversion | Maturity | Exercise | |||||||||||||||||||||
| 2023 | 2022 | Rate | Price | Date | Quantity | Price | ||||||||||||||||||||
| The May 2022 Convertible Loan Agreement | - | 50,092 | 11 | % | - | (*) | May-23 | - | - | |||||||||||||||||
| The May 2022 Convertible Note Offering | 990,000 | 990,000 | 18 | % | 2.00 | (*) | November-22 | 4,000,000 | $ | 3.00 – $6.00 | ||||||||||||||||
| The July 2022 Convertible Note Offering | 2,250,000 | 3,750,000 | 18 | % | 0.20 | (*) | March-23 | 2,150,000 | $ | 3.00 – $6.00 | ||||||||||||||||
| The First October 2022 Convertible Loan Agreement | 104,250 | 104,250 | 10 | % | - | (*) | September-23 | |||||||||||||||||||
| The Second October 2022 Convertible Loan Agreement | 252,857 | 300,000 | 10 | % | - | (*) | October-23 | |||||||||||||||||||
| The Third October 2022 Convertible Loan Agreement | - | 866,650 | 10 | % | 0.20 | (*) | April-23 | |||||||||||||||||||
| The December 2022 Convertible Loan Agreement | 250,000 | 750,000 | - | % | 0.20 | (*) | April-23 | 562,500.00 | $ | 0.20 | ||||||||||||||||
| The January 2023 Loan Agreement | 847,500 | - | -% | (*) | June-23 | - | $ | - | ||||||||||||||||||
| The February 2023 Loan Agreement | 1,387,500 | - | -% | (*) | June-23 | - | $ | - | ||||||||||||||||||
| The March 2023 Loan Agreement | 129,250 | - | 10 | % | (*) | March-24 | - | $ | - | |||||||||||||||||
| 6,211,357 | 6,810,992 | |||||||||||||||||||||||||
| Less: Debt Discount | (1,704,406 | ) | (1,426,728 | ) | ||||||||||||||||||||||
| Less: Debt Issuance Costs | (9,928 | ) | (14,665 | ) | ||||||||||||||||||||||
| 4,497,023 | 5,369,599 | |||||||||||||||||||||||||
| (*) | As subject to adjustment as further outlined in the notes |
F-24
The July 2021May 2022 Convertible Loan Agreement
On July 6, 2021,May 20, 2022, the Company entered into a loan agreement (the “July 2021“May 2022 Loan Agreement”) with an individual (the “July 2021“May 2022 Lender”), whereby the July 2021May 2022 Lender issued the Company a promissory note of $168,850$115,163 (the “July 2021“May 2022 Note”). Pursuant to the July 2021May 2022 Loan Agreement, the July 2021May 2022 Note has an interest rate of six percent (6%)11%. The July 2021May 2022 Note matures on the first (12th) month anniversary of its issuance date.
F-25
Upon default or 180 days after issuance the July 2021May 2022 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-tradingten-trading day immediately preceding the date of the respective conversion.
The Company recorded a $15,850$15,163 debt discount relating to an original issue discount 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 year ended December 31, 2022, the Company repaid $63,915 in principal and converted $12,783 in principal into 39,637 shares of the Company’s common stock.
On January 17, 2023, the May 2022 Lender converted $51,132 in principal into 113,601 shares of the Company’s common stock and repaid the remaining note balance.
The May 2022 Convertible Note Offering
During May of 2022, the Company conducted multiple closings of a private placement offering to accredited investors (the “May 2022 Convertible Note Offering”) of units of the Company’s securities by entering into subscription agreements with “accredited investors” (the “May 2022 Investors”) for aggregate gross proceeds of $4,000,000. The May 2022 convertible notes are convertible into shares of the Company’s common stock, par value $.001 per share at a conversion price of $2.00 per share. As additional consideration for entering in the May 2022 Convertible Note Offering, the Company issued 4,000,000 warrants of the Company’s common stock. The May 2022 Convertible Note matured on November 30, 2022.
The Company recorded a $1,895,391 debt discount relating to 4,000,000 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 $399,964 debt discount relating to an original issue discount and $3,000$125,300 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.
DuringOn September 2, 2022, the three months endedCompany went into default on these notes. As part of the default terms the Company owes 110% of the principal outstanding and the notes accrue interest at a rate of 18%.
On September 15, 2022, the Company and six out of eight lenders May 2022 Investors agreed to forgive default interest and extend the maturity date to March 31, 2022,2023, for a reduced conversion price of $0.20 for the July 2021 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. Theand warrants. Since the PV cashflows of the new and old debt were more than 10% differences the company used extinguishment accounting. As part of the agreement the Company has applied ASC 815,recognized $1,083,684 as loss on extinguishment of debt 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. The conversion feature of July 2021 Note gave rise to a derivative liability of $100,532. The Company recorded thisremaining debt discount and recognized $331,861 as a gain on extinguishment of debt discount.due to the forgiveness of interest. The debt discount is charged to accretioncompany also recognized an additional $75,610 of debt discount overfrom the change in relative fair value on the warrants. The remaining termnotes are in default as of the convertible note.March 31, 2023.
During the three months ended March 31, 2023, the Company accrued $43,940 in interest.
The July 2022 Convertible Note Offering
During July of 2022, the note holder converted $168,850Company conducted multiple closings of principal and $4,605a private placement offering to accredited investors (the “July 2022 Convertible Note Offering”) of interestunits of the Company’s securities by entering into 109,435subscription agreements with “accredited investors” (the “July 2022 Investors”) for aggregate gross proceeds of $2,150,000. The July 2022 convertible notes are convertible into shares of the Company’s common stock, par value $.001 per share at a conversion price of $2.00 per share. As additional consideration for entering in the July 2022 Convertible Note Offering, the Company issued 2,150,000 warrants of the Company’s common stock. The unamortizedJuly 2022 Convertible Note matures on November 30, 2022.
The Company recorded a $863,792 debt discount relating to 2,150,000 warrants issued to investors based on the relative fair value of $96,803 waseach 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 $214,981 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.
F-26
On September 2, 2022, the Company went into default on these notes. As part of the default terms the Company owes 110% of the principal outstanding and the notes accrue interest at a rate of 18%.
On September 15, 2022, the Company and the July Investors agreed to forgive default interest and extend the maturity date to March 31, 2023, for a reduced conversion price of $0.20 for the convertible notes and warrants. Since the present value of the cash flows of the new and old debt were more than 10% different, the company used extinguishment accounting. As part of the agreement the Company recognized $339,594 as loss on extinguishment of debt due to conversion.
Note 8 – Related Partythe remaining debt discount and recognized $230,162 as a gain on extinguishment of debt due to the forgiveness of interest.
Equity raises
During the three months ended March 31, 2023, the Company repaid $1,500,000 in principal.
As of the date of this filing, this loan is in default.
The First October 2022 Loan Agreement
On October 3, 2022, the company conducted two equity raises in which officers, directors, employees,Company entered into a loan agreement (the “First October 2022 Loan Agreement”) with a lender (the “First October 2022 Lender”), whereby the First October 2022 Lender issued the Company a promissory note of $104,250 (the “First October 2022 Note”). Pursuant to the First October 2022 Loan Agreement, the First October 2022 Note has an interest rate of 10%. The maturity date of the First October 2022 Note is September 29, 2023 (the “First October 2022 Maturity Date”).
On April 1, 2023, the First October 2022 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 ten-trading day immediately preceding the date of the respective conversion.
The Company recorded a $4,250 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.
The Second October 2022 Loan Agreement
On October 20, 2022, the Company entered into a loan agreement (the “Second October 2022 Loan Agreement”) with a lender (the “Second October 2022 Lender”), whereby the Second October 2022 Lender issued the Company a promissory note of $300,000 (the “Second October 2022 Note”). Pursuant to the Second October 2022 Loan Agreement, the Second October 2022 Note has an affiliateinterest rate of 10%. The maturity date of the Second October 2022 Note is October 20, 2023 (the “Second October 2022 Maturity Date”).
Upon default, the Second October 2022 Note is convertible into shares of the Company’s common stock, par value $0.001 per share (“Conversion Shares”) equal to the lowest VWAP of the Company’s common stock on the twenty-trading day immediately preceding the date of the respective conversion.
The Company recorded a $45,000 debt discount relating to an officer cumulatively invested $421,001 for 240,571original issue discount, $409,945 relating to the fair value of 815,000 shares of common stock issue to the lender, and 240,571 warrants$17,850 of debt issuance costs related to purchasefees paid to vendors relating to the debt agreement. The debt discount and debt issuance cost are being accreted over the life of the note to accretion of debt discount and issuance cost.
During the three months ended March 31, 2023, the Company made a repayment of $47,143 towards the balance of the Second October 2022 Note.
The Third October 2022 Loan Agreement
On October 24, 2022, the Company entered into a loan agreement (the “Third October 2022 Loan Agreement”) with a lender (the “Third October 2022 Lender”), whereby the Third October 2022 Lender issued the Company a promissory note of $1,666,650 (the “Third October 2022 Note”). Pursuant to the Third October 2022 Loan Agreement. The maturity date of the Third October 2022 Note is April 24, 2023 (the “Third October 2022 Maturity Date”).
The Third October 2022 Note is convertible into shares of the Company’s common stock, par value $0.001 per share (“Conversion Shares”) equal to $0.20.
The Company recorded a $1,833,300 debt discount relating to a $166,650 original issue discount and $1,666,650 from a beneficial conversion feature. The debt discount and debt issuance cost are being accreted over the life of the note to accretion of debt discount and issuance cost.
During the three months ended March 31, 2023, the Third October 2022 Lender converted the remaining balance of $866,650 into 4,333,250 shares of the Company’s common stock.
F-27
The December 2022 Convertible Loan Agreement
On December 12, 2022, the Company entered into a loan agreement (the “December 2022 Loan Agreement”) with a lender (the “December 2022 Lender”), whereby the December 2022 Lender issued the Company a promissory note of $750,000 (the “December 2022 Note”). Pursuant to the December 2022 Loan Agreement. The maturity date of the Third October 2022 Note is April 24, 2023 (the “Third October 2022 Maturity Date”).
The Second October 2022 Note is convertible into shares of the Company’s common stock, par value $0.001 per share (“Conversion Shares”) equal to $0.20.
The Company recorded a $241,773 debt discount relating to 562,500 warrants issued to investors based on the relative fair value of each equity instrument on the dates of issuance and $508,227 relating to the beneficial conversion feature. The debt discount is being accreted over the life of these notes to accretion of debt discount and issuance cost.
During the three months ended in March 31, 2023, the December 2022 Lender converted $500,000 into 2,500,000 shares of the Company’s common stock.
As of the date of this filing, this note is in default.
The January 2023 Loan Agreement
On January 13, 2023, the Company entered into a loan agreement (the “January 2023 Loan Agreement”) with a lender (the “TJanuary 2023 Lender”), whereby the January 2023 Lender issued the Company a promissory note of $847,500 (the “January 2023 Note”).The maturity date of the January 2023 Note is June 13, 2023 (the “January 2023 Maturity Date”).
The January 2023 Note is convertible into shares of the Company’s common stock, par value $0.001 per share (“Conversion Shares”) equal to $0.20.
The Company recorded a $847,500 debt discount relating to a $97,500 original issue discount and $750,000 from a beneficial conversion feature. The debt discount and debt issuance cost are being accreted over the life of the note to accretion of debt discount and issuance cost.
The February 2023 Loan Agreement
On February 1, 2023, the Company entered into a loan agreement (the “February 2023 Loan Agreement”) with a lender (the “February 2023 Lender”), whereby the February 2023 Lender issued the Company a promissory note of $1,387,500 (the “February 2023 Note”). The maturity date of the February 2023 Note is June 13, 2023 (the “February 2023 Maturity Date”).
The Third October 2022 Note is convertible into shares of the Company’s common stock, par value $0.001 per share (“Conversion Shares”) equal to $0.20.
The Company recorded a $1,387,500 debt discount relating to a $137,500 original issue discount and $1,250,000 from a beneficial conversion feature. The debt discount and debt issuance cost are being accreted over the life of the note to accretion of debt discount and issuance cost.
The March 2023 Loan Agreement
On March 31, 2023 the Company entered into a loan agreement (the “March 2023 Loan Agreement”) with a lender (the “March 2023 Lender”), whereby the March 2023 Lender issued the Company a promissory note of $129,250 (the “March 2023 Note”). Pursuant to the March 2023 Loan Agreement, the March 2023 Note has an interest rate of 10%. The maturity date of the March 2023 Note is March 31, 2024 (the “March 2023 Maturity Date”).
On October 1, 2023, the March 2023 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 ten-trading day immediately preceding the date of the respective conversion.
The Company recorded a $4,250 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.
F-28
Note 7 – Related Party
Officer compensation
During the three months ended March 31, 20222023 and 2021,2022, the Company paid $35,637$47,701 and $20,082, respectively for living expenses for officers of the Company.
Note 98 – Derivative Liabilities
The Company has identified derivative instruments arising from convertible notes that have an option to convert at a variable number of sharesmake-whole feature in the Company’s convertible notes payable during the three months endedoutstanding Equity Line of Credit at 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 March 31, 2022.2023.
The Company utilizesutilized a binomial optionMonte Carlo simulation 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 Binomial modelsimulation included a stock price on valuation date, an expectedthe term of each debenture remaining from the valuation date to maturity,make-whole feature, 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 maturitylife of the convertible notes.make-whole feature.
The following are the changes in the derivative liabilities during the three months ended March 31, 2022.2023:
Three Months Ended March 31, | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Derivative liabilities as January 1, | $ | - | $ | - | $ | - | ||||||
| Addition | - | - | ||||||||||
| Changes in fair value | - | - | ||||||||||
| Extinguishment | - | - | ||||||||||
| Derivative liabilities as March 31, | - | - | ||||||||||
F-29
Note 109 – Stockholders’ Equity
Shares Authorized
The Company is authorized to issue up to one billion, five hundred and twenty million (120,000,000)(1,520,000,000) shares of capital stock, of which one billion five hundred million (100,000,000)(1,500,000,000) shares are designated as common stock, par value $0.001 per share, and twenty million (20,000,000) are designated as preferred stock, par value $0.001 per share.
Preferred Stock
Series E Convertible Preferred Stock
The Company has designated 8,000 shares of Series E Convertible Preferred stock and has 500 shares issued and outstanding as of March 31, 2022.
The shares of Series E Preferred Stock have a stated value of $1,000 per share and are convertible into Common Stock at the election of the holder of 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 held 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 paid on shares of the Common Stock.
The holders 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 outstanding, the Company shall not, without the affirmative vote of the holders of a majority of the then outstanding shares of Series E Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the Series 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 adversely affects any rights of the holders 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 determined by dividing the Series E Stated Value by the Conversion Price, subject to certain beneficial ownership limitations.
Common Stock
On January 1, 2022,25, 2023, the Company issued 8,590entered into a securities purchase agreement with an investor resulting in gross proceeds of $750,000 to the Company. Pursuant to the terms of the purchase agreement, the Company agreed to sell an aggregate of 1,562,500 shares of its restrictedthe Company’s common stock, to settle outstanding vendor liabilitiespar value $0.001 per share, at a purchase price of $20,297. In connection with this transaction the Company also recorded a gain on settlement of vendor liabilities of $369.$0.48 per Share.
On January 6, 2022,February 8, 2023, in recognition of certain employees having accepted reduced salaries beginning August 22, 2023, the Company issued 8,850equity awards totaling 29,170,653 shares to officers and the employees of the Company. The fair value of these issuances is $6,797,648.
On February 14, 2023, the Company issued 10,417 shares of its restricted common stock to consultants in exchange for services at a fair value of $19,736.$5,000.
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On February 24, 2022,28, 2023, the Company issued 50,0001,250,000 shares of its restricted common stock to consultants in exchange for foursix months of services at a fair value of $69,000. These$213,750. 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 three months ended March 31, 2022 the Company recorded $33,110 to share based payments.
On March 1, 2022,13, 2023, the Company sold 1,500,000 shares of its common stock pursuant to the Investment Agreement entered into securities purchase agreements with twenty-eight accredited investors whereby, aton the closing, such investors purchased fromOctober 20, 2022 between the Company an aggregateand Coventry for gross proceeds of 1,401,457 shares of$300,000 to 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.Company.
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, 2022,14, 2023, the Company issued 73144,248 shares of its restricted common stock to consultants in exchange for services at a fair value of $863.$5,000.
On March 27, 2023, the Company issued 1,892,780 shares of its restricted common stock to consultants in exchange for services at a fair value of $246,061.
Stock Options
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 – January 1, 2022 – outstanding | 2,902,619 | 7.07 | 4.71 | |||||||||||||||||||||
| Balance – January 1, 2023 – outstanding | 4,408,267 | 4.05 | 4.29 | |||||||||||||||||||||
| Granted | - | - | - | - | - | - | ||||||||||||||||||
| Exercised | - | - | - | - | - | - | ||||||||||||||||||
| Forfeited/Cancelled | (19,093 | ) | 15.36 | - | (16,667 | ) | 14.10 | - | ||||||||||||||||
| Balance – March 31, 2022 – outstanding | 2,883,526 | 7.02 | 4.48 | |||||||||||||||||||||
| Balance – March 31, 2022 – exercisable | 1,891,348 | 7.60 | 4.27 | |||||||||||||||||||||
| Balance – March 31, 2023 – outstanding | 4,391,600 | 4.01 | 4.05 | |||||||||||||||||||||
| Balance – March 31, 2023 – exercisable | 3,756,600 | 4.42 | 4.03 | |||||||||||||||||||||
| Option Outstanding | Option Exercisable | |||||||||||||||||||||
| Exercise price | Number Outstanding | Weighted Average Remaining Contractual Life (in years) | Weighted Average Exercise Price | Number Exercisable | Weighted Average Remaining Contractual Life (in years) | |||||||||||||||||
| $ | 7.02 | 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.
| Option Outstanding | Option Exercisable | |||||||||||||||||||||
| Exercise price | Number Outstanding | Weighted Average Remaining Contractual Life (in years) | Weighted Exercise Price | Number Exercisable | Weighted Average Remaining Contractual Life (in years) | |||||||||||||||||
| $ | 4.01 | 4,391,600 | 4.05 | 4.42 | 3,756,600 | 4.03 | ||||||||||||||||
Stock-based compensation for stock options has been recorded in the condensed consolidated statements of operations and totaled $1,027,083,$237,522 for the three months ended March 31, 2022.2023.
As of March 31, 2022,2023 there was $1,649,068$0 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 0.89 year.plans.
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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.
Warrant Activities
The following is a summary of the Company’s warrant activity:
| Warrant | Weighted Average Exercise Price | Warrant | Weighted | |||||||||||||
| Balance – January 1, 2022 – outstanding | 5,658,830 | 4.98 | ||||||||||||||
| Balance – January 1, 2023 – outstanding | 16,261,770 | 2.79 | ||||||||||||||
| Granted | 2,988,487 | 2.12 | 28,119,616 | 0.77 | ||||||||||||
| Exercised | - | - | (3,769,059 | ) | (0.20 | ) | ||||||||||
| Forfeited/Cancelled | (13,611 | ) | 12.00 | (37,643 | ) | 16.00 | ||||||||||
| Balance – December 31, 2021 – outstanding | 8,633,706 | 3.82 | ||||||||||||||
| Balance – December 31, 2021 – exercisable | 8,591,206 | $ | 3.81 | |||||||||||||
| Balance – March 31, 2023 – outstanding | 40,574,614 | 0.80 | ||||||||||||||
| Balance – March 31, 2023 – exercisable | 40,574,614 | $ | 0.80 | |||||||||||||
| Warrants Outstanding | Warrants Exercisable | |||||||||||||||||||||
| Exercise price | Number Outstanding | Weighted Average Remaining Contractual Life (in years) | Weighted Exercise Price | Number Exercisable | Weighted Average Exercise Price | |||||||||||||||||
| $ | 1.27 | 40,574,614 | 4.51 | 1.27 | 40,574,614 | 4.51 | ||||||||||||||||
| 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 | ||||||||||||||||
During the three months ended March 31, 2023, the Company issued 3,767,925 shares of common stock to warrant holders upon the exercise of 3,767,925 warrants. The Company received $753,693 in connection with the exercise of the warrants.
During the three months ended March 31, 2022,2023, the company granted warrant holders 3,767,925 warrants to exercise existing warrants. A deemed dividend of $1,625,044 was recorded to the Statements of Operations and Comprehensive Loss.
During the three months ended March 31, 2023, some of the Company’s warrants had a down-round provision triggered that also resulted in an additional 67,17318,837,979 warrants to be issued. A deemed dividend of $81,728$3,661,981 was recorded to the Statements of Comprehensive Loss.
Note 1110 – Commitments and Contingencies
Litigation
On or about June 25, 2020, Home Revolution, LLC (“Home Revolution”)Skube v. WHE Agency Inc., et al
A complaint against WHE, Creatd and Jeremy Frommer filed a lawsuitDecember 22, 2022, was filed in the United States DistrictSupreme Court of the State of New York, New York County, by Jessica Skube, making certain claims alleging conversion, trespass to chattel, unjust enrichment, breach of contract, fraud in the inducement, seeking damages of $161,000 and punitive damages of $500,000. Skube filed an Order to Show Cause, which the Company opposed, which is currently pending. Given the premature nature of this case, it is still too early for the District of New Jersey, Home Revolution, LLC, et al.Company to make an assessment as to liability.
Lind Global v. Jerrick Media Holdings, Inc. et 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. Plaintiff 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.
On or about August 30, 2021, Robert W. MonsterA complaint against Creatd dated September 21, 2022, has been filed in the Supreme Court of the State of New York, New York County, by Lind Global Macro Fund LP and Anonymize, Inc. (“Monster”)Lind Global Fund II LP, making certain claims alleging breach of contract related to two Securities Purchase Agreements executed on May 31, 2022, seeking damages in excess of $920,000. The Company filed a lawsuit inMotion to Dismiss, which is currently pending. Given the United States District Courtpremature nature of this case, it is still too early 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 respectCompany to the term and the domain name VOCL.COM. Monster seeks a determination by the Court that Monster’s registration and/or use of VOCL.COM is not, and has not been in violation of the ACPA, and that Plaintiffs’ use of VOCL.COM constitutes neither a violation of the ACPA nor trademark infringement or dilution under the Lanham Act. Creatd believes the lawsuit lacks merit and will vigorously challenge the action. At this time, we are unablemake an assessment as to estimate potential damage exposure, if any, related to the litigation.
Appointment of New Directors
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.
Departure of Directors
On February 17, 2022, the Board received notice that effective immediately, Mark Standish resigned as Chair of the Board, Chair of the Audit Committee and as 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 the Company’s operations, policies or practices.liability.
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Management RestructuringLaurie Weisberg v. Creatd, Inc.
On February 17,A confession of judgment against Creatd dated September 2, 2022, has been filed in the BoardSupreme Court of the Company approved the restructuringState of the Company’s senior management team to eliminate the Co-Chief Executive Officer role, appointing Jeremy Frommer as Executive Chairman and Founder, and appointingNew York, New York County, by Laurie Weisberg, as Chief Executive Officer (the “Second Restructuring”). Priorseeking to the Second Restructuring, Mr. Frommerenforce payment of approximately $415,000 under an executive separation agreement also dated September 2, 2022. Ms. Weisberg also seeks payment of legal fees amounting to approximately $5,000. The Company and Ms. Weisberg served asare actively negotiating in an attempt to resolve the Company’s co-Chief Executive Officers and Ms. Weisberg served as the Company’s Chief Operating Officer.dispute. The Second RestructuringCompany does not impactexpect 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.liability to exceed $420,000.
The Company has recorded approximately $415,000 in accrued expenses related to this dispute.
Nasdaq NoticeInflation Reduction Act of Delisting2022
On January 4,August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was signed into law. The IRA includes a 15% Corporate Alternative Minimum Tax (“Corporate AMT”) for tax years beginning after December 31, 2022. We do not expect the Corporate AMT to have a material impact on our consolidated financial statements. Additionally, the IRA imposes a 1% excise tax on net repurchases of stock by certain publicly traded corporations. The excise tax is imposed on the value of the net stock repurchased or treated as repurchased. The new law will apply to stock repurchases occurring after December 31, 2022.
Lease Agreements
The Company currently does not own any properties. Our corporate headquarters consists of a total of 8,000 square feet and is located at 419 Lafayette Street, 6th Floor, New York, NY, 10003. The current lease term is 7 years commencing May 1, 2022. The total amount due under this lease is $3,502,033.
On April 19, 2022, the Company signed a 2-year lease for approximately 2,252 square feet of office space at 1 Westmount Square, Westmount, Qc H3Z2P9. Commencement date of the lease is July 1, 2022. The total amount due under this lease is $72,064. During the year ended December 31, 2022, it was decided the company would not be using the office space and recorded an impairment of $63,472 on the right-of-use asset. As of March 31, 2023, the company was in breach of this lease agreement and subsequently reached a settlement agreement to terminate the lease.
On July 28, 2022, the Company signed a 3-year lease for approximately 1,364 square feet of office space at 1674 Meridian Ave., Miami Beach, FL, 33131. Commencement date of the lease is July 28, 2022. The total amount due under this lease is $181,299. During the year ended December 31, 2022, it was decided the company would not be using the office space and recorded an impairment of $101,623 on the right-of-use asset. As of March 31, 2023, the company is in breach of this lease agreement.
On September 9, 2021, the Company signed a 1-year lease for approximately 3,200 square feet at 648 Broadway, Suite 200, New York, NY 10012. Monthly rent under the lease was $12,955 for the leasing period. As of March 31, 2023, the company is in breach of this lease agreement.
The components of lease expense were as follows:
Three Months | ||||
| Operating lease cost | $ | 537,253 | ||
| Short term lease cost | 536 | |||
| Total net lease cost | $ | 537,632 | ||
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Supplemental cash flow and other information related to leases was as follows:
Three Months | ||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||
| Operating lease payments | 323,292 | |||
| Weighted average remaining lease term (in years): | 5.99 | |||
| Weighted average discount rate: | 12.5 | % | ||
Total future minimum payments required under the lease as of March 31 are as follows:
| For the Twelve Months Ended March 31, | Operating Leases | |||
| 2023 | $ | 498,552 | ||
| 2024 | 532,689 | |||
| 2025 | 517,231 | |||
| 2026 | 532,424 | |||
| 2027 | 548,073 | |||
| Thereafter | 754,064 | |||
| Total lease payments | 3,383,033 | |||
| Less: Amounts representing interest | (1,076,702 | ) | ||
| Total lease obligations | 2,306,331 | |||
| Less: Current | (287,542 | ) | ||
| $ | 2,018,789 | |||
Rent expense for the three months ended March 31, 2023, was $70,557.
Market price risk of crypto (“digital”) assets
The Company holds crypto and digital assets in third-party wallets. Crypto asset price risk could adversely affect its operating results and will depend upon the market price of Bitcoin, ETH, as well as other crypto assets. Crypto asset prices have fluctuated significantly from quarter to quarter. There is no assurance that crypto asset prices will reflect historical trends. A decline in the market price of Bitcoin, ETH, and Other crypto assets could have an adverse effect on our earnings, the carrying value of the crypto assets, and future cash flows. This may also affect the liquidity and the ability to meet our ongoing obligations.
Nasdaq Notice of Delisting
On September 2, 2022, 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 Valuefailure to comply with the listing requirements of Listed SecuritiesNasdaq Rule 5550(b)(1) as a result of the Company’s shareholder equity deficit for the 30-consecutive day period between Januaryended June 30, 2022, as demonstrated in Company’s Quarterly Report on Form 10-Q filed on August 15, 2022, and February 25, 2022 falling shortfollowing the Company having not complied with the market value of the requirements under Listinglisted securities requirement in Nasdaq Rule 5550(b)(2) (the “Rule”). Although a 180-day period is typically allowed for an issuer to regain compliance,on March 1, 2022, while the Company is not eligible to use such compliance period, as the Exchange had institutedwas under a Panel Monitor, through March 9, 2022.as had been previously disclosed. Suspension of trading in the Company’s shares on the Exchange became effective at the opening of business on September 7, 2022, at which time the Company’s common stock, under the symbol “CRTD,” and publicly-traded warrants, under the symbol “CRTDW,” was quoted on the OTCPink marketplace operated by OTC Markets Group Inc.
Following passage of the proscribed 15-day time period for appeal as stated in the Letter, on October 26, 2022, Nasdaq completed the delisting by filing a Form 25 Notification of Delisting with the Securities and Exchange Commission.
The Company pursued an appealCompany’s common stock, under the symbol “CRTD,” is quoted on the OTCQB marketplace operated by OTC Markets Group Inc. effective as of September 26, 2022. Effective April 4, 2023, our symbol changed to “VOCL.” The Company’s publicly-traded warrants, under the Nasdaq Hearings Panel (the “Panel”) of such determination, in accordance withsymbol “CRTDW,” are quoted on the Exchange’s rules and, pursuant to such requestOTCPink marketplace operated 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.OTC Markets Group Inc.
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.F-34
Employment Agreements
Note 12 – AcquisitionsOn April 5, 2022, upon the recommendation of the Compensation Committee of the Board, the Board approved employment agreements with, and equity 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 the 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 strike price of $1.75, and (c) 50,000 shares of the Company’s restricted common stock; (iii) Justin Maury, Chief Operating Officer & President, who will receive (a) an annual salary of $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 (collectively, the “Executive Employment Arrangements”).
Pursuant to the Executive Employment Arrangements, the Company entered into executive employment agreements with each of the respective executives as of April 5, 2022 (the “Executive Employment Agreements”). The Executive Employment Agreements contain customary terms, conditions and rights.
Executive Separation Agreement
On September 2, 2022, the Company entered into an Executive Separation Agreement with Laurie Weisberg the Company’s Chief Executive Officer and member of the Board of Directors setting forth the terms and conditions related to the Executive’s resignation for good reason as Chief Executive Officer, Director and any other positions held with the Company or any subsidiary.
The Company will pay severance in the aggregate amount of $475,000, payable as follows: (i) 1/24 will be paid on each of September 15, 2022, October 1, 2022 and November 1, 2022, respectively; (ii) 1/8 will be paid on each of December 1, 2022, January 1, 2023 and February 1, 2023, respectively; (iii) 1/4 will be paid on April 1, 2023; and (iv) the balance will be paid on May 1, 2023. The Company has executed and delivered a Confession of Judgment concerning the severance amount, which is being held in escrow pending satisfaction of payment.
Additionally, all unvested and/or outstanding stock options held by Ms. Weisberg as of the date of the separation agreement that are not subject to metric based vesting shall automatically and fully vest. All unvested and/or outstanding stock options held by Ms. Weisberg as of the date of the separation agreement that are subject to metric based vesting shall vest in accordance with their respective original terms.
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Note 11 – Acquisitions
Denver Bodega, LLC d/b/a Basis
On March 7, 2022, the Company entered into a Membership Interest Purchase (the “Agreement”) with Henry Springer and Kyle Nowak (collectively the “Sellers”), whereby the Company purchased a majority stake in Denver Bodega, LLC, a Colorado limited liability company whose product is Basis, a direct-to-consumer functional beverage brand that makes high-electrolyte mixes meant to aid hydration. Pursuant to the Agreement, Creatd acquired all of the issued and outstanding membership interests of Denver Bodega, LLC for consideration of one dollar ($1.00), as well as the Company’s payoff, assumption, or satisfaction of certain debts and liabilities.
The following sets forth the components of the purchase price:
| Purchase price: | ||||
| Cash paid to seller | $ | 1 | ||
| Total purchase price | 1 | |||
| Assets acquired: | ||||
| Cash | 44,977 | |||
| Accounts Receivable | 2,676 | |||
| Inventory | 194,365 | |||
| Total assets acquired | 242,018 | |||
| Liabilities assumed: | ||||
| Accounts payable and accrued expenses | 127,116 | |||
| Notes payable | 293,888 | |||
| Total liabilities assumed | 421,004 | |||
| Net liabilities acquired | (178,986 | ) | ||
| Excess purchase price | $ | 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 | $ | 8,950 | $ | 12,691 | ||||
| Trade Names & Trademarks | 8,949 | 19,970 | ||||||
| Know-How and Intellectual Property | 107,392 | 107,633 | ||||||
| Website | 8,949 | |||||||
| Customer Relationships | 44,747 | 38,693 | ||||||
| Excess purchase price | $ | 178,987 | $ | 178,987 | ||||
The goodwill represents the assembled workforce, acquired capabilities, and future economic benefits resulting from the acquisition.
Orbit Media, LLC
On August 1, 2022 the Company entered into a Membership Interest Purchase (the “Agreement”) with Zachary Shenkman, Wuseok Jung, Wesley Petry, Nicholas Scibilia, Gary Rettig, Brandon Fallin (collectively the “Sellers”), whereby the Company purchased a majority stake in Orbit Media LLC, a New York limited liability company whose product is an app-based stock trading platform designed to empower a new generation of investors, providing users with a like-minded community as well as access to tools, content, and other resources to learn, train, and excel in the financial markets. Pursuant to the Agreement, Creatd acquired fifty one percent (51%) of the issued and outstanding membership interests of Orbit Media LLC for consideration of forty-four thousand dollars ($44,000) in cash and 57,576 shares of the Company’s Common Stock. This transaction was considered to be an acquisition of in-process research and development with no alternative future use. Orbit Media, LLC is part of the Company’s consolidated subsidiaries as of December 31, 2022.
F-36
Brave Foods, LLC
On September 13, 2022, the Company acquired 100% of the membership interests of Brave Foods, LLC, a Maine limited liability company for $150,000. Brave is a plant-based food company that provides convenient and healthy breakfast food products.
The following sets forth the components of the purchase price:
| Purchase price: | ||||
| Cash paid to seller | $ | 150,000 | ||
| Total purchase price | 150,000 | |||
| Assets acquired: | ||||
| Cash | 73,344 | |||
| Inventory | 46,375 | |||
| Total assets acquired | 119,719 | |||
| Liabilities assumed: | ||||
| Accounts payable and accrued expenses | 1,316 | |||
| Notes payable | 75,000 | |||
| Total liabilities assumed | 76,316 | |||
| Net assets acquired | 43,403 | |||
| Excess purchase price | $ | 106,596 | ||
The excess purchase price amounts are provisional and may be adjusted during the one-year measurement period as required by U.S. GAAP. It is likely that all intangible assets will be reallocated during the measurement period. The following table provides a summary of the allocation of the excess purchase price.
| Goodwill | $ | 46,460 | ||
| Trade Names & Trademarks | 16,705 | |||
| Know-How and Intellectual Property | 16,704 | |||
| Website | 16,704 | |||
| Customer Relationships | 10,023 | |||
| Excess purchase price | $ | 106,596 |
The goodwill represents the assembled workforce, acquired capabilities, and future economic benefits resulting from the acquisition.
F-37
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 1312 – 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 | As of March 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||
| Creatd Labs | Creatd Ventures | Creatd Partners | Corporate | Total | Creatd Labs | Creatd Ventures | Creatd Studios | Creatd Partners | Corporate | Total | ||||||||||||||||||||||||||||||||||
| Accounts receivable, net | $ | - | $ | 7,649 | $ | 382,956 | $ | - | $ | 390,605 | $ | - | $ | 4,972 | $ | - | $ | 239,381 | $ | - | $ | 244,353 | ||||||||||||||||||||||
| Prepaid expenses and other current assets | 45,815 | - | - | 229,025 | 274,840 | 25,575 | - | - | - | 248,506 | 274,080 | |||||||||||||||||||||||||||||||||
| Deposits and other assets | 839,114 | - | - | 75,586 | 914,700 | 915,279 | - | - | - | 137,675 | 1,052,954 | |||||||||||||||||||||||||||||||||
| Intangible assets | - | 1,733,673 | 724,459 | 62,241 | 2,520,373 | - | 217,176 | 14,108 | - | - | 231,283 | |||||||||||||||||||||||||||||||||
| Goodwill | - | 34,089 | 1,349,696 | - | 1,383,785 | - | 46,460 | - | - | - | 46,460 | |||||||||||||||||||||||||||||||||
| Inventory | - | 436,981 | - | - | 436,981 | 16,374 | 198,633 | 41,250 | - | - | 256,257 | |||||||||||||||||||||||||||||||||
| All other assets | - | - | - | 3,419,106 | 3,419,106 | - | - | - | - | 2,369,947 | 2,369,948 | |||||||||||||||||||||||||||||||||
| Total Assets | $ | 884,929 | $ | 2,212,392 | $ | 2,457,111 | $ | 3,785,958 | $ | 9,340,390 | $ | 957,228 | $ | 467,241 | $ | 55,358 | $ | 239,381 | $ | 2,756,128 | $ | 4,475,336 | ||||||||||||||||||||||
| Accounts payable and accrued liabilities | $ | 22,784 | $ | 1,129,605 | $ | 19,985 | $ | 3,659,729 | $ | 4,832,103 | $ | 2,019 | $ | 1,514,866 | �� | $ | 22,750 | $ | 433,409 | $ | 9,136,296 | $ | 11,109,340 | |||||||||||||||||||||
| Note payable, net of debt discount and issuance costs | 487,217 | 65,724 | - | 634,051 | 1,186,992 | 474,496 | 139,770 | - | - | 988,355 | 1,602,621 | |||||||||||||||||||||||||||||||||
| Deferred revenue | 161,112 | 43,545 | 7,019 | - | 211,676 | 253,348 | - | - | - | - | 253,348 | |||||||||||||||||||||||||||||||||
| All other Liabilities | - | - | - | - | - | - | - | - | 6,862,324 | 6,862,324 | ||||||||||||||||||||||||||||||||||
| Total Liabilities | $ | 671,113 | $ | 1,238,874 | $ | 27,004 | $ | 4,293,780 | $ | 6,230,771 | $ | 729,863 | $ | 1,654,636 | $ | 22,750 | $ | 433,409 | $ | 16,986,975 | $ | 19,827,633 | ||||||||||||||||||||||
F-38
| As of December 31, 2021 | As of December 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||
| Creatd Labs | Creatd Ventures | Creatd Partners | Corporate | Total | Creatd Labs | Creatd Ventures | Creatd Studios | Creatd Partners | Corporate | Total | ||||||||||||||||||||||||||||||||||
| Accounts receivable, net | $ | - | $ | 2,884 | $ | 334,556 | $ | - | $ | 337,440 | $ | - | $ | 11,217 | $ | - | $ | 228,206 | $ | - | $ | 239,423 | ||||||||||||||||||||||
| Prepaid expenses and other current assets | 48,495 | - | - | 188,170 | 236,665 | 23,712 | 40,681 | - | - | 64,154 | 128,547 | |||||||||||||||||||||||||||||||||
| Deposits and other assets | 626,529 | - | - | 92,422 | 718,951 | 629,955 | 2,600 | - | - | 164,676 | 797,231 | |||||||||||||||||||||||||||||||||
| Intangible assets | - | 1,637,924 | 783,676 | 11,241 | 2,432,841 | - | 207,301 | - | - | 22,783 | 230,084 | |||||||||||||||||||||||||||||||||
| Goodwill | - | 25,139 | 1,349,696 | - | 1,374,835 | 30,125 | 46,460 | - | - | - | 76,585 | |||||||||||||||||||||||||||||||||
| Inventory | - | 106,403 | - | - | 106,403 | - | 374,845 | - | - | - | 374,845 | |||||||||||||||||||||||||||||||||
| All other assets | - | - | - | 3,966,124 | 3,966,124 | - | - | - | - | 2,973,034 | 2,973,034 | |||||||||||||||||||||||||||||||||
| Total Assets | $ | 675,024 | $ | 1,772,350 | $ | 2,467,928 | $ | 4,257,957 | $ | 9,173,259 | $ | 683,792 | $ | 683,104 | $ | - | $ | 228,206 | $ | 3,224,647 | $ | 4,819,749 | ||||||||||||||||||||||
| Accounts payable and accrued liabilities | $ | 9,693 | $ | 766,253 | $ | 6,232 | $ | 2,948,362 | $ | 3,730,540 | $ | 8,495 | $ | 1,635,298 | $ | - | $ | 509,931 | $ | 5,411,996 | $ | 7,565,720 | ||||||||||||||||||||||
| Note payable, net of debt discount and issuance costs | 313,979 | - | - | 1,028,685 | 1,342,664 | 130,615 | 184,160 | - | - | 1,368,919 | 1,683,694 | |||||||||||||||||||||||||||||||||
| Deferred revenue | 161,112 | 13,477 | 59,570 | - | 234,159 | 275,017 | - | - | 24,392 | - | 299,409 | |||||||||||||||||||||||||||||||||
| All other Liabilities | - | - | - | 177,644 | 177,644 | - | - | - | - | 7,774,125 | 7,774,125 | |||||||||||||||||||||||||||||||||
| Total Liabilities | $ | 484,784 | $ | 779,730 | $ | 65,802 | $ | 4,154,691 | $ | 5,485,007 | $ | 414,127 | $ | 1,819,458 | $ | - | $ | 534,323 | $ | 14,555,040 | $ | 17,322,948 | ||||||||||||||||||||||
| For the three months ended March 31, 2022 | For the three months ended March 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||
| Creatd Labs | Creatd Ventures | Creatd Partners | Corporate | Total | Creatd Labs | Creatd Ventures | Creatd Studios | Creatd Partners | Corporate | Total | ||||||||||||||||||||||||||||||||||
| Net revenue | $ | 508,268 | $ | 254,690 | $ | 585,780 | $ | - | $ | 1,348,738 | $ | 299,195 | $ | 410,894 | $ | 28,869 | $ | 247,187 | $ | - | $ | 986,145 | ||||||||||||||||||||||
| Cost of revenue | 706,196 | 409,969 | 456,005 | - | 1,572,170 | 232,098 | 703,253 | 2,500 | 74,836 | - | 1,012,687 | |||||||||||||||||||||||||||||||||
| Gross margin (loss) | (197,928 | ) | (155,279 | ) | 129,775 | - | (223,432 | ) | ||||||||||||||||||||||||||||||||||||
| Gross margin | 67,097 | (292,359 | ) | 26,369 | 172,351 | - | (26,542 | ) | ||||||||||||||||||||||||||||||||||||
| Compensation | 787,259 | 134,050 | 41,538 | 2,638 | 3,149,038 | 4,114,523 | ||||||||||||||||||||||||||||||||||||||
| Research and development | 134,876 | - | 91,778 | - | 226,654 | 131,626 | - | - | - | - | 131,626 | |||||||||||||||||||||||||||||||||
| Marketing | 970,484 | 1,013,706 | - | 107,831 | 2,092,021 | 532,065 | 3,456 | - | - | - | 535,521 | |||||||||||||||||||||||||||||||||
| Stock based compensation | 251,907 | 226,298 | 248,548 | 354,039 | 1,080,792 | 1,685,450 | 1,538,889 | - | 1,685,450 | 2,418,255 | 7,328,044 | |||||||||||||||||||||||||||||||||
| General and administrative not including depreciation, amortization, or Impairment | 218,766 | 288,272 | 378,492 | 2,358,963 | 3,244,493 | |||||||||||||||||||||||||||||||||||||||
| General and administrative | 173,831 | 77,133 | 41,223 | 78,761 | 1,165,610 | 1,536,558 | ||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | - | 71,271 | 31,599 | 39,022 | 141,892 | - | 8,025 | - | - | 30,776 | 38,801 | |||||||||||||||||||||||||||||||||
| Total operating expenses | $ | 1,576,033 | $ | 1,599,547 | $ | 750,417 | $ | 2,859,855 | $ | 6,785,852 | $ | 3,310,231 | $ | 1,761,553 | $ | 82,761 | $ | 1,766,849 | $ | 6,763,679 | $ | 13,685,073 | ||||||||||||||||||||||
| Interest expense | (13,229 | ) | - | - | (667 | ) | (13,896 | ) | $ | 16,778 | $ | - | $ | - | $ | 2,266 | $ | 46,326 | $ | 65,370 | ||||||||||||||||||||||||
| All other expenses | - | - | - | 142,132 | 142,132 | - | - | - | - | (2,309,280 | ) | (2,309,280 | ) | |||||||||||||||||||||||||||||||
| Other expenses, net | (13,229 | ) | 141,465 | 128,236 | $ | 16,778 | $ | - | $ | - | $ | 2,266 | $ | (2,262,954 | ) | $ | (2,243,910 | ) | ||||||||||||||||||||||||||
| Loss before income tax provision | $ | (1,787,190 | ) | $ | (1,754,826 | ) | $ | (728,474 | ) | $ | (2,610,558 | ) | $ | (6,881,048 | ) | |||||||||||||||||||||||||||||
| Loss before income tax provision and equity in net loss from unconsolidated investments | $ | (3,226,356 | ) | $ | (2,053,912 | ) | $ | (56,392 | ) | $ | (1,592,232 | ) | $ | (9,026,633 | ) | $ | (15,955,525 | ) | ||||||||||||||||||||||||||
F-39
| 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 | ) | ||||
| For the three months ended March 31, 2022 | ||||||||||||||||||||||||
| Creatd Labs | Creatd Ventures | Creatd Studios | 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 | (197,928 | ) | (155,279 | ) | - | 129,775 | - | (223,432 | ) | |||||||||||||||
| Compensation | 129,009 | 195,442 | - | 249,608 | 299,151 | 873,210 | ||||||||||||||||||
| 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 | 89,757 | 92,830 | - | 128,884 | 2,059,812 | 2,371,283 | ||||||||||||||||||
| Depreciation and amortization | - | 71,271 | - | 31,599 | 39,022 | 141,892 | ||||||||||||||||||
| Impairment of goodwill | - | - | - | - | - | - | ||||||||||||||||||
| Impairment of intangibles | - | - | - | - | - | - | ||||||||||||||||||
| 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 and equity in net loss from unconsolidated investments | $ | (1,787,190 | ) | $ | (1,754,826 | ) | $ | - | $ | (620,642 | ) | $ | (2,718,390 | ) | $ | (6,881,048 | ) | |||||||
Note 14 – Subsequent Events
Convertible Notes
Subsequent to March 31, 2023, the Company entered into a loan agreement with a lender whereby the lender issued the Company a promissory note of $109,250. The note has an interest rate of 10% and a maturity date of April 24, 2024.
Beginning on October 24, 2023, the note is convertible into shares of the Company’s common stock, par value $0.001 per share, equal to 65% of the lowest trading price of the Company’s common stock on the ten-trading day immediately preceding the date of the respective conversion.
Employment AgreementsConsultant Shares
On April 5, 2022, upon the recommendation of the Compensation Committee of the Board, the Board approved employment agreements with, and equity 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 the 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 strike price of $1.75, and (c) 50,000 shares of the Company’s restricted common stock; (iii) Justin Maury, Chief Operating Officer & President, who will receive (a) an annual salary of $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 (collectively, the “Executive Employment Arrangements”).
PursuantSubsequent to March 31, 2023, the Company issued 675,000 shares of Common Stock to consultants with a fair value of $76,950.
Equity Line of Credit
Subsequent to March 31, 2023, the Company drew down from its outstanding Equity Line of Credit and issued 1,409,841 shares for total proceeds of $91,016. The Company also issued an additional 2,729,522 shares pursuant to the Executive Employment Arrangements, the Company entered into executive employment agreements with eachtrigger of the respective executives asmake-whole provision contained in the first amendment to the common stock purchase agreement for the Equity Line of April 5, 2022 (the “Executive Employment Agreements”). The Executive Employment Agreements contain customary terms, conditions and rights.Credit.
F-40
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, 2021,2022, which are included in the Company’s Annual Report on Form 10-K that was filed with the SEC on April 6, 2022.19, 2023.
Overview
Creatd, Inc. (“CRTD,” “the Company,” or “Creatd”) is a company whose mission is to provideprovides economic opportunities for creators through access to its curated social platform called Vocal, enabling creators to share their stories, build an audience, and be rewarded. In addition to revenues generated directly from the platform from subscribers and microtransactions, the existence of Vocal, and the first-party data it produces, has resulted in the creation of numerous derivative business opportunities for the Company. Secondary opportunities with the potential to eventually exceed the core Vocal revenues include well-known brands by multiplyingactivating through the impactVocal platform under Creatd’s “Vocal for Brands” business unit. In addition to this branded content production, the establishment of platforms, people,a portfolio of consumer brands owned and technology.operated in-house, will similarly leverage the core data and intelligence derived from the Company’s core Vocal platform.
We operate four main business segments, or ‘pillars’: Creatd Labs, Creatd Partners, Creatd Ventures, and Creatd Studios. Together, Creatd’s pillars work together to create a flywheel effect, supporting our core vision of creating a viable ecosystem for all stakeholders in the creator economy.
2
Creator-Centric Strategy
Creatd exists to support the boundless capacity of creators. Our purposemission is to empower creators to prosper through exceptionalby providing best-in-class tools, built-insupportive audience communities, and opportunitiesavenues for monetization and audience expansion. Thismonetization. Our creator-first approach is the foundationcornerstone of our culture and mission,purpose and howis what drives every decision we choosemake. We are committed to allocatechanneling our resources. It governs our business modelresources toward fueling the dreams and shapes the value we provide for eachambitions of our stakeholders across Creatd’s four pillars. creators and helping them to unleash their full potential.
Creatd Labs
Creatd Labs is dedicated to the development of technology products that support the creator economy. This pillar houses Creatd’sThat’s why we built our flagship 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 aplatform, Vocal-a home base for creators offering an unparalleled suite of digital creators of all shapestools and 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)resources, curated communities, and monetization opportunities.
Vocal facilitates creators’
Our flagship technology, Vocal, provides the Company with a core platform that is highly scalable on its own but also provides the foundation upon which other revenue sources rely. The first direct core business of Vocal has proven to be a scalable revenue source-Creator Subscriptions. The core will be augmented in the near term with the introduction of the ability for writers and creators to monetize their followings further by directly charging for premium content such as newsletters. Vocal will charge a recurring commission on these new premium content subscriptions. As discussed above, the core Vocal platform underlies numerous derivative revenue sources for the Company.
Since its launch in 2016, Vocal has quickly become the go-to platform for content creators of all kinds, with over 1.5 million registered creators and counting. Whether you’re a blogger, social media influencer, podcaster, founder, musician, photographer, or anything in between, Vocal has everything you need to unleash your creativity and monetize your content.
Creators can opt to use Vocal for free, or upgrade to the premium membership tier, Vocal+. Upon joining Vocal, either as a freemium or premium member, creators can immediately begin to utilize Vocal’s storytelling tools to create and publish their stories, as well as benefit from Vocal’s monetization features.
At Creatd, we believe in rewarding creators for their hard work and dedication. That’s why we offer a range of monetization features on Vocal, whereby creators earn in numerous different ways including i) by rewarding creators for each ‘read’the number of ‘reads’ their story receives; ii) via Vocal Challenges, through which creators can winor writing contests with cash and other rewards;prizes; iii) by awardingreceiving Bonuses; iv) by connecting creators with brands for opportunities to collaborate onparticipating in Vocal for Brands branded contentmarketing campaigns; v) through ‘Subscribe,‘ 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 abe compensated for referring 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 pledgesmembers. But what sets Vocal apart 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 submittedour commitment 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 misinformationinnovation 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:
Technology Development
Vocal’s proprietary technology is builtscalability. Built on Keystone, the same underlying open-source framework used by industry leaders such as Atlassian, a $43-billion Australian technology company. Some ofin the key differentiating elements ofSaaS space, Vocal’s technology areis designed for speed, sustainability, and scalability. The Company continues to invest heavily inAnd with our capital-light infrastructure and focus on research and development, we are able to continuously improve and innovate itsenhance the platform, withwithout incurring 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 infrastructuresoperational costs that have materially affected so manyweighed down legacy media platforms.
Vocal’s technology has been specifically designedCreatd firmly believes that the future belongs to creators. And with Vocal, we’re proud to be leading the charge in providing them with the tools, resources, and builtopportunities they need 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.succeed.
Creatd Partners
Creatd Partners houses the Company’s agency businesses, with the goal of fostering partnerships between creators and brands. Creatd Partners’ offerings include: Vocal for Brands (content marketing), WHE Agency (influencer marketing), and Seller’s Choice (performance 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.
Vocal for Brands
All brands have a story to tell, and we leverage Vocal’s creator community to help them tell it. Vocal for Brands, Creatd’s content marketing studio, specializes in pairing leading brands with 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 the creation of highly targeted and segmented audiences and optimized campaign results. Branded Content
In additiondeveloping our creator ecosystem, we came to understand that like individual creators, all brands have a unique story to tell. That’s why we’ve developed Vocal for Brands, our in-house content studio that specializes in creating best-in-class organic marketing campaigns. Our approach combines the production of branded story campaigns Additionally,content influencer and performance marketing initiatives that work together to increase sales, revenue, visibility, and brand affinity for our clients.
We work with leading brands can opt to collaboratepair them with Vocal onour network of creators, tapping into their communities to help share their stories in a sponsored Challenge, promptingway that is engaging, direct-response driven, and non-interruptive. Similarly, through Sponsored Challenges, we prompt the creation of thousands of high-quality stories that are centered around the brand’s mission, and further disseminated through creators’ respective social channels and promotional outlets.
WHE AgencyOur campaigns are amplified with the help of Vocal’s first-party data insights, allowing us to create highly targeted, segmented audiences for brands with optimal results.
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 100 creators across numerous verticals, including family and 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.
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Consumer Products Group
Seller’s Choice
Seller’s Choice isAt Creatd, Partners’ performance marketing agency specializingwe are proud of our internally owned and operated e-commerce businesses and associated technology and infrastructure. Our Consumer Products Group has grown to become a significant revenue contributor and we continue to invest in DTC (direct-to-consumer) and e-commerce clientele. Seller’s Choice providesour portfolio to support direct-to-consumer brands with design, development, strategy, and sales optimization services.
Creatd Ventures
Creatd Ventures houses Creatd’s portfolio of DTC e-commerce businesses. The Company supports founders by providing capital, as well as a hostwide range of services including design and development, marketing and distribution, and go-to-market strategy. Currently,strategies. We additionally remain on the Creatd Ventures portfolio includes:
Creatd Studios
The goal of Creatd Studios is to elevate creators’ stories to TV, film, books, podcasts, video, and more.Company’s Consumer Products portfolio currently includes:
Camp, a direct-to-consumer (DTC) food brand which creates healthy upgrades to classic comfort food favorites. Each of Camp’s products is created with servings of vegetables and contains Vitamins A, C, D, E, B1, and B6. Since its launch in 2020, Camp continues to add new products to its line of healthy, veggie-based, family-friendly foods, with flavors including Classic Cheddar Mac ‘N’ Cheese, White Cheddar Mac ‘N’ Cheese, Vegan Cheezy Mac, and Twist Veggie Pasta.
Dune Glow Remedy (“Dune”), which the Company purchased and brought to market in 2021, is a beverage brand focused on promoting wellness and beauty from within. Each beverage in Dune’s product line is meticulously crafted with functional ingredients that nourish skin from the inside out and enhance one’s natural glow. During 2022, Dune has continued to advance its retail and wholesale distribution strategy, securing numerous partnerships including with lifestyle retailer Urban Outfitters, Equinox, and the Los Angeles-based Erewhon Market.
Basis is a hydrating electrolyte drink mix that was acquired in the first quarter of 2022. This brand has a history of strong sales volume both on the brand’s website as well as through third-party distribution channels such as Amazon.
Brave is a plant-based food company that provides convenient and healthy breakfast food products. Our Company acquired 100% of the membership interests of Brave Foods, LLC in September 2022. What started as a search for a better morning routine evolved into a business serving thousands of go-getters of every type. We are thrilled to have these amazing brands as part of our portfolio and we are excited to continue expanding our Consumer Products portfolio.
IP Development and Production
At Creatd, we’re always looking for ways to bring our creators’ stories to new audiences across different media. Our IP Development and Production efforts involve partnering with our top creators to develop their content for television, film, podcasts, and print. With our cutting-edge Vocal platform, we have access to a wealth of intellectual property that’s constantly being curated by a blend of human moderation and advanced machine learning models. Our Vocal technology allows us to analyze community, creator, and audience insights to surface the best candidates for transmedia adaptations. We’re committed to leveraging our vast library of compelling stories to create engaging and impactful content across multiple platforms. As of early 2023, Creatd announced a series of newly released and production projects. They include podcasts, books, and Web 3.0 opportunities.
Application of First-Party Data
Creatd’s business intelligence and marketing teams identify and target individual creators, communities, and brands, utilizing empirical data harnessed from the Vocal 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-partyFirst-party data is one of the value-drivers for the Company acrossinformation that a creator platform collects directly from its four business pillars.users, such as their demographics, interests, and behaviors. By utilizing this data, Vocal’s creator platform can gain insights into its users’ preferences and tailor marketing campaigns accordingly.
Importantly, we doFor example, a large segment of Vocal users is interested in health and fitness, as evidenced through the Longevity community. This information can additionally be used not sellonly to create more personalized experiences for Vocal audiences, but additionally to help fitness-oriented brands create targeted campaigns for workout equipment, supplements, or fitness apparel. With our ability to understand users’ niche interests and behaviors, the collected data,platform can create campaigns that being a common monetization opportunity for many other businesses. Instead, weresonate with its audience and drive better engagement and conversions.
The use our collectedof first-party data also helps the creator platform maintain a closer relationship with its users, as it enables a more personalized experience of content consumption and engagement for the purposes of bettering the platform. Specifically,Vocal users. This can lead to higher retention rates, increased user loyalty, and improved user satisfaction. Finally, our data helps us understand the behaviors and attributes that are common among the creators, brands, and audiences within our ecosystem. We then pair ourbusiness intelligence team pairs first-party Vocal data with third-party data from distribution platforms such as FacebookInstagram, TikTok, Twitter, and Snapchat to provideproviding a more granular profile of our creators, brands, and audiences.
It is through By generating this valuable first-party data, that wethe Company can continually enrich and refine ourits targeting capabilities for branded content promotionmarketing and creator acquisition, and specifically, to reduce our creator acquisition costs (CAC) and subscriber acquisition costs (SAC).
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CompetitionCompetitive Advantage
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 forinfrastructures, and 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 thesiscompetitive advantage that a closed and safe platform ecosystem utilizing first-partywould provide. 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 serveis widely understood as a hometool for companies to collect and analyze data about their users directly from the ever-increasing amount of digitalsource, providing valuable insights into their behaviors, preferences, and interests. Importantly, by leveraging this data within a closed and safe platform ecosystem, companies can create more personalized experiences for their users, deliver more relevant content being produced and the libraries of digital assets lying dormant.advertising, and increase user engagement and retention.
VocalA secondary, and crucial, advantage of a closed ecosystem is most commonly discussedthat it allows companies to control the user experience and ensure a high level of safety and security. By controlling the data that is shared and the interactions that take place within the ecosystem, companies can minimize the risk of fraud, abuse, and other harmful behaviors that can undermine user trust and loyalty. This can be particularly important in industries where user safety and privacy are paramount, such as a combination of:social networking, e-commerce, and financial services.
Finally, the existence of Vocal and its ecosystem enables the Company to optimize our operations and increase efficiencies, effectively creating a more defensible business model by reducing the risk of competition and disintermediation. By controlling the data and interactions within the ecosystem, we create barriers to entry for competitors and reduce the risk of users migrating to other platforms. This can be particularly important in an industry such as Creatd’s, in which network effects and economies of scale are critical to success, such as social networking, e-commerce, and digital advertising.
Creatd does not view Vocal as a substitute or competitorLeveraging these advantages has enabled the Company 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 todifferentiate itself in the entire digital ecosystem. In fact, one of the most powerful 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,market, attract and more, directly into Vocal. We see this as aretain users, and drive sustainable growth opportunity by building partnerships with the world’s greatest technology companies and to further spread our roots deeper into the digital landscape.profitability.
Acquisition Strategy
Creatd’s hybrid financestrategic business line expansion has led to the acquisition of several complementary businesses. These acquisitions have allowed Creatd to expand its reach and design culture is keydiversify its revenue streams, enabling the company to leverage its acquisition strategy. Acquisition targetsinternal resources and expertise to drive continued growth. In addition, the acquisitions have provided opportunities for cost synergies and operational efficiencies, further enhancing the company’s profitability and positioning it for long-term success.
Revenue Model
Creatd’s revenues are companiesprimarily generated through:
Platform: Creatd’s flagship technology product, Vocal, generates revenues through subscription fees from premium Vocal creators, a membership program known as Vocal+. The Vocal+ subscription offering provides creators with increased monetization and access to premium tools and features. At approximately $10 per month, Vocal+ offers creators a strong value proposition for freemium users to upgrade, while providing a scalable source of monthly recurring gross revenue for Creatd. Additional platform-based revenues are generated from Tipping and other transactions that meetoccur on the platform. For each such transaction, which are designed to enable Vocal audiences to engage and support their favorite creators, Vocal takes platform processing fees ranging from approximately 3% to 7%.
E-commerce: The majority of the Company’s e-commerce revenues comes from sales associated with Creatd’s portfolio of internally owned and operated e-commerce businesses, Camp, Dune, Basis, and Brave. Additionally, the Company’s e-commerce strategy involves revitalizing archival imagery and media content in dormant legacy portfolios. Creatd maintains an exclusive license to leverage the stories housed on Vocal, reimagining them for films, episodic shows, games, graphic novels, collectibles, books, and more.
Agency: The Company derives revenues from marketing partnerships through its internal branded content studio, Vocal for Brands, which specializes in pairing leading brands with select Vocal creators to produce content marketing campaigns, including sponsored Challenges, that leverage the power of Vocal. Branded stories and Challenges are distributed to a set of opportunistic or financial standards or thattargeted audience based on Vocal’s first-party data, and are part of specific digital environments that are accretive and can seamlessly integrate into Creatd’s existingoptimized for conversions to maximize revenue lines. Creatd will continue to make strategic acquisitions when presented with opportunities that are in the interest of shareholder value.growth.
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Recent Developments Corporate History and Information
Nasdaq Notice of Delisting; Continued Listing
On March 1, 2022,We were originally incorporated under 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 shortlaws of the requirementsState of Nevada on December 30, 1999 under Listing Rule 5550(b)(2) (the “Rule”). Although a 180-day period is typically allowed for an issuer to regain compliance, the Company was not eligible to use such compliance period, as the Exchange had instituted a Panel Monitor through March 9, 2022.
name LILM, Inc. The Company pursued an appealchanged its name on December 3, 2013 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.Great Plains Holdings, Inc.
On April 22, 2022,February 5, 2016 (the “Merger Closing Date”), we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with GPH Merger Sub, Inc., a Nevada corporation and our wholly-owned subsidiary (“Merger Sub”), and Jerrick Ventures, Inc., a privately-held Nevada corporation headquartered in New Jersey (“Jerrick”), pursuant to which the Exchange notifiedMerger Sub was merged with and into Jerrick, with Jerrick surviving as our wholly-owned subsidiary (the “Merger”). Pursuant to the Company that the Panel has determined to continue the listingterms 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 fileMerger Agreement, we acquired, through 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 requirementsreverse triangular merger, all of the Nasdaq Capital Market.outstanding capital stock of Jerrick in exchange for issuing Jerrick’s shareholders (the “Jerrick Shareholders”), pro-rata, a total of 475,000 shares of our common stock, par value $0.001 per share (“Common Stock”). Additionally, we assumed 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”).
The Panel has advised that August 29, 2022 represents the full extentUpon closing of the Panel’s discretion to grant continued listing during the timeMerger on February 5, 2016, the Company is non-compliant and should the Company failchanged its business plan 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.our current plan.
Registered Direct OfferingIn connection with the Merger, on the Merger Closing Date, we entered into a Spin-Off Agreement with Kent Campbell (the “Spin-Off Agreement”), pursuant to which Mr. Campbell purchased (i) all of our interest in Ashland Holdings, LLC, a Florida limited liability company, and (ii) all of our interest in Lil Marc, Inc., a Utah corporation, in exchange for the cancellation of 13,030 shares of our common stock held by Mr. Campbell. In addition, Mr. Campbell assumed all of our debts, obligations and liabilities, including any existing prior to the Merger, pursuant to the terms and conditions of the Spin-Off Agreement.
Effective February 28, 2016, we entered into an Agreement and Plan of Merger (the “Statutory Merger Agreement”), pursuant to which we became the parent company of Jerrick Ventures, LLC, our wholly-owned operating subsidiary (the “Statutory Merger”).
On February 28, 2016, we changed our name to Jerrick Media Holdings, Inc. to better reflect our new business strategy.
On July 25, 2019, we filed a certificate of amendment to our articles of incorporation, as amended (the “Amendment”), with the Secretary of State of the State of Nevada to effectuate a one-for-twenty (1:20) reverse stock split (the “Reverse Stock Split”) of our common stock without any change to its par value. The Amendment became effective on July 30, 2019. The number of shares of authorized common stock was proportionately reduced as a result of the Reverse Stock Split. The number of shares of authorized preferred stock was not affected by the Reverse Stock Split. No fractional shares were issued in connection with the Reverse Stock Split as all fractional shares were “rounded up” to the next whole share.
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 digital e-commerce agency based in New Jersey. On March 3, 2022, the Company settled the Seller’s Choice Note for a cash payment of $799,000.
On July 13, 2020, upon approval from our board of directors and stockholders, we filed Second Amended and Restated Articles of Incorporation with the Secretary of State of the State of Nevada for the purpose of increasing our authorized shares of Common Stock to 100,000,000.
On August 13, 2020, we filed a certificate of amendment to our second amended and restated articles of incorporation (the “Amendment”), with the Secretary of State of the State of Nevada to effectuate a one-for-three (1:3) reverse stock split (the “August 2020 Reverse Stock Split”) of our common stock without any change to its par value. The Amendment became effective on August 17, 2020. No fractional shares were issued in connection with the August 2020 Reverse Stock Split as all fractional shares were rounded down to the next whole share. All share and per share amounts of our common stock listed in this Form 10-K have been adjusted to give effect to the August 2020 Reverse Stock Split.
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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. Camp is a direct-to-consumer (DTC) food brand which creates healthy upgrades to classic comfort food favorites. The results of Plant Camp’s operations have been 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”).
On January 9, 2023, the Company acquired an additional 51% of the equity interest in WHE Agency, Inc. bringing our total ownership to 95%. WHE 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.
Between October 21, 2020, and August 16, 2021, the Company acquired 21% of the membership interests of Dune, Inc. Dune, Inc. is a direct-to-consumer brand focused on promoting wellness through its range of health-oriented beverages.
On October 3, 2021, the Company acquired an additional 29% of the membership interests of Dune, Inc., bringing our total membership interests to 50%.
On January 25, 2023, the Company acquired an additional 23% equity interest in Dune, Inc. bringing our total ownership to 85%. 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.
On August 1, 2022, the Company acquired 51% of the membership interests of Orbit Media LLC, a New York limited liability company. Orbit is a app-based stock trading platform designed to empower a new generation of investors.
On February 3, 2023, the Company acquired an additional 5% of the membership interests of Orbit Media, LLC., bringing our total membership interests to 56%. Orbit has been consolidated due to the Company’s ownership of 51% voting control, and the results of operations have been included since the date of acquisition in the Statement of Operations.
On September 13, 2022, the Company acquired 100% of the membership interests of Brave Foods, LLC, a Maine limited liability company. Brave is a plant-based food company that provides convenient and healthy breakfast food products. Brave Foods, 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.
Recent Developments
Dorado Goose Transaction
On January 18, 2023, the Company, entered into and closed two securities purchase agreements with Dorado Goose LLC or the investor, whereby the investor purchased from the Company for an aggregate of $1,500,000 in subscription amount, (i) an unsecured debenture in the principal amount of $847,500 and (ii) 1,562,500 shares of common stock. The Company and the investor also entered into a registration rights agreement pursuant to the securities purchase agreement (the “Purchase Agreement”agreements. The subsidiaries of the Company delivered a guarantee in favor of the investor whereby each such subsidiary guaranteed the full payment and performance of all obligations of the Company pursuant to the debenture. The debenture has an original issue discount of 13%, has a maturity date of June 13, 2023, may be extended by six months at the Company’s option subject to certain conditions, and are convertible into shares of common stock at a conversion price of $0.20 per share, subject to adjustment upon certain events. The debenture and the common stock were not registered under the Securities Act but qualified for exemption under Section 4(a)(2) and Rule 506 promulgated thereunder.
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Quotation on OTCQB
Effective on September 7, 2022, our common stock is quoted on the OTCQB Marketplace operated by OTC Markets Group Inc. (“OTCQB”) with thirteen accredited investors resultingunder the symbol “CRTD.” Effective April 4, 2023, our symbol changed to “VOCL.”
Board of Directors and Management
On June 1, 2022, the Board of Directors approved the Creatd, Inc. 2022 Omnibus Securities and Incentive Plan. On November 10, 2022, the Board of Directors approved an amendment to the Creatd, Inc. 2022 Omnibus Securities and Incentive Plan. The plan provides for the granting of distribution equivalent rights, incentive share options, non-qualified share options, performance unit awards, restricted share awards, restricted share unit awards, share appreciation rights, tandem share appreciation rights, unrestricted share awards or any combination of the foregoing, as may be best suited to the circumstances of the particular employee, director or consultant as provided in the raiseplan. the aggregate number of $2,659,750 in gross proceedscommon shares (including common shares underlying options designated as incentive share options or non-qualified share options) that may be issued under the plan shall not exceed the sum of (i) 30,000,000 common shares plus (ii) an annual increase on the first day of each calendar year beginning January 1, 2023 and ending on and including January 1, 2031 equal to the lesser of (a) five percent (5%) of the common shares outstanding on the final day of the immediately preceding calendar year, and (b) such smaller number of common shares as determined by the Board.
On January 18, 2023, the Company held its Annual Meeting of Stockholders. The results of the matters voted on by the Company’s stockholders included the election of Directors to serve on the Company’s board; Amendment to our Articles of Incorporation to Increase Authorized Stock; and the approval of Creatd 2022 Omnibus Securities and Incentive Plan.
On February 8, 2023 (the “Effective Date”), the Board of Directors (the “Board”) of Creatd, Inc., a Nevada corporation (the “Company”) approved, based on the recommendation of the Compensation Committee (the “Committee”) of the Board, certain equity and cash compensation for certain key members of the Company’s management team and non-employee directors as discussed below.
The Company has made certain equity awards to the key members of the Company’s management team (the “Equity Awards”), comprised of 10,692,308 shares of the Company’s common stock (“Common Stock”) to Jeremy Frommer, Chief Executive Officer of the Company, 5,894,788 shares of Common Stock to Justin Maury, Chief Operating Officer of the Company, and 1,663,223 shares of Common Stock to Chelsea Pullano, Chief Financial Officer of the Company. As a condition to receiving the Equity Awards, each such officer agreed to lock-up terms such that only 10% of the shares comprising such individual’s Equity Award can be sold until 90 days after the date of the issuance of the Equity Awards (the “Lock Up Period”) and that during the Lock Up Period, and for nine months thereafter, each such individual can only sell the number of shares equal to the lesser of 5% of the trailing 30 day average volume or 25,000 shares in any single trading day. Additionally, beginning one year after the issuance of the Equity Awards, each individual receiving Equity Awards can only sell the number of shares equal to the lesser of 5% of the trailing 30-day average volume or 40,000 shares in any single trading day (the “Volume Restrictions”).
The Company will also pay cash bonuses to the key members of the Company’s management team (the “Executive Bonuses”) in the amounts of $125,000 to Jeremy Frommer, $62,500 to Justin Maury and $31,250 to Chelsea Pullano, to be paid out on a discretionary basis as determined by the Committee. In addition, each of Jeremy Frommer and Justin Maury will receive monthly housing stipends in the amount of $6,300 (the “Housing Stipends”).
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Additionally, the Company will make certain cash payments and equity awards to the non-employee members of the Board (the “Director Compensation”), comprised of annual cash compensation of $140,000, payable in monthly installments, an annual grant of $140,000 in Common Stock, issued quarterly and priced at the average of the last five trading days of the previous quarter. In the fiscal year 2023, each independent director shall be eligible for a cash bonus of $20,000, which shall be paid on a discretionary basis. As a share bonus, 1,700,000 shares of Common Stock shall be issuable to Peter Majar and 1,000,000 shares of Common Stock shall be issuable to Erica Wagner, with such shares subject to the same lock-up and volume restrictions as the Equity Awards.
The Company will offer the chair of the audit committee of the Board (the “Audit Committee Chair”) an additional annual cash compensation of $20,000, payable in monthly installments, and an annual grant of $20,000 in Common Stock, issued quarterly and priced at the average of the last five trading days of the previous quarter.
All equity awards made to the independent directors of the Company are made pursuant to the Creatd, Inc. 2022 Omnibus Securities and Incentive Plan (the “Plan”).
Common Stock Purchase Agreement, Securities Purchase Agreement and Promissory Note
On October 20, 2022, the Company entered into the Investment Agreement with Coventry (the “Investor”). Pursuant to the terms of the PurchaseInvestment Agreement, for a period of thirty-six (36) months commencing on the Company agreedtrading day immediately following date of effectiveness of the Registration Statement (as defined below), the Investor shall purchase up to sell in a registered direct offering an aggregate of 1,519,857 shares$15,000,000 of the Company’s common stock, par value $0.001 per share (the “Common Stock”“Shares”), pursuant to Drawdown Notices (as defined below), covering the Registrable Securities (as defined below). The purchase price of the Shares under the Investment Agreement is equal to 82% of the lowest volume weighted average price (VWAP) during the last ten trading days prior to the date the Company delivers to the Investor a Put notice (a “Drawdown Notice”) together with warrantsin writing requiring Investor to purchase an aggregate of 1,519,857 shares of Common Stockthe Company, subject to the terms of the Investment Agreement.
On October 20, 2022, the Company also entered into a Securities Purchase Agreement (the “Warrants”“Purchase Agreement”) at an exercisewith the Investor, pursuant to which the Company issued to the Investor on that date a Promissory Note (the “Note”) in the principal amount of $300,000 in exchange for a purchase price of $1.75 per share (collectively,$255,000, which the “Registered Direct Offering”).Investor funded on October 20,2022. The warrants are immediately exercisable andproceeds of the Note will expire on March 9, 2027.be used by the Company for general working capital purposes.
The Registered Direct Offering closedNote bears interest at the rate of 10% per annum. Starting on March 9, 2022. Gross proceedsthe fifth month anniversary of the funding of the Note, and for the next six months thereafter, the Company will make seven equal monthly payments of $47,142.85 to the Investor.
On October 20, 2022, in connection with the entry by the Company and the Investor into the economic agreements, (i.e., the Investment Agreement, the Purchase Agreement, and the Note and the funding thereof), the Company issued 800,000 shares of its common stock to the Investor.
The February 2023 Securities Purchase Agreement
On February 1, 2023, the Company entered into and closed a securities purchase agreement with one accredited investor, whereby the Investor purchased from the Registered Director Offering were $2,659,750, before deducting offering expenses,Company for an aggregate of $1,250,000 in subscription amount, an unsecured debenture in the principal amount of $1,250,000. The Company and the investor also entered into a registration rights agreement pursuant to the securities purchase agreement. The debenture has a term of six months with a maturity date of August 1, 2023, which may be extended by six months at the Company’s option subject to certain conditions and monthly redemption options at the election of the holder and are convertible into shares of Common Stock at a conversion price of $0.20 per share, subject to adjustment upon certain events.
Listing on Upstream
On February 14, 2023, the Company completed the listing on Upstream of the Company’s shares of common stock, comprising the same class of common shares currently registered with the Commission that are currently issued and outstanding. Upstream is the trading app for digital securities and NFTs powered by Horizon Fintex and MERJ Exchange Limited (“MERJ”). The shares listed on Upstream are represented on MERJ Exchange as a “digital security” in the form of uncertificated securities that have the same shareholder rights as all other shares of such issuer. It is a representation of common stock in an uncertificated form. The Company has not issued any new securities pursuant to the listing on Upstream. All common shares have been registered with the Commission and comprise the entire number of shares of the Company issued and outstanding and all of the Company’s shares of common stock have the same CUSIP/ISIN number.
MERJ operates Upstream as a fully regulated and licensed integrated securities exchange, clearing system and depository for digital and non-digital securities. MERJ is an affiliate of the World Federation of Exchanges (WFE), recognized by HM Revenue and Customs UK, a full member of the Association of National Numbering Agencies (ANNA) and a Qualifying Foreign Exchange for OTC Markets in the US. MERJ is also a member of the Sustainable Stock Exchanges Initiative. MERJ is regulated in the Seychelles by the Financial Services Authority Seychelles, https://fsaseychelles.sc/. MERJ is not registered or regulated in any manner in the United States.
Upstream is accessible via the major app stores. After downloading the application, users will have access to review all the securities that trade on Upstream including trading activity, regulatory disclosures and other corporate information. Further there is a direct link of information on our Company at https://investors.creatd.com/resources/faqs/default.aspx. This includes a listing particulars document, which is a required disclosure as part of the requirements of MERJ Exchange Limited as defined by Securities Act 2007 of the Seychelles (as amended) and any other measure prescribed thereunder by the Minister or the Securities Authority. Investors are encouraged to review the listing particulars that may be used for general corporate purposes,found at the following link: https://upstream.exchange/creatd.
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Pursuant to Upstream’s policy, terms and conditions, investors based in the United States or Canada are prohibited from buying shares on the Upstream secondary market. However, U.S.- and Canada-based investors may sell securities they previously purchased or acquired from an issuer, stockbroker or stock exchange that has dual-listed on Upstream. U.S.- or Canada-based investors are those investors who citizens of the United States or Canada, including working capital.those living abroad, or permanent residents of the United States or Canada. To the extent shares had been deposited at a time prior to Upstream’s policy prohibiting such deposits, such shares cannot be sold at this time, and such shareholder would need to have such shares returned to the Company’s transfer agent to complete a sale.
The Press Release stated, “Global investors can now trade by downloading Upstream from their preferred app store at https://upstream.exchange/, creating an account by tapping sign up...”. This was not to suggest that investors based in the United States or Canada can buy shares on the Upstream secondary market, but to suggest that investors who are not U.S.- and Canada-based can trade on Upstream.
Investors who have deposited shares with Upstream may subsequently elect, at any time, to transfer such shares to from Upstream to the Company’s transfer agent for trade via their U.S. broker.
The Company is providing our investors with detailed information on the process on how to deposit and trade shares on Upstream directly on our website at the following link: https://investors.creatd.com/resources/faqs/default.aspx.
Shares transferred into Upstream will be effected via the Company’s Transfer Agent, Pacific Stock Transfer Company (“Pacific”). For shares already recorded with Pacific, investors can transfer such shares to Upstream by taking the following steps: Open Upstream, then choose Investor: Manage Securities, Deposit Securities and, next, Enter the Company’s Ticker Symbol and Number of Common Stock were offeredShares their requesting to deposit. Investors would then confirm the shares are unrestricted or “free trading” and soldtap Submit. The value of each share deposit request on the Upstream app may not exceed $100,000, with such value determined by the closing price of the security on the previous trading day multiplied by the number of shares being deposited. Once the investor makes the share deposit request using the Upstream app, and the transfer agent has the investor’s shares in ‘book entry’, the deposit is typically processed within 48 hours during business days. Once the transfer has been completed investors will receive a push notification in the Upstream app and see the share deposit in their Upstream Portfolio.
If the investor’s shares are currently in the investor’s brokerage account, then the investor will be required to transfer its shares to Pacific to have shares recorded as “direct registration” in “book entry” with Pacific. To make such transfer request, an investor would need to contact their brokerage firm and request to transfer their shares back to “book entry” with the transfer agent.
All shares transferred to Upstream shall be held in MERJ Dep., which is a company licensed as a Securities Facility pursuant to the Seychelles Securities Act, 2007. The Company has appointed MERJ Dep. to act as the Depository Nominee in respect of any securities traded which are quoted on Upstream and granted MERJ Dep. as the Depository Nominee, pursuant to the Securities Facility Rules Directive on Depository Interests.
Shares may be withdrawn from Upstream back to the transfer agent. The Upstream app has a function under Investor Services, Manage Securities, Withdraw Securities. The shareholder then enters the ticker symbol and the number of shares to being withdrawn and taps ‘Notarize’ to cryptographically sign this transaction. The shares are removed from the user’s Upstream portfolio and an email is sent to the transfer agent with a share withdrawal request whereafter the transfer agent will liaise directly with the shareholder to ensure the share balance is entered in ‘book entry’ into the user’s name & address. Third party share withdrawals from Upstream are not permitted, the share withdrawal request name and address (as retrieved from the Upstream know your customer (KYC) information by Upstream compliance) is required to be the same name and address that will be entered in the transfer agents ‘book entry’ for such shareholder.
The NFTs traded on Upstream are issued by the Company pursuant to a prospectus supplement filed withand convey no ownership interest in the SecuritiesCompany, nor do they provide any dividends, royalties, or other equity interests or rights that would indicate an expectation of profit. The NFTs are issued only on Upstream and Exchange Commission (the “SEC”), in connection with a takedown from the Company’s effective shelf registration statementcan only be traded 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).Upstream.
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Private Placement FinancingThe Commission evaluates whether a particular digital asset, including an NFT, is a security based on what is commonly referred to as the Howey Test. The Howey Test looks at four factors: (i) an investment of money (ii) in a common enterprise (iii) with the expectation of profit (iv) to be derived from the efforts of others. We believe the commemorative NFTs issued by Creatd do not meet the definition for securities under the Howey Test. Such NFTs, issued to investors who deposited shares of Creatd with Upstream, are commemorative in nature, memorializing the listing on Upstream, as a novelty item, being akin to a tombstone, plaque, sticker, poster or t-shirt commemorating the listing, similar to what NASDAQ and the NYSE may provide to its issuers. The NFT issued by Creatd conveys no ownership interest in Creatd, nor does it provide any dividends, royalties, or other equity interests or rights that would indicate an expectation of profit. The NFTs are issued only on Upstream and can only be traded on Upstream. No consideration was paid for the NFTs, and such investors are still able to transfer such shares back to Pacific Stock Transfer following receipt of the NFTs.
On March 1, 2022,To trade on Upstream, users create a trading account using the Company entered into securities purchase agreementsUpstream smartphone app, with twenty-eight (28) accredited investors whereby, ata random-generated username (in the closing, such investors purchasedform of an address that’s a 42-character hexadecimal address derived from the Companylast 20 bytes of a random public key) and a password (in the form of a random cryptographic private key).The public and private key (the cryptographic keypair) is generated locally on the smartphone and only the public key is ever known to Upstream, MERJ Dep., or peer to peer trading counterparties on Upstream. Only the individual users hold their private keys. This privacy ensures that only the Upstream user can cryptographically sign a securities transaction (bid/offer/buy/sell/cancel) for it to be executed on Upstream, that is, all transactions such as share sales are self-directed, peer to peer, and instantly settled using the Upstream distributed ledger platform.
In order to buy, sell, deposit or withdraw shares on Upstream, an aggregateUpstream user that has created their account as outlined in the previous paragraph, is required to submit KYC information for the Upstream compliance team to review. KYC information is then linked to the user’s public key, and if the user passes KYC review, then this user’s cryptographic keypair’s transactions will be accepted as legitimate self-directed securities transaction requests to Upstream for execution on the platform.
Shareholders should be aware that there are risks and uncertainties with the Company’s dual listing on Upstream. In particular, the restriction on trading for US- and Canada-based investors may affect the liquidity of (i) 1,401,457 sharesour common stock and lead to volatility in the price and trading volume of our common stock.
In addition, though the NFTs traded on Upstream are commemorative in nature, the regulatory regime governing blockchain technologies, cryptocurrencies and tokens is uncertain, and new regulations or policies may materially affect our NFT marketplace and our business generally.
Although we believe that these NFTs are not securities, there is risk that the issuance of NFTs may be considered a public offering in violation of the Company’s common stock, par value $0.001 per sharefederal securities laws, and (ii) 1,401,457 warrantsperhaps certain state securities laws. For issuances that are deemed to purchase sharesbe public offerings under federal securities laws or in violation of common stock, for an aggregatecertain state securities laws, purchasers of such products might be granted the right to rescind the sale of these products and demand that we return the purchase price of $2,452,550 (the “Private Placement Financing”). Such warrants are exercisablethese products. We did not receive a purchase price 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 thatthese NFTs; however, there is no registration statement available for the underlying shares of common stock. The Benchmark Company, LLC acted as exclusive financial advisor forrisk that the Company in connection with the Private Placement Financing and is entitledmay be subject to receive 125,000 shares of common stock as compensationother penalties or that other remedies may apply.
Additional information regarding Upstream can be found at Revolutionary exchange & trading app for its services. The closing of the Private Placement Financing occurred on March 1, 2022.digital securities (upstream.exchange).
Results of Operations
Liquidity and Capital ResourcesOverview
The following table summarizes total current assets, liabilities and working capital atOperating results for the three months ending March 31, 2022 compared2023, reflect the Company’s efforts to December 31, 2021:
| March 31, 2022 | December 31, 2021 | Increase / (Decrease) | ||||||||||
| Current Assets | $ | 4,332,053 | $ | 4,475,242 | $ | (143,189 | ) | |||||
| Current Liabilities | $ | 6,194,866 | $ | 5,421,015 | $ | 773,851 | ||||||
| Working Capital (Deficit) | $ | (1,862,813 | ) | $ | (945,773 | ) | $ | (917,040 | ) | |||
At March 31, 2022, we hadright-size operations in preparation for both near and long-term growth. Overall revenues decreased by 27% as a working capital deficitresult of $1,862,813 as comparedspecific strategic decisions management deemed in the Company’s best long term interest. Aggressive pricing to promote Vocal+ annual memberships reduced digital subscription revenue by 41% but increased retention rates and the average customer lifetime value while a working capital deficit of $945,773managed pause in the influencer marketing activity at December 31, 2021, anWHE resulted in a 57% decrease in revenues from this segment. A 61% increase in working capital deficit of $917,040. The increase is primarily attributableoverall direct to consumer brand revenue helped to offset the revenue decrease, holding it at 27%. These results were achieved while reducing the marketing spend by almost 75%. Furthermore, while overall expenses doubled period over period, backing out non-cash and non-recurring expenses actually resulted in a reduction in cash and an increase in accounts payable due in part to marketing-related payables as well as payables for legal and accounting fees addressing one-time corporate matters. This was offset by a(28%) decrease in notes payable.compensation, general & administrative expenses. Overall, the loss of revenues in non-core business divisions of over $300,000 and the lesser loss of $200,000 in Vocal subscriptions are due to one-time transitional events. Compared to the exponential reductions in marketing and general operating expenses, the company believes that revenues will reverse and grow significantly upon realization of our Q2 recapitalization plan. With this new forward growth built within our reduced operating expense budget and slimmed down headcount, the company expects to reach it’s long stated goal of cash flow break even within a year.
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Net Cash
Net cash used in operating activities for the three months ended March 31, 2022, and 2021, was $5,037,179 and $5,296,638, respectively. The net loss for the three months ended March 31, 2022, and 2021 was $6,881,048 and $6,643,237, respectively. The decrease in net cash used in first quarter 2022 reflects a decrease in research and development expenses, offset by an increase in general and administrative costs including consulting, legal, and accounting fees. Going forward, as the Company plans to simultaneously grow revenue while improving operational efficiency, it is anticipated that the Company’s net cash used in operating activities will consistently decrease throughout 2022.
Net cash used in investing activities for the three months ended March 31, 2022, was $50,950. This is primarily attributable to the purchase of digital assets within the Company’s NFT infrastructure, as well as the purchase of property and equipment.
Net cash provided by financing activities for the three months ended March 31, 2022, and 2021 was $4,527,972 and $412,576, respectively. During the three months ended 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 exercises of warrants, the proceeds of which were partially offset by repayment of notes of $985,596.
Summary of Statements of Operations for the Three Months Ended March 31, 2022,2023, and 2021:2022:
| Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
| 2022 | 2021 | 2023 | 2022 | |||||||||||||
| Revenue | $ | 1,348,738 | $ | 743,913 | $ | 986,145 | $ | 1,348,738 | ||||||||
| Cost of revenue | $ | 1,572,170 | $ | 867,150 | $ | 1,012,687 | $ | 1,572,170 | ||||||||
| Operating expenses | $ | (6,785,852 | ) | $ | (5,822,760 | ) | ||||||||||
| *Operating expenses | $ | 13,685,073 | $ | 6,785,852 | ||||||||||||
| Loss from operations | $ | (7,009,284 | ) | $ | (5,945,997 | ) | $ | (13,711,615 | ) | $ | (7,009,284 | ) | ||||
| Other income (expenses) | $ | 128,236 | $ | (697,240 | ) | $ | (2,243,910 | ) | $ | 128,236 | ||||||
| Net loss | $ | (6,881,048 | ) | $ | (6,643,237 | ) | $ | (15,955,525 | ) | $ | (6,881,048 | ) | ||||
| Loss per common share – basic and diluted | $ | (0.36 | ) | $ | (0.68 | ) | ||||||||||
| Loss per common share - basic and diluted | $ | (0.35 | ) | $ | (0.36 | ) | ||||||||||
*Q1 2023 results include non-cash items totaling $9,542,173
Revenue
Revenue totaled $1,348,738$986,145 for the three months ended March 31, 2022,2023, as compared to $743,913$1,348,738 for the comparable three months ended March 31, 2021, an increase2022, a decrease of $604,825.$362,593 (27%). The 81% year-over-year increasedecrease in quarterly revenue is attributable to the steady growth of both Creatd Partners (influencera decrease in agency revenues in non-core business divisions and content marketing) which increased 36% year-over-year, as well as Created Labs (Vocal and technology development) which experienced a 66%relatively small loss in subscription revenue, partially offset by an increase in revenue generated as comparedfrom the Company’s direct 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).consumer brands.
Cost of Revenue
Cost of revenue for the three months ended March 31, 2022, were $1,572,1702023, was $1,012,687 as compared to $867,150$1,572,170 for the three months ended March 31, 2021.2022. The increasedecrease of $705,020$559,483 (35%) in cost of revenue is primarily 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 moderation and content development teams, a byproduct of increased Vocal+ membership volume combined with the additional sales and talent management personnel associated with Creatd Partners.decrease in payroll-related costs. 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
OperatingBacking out non-cash and non-recurring operating expenses results in a net (28%) decrease in compensation and general & administrative expenses. On a GAAP adjusted basis (which includes non-cash and non-recurring operating expenses) operating expenses for the three months ended March 31, 2022,2023, were $6,785,852$13,685,073 as compared to $5,822,760$6,785,852 for the three months ended March 31, 2021.2022. The increase of $963,092$6,899,221 in operating expenses is mainly related to general and administrative (“G&A”) cost increases, predominantly due to an increase in headcountstock-based compensation for the award of shares to employees and related personnel expenses as well as costs related toofficers of the Company’s expanded presenceCompany in key markets, which contributed to an increase in office rentrecognition of having accepted reduced salaries beginning August 22, 2022, and related moving expenses. G&Aassociated taxes. This was further impacted by a non-recurring increase in consulting expenses, site development, and recruiting fees. The year-over-year increase in first quarter G&A was offset in part by a decrease in researchmarketing and development expendituregeneral and stock based compensation.
During the first 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 related to the vesting of past stock option grants to senior management and board members, which vest over multiple years, and stock-based fees to service providers that opted for stock in lieu of 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. administrative expenses.
Loss from Operations
Loss from operations for the three months ended March 31, 2022,2023, was $7,009,284$13,711,615 as compared to $5,945,997$7,009,284 for the three months ended March 31, 2021. The $1,063,287 increase in the loss from operations this quarter2022, primarily reflects the nearly doubling year over year of Company personneldue to 60 professionals. In addition, short-term consultingstock-based compensation and other services that were required during the quarter to address one-time needs heightened expenses. Going forward, the Company expects the loss from operations to decrease significantly as revenues continueit focuses on organic revenue growth and continues to increase and expenses achieve normalcy levels.find efficiencies to reduce operating expenses.
Other Income and (Expenses)
Other income (expenses) for the three months ended March 31, 2022,2023, were $128,236$(2,243,910) as compared to $(697,240)$128,236 for the three months ended March 31, 2021. The increase in first quarter 2022 other income was2022. These expenses were predominantly due to a decrease in an accretion of debt discount and issuance cost, an eliminationcosts related to the issuance of derivative expense, and a decrease in interest expense.convertible notes.
Net Loss
Net loss for the three months ended March 31, 2022,2023, was $6,881,048,$15,955,525, as compared to a net loss of $6,643,237$6,881,048 for the three months ended March 31, 2021.2022.
Net loss attributable to common shareholders for the three months ended March 31, 2022,2023, was $6,334,890,$22,243,581, or a loss per share of $0.36,$0.35, as compared to a net loss attributable to common shareholders of $6,643,237,$6,334,890, or a loss per share of $0.68,$0.36, for the three months ended March 31, 2021.2022.
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Liquidity and Capital Resources
The following table summarizes total current assets, liabilities and working capital at March 31, 2023 compared to December 31, 2022:
| March 31, 2023 | December 31, 2022 | Increase / (Decrease) | ||||||||||
| Current Assets | $ | 946,743 | $ | 1,479,164 | $ | (532,421 | ) | |||||
| Current Liabilities | $ | 17,776,824 | $ | 15,207,316 | $ | 2,569,508 | ||||||
| Working Capital (Deficit) | $ | (16,830,081 | ) | $ | (13,728,152 | ) | $ | (3,101,929 | ) | |||
At March 31, 2023, we had a working capital deficit of $16,830,081 as compared to a working capital deficit of $13,728,152 at December 31, 2022, an increase in working capital deficit of $3,101,929. This increase is primarily attributable to a reduction in cash and an increase in accounts payable and accrued liabilities. This was partially offset by a decrease in convertible notes payable and notes payable.
Net Cash
Net cash used in operating activities for the three months ended March 31, 2023, was $2,858,058, a decrease of $2,184,071 from the same period in 2022. The net loss for the three months ended March 31, 2023, and 2022 was $15,955,525 and $6,881,048, respectively. Going forward, the Company plans to continue to reduce expenses by improving operational efficiency while focusing on organic revenue growth, and it is anticipated that the Company’s net cash used in operating activities will consistently decrease throughout 2023.
Net cash provided by investing activities for the three months ended March 31, 2023, was $250,000. This is attributable to the sale of a non-controlling interest in the Company’s subsidiary OG Collection, Inc.
Net cash provided by financing activities for the three months ended March 31, 2023, and 2022 was $2,073,886 and $4,527,972, respectively. During the three months ended March 31, 2023, the Company’s operations were predominantly financed by proceeds from the exercise of warrants, the issuance of both convertible notes and promissory notes, and the sale of common stock. This was partially offset by repayments of convertible notes and repayments of promissory notes. Similarly, the Company’s financing activity for the three months ended March 31, 2022, generated net proceeds of $4,997,301 from the sale of common stock and warrants, which were partially offset by the repayments of notes payable.
Off-Balance Sheet Arrangements
As of March 31, 2022,2023, we had no off-balance sheet arrangements.
Significant Accounting Policies
Our significant accounting policies are described in Note 2 of the Financial Statements. If 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, 2021.2022. 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.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no material changes in our exposures to market risk since December 31, 2021.2022. 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 20212022 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 March 31, 2022,2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. However, throughout 20212022 and into 2022,2023, the Company continues the complete review of all of its financial procedures and controls 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.
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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, litigationLitigation 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. Except as set forth below, we are currently not aware of any such legal proceedings or claims that will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.
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,Skube v. WHE Agency Inc., et al. v. Jerrick Media Holdings, Inc. et 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. Plaintiff 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 on March 3, 2022.al
On or about August 30, 2021, Robert W. MonsterA complaint against WHE, Creatd and Anonymize,Jeremy Frommer filed December 22, 2022, was filed in the Supreme Court of the State of New York, New York County, by Jessica Skube, making certain claims alleging conversion, trespass to chattel, unjust enrichment, breach of contract, fraud in the inducement, seeking damages of $161,000 and punitive damages of $500,000. Skube filed an Order to Show Cause, which the Company opposed, which is currently pending. Given the premature nature of this case, it is still too early for the Company to make an assessment as to liability.
Lind Global v. Creatd, Inc. (“Monster”)
A complaint against Creatd dated September 21, 2022, has been filed in the Supreme Court of the State of New York, New York County, by Lind Global Macro Fund LP and Lind Global Fund II LP, making certain claims alleging breach of contract related to two Securities Purchase Agreements executed on May 31, 2022, seeking damages in excess of $920,000. The Company filed a lawsuitMotion to Dismiss, which is currently pending. Given the premature nature of this case, it is still too early for the Company to make an assessment as to liability.
Laurie Weisberg v. Creatd, Inc.
A confession of judgment against Creatd dated September 2, 2022, has been filed in the United States DistrictSupreme 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”)State of New York, New York County, by Laurie Weisberg, seeking to enforce payment of approximately $415,000 under an executive separation agreement also dated September 2, 2022. Ms. Weisberg also seeks payment of legal fees amounting to approximately $5,000. The Company and Ms. Weisberg are actively negotiating in an attempt to resolve the dispute. The Company does not violate Creatd’s rights underexpect 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 respectliability to the term and the domain name VOCL.COM. Monster seeks a determination by the Court that Monster’s registration and/or use of VOCL.COM is not, and has not been in violation of the ACPA, and that Plaintiffs’ use of VOCL.COM constitutes neither a violation of the ACPA nor trademark infringement or dilution under the Lanham 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.exceed $420,000.
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, 2021,2022, the occurrence of any one of which could have a material adverse effect on our actual results.
ThereExcept as set forth below, 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, 2021.2022.
Shareholders may be adversely impacted by any differences between the regulations of MERJ Depository and Registry Limited (MERJ) and rights afforded to shareholders and those applicable to securities traded in the United States.
Shareholders should be aware that there are risks and uncertainties with the Company’s dual listing on Upstream. In particular, any differences between the regulations of MERJ Depository and Registry Limited (MERJ) and rights afforded to shareholders and those applicable to securities traded in the United States may adversely impact shareholders.
Shareholders face risks related to potential discrepancies that could occur between the trading prices of our common stock on OTCQB and the tokenized shares on Upstream.
Dual listing on two stock exchanges has the risk of the potential discrepancies that could occur between the trading prices of our common stock on OTCQB and the tokenized shares on Upstream. Dual listing may increase the exposure of the Company to market risks, including currency fluctuations and geopolitical events, as it may be subject to different economic conditions and political environments in each exchange, which could potentially lead to greater volatility in the Company’s stock price.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the three months ended March 31, 2022,2023, 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.
Consultant Shares
During the three months ended March 31, 2022,2023, the Company issued 113,420347,435 shares of Common Stock to consultants and employees.
Debt Conversion
During the three months ended March 31, 2022,2023, a lender converted $168,850$51,132 in promissoryconvertible notes into 109,435113,601 shares of Common Stock.
Securities Purchase Agreement
During the three months ended March 31, 2023, the Company entered into a Securities Purchase Agreement with an investor to purchase 1,562,500 shares of common stock for gross proceeds of $750,000.
Additional Purchase of Orbit Media, LLC
During the three months ended March 31, 2023, the Company issued 125,000 shares to purchase an additional 5% of the membership interests of Orbit Media, LLC., bringing our total membership interests to 56%.
Additional Purchase of Dune, Inc.
During the three months ended March 31, 2023, the Company issued 100,000 shares to purchase an additional 23% equity interest in Dune, Inc. bringing our total ownership to 85%.
Additional Purchase of WHE Agency, Inc.
During the three months ended March 31, 2023, the Company issued 100,000 shares to purchase an additional 51% of the equity interest in WHE Agency, Inc. bringing our total ownership to 95%.
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.
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Item 6. Exhibits.
| * | Filed herewith |
| # | 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. |
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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: May | By: | /s/ |
| Name: | ||
| Title: | Chief Executive Officer | |
| (Principal Executive Officer) | ||
| Date: May | By: | /s/ Chelsea Pullano |
| Name: | Chelsea Pullano | |
| Title: | Chief Financial Officer | |
| (Principal Financial and Accounting Officer) |
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