As filed with the Securities and Exchange Commission on July 2, 2020.August 25, 2022
Registration Statement No. 333-238514333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,Washington, D.C. 20549
AMENDMENT NO. 1 TO:
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
CREATD, INC.
JERRICK MEDIA HOLDINGS, INC.
(Exact name of Registrantregistrant as specified in its charter)
Nevada | 7819 | 87-0645394 | ||
(State or other jurisdiction of | (Primary Standard Industrial | (I.R.S. Employer |
2050 Center Avenue Suite 640419 Lafayette Street
Fort Lee, NJ 070246th Floor
New York, NY 10003
(201) 258-3770
(Address, including zip code and telephone number, including area code, of registrant’s principal executive offices)
Laurie Weisberg
Chief Executive Officer
419 Lafayette Street, 6th Floor
New York, NY 10003
Telephone: (201) 258-3770
(AddressName, address, including zip code and telephone number, of principal executive offices)
Jeremy Frommer
Chief Executive Officer
2050 Center Avenue Suite 640
Fort Lee, NJ 07024
Telephone: (201) 258-3770
(Name, address and telephone numberincluding area code, of agent for service)
Copies of all communications, including communications sent to agent for service, should be sent to:
Copies to:
| Joseph M. Lucosky, Esq.
Scott E. Linsky, Esq. Lucosky Brookman LLP 101 Wood Avenue South, 5th Floor
(732) 395-4400 |
Approximate Datedate of Commencementcommencement of Proposed Saleproposed sale to the Public:public:
As soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. ☐☒
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer☐ | Accelerated filer☐ | |||
Non-accelerated filer ☒ | ||||
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 7(a)(2)(B) of the Securities Act Act. ☐
Each Class of Securities to be Registered | Proposed Maximum Aggregate Offering Price (1)(2) | Amount of Registration Fee | ||||||
Common stock, par value $0.001 per share | $ | 9,200,000 | $ | 1,194.16 | * | |||
Warrants to purchase common stock, par value $0.001 per share(3) | ||||||||
Shares of common stock issuable upon exercise of the Warrants | $ | 9,200,000 | $ | 1,194.16 | ||||
Total | $ | 18,400,000 | $ | 2,388.32 |
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The Registrantregistrant hereby amends this Registration Statementregistration statement on such date or dates as may be necessary to delay its effective date until the Registrantregistrant shall file a further amendment which specifically states that this Registration Statementregistration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statementthis registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determinedetermine.
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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it iswe are not soliciting an offer to buy these securities in any state or jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED JULY 2, 2020AUGUST 25, 2022
PRELIMINARY PROSPECTUS
JERRICK MEDIA HOLDINGS, INC.Subscription Rights to Purchase Up to 20,000,000 Units
Consisting of Up to 20,000,000 Shares of Common Stock
Series A Warrants to Purchase Up to 20,000,000 Shares of Common Stock
at a Subscription Price of $ Per Unit
Up to 20,000,000 Shares of Common Stock
Issuable upon the Exercise of Series A Warrants included in the Units
Units
CommonWe are distributing, at no charge, non-transferable subscription rights entitling holders of common stock as of the record date of 5:00 p.m. (Eastern time) on , 2022 and holders of certain shares of Series E Preferred Stock, common stock, warrants, options, and Warrants
This prospectus relatesconvertible notes, to the sale by Jerrick Media Holdings, Inc. (the “Company” or “Jerrick”)purchase units at a subscription price of $8,000,000$ per unit. Each unit will consist of units of securities (the “Units”).
Each Unit consists of (a) one share of our common stock and (b) onea Series A warrant exercisable to purchaseacquire one share of our common stock at an exercise price equal to $ until the fifth anniversary of the issuance date. The shares$1.00. Shares of our common stock and Series A warrants are immediately separable andcomprising the units may only be purchased as a unit, but will be issued separately butseparately. You will be purchased together in this offering.
We have applied to list ourreceive two subscription rights for every share of common stock and every share of common stock issuable upon conversion or exercise of the warrantsPreferred Shares, Eligible Warrants, Eligible Options, and Eligible Convertible Notes (all as defined herein) you hold as of the record date.
Pursuant to your subscription rights, you will have the right, which we refer to as your basic right, to purchase a number of units equal to two times (i) the number of shares of common stock you held as of the record date and (ii) the number of shares of common stock issuable upon conversion or exercise of the Preferred Shares, Eligible Warrants, Eligible Options, and/or Eligible Convertible Notes you held as of the record date. If you exercise your basic right in full, you will also have the right, or over-subscription privilege, to purchase additional units for which other rights holders do not subscribe. Once made, all exercises of rights are irrevocable.
Your basic rights and over-subscription privilege will expire if not exercised by 5:00 p.m. (Eastern time) on 2022, unless we extend or terminate this offering. We may extend this offering for one or more additional periods in our sole discretion not to exceed 45 days from the initial expiration date. We will announce any extension in a press release issued no later than 9:00 a.m. (Eastern time) on the Nasdaq Capital Market upon our satisfactionbusiness day after the most recently announced expiration date. If this offering is not fully subscribed following the expiration date of the exchange’s initial listing criteria. If our common stockoffering, we use commercially reasonable efforts to place any unsubscribed units at the subscription price for an additional period of up to 45 days. The number of units that may be sold by us during this period will depend upon the number of units that are subscribed for pursuant to the exercise of subscription rights by shareholders and warrants are not approved for listing on the Nasdaq Capital Market, we will not consummate this offering. No assurance can be given that our application will be approved.other rights holders.
Our common stock is currently quotedtraded on The OTCQB VentureNasdaq Capital Market, (the “OTCQB”), operated by OTC Markets Group,or the Nasdaq, under the symbol “JMDA”. On July 1, 2020, the last reported sale“CRTD.” The closing price of ourthe common stock on the OTCQBAugust 24, 2022 was $4.45$0.645 per share. Quotes of our common stock trading prices onNeither the OTCQB may not be indicative ofsubscription rights nor the market price of our common stock or warrants if listed on the Nasdaq Capital Market. Upon the securities comprising the Units becoming separately traded, we expect that our common stock and warrants will be listed on the Nasdaq Capital Market under the symbols “JMDA” and “JMDAW,” respectively.units are transferable.
Investing in our common stock is highly speculative andsecurities involves a high degree of risk. You should carefully consider the risks and uncertainties described under the headingrisks. See “Risk Factors” beginning on page 611 of this prospectus beforeprospectus. We and our board of directors are not making a decision to purchase our securities.any recommendation regarding the exercise of your rights.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.This offering is being conducted on a best-efforts basis, and we do not need to receive any minimum amount of proceeds in order to complete the offering. We have currently not entered into any standby purchase agreement, backstop commitment or similar arrangement in connection with this offering.
Continental Stock Transfer & Trust will serve as the subscription agent for this offering and an escrow agent retained by the subscription agent will hold in escrow funds received from subscribers until we complete or terminate the offering.
Per | |||||||||||
Total(1) | |||||||||||
$ | $ | ||||||||||
Proceeds to | $ | $ |
(1) |
The CompanyNeither the Securities and Exchange Commission nor any state securities commission has granted a 45 day optionapproved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the representative ofcontrary is a criminal offense.
If you have any questions or need further information about this offering, please call D.F. King & Co., Inc., the underwriters to purchase up to an additional shares of common stock to cover over-allotments, if any.
The underwriters expect to deliver the shares to purchasers ininformation agent for the offering, onat (212) 269-5550 (bankers and brokers) or about , 2020.(877) 283-0323 (all others) or by email at creatd@dfking.com.
Book-Running Manager
THE BENCHMARK COMPANY
The date of this prospectus is , 2020.August 25, 2022.
ABOUT THIS PROSPECTUS
In this prospectus, unless the context suggests otherwise, references to “the Company,” “Jerrick,” “JMDA,” “we,” “us,” and “our” refer to Jerrick Media Holdings, Inc. and its consolidated subsidiaries.
This prospectus describes the specific details regarding this offering, the terms and conditions of the common stock being offered hereby and the risks of investing in the Company’s common stock. You should read this prospectus, any free writing prospectus and the additional information about the Company described in the section entitled “Where You Can Find More Information’’ before making your investment decision.
Neither the Company, nor any of its officers, directors, agents, representatives or underwriters, make any representation to you about the legality of an investment in the Company’s common stock. You should not interpret the contents of this prospectus or any free writing prospectus to be legal, business, investment or tax advice. You should consult with your own advisors for that type of advice and consult with them about the legal, tax, business, financial and other issues that you should consider before investing in the Company’s common stock.
ADDITIONAL INFORMATION
You should rely only on the information contained in this prospectus and in any accompanying prospectus supplement. No one has been authorized to provide you with different or additional information. The shares of common stock are not being offered in any jurisdiction where the offer is not permitted. You should not assume that the information in this prospectus or any prospectus supplement is accurate as of any date other than the date on the front of such documents.
TRADEMARKS AND TRADE NAMES
This prospectus includes trademarks that are protected under applicable intellectual property laws and are the Company’s property or the property of one of the Company’s subsidiaries. This prospectus also contains trademarks, service marks, trade names and/or copyrights of other companies, which are the property of their respective owners. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that the Company will not assert, to the fullest extent under applicable law, its rights or the right of the applicable licensor to these trademarks and trade names.
INDUSTRY AND MARKET DATA
Unless otherwise indicated, information contained in this prospectus concerning the Company’s industry and the markets in which it operates, including market position and market opportunity, is based on information from management’s estimates, as well as from industry publications and research, surveys and studies conducted by third parties. The third-party sources from which the Company has obtained information generally state that the information contained therein has been obtained from sources believed to be reliable, but the Company cannot assure you that this information is accurate or complete. The Company has not independently verified any of the data from third-party sources nor has it verified the underlying economic assumptions relied upon by those third parties. Similarly, internal company surveys, industry forecasts and market research, which the Company believes to be reliable, based upon management’s knowledge of the industry, have not been verified by any independent sources. The Company’s internal surveys are based on data it has collected over the past several years, which it believes to be reliable. Management estimates are derived from publicly available information, its knowledge of the industry, and assumptions based on such information and knowledge, which management believes to be reasonable and appropriate. However, assumptions and estimates of the Company’s future performance, and the future performance of its industry, are subject to numerous known and unknown risks and uncertainties, including those described under the heading “Risk Factors” in this prospectus and those described elsewhere in this prospectus, and the other documents the Company files with the Securities and Exchange Commission, or SEC, from time to time. These and other important factors could result in its estimates and assumptions being materially different from future results. You should read the information contained in this prospectus completely and with the understanding that future results may be materially different and worse from what the Company expects. See the information included under the heading “Forward-Looking Statements.”
TABLE OF CONTENTS
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Unless the context requires otherwise, references in this prospectus to “Creatd,” “our company,” “we,” “our” “us” and similar terms refer to Creatd, Inc., a Nevada corporation, and its subsidiaries, unless the context otherwise requires.
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PROSPECTUS SUMMARY
The following summary highlights selected information contained elsewhere in this prospectus. ThisBecause the following is only a summary, mayit does not contain all of the information that may be important to you. Youyou should consider before investing in our securities. Before making an investment decision, you should carefully read all of the information contained in this entire prospectus, carefully, including the sections entitledrisks described under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Company’s historicalour consolidated financial statements and the related notes included elsewherefrom our 2021 Annual Report and most recent Form 10-Q, before making an investment decision.
Overview
Creatd, Inc. is a company whose mission is to provide economic opportunities to creators and brands by multiplying the impact of platforms, people, and technology.
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 this prospectus. In this prospectus, unless otherwise noted, the terms “the Company,” “Jerrick,” “we,” “us,”creator economy.
Creator-Centric Strategy
Our purpose is to empower creators to prosper through exceptional tools, built-in communities, and “our” referopportunities for monetization and audience expansion. This creator-first approach is the foundation of our culture and mission, and how we choose to Jerrick Media Holdings, Inc. and its consolidated subsidiaries.allocate our resources.
OverviewCreatd Labs
Jerrick Media Holdings, Inc. (“JMDA” or “the Company”)Creatd Labs is dedicated to the parent companydevelopment of technology products that support the creator economy. This pillar houses Creatd’s proprietary technology platforms, including Creatd’s flagship product, Vocal.
Vocal
Vocal was built to serve as a home base for digital creators. This robust, proprietary technology platform provides best-in-class tools, safe and creatorcurated communities, and monetization opportunities that enable creators to find a receptive audience and get rewarded. Creators of all types call Vocal their home, from bloggers to social media influencers, to podcasters, founders, musicians, photographers, and more.
Since its initial launch in 2016, Vocal has grown to be one of the fastest-growing communities for content creators of all shapes and sizes. Creators can opt to use Vocal platform. The Company develops technology-based solutionsfor free, or upgrade to solve problemsthe 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. Creatd facilitates creators’ monetization on Vocal in numerous different ways, including i) by rewarding creators for the creator community,each ‘read’ their story receives; ii) via Vocal Challenges, or writing contests through which creators can win cash and other rewards; iii) by awarding Bonuses; iv) by connecting creators with brands for opportunities to collaborate on Vocal for Brands branded content campaigns; v) through ‘Subscribe,’ which enables creators to receive payment directly from their idealaudience via monthly subscriptions and one-off microtransactions; vi) via Vocal’s Ambassador Program, which enables creators to receive additional rewards whenever they refer a new Vocal+ member.
In July 2022, Creatd released the first iteration of the new Vocal app for iOS, giving its premium Vocal+ members exclusive first access to the app ahead of its full release, and then launched the app in full in mid-August 2022. The app, which was designed based on Vocal audience insights, is focused on optimizing Vocal’s readership; the app works to increase audience’s ability to easily discover curated stories, thereby widening creators' distribution of content, and opening up new opportunities for monetization to creators.
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, reduced platform processing fees on tips received, eligibility to participate in exclusive Vocal+ Challenges, access to Vocal’s ‘Quick Edit’ feature for published stories, and more. The current cost of a Vocal+ membership is either $9.99 per month or $99 annually.
Moderation and Compliance
One of the key differentiating factors between Vocal and most other user-generated content platforms is the fact that each story submitted to Vocal is run through the Company’s proprietary moderation process before it goes live on the platform. The decision to implement moderation into the submission process was in direct response to the rise of misinformation and bad actors on many social platforms. In response to these inherent pitfalls within the content landscape, Vocal’s proprietary moderation system combines the algorithmic detection of copyrighted material, hate speech, graphic violence, and nudity, and 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. During the second quarter 2022, Creatd announced Vocal’s new integration partnership with Two Hat, a Microsoft acquiree and a leading provider of AI-assisted content moderation and protection solutions for digital communities. Through the partnership, the Company further updated its proprietary moderation technology, with the brandsaim of ensuring that want to access thosethe Vocal platform remains a safe place for its creators, brand partners, and audiences. Through a combination of data analysis, design, and development, the Company conceptualizes, creates, and maintains a suite of technology products and provides services that influence a global audience.
JerrickTrust and safety are paramount to the Vocal ecosystem. We follow best practices when handling personally identifiable information, with guidance from the European Union’s General Data Protection Regulation (GDPR), the California Consumer Privacy Act (CCPA), and the Digital Millennium Copyright Act (DMCA).
Platform Compliance Policies include:
● | Human-led, technology-assisted moderation of every story submitted; |
● | Algorithmic detection of hate speech, nudity, and copyright infringement; |
● | Brand, creator, and audience safety enforced through community watch; and |
● | The rejection of what we consider toxic content, with the understanding that diverse opinions are encouraged. |
Technology Development
Vocal’s proprietary technology is committedbuilt on Keystone, the same underlying open-source framework used by industry leaders such as Atlassian, a $43-billion Australian technology company. Some of the key differentiating elements of Vocal’s technology are speed, sustainability, and scalability. The Company continues to identifyinginvest heavily in research and leveraging opportunities withindevelopment to continuously improve and innovate its platform, with the digitalgoal of optimizing the user experience for creators.
Additionally, the Vocal platform and content monetization space. Our proprietary flagshipits underlying technology platform is Vocal, which provides creators with storytelling tools, engaged communities, and opportunitiesallow us to monetize their content. Vocal’s architecture was engineered to support a scalable and easy-to-update platform that could adapt its capacity to meet the current and growing demand for digital resources and technologies that foster virtual connection and community.
We maintain aan advantageous capital-light infrastructure by, among other things,infrastructure. By using third party cloud based service providers. As a result,providers, we are able to focus on platform and revenue growth rather than building and maintaining athe costly internal infrastructure. Similarly, whileinfrastructures that have materially affected so many legacy media platforms.
Vocal’s technology has been specifically designed and built to scale without a material corresponding increase in operational costs. While our users can embed rich media, such as video, audio, and product links, into their Vocal stories, the rich media content is hosted elsewhere (such as YouTube, Instagram, Vimeo, Shopify, Spotify, etc.). As a result,Thus, our platform can accommodate rich media content of all kinds without bearing the financial or operational costs associated with hosting the rich media itself. In addition to the benefits this framework affords to the Company, it provides the additional benefit to our content creators, in that a creator can increase their monetization; for example, a creator can embed their YouTube video into a Vocal story and thus derive earnings from both platforms when their video is viewed.
Creatd Partners
Creatd Partners 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).
Vocal for Brands
All brands have a story to tell, and we leverage Vocal’s technology was builtcreator community to organically sustain and scale multiple lines of revenue,help them tell it. Vocal for Brands, Creatd’s content marketing studio, specializes in pairing leading brands with Vocal creators as well as WHE influencers to assimilate externalproduce marketing campaigns that are non-interruptive, engaging, and direct-response driven. Additionally, brands can opt to collaborate with Vocal on a sponsored Challenge, prompting the creation of high-quality stories that are centered around the brand’s mission and further disseminated through creators’ respective social channels and promotional outlets. All Vocal for Brands campaigns leverage Vocal’s first-party audience insights, which enables the creation of highly targeted and segmented audiences and optimized campaign results.
WHE Agency
The WHE Agency (“WHE”), acquired by Creatd in 2021, was founded with the goal of supporting top creators and influencers, by connecting them with leading brands and global audiences. Today, WHE manages a talent roster comprising over 100 creators across numerous verticals, including family and lifestyle, music, entertainment, and celebrity categories. Since acquiring WHE, the Company has helped WHE expand into new verticals, as well as facilitated partnerships on influencers’ behalf with leading brands including CBS, Amazon, Target, Disney, Warby Parker, CVS, Kay Jewelers, Walmart, Gerber, Masterclass, Procter & Gamble, Nike, and NFL, among others.
Seller’s Choice
Seller’s Choice is Creatd Partners’ performance marketing agency specializing in DTC (direct-to-consumer) and e-commerce clientele. Seller’s Choice provides direct-to-consumer brands with design, development, strategy, and sales optimization services.
Creatd Ventures
Creatd Ventures houses Creatd’s portfolio of e-commerce businesses, both majority and minority-owned as well as associated e-commerce technology platforms and media assets into its existing infrastructure. The Company anticipates continuingsupports founders by providing capital, as well as a host of services including design and development, marketing and distribution, and go-to-market strategy. While working to make targeted acquisitionsscale Creatd Ventures’ existing portfolio brands, including through the introduction of technologiesnew product offerings, Creatd continues to actively explore new potential additions to the Creatd Ventures portfolio. Specifically, the Company expects to broaden Creatd Ventures’ portfolio through the acquisition of brands that are aligned and publicthat can be easily consolidated into its supply chain and private companies. The Vocal technology platform, trademark, and related intellectual property are wholly owned and operated by Jerrick.infrastructure.
Risks Associated with Our Business
Our business is subject to a number of risks of which you should be aware before making a decision to invest in our common shares. The following, and other risks, are discussed more fully inCurrently, the “Risk Factors” section of this prospectus.Creatd Ventures portfolio includes:
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Creatd Studios
The goal of Creatd Studios is to partner with creators to produce stories for TV, film, podcasts, and print. With millions of compelling stories in its midst, Creatd’s Vocal technology surfaces the best candidates for transmedia adaptations, through a deep analysis of community, creator, and audience insights. Then, Creatd Studios helps creators tell their existing stories in new ways, by partnering them with entertainment and publishing studios to create unique content experiences that accelerate earnings, discoverability, and foster new opportunities.
● | In 2022, Creatd Studios announced a series of newly released and |
“Write Here, Write Now,” the Company’s first-ever podcast showcasing select Vocal creators and stories; a partnership with UK-based publisher, Unbound, for the publication of books featuring stories sourced from Vocal; the formation of a new graphic novel development arm which in Fall 2022 will release its first title, Steam Wars, created by artist and independent filmmaker Larry Blamire.
● | OG Gallery: The OG Collection is an extensive library of original artwork and imagery from the archives of some of the most iconic magazines of the 20th century. OG Gallery is an exploratory initiative aimed at identifying opportunities to |
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-party data is one of the value-drivers for the Company across its four business pillars.
Importantly, we do not sell the collected data, that being a common monetization opportunity for many other businesses. Instead, we use our collected first party data for the purposes of bettering the platform. Specifically, our data helps us understand the behaviors and attributes that are common among the creators, brands, and audiences within our ecosystem. We then pair our first-party Vocal data with third-party data from distribution platforms such as Facebook and Snapchat to provide a more granular profile of our creators, brands, and audiences.
It is through generating this valuable first-party data that we can continually enrich and refine our targeting capabilities for branded content promotion and creator acquisition, and specifically, to reduce our creator acquisition costs (CAC) and subscriber acquisition costs (SAC).
Competition
The idea for Vocal came as a response to what Creatd’s founders recognized as systemic flaws inherent to the digital media industry and its operational infrastructures. The depreciating value of digital media business models built on legacy technology platforms created a unique opportunity for the development of a creator-centric platform that could appeal to a global community and, at the same time, be capable of acquiring undervalued complimentary technology assets.
Creatd’s founders built the Vocal platform upon the general thesis that a closed and safe ecosystem utilizing first-party data to increase efficiencies could create a sustainable and defensible business model. Vocal was strategically developed to provide value for content creators, readers, and brands, and to serve as a home for the ever-increasing amount of digital content being produced and the libraries of digital assets lying dormant.
Vocal is most commonly discussed as a combination of:
● | Medium, a platform for |
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Creatd does not view Vocal as a substitute or competitor to segment-specific content platforms, such as Vimeo, YouTube, Instagram, Pinterest, TikTok, Spotify, or SoundCloud. We don’t want to replace anyone; we built Vocal to be accretive to the entire digital ecosystem. In fact, one of the most 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, and more, directly into Vocal. We see this as a growth opportunity by building partnerships with the world’s greatest technology companies and to further spread our roots deeper into the digital landscape
Acquisition Strategy
Creatd’s hybrid finance and design culture is key to its acquisition strategy. Acquisition targets are companies that meet a set of opportunistic or financial standards or that are part of specific digital environments that are accretive and can seamlessly integrate into Creatd’s existing revenue lines. Creatd will continue to make strategic acquisitions when presented with opportunities that are in the interest of shareholder value.
Recent Developments
Resignation of Chief Executive Officer and Director
On August 9, 2022, Laurie Weisberg, the Company’s Chief Executive Officer and a member of the Board, notified the Company of her intention to resign from the positions of Chief Executive Officer, director, and any other positions held with the Company or any of its subsidiaries, regardless of whether Ms. Weisberg had been appointed. Such resignations are to become effective on a date to be determined following further discussion with the Board, but in no event later than August 31, 2022.
Appointment of Chief Executive Officer
Effective upon Ms. Weisberg’s resignation as Chief Executive Officer, Jeremy Frommer, currently the Company’s Executive Chairman, will be appointed as Chief Executive Officer, pursuant to the Board’s approval.
Jeremy Frommer
Mr. Frommer was appointed Executive Chairman in February 2022 and has been a member of our board of directors since February 2016. Previously, he served as our Chief Executive Officer from February 2016 to August 2021, and Co-Chief Executive Officer from August 2021 to February 2022. Mr. Frommer has over 20 years of experience in the financial technology industry. Previously, Mr. Frommer held key leadership roles in the investment banking and trading divisions of large financial institutions. From 2009 to 2012, Mr. Frommer was briefly retired until beginning concept formation for Jerrick Ventures which he officially founded in 2013. From 2007 to 2009, Mr. Frommer was Managing Director of Global Prime Services at RBC Capital Markets, the investment banking arm of the Royal Bank of Canada, the largest financial institution in Canada, after the sale of Carlin Financial Group, a professional trading firm. From 2004 to 2007, Mr. Frommer was the Chief Executive Officer of Carlin Financial Group after the sale of NextGen Trading, a software development company focused on building equity trading platforms. From 2002 to 2004, Mr. Frommer was Founder and Chief Executive Officer of NextGen Trading. From 2000 to 2002, he was Managing Director of Merger Arbitrage Trading at Bank of America, a financial services firm. Mr. Frommer was also a director of LionEye Capital, a hedge fund from June 2012 to June 2014. He holds a B.A. from the University of Albany. We believe Mr. Frommer is qualified to serve on our board of directors due to his financial and leadership experience.
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Corporate HistoryAppointment of Director
Effective upon Ms. Weisberg’s resignation as a director, Justin Maury, currently the Company’s President and InformationChief Operating Officer, will be appointed to the Board, pursuant to the Board’s approval.
Justin Maury
WeMr. Maury has served as our President since January 2019 and was appointed Chief Operating Officer in August 2021. A full-stack designer and product developer by training, Mr. Maury partnered with Jeremy Frommer and founded the Company in 2013, having brought with him 10 years of experience in the creative industry. Since joining Creatd in 2013, Mr. Maury has been an instrumental force in the Company’s business and revenue expansion, and has overseen the Company’s product development since inception, including overseeing the design, development, launch, and ongoing growth of the Company’s flagship product, Vocal, the innovative creator that, under Mr. Maury’s leadership, has grown to a community of over 1.5 million users with a total audience reach of over 175 million.
As a director, we believe Mr. Maury will add considerable value, including through by providing a unique perspective into Creatd’s product performance and evolution and by providing invaluable direct input to help guide the Company’s ongoing refinement of its technology roadmap and maturation of its business model.
Trigger of Price Reset
On July 29, 2022, the Company announced that it was not moving forward with its previously announced Rights Offering. In doing so, it triggered a price reset in the July 2022 Financing and the May 2022 Securities Purchase Agreement. As a result of this price reset, the May 2022 Securities Purchase Agreement debentures now have a conversion price of $1.00, and both the Series C and Series D warrants have exercise prices of $0.96. As a result of the price reset, the July 2022 Financing debentures now have a conversion price of $1.25, and both the Series E and Series F warrants have exercise prices of $1.01.
July 2022 Financing
On July 25, 2022 (the “Effective Date”), the Company entered into and closed securities purchase agreements (each, a “Purchase Agreement”) with five accredited investors (the “Investors”), whereby the Investors purchased from the Company for an aggregate of $1,935,019 in subscription amount (i) debentures in the principal amount of $2,150,000 (the “Debentures”); (ii) 1,075,000 Series E Common Stock Purchase Warrants to purchase shares of the Common Stock (the “Series E Warrants”); and (iii) 1,075,000 Series F Common Stock Purchase Warrants to purchase shares of Common Stock (the “Series F Warrants”, and collectively with the Series E Warrants, the “Warrants”). The Company and the Investors also entered into registration rights agreements (each, a “Registration Rights Agreement”) pursuant to the Purchase Agreement.
The Debentures have an original issue discount of 10%, have a maturity date of November 30, 2022, 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 $2.00 per share, subject to adjustment upon certain events including a one-time adjustment to the price of the Common Stock offered in the Rights Offering (as defined therein), with such adjusted conversion price not to be lower than $1.25.
The Warrants are immediately exercisable for a term of five years until July 25, 2027. The Series E Warrants are exercisable at an exercise price of $3.00, subject to adjustment upon certain events including a one-time adjustment to the price of the Common Stock offered in the Rights Offering, with such adjusted exercise price not to be lower than $1.01. The Series F Warrants are exercisable at an exercise price of $6.00 subject to adjustment upon certain events including a one-time adjustment to the price of the Common Stock offered in the Rights Offering, with such adjusted exercise price not to be lower than $1.01. The Warrants provide for cashless exercise to the extent that there is no registration statement available for the underlying shares of Common Stock. The shares underlying the Debentures, the Series E Warrants and the Series F Warrants are to be registered within 90 days of the Effective Date.
The representations and warranties contained in the Purchase Agreement were made by the parties to, and solely for the benefit of, the other in the context of all of the terms and conditions of the Purchase Agreement and in the context of the specific relationship between the parties. The provisions of the Purchase Agreement, including the representations and warranties contained therein, are not for the benefit of any party other than the parties to the Purchase Agreement. The Purchase Agreement is not intended for investors and the public to obtain factual information about the current state of affairs of the parties.
Additionally, in connection with the Purchase Agreements, the subsidiaries of the Company delivered a guarantee (the “Guarantee”) in favor of the Investors whereby each such subsidiary guaranteed the full payment and performance of all obligations of the Company pursuant to the Purchase Agreement.
Nasdaq - Continued Listing
On March 1, 2022, the Company received a letter from the staff of The Nasdaq Capital Market (the “Exchange”) notifying the Company that the Exchange has determined to delist the Company’s common stock from the Exchange based on the Company’s Market Value of Listed Securities for the 30-consecutive day period between January 15, 2022 and February 25, 2022 falling short of the requirements under Listing Rule 5550(b)(2) (the “Rule”). Although a 180-day period is typically allowed for an issuer to regain compliance, the Company was not eligible to use such compliance period, as the Exchange had instituted a Panel Monitor through March 9, 2022.
The Company pursued an appeal to the Nasdaq Hearings Panel (the “Panel”) of such determination, in accordance with the Exchange’s rules and, pursuant to such request by the Company to appeal, the delisting of the Company’s securities and the Form 25 Notification of Delisting filing was stayed pending the Panel’s decision.
On April 22, 2022, the Exchange notified the Company that the Panel has determined to continue the listing of the Company on the Exchange, subject to the following conditions: (i) on or before May 16, 2022, the Company will file its Quarterly Report on Form 10-Q for the period ended March 31, 2022 demonstrating compliance with Nasdaq Listing Rule 550(b)(1) requiring shareholders’ equity of $2.5 million and (ii) on or before August 29, 2022, the Company will file a Form 8-K documenting the successful completion of any fund-raising activity that has taken place since April 14, 2022 and the Company’s long-term compliance with the continued listing requirements of the Nasdaq Capital Market.
The Panel has advised that August 29, 2022 represents the full extent of the Panel’s discretion to grant continued listing during the time the Company is non-compliant and should the Company fail to demonstrate compliance by such date, the Panel will issue a final delist determination and the Company will be suspended from trading on the Exchange.
May 2022 Securities Purchase Agreement
On May 31, 2022, the Company entered into and closed securities purchase agreements (each, a “Purchase Agreement”) with eight accredited investors (the “Investors”), whereby the Investors purchased from the Company for an aggregate of $3,600,036 in subscription amount (i) debentures in the principal amount of $4,000,000 (the “Debentures”); (ii) 2,000,000 Series C Common Stock Purchase Warrants to purchase shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”) (the “Series C Warrants”); and (iii) 2,000,000 Series D Common Stock Purchase Warrants to purchase shares of Common Stock (the “Series D Warrants”, and collectively with the Series C Warrants, the “Warrants”). The Company and the Investors also entered into registration rights agreements (each, a “Registration Rights Agreement”) pursuant to the Purchase Agreement.
The Debentures have an original issue discount of 10%, have a term of six months with a maturity date of November 30, 2022, 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 $2.00 per share, subject to adjustment upon certain events including a one-time adjustment to the price of the Common Stock offered in the Rights Offering (as defined therein), with such adjusted conversion price not to be lower than $1.00.
The Warrants are exercisable for a term of five years from the initial exercise date of November 30, 2022, until November 30, 2027. The Series C Warrants are exercisable at an exercise price of $3.00, subject to adjustment upon certain events including a one-time adjustment to the price of the Common Stock offered in the Rights Offering, with such adjusted exercise price not to be lower than $0.96. The Series D Warrants are exercisable at an exercise price of $6.00 subject to adjustment upon certain events including a one-time adjustment to the price of the Common Stock offered in the Rights Offering, with such adjusted exercise price not to be lower than $0.96. The Warrants provide for cashless exercise to the extent that there is no registration statement available for the underlying shares of Common Stock. The shares underlying the Debentures, the Series C Warrants and the Series D Warrants are to be registered within 90 days of the Effective Date.
Additionally, in connection with the Purchase Agreements, the subsidiaries of the Company delivered a guarantee (the “Guarantee”) in favor of the Investors whereby each such subsidiary guaranteed the full payment and performance of all obligations of the Company pursuant to the Purchase Agreement.
The Debentures, Warrants, Common Stock underlying the Debentures and the Common Stock underlying the Warrants were not registered under the Securities Act, but qualified for exemption under Section 4(a)(2) and Rule 506 promulgated thereunder. The Company is relying on this exemption from registration for private placements based in part on the representations made by Investors, including representations with respect to each Investor’s status as an accredited investor, as such term is defined in Rule 501(a) of the Securities Act, and each Investor’s investment intent.
Our Corporate History
Creatd, Inc., formerly Jerrick Media Holdings, Inc. (“we,” “us,” the “Company,” or “Creatd”), is a technology company focused on the development of digital communities, marketing branded digital content, and e-commerce opportunities. Creatd’s content distribution platform, 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. (“GTPH”) as part of its plan to diversify its business.
On February 5, 2016 (the “Merger Closing“Closing Date”), we entered into an Agreement and Plan of Merger (the “Merger Agreement”) withGTPH, GPH Merger Sub, Inc., a Nevada corporation and our 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 oura wholly-owned subsidiary of GTPH (the “Merger”). PursuantGTPH acquired, pursuant to the terms of the Merger, Agreement, we acquired, through a reverse triangular merger, all of the outstanding capital stock of Jerrick in exchange for issuing Jerrick’s shareholders (the “Jerrick Shareholders”), pro-rata, a total of 28,500,000475,000 shares of ourGTPH’s common stock. Additionally, we assumedIn 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”).
Upon closing of the Merger on February 5, 2016, the Company changed its business plan to our current plan.
In connection with the Merger, on the Merger Closing Date, weGTPH and Kent Campbell entered into a Spin-Off Agreement with Kent Campbell (the “Spin-Off Agreement”), pursuant to which Mr. Campbell purchased from GTPH (i) all of ourGTPH’s interest in Ashland Holdings, LLC, a Florida limited liability company, and (ii) all of ourGTPH’s interest in Lil Marc, Inc., a Utah corporation, in exchange for the cancellation of 781,81813,030 shares of our common stockGTPH’s Common Stock held by Mr. Campbell. In addition, Mr. Campbell assumed all of our 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, weGTPH entered into an Agreement and Plan of Merger (the “Statutory Merger Agreement”), with Jerrick, pursuant to which weGTPH became the parent company of Jerrick Ventures, LLC, oura wholly-owned operating subsidiary of Jerrick (the “Statutory Merger”).
On February 28, 2016, we and GTPH changed ourits name to Jerrick Media Holdings, Inc. to better reflect ourits new business strategy.
On July 25,September 11, 2019, wethe 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 September 9, 2020, the Company 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.
All share and per share amounts for the common stock indicated in this prospectus have been retroactively restated to give effect to the Reverse Stock Split.
Subsequent to the consummation of this offering and our listing on The Nasdaq Capital Market, we intend to change our name to “Creatd, Inc.” subject, 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 necessary approvals.classic comfort food favorites. The results of Plant Camp’s operations have bene included since the date of acquisition in the Statements of Operations.
On July 20, 2021, the Company acquired 44% of the membership interests of WHE Agency, Inc. WHE Agency, Inc, is a talent management and public relations agency based in New York. WHE Agency, Inc, has been consolidated due to the Company’s ownership of 55% voting control, and the results of operations have been included since the date of acquisition in the Statements of Operations.
On August 16, 2021, the Company acquired 16% of the membership interests of Dune, Inc. bring our total membership interests to 21%.
On October 3, 2021, the Company acquired 29% of the membership interests of Dune, Inc. bring our total membership interests to 50%. Dune, Inc. is a direct-to-consumer brand focused on promoting wellness through its range of health-oriented beverages. Dune, Inc, has been consolidated due to the Company’s ownership of 50% voting control, and the results of operations have been included since the date of acquisition in the Statements of Operations.
On March 7, 2022, the Company acquired 100% of the membership interests of Denver Bodega, LLC, d/b/a Basis, a Colorado limited liability company (“Basis”). Basis is a direct-to-consumer functional beverage brand that makes high-electrolyte mixes meant to aid hydration. Denver Bodega, LLC has been consolidated due to the Company’s ownership of 100% voting control, and the results of operations have been included since the date of acquisition in the Statement of Operations.
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.
SUMMARY OF THE OFFERING
Subscription Rights
We are distributing, at no charge, non-transferable subscription rights to (i) holders of common stock as of the record date of 5:00 p.m. (Eastern time) on , 2022; (ii) holders of Series E Preferred Stock convertible into a total of 121,359 shares of common stock (the “Preferred Shares”); (iii) holders of warrants to purchase a total of 14,756,412 shares of common stock (the “Eligible Warrants”); (iv) holders of options to purchase a total of 4,409,100 shares of common stock (the “Eligible Options”), and (v) holders of convertible notes that are convertible into 5,720,000 shares of common stock (the “Eligible Convertible Notes”), who we refer to collectively as “rights holders” or “you.” Rights holders will receive two subscription rights for every share of common stock and every share of common stock issuable upon conversion or exercise of the Preferred Shares, Eligible Warrants, Eligible Options, and Eligible Convertible Notes held as of the record date.
The Company’s address is 2050 Center Avenue Suite 640 Fort Lee, NJ 07024. The Company’s telephone number is (201) 258-3770. Our website is: https://jerrick.media/. The information on, or that can be accessed through, this website is not part of this prospectus, and you should not rely on any such information in making the decision whether to purchase the Company’s common stock.
Employees
As of July 2, 2020, we had 21 full-time employees. None of our employees are subject to a collective bargaining agreement, and we believe that relationship with our employees to be good.
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THE OFFERINGEligible Warrants include:
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(1) The number of shares of common stock outstanding is based on 10,127,420 shares of common stock issued and outstanding as of July 2, 2020 and excludes the following:
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● | warrants issued between August 31, 2018, and January 25, 2019, to purchase a total of 223,371 shares of common stock at an exercise price of $1.75 per share; |
● | warrants issued between February 20, 2019, and May 15, 2019, to purchase a total of 44,468 shares of common stock at an exercise price of $18.00 per share; |
● | warrants issued between April 12, 2019 and September 26, 2019, to purchase a total of 11,241 shares of common stock at an exercise price of $18.00 per share; |
● | warrants issued between July 26, 2019, to July 30, 2020, to purchase a total of 597 shares of common stock at an exercise price of $18.00 per share; |
● | warrants issued on February 11, 2020, to purchase a total of 6,667 shares of common stock at an exercise price of $1.75 per share; |
● | warrants issued on June 19, 2020, to purchase a total of 49,603 shares of common stock at an exercise price of $12.00 per share; |
● | warrants issued between July 29, 2020, to September 9, 2020, to purchase a total of 26,669 shares of common stock at an exercise price of $4.50 per share; |
● | warrants issued on December 31, 2020, to purchase a total of 471,953 shares of common stock at an exercise price of $5.15 per share; |
● | warrants issued on December 31, 2020, to purchase a total of 1,103,397 shares of common stock at an exercise price of $4.50 per share; |
● | warrants issued on May 14, 2021, to purchase a total of 970,908 shares of common stock at an exercise price of $4.50 per share; |
● | warrants issued on June 16, 2021, to purchase a total of 46,667 shares of common stock at an exercise price of $5.40 per share; |
● | warrants issued on June 21, 2021, to purchase a total of 37,500 shares of common stock at an exercise price of $4.08 per share; |
● | warrants issued on October 27, 2021, to purchase a total of 42,500 shares of common stock at an exercise price of $5.40 per share; |
● | warrants issued on March 1, 2022, to purchase a total of 1,401,457 shares of common stock at an exercise price of $1.75 per share; |
● | warrants issued on March 9, 2022, to purchase a total of 1,519,857 shares of common stock at an exercise price of $1.75 per share; |
● | warrants issued on February 25, 2020, to purchase a total of 41,665 shares of common stock at an exercise price of $15.00 per share; |
● | warrants issued on May 31, 2019, to purchase a total of 50 shares of common stock at an exercise price of $12.00 per share; |
● | warrants issued on September 15, 2020, to purchase a total of 2,542,500 shares of common stock at an exercise price of $4.50 per share; |
● | warrants issued on May 31, 2022, to purchase a total of 4,000,000 shares of common stock at an exercise price of $0.96 per share; | |
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The Eligible Options include:
● | options issued between June 28, 2017 and August 28, 2017, to purchase 833 shares of common stock at exercise prices from $9.60 to $18.00 per share; |
● | options issued on October 21, 2019, to purchase 9,664 shares of common stock at exercise prices from $7.20 to $13.20 per share; |
● | options issued on July 29, 2020, to purchase 391,853 shares of common stock at an exercise price of $8.55 per share; |
● | options issued between February 4, 2021 and December 31, 2021, to purchase 53,750 shares of common stock at exercise prices from $2.09 to $14.20 per share; |
● | options issued on February 19, 2021 to purchase 1,473,000 shares of common stock at an exercise price of $5.65 per share; |
● | options issued on October 28, 2021 to purchase 540,000 shares of common stock at an exercise price of $5.00 per share; |
● | options issued on April 5, 2022 to purchase 360,000 shares of common stock at an exercise price of $1.75 per share. |
● | options issued between June 1, 2022 and June 3, 2022, to purchase 1,580,000 shares of common stock at exercise prices from $1.10 to $1.90 per share; |
The Eligible Convertible Notes include:
● | convertible notes issued on May 31, 2022, convertible into 4,000,000 shares of common stock at a price of $1.00 per share; |
● | convertible notes issued on July 25, 2022, convertible into 1,720,000 shares of common stock at a price of $1.25 per share; |
Your subscription rights will consist of:
● | your basic right, which will entitle you to purchase a number of units equal to two times (i) the number of shares of common stock you held as of the record date and (ii) the number of shares of common stock issuable upon |
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Except as otherwise indicated herein, all information in this prospectus reflects or assumes:All units are being offered and sold at a subscription price of $ per unit.
Units
Each unit will consist of:
● | one share of common stock; and |
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The shares of common stock and Series A warrant comprising a unit may only be purchased as a unit, but will be issued separately.
The Series A warrants will be exercisable commencing on their date of issuance and expiring on , 2027. They will be exercisable for cash or, solely during any period when a registration statement covering the issuance of the shares of common stock subject to the Series A warrants is not in effect, on a cashless basis.
Exercise of Subscription Rights
Subscription rights, consisting of basic rights and over-subscription privileges, may be exercised at any time during the subscription period, which commences on , 2022 and expires at 5:00 p.m. (Eastern time) on , 2022, or the expiration date, unless we extend or terminate this offering. Once made, all exercises of subscription rights are irrevocable.
We may extend this offering for one or more additional periods in our sole discretion not to exceed 45 days from the initial expiration date. We will announce any extension in a press release issued no later than 9:00 a.m. (Eastern time) on the business day after the most recently announced expiration date.
Subscription rights may only be exercised in aggregate for whole numbers of units. Only whole numbers of shares of common stock and Series A warrants exercisable for whole numbers of shares will be issuable to you in this offering; any right to a fractional share to which you would otherwise be entitled will be terminated, without consideration to you.
Transferability
Subscription Rights. The subscription rights are evidenced by a subscription certificate and are non-transferable.
Units. Shares of common stock and Series A warrants comprising the units will be issued separately. Units will not be issued as a separate security and will not be transferable.
Common Stock. Shares of common stock included in units will be separately transferable following their issuance. All of the shares issued in this offering are expected to be listed on The Nasdaq Capital Market.
Series A warrants. The Series A warrants will be separately transferable following their issuance and through , 2027.
Use of Proceeds
Assuming this offering is fully subscribed, we estimate our net proceeds from the offering will total approximately $ million, after deducting our estimated offering expenses. We intend to use the net proceeds for sales and marketing and general working capital purposes. The Company also intends to repay certain outstanding convertible notes, totaling $6,150,000, in the event that they do not convert prior to the closing of this offering. These notes mature on 11/30/2022 and bear no interest. See “Use of Proceeds.”
Subscription Information
In order to obtain subscription information, you should contact:
● | D.F. King & Co., Inc. which will act as the information agent in connection with this offering, by telephone at (212) 269-5550 (bankers and brokers) or (877) 283-0323 (all others) or by email at creatd@dfking.com; or |
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Subscription Procedures
In order to exercise your subscription rights, including your over-subscription privilege, you should:
● | deliver a completed subscription certificate and the required payment to Continental Stock Transfer & Trust, the subscription agent for this offering, by the expiration date, or |
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If you cannot deliver your completed subscription certificate to the subscription agent prior to the expiration for the rights offering, you may follow the guaranteed delivery procedures described under “The Rights Offering—Methods for Exercising Subscription Rights—Guaranteed Delivery Procedures.”
Placement Period
If this offering is not fully subscribed following the expiration date of the offering, we will use commercially reasonable efforts to place any unsubscribed units at the subscription price for an additional period of up to 45 days. The number of units that may be sold by us during this period will depend upon the number of units that are subscribed for pursuant to the exercise of subscription rights by our shareholders and other rights holders. No assurance can be given that any unsubscribed units will be sold during this period.
Important Dates
Set forth below are important dates for this offering, which generally are subject to extension:
Record date | , 2022 | |||
Commencement date | , 2022 | |||
Expiration date | , 2022 | |||
Deadline for delivery of subscription certificates and payment of subscription prices | , 2022 | |||
Deadline for delivery of notices of guaranteed delivery | , 2022 | |||
Deadline for delivery of subscription certificates and payment of subscription prices pursuant to notices of guaranteed delivery | , 2022 |
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The following summary financial and operating data set forth below should be read in conjunction with the Company’s financial statements, the notes thereto and the other information contained in this prospectus. The summary statement of operations data for the years ended December 31, 2019 and 2018 have been derived from the Company’s audited financial statements appearing elsewhere in this prospectus. The historical results presented below are not necessarily indicative of financial results to be achieved in future periods. The financial data as of March 31, 2020 and 2019 has been derived from our unaudited financial statements and the related notes thereto, which are included elsewhere in this prospectus.
Statement of Operations Data:
The following information should be read in conjunction with “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and our consolidated financial statements and related notes included elsewhere in this prospectus.
Year Ended December 31, | Three Months Ended March 31, | |||||||||||||||
Statement of operations data: | 2019 | 2018 | 2020 | 2019 | ||||||||||||
Revenue | $ | 453,006 | $ | 80,898 | $ | 293,142 | $ | 34,334 | ||||||||
Operating expenses | $ | (7,669,984 | ) | $ | (5,767,153 | ) | $ | (2,119,091 | ) | $ | (1,739,328 | ) | ||||
(Loss) income from operations | $ | (7,216,978 | ) | $ | (5,686,255 | ) | $ | (1,825,949 | ) | $ | (1,704,994 | ) | ||||
Other expenses | $ | (818,394 | ) | $ | (6,327,287 | ) | $ | (1,160,048 | ) | $ | (1,884,441 | ) | ||||
Net income (loss) | $ | (8,035,372 | ) | $ | (12,013,542 | ) | $ | (2,985,997 | ) | $ | (1,884,441 | ) | ||||
Income (loss) per common share – basic and diluted(1) | $ | (0.98 | ) | $ | (4.16 | ) | $ | (0.32 | ) | $ | (0.28 | ) |
December 31, | March 31, | |||||||||||||||
Balance sheet data: | 2019 | 2018 | 2020 | 2019 | ||||||||||||
Cash | $ | 11,637 | $ | - | $ | 118,361 | $ | 262,707 | ||||||||
Total assets | $ | 2,572,046 | $ | 208,925 | $ | 2,836,270 | $ | 583,974 | ||||||||
Current liabilities | $ | 10,928,830 | $ | 2,569,584 | $ | 12,809,118 | $ | 3,869,128 | ||||||||
Total liabilities | $ | 11,130,774 | $ | 2,699,529 | $ | 13,027,333 | $ | 4,135,603 |
Year Ended December 31, | Three Months Ended March 31, | |||||||||||||||
Cash flows from operating activities data: | 2019 | 2018 | 2020 | 2019 | ||||||||||||
Net cash used in operating activities | $ | (5,957,027 | ) | $ | (4,972,814 | ) | $ | (1,314,863 | ) | $ | (1,461,053 | ) | ||||
Net cash used in investing activities | $ | (363,288 | ) | $ | (27,605 | ) | $ | - | $ | (2,801 | ) | |||||
Net cash provided by financing activities | $ | 6,337,947 | $ | 4,889,368 | $ | 1,430,826 | $ | 1,726,561 | ||||||||
Net change in cash and cash equivalents | $ | 11,637 | $(111,051 | ) | $ | 106,724 | $ | 262,707 |
Year Ended December 31, | Three Months Ended March 31, | |||||||||||||||
Other financial data (unaudited): | 2019 | 2018 | 2020 | 2019 | ||||||||||||
Adjusted EBITDA(2) | $ | (6,927,944 | ) | $ | (10,701,362 | ) | $ | (2,180,078 | ) | $ | (1,508,103 | ) |
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Year Ended December 31, | Three Months Ended March 31, | |||||||||||||||
Reconciliation of Adjusted EBITDA: | 2019 | 2018 | 2020 | 2019 | ||||||||||||
Net loss: | $ | (8,035,372 | ) | $ | (12,013,542 | ) | $ | (2,985,997 | ) | $ | (1,884,441 | ) | ||||
Add (deduct): | ||||||||||||||||
Interest expense | $ | 612,830 | $ | 923,008 | $ | 375,530 | $ | 54,569 | ||||||||
Depreciation | $ | 57,492 | $ | 42,218 | $ | 38,246 | $ | 3,133 | ||||||||
Stock-based compensation | $ | 437,106 | $ | 346,954 | $ | 392,143 | $ | 318,636 | ||||||||
Adjusted EBITDA | $ | (6,927,944 | ) | $ | (10,701,362 | ) | $ | (2,180,078 | ) | $ | (1,508.103 | ) |
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RISK FACTORS
Investing in our common stocksecurities involves a high degree of risk. Prospective investorsYou should carefully consider the risks described below, together withand read carefully all of the risks and uncertainties described below, as well as other information included or referred tocontained in this prospectus, before purchasing sharesmaking an investment decision with respect to our securities. The occurrence of our common stock. There are numerous and varied risks that may prevent the Company from achieving its goals. If any of thesethe following risks actually occurs, the Company’sor those incorporated by reference, or additional risks and uncertainties not presently known to us or that we currently believe to be immaterial could materially and adversely affect our business, financial condition, or results of operations may be materially adversely affected.or cash flows. In any such case, the trading price of our common stock and the trading price of Series A warrants, if any, could decline, and investors couldyou may lose all or part of theiryour investment. This prospectus also contains forward-looking statements and estimates that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of specific factors, including the risks and uncertainties described below and those incorporated by reference.
This offering may cause the price of common stock to decline, and the price may not recover for a substantial period of time, or at all.
Risks RelatedThe subscription price of units in this offering, together with the number of shares of common stock we propose to our Business
The Company isissue and ultimately will issue in the offering (including the number of additional shares of common stock we propose to issue and ultimately will issue upon exercise of Series A warrants), may result in an immediate decrease in the market value of the common stock. We cannot predict the effect, if any, that the availability of shares for future sale represented by the Series A warrants will have on the market price of common stock from time to time. If the market price of common stock falls, you may have irrevocably committed to buy shares of common stock in this offering at an effective price per share greater than the prevailing market price. Further, if a development stage businesssubstantial number of subscription rights are exercised and subjectthe exercising rights holders choose to the many risks associated with new businesses.
Our current line of business has a limited operating history and our business is subject tosell some or all of the risks inherent inshares purchased either directly or upon Series A warrant exercises, the establishmentresulting sales could depress the market price of a new business enterprise. Our likelihoodcommon stock. We cannot assure you that the market price of success must be considered in lightcommon stock will not decline prior to the expiration of the problems, expenses, difficulties, complications and delays frequently encountered in connection with development and expansionthis offering or that, after shares of a new business enterprise. We have incurred losses and may continue to operate at a net loss for at least the next several years as we execute our business plan. We had a net losscommon stock are issued upon exercise of approximately $8.0 million for the year ended December 31, 2019, and a working capital deficit and accumulated deficit of approximately $10.7 million and approximately $44.6 million, respectively. Our net lossfor the three months ended March 31, 2020 and 2019 was $2,985,997 and $1,884,441, respectively, and our accumulated deficit as of March 31, 2020 was $47,566,434.
Our financial situation creates doubt whether we will continue as a going concern.
There can be no assurances that wesubscription rights, you will be able to achieve a levelsell shares of revenues adequate to generate sufficient cash flow from operations or obtain funding from this offering or additional financing through private placements, public offerings and/or bank financing necessary to support our working capital requirements. To the extent that funds generated from any private placements, public offerings and/or bank financing are insufficient, we will have to raise additional working capital and no assurance can be given that additional financing will be available, or if available, will be on acceptable terms. These conditions raise substantial doubt about our ability to continue as a going concern. If adequate working capital is not available, we may be forced to discontinue operations, which would cause investors to lose their entire investment.
Based on the report from our independent auditors dated March 30, 2020, management stated that our financial statements for the year ended December 31, 2019, were prepared assuming that we would continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilitiescommon stock purchased in the normal course of business. The accompanying financial statements do not include any adjustments relatingoffering at a price greater than or equal to the recovery ofeffective price paid in the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern. offering.
We are not profitable and may never be profitable.
Since inception throughThe subscription price determined for this offering may not be indicative of the present, we have been dependent on raising capitalfair value of common stock.
The subscription price was set by management and approved by our board of directors, and you should not consider the subscription price as an indication of the fair value of common stock. The subscription price does not necessarily bear any relationship to support our working capital needs. During this same period, we have recorded net accumulated losses and are yet to achieve profitability. Our ability to achieve profitability depends upon many factors, including our ability to develop and commercialize our websites. There can be no assurance that we will ever achieve any significant revenues or profitable operations.
Our operating expenses exceed our revenues and will likely continue to do so for the foreseeable future.
We are in an early stagebook value of our developmentassets, net worth, past operations, cash flows, earnings/losses, financial condition or any other established criteria for fair value. The market price of common stock could decline during or after this offering, and we have not generated sufficient revenues to offset our operating expenses. Our operating expenses will likely continue to exceed our operating income for the foreseeable future, until such time as we are able to monetize our brands and generate substantial revenues, particularly as we undertake payment of the increased costs of operating as a public company.
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We have assumed a significant amount of debt and our operationsyou may not be able to generate sufficient cash flowssell shares of common stock purchased in the offering, including shares of common stock issuable upon the exercise of Series A warrants, at a price equal to meetor greater than the effective price paid in the offering, or at all.
Your interest in our debt obligations,company may be diluted as a result of this offering.
If you do not fully exercise your basic rights, you will, at the completion of this offering, own a smaller proportional interest in our company on a fully diluted basis than would have been the case if you had fully exercised your basic rights. Based on shares outstanding as of August 25, 2022, after giving effect to this offering (assuming the offering is fully subscribed and the Series A warrants issued in the offering are exercised in full), we would have 60,361,758 shares of common stock outstanding, representing an increase in outstanding shares of 196%.
The subscription rights are non-transferable.
You cannot transfer or sell your subscription rights to anyone else. We therefore do not intend to list the subscription rights on any securities exchange or include them in any automated quotation system and there will be no market for the subscription rights.
Holders of Series A warrants issued in this offering will have no rights as holders of common stock until they exercise their Series A warrants and acquire common stock.
Until holders of Series A warrants issued in this offering acquire shares of common stock upon exercise of such Series A warrants, they will have no rights with respect to the shares of common stock underlying such Series A warrants. Upon exercise of the Series A warrants, the holders thereof will be entitled to exercise the rights of holders of common stock only as to matters for which could reduce our financial flexibility and adversely impact our operations.the record date occurs after the warrant exercise date.
There is no established public trading market for the warrants being offered in this offering.
CurrentlyThere is no established public trading market for the Company has considerable obligations under notes, related party notes and linesSeries A warrants being offered in this offering. We do not intend to apply to list the Series A warrants to be issued in this offering on any national securities exchange or other nationally recognized trading system. Without an active trading market, the liquidity of credit outstanding with various debtors. Our ability to make payments on such indebtednessthe Series A warrants will depend on our ability to generate cash flow. The Company may not generate sufficient cash flow from operations to enable us to repaybe limited without first exercising them.
During the period immediately following the expiration of this indebtedness and to fund other liquidity needs, including capital expenditure requirements. Such indebtedness could affect our operations in several ways, including the following:
A high level of indebtedness increases the risk that we may default on our debt obligations. Weoffering, you may not be able to generate sufficient cash flows to pay the principal or interest on our debt. If we cannot service or refinance our indebtedness, we may have to take actions such as selling significant assets, seeking additional equity financing (which will result in additional dilution to stockholders) or reducing or delaying capital expenditures,resell any shares of which could have a material adverse effect on our operations and financial condition. If we do not have sufficient funds and are otherwise unable to arrange financing, our assets may be foreclosed upon which could have a material adverse effect on our business, financial condition and results of operations.
We will need additional capital, which may be difficult to raise as a result of our limited operating history or any number of other reasons.
We expectcommon stock that we will have adequate financing for the next 6 months. However,you purchase in the event that we exceed our expected growth, we would need to raise additional capital. There is no assurance that additional equityoffering or debt financing will be available to us when needed, on acceptable terms, or even at all. Our limited operating history makes investor evaluation and an estimationupon exercise of our future performance substantially more difficult. As a result, investors may be unwilling to invest in us or such investment may be offered on terms or conditions that are not acceptable. In the event that we are not able to secure financing, we may have to scale back our growth plans or cease operations.
your Series A warrants.
We face intense competition. If we do not provide digital content that is useful to users, we may not remain competitive, and our potential revenues and operating results could be adversely affected.
Our business is rapidly evolving and intensely competitive, and is subject to changing technologies, shifting user needs, and frequent introductions of new products and services. Our ability to compete successfully depends heavily on providing digital content that is useful and enjoyable for our users and delivering our content through innovative technologies in the marketplace.
We face competition from others in the digital content creation industry and media companies. Our current and potential competitors range from large and established companies to emerging start-ups. Established companies have longer operating histories and more established relationships with customers and users, and they can use their experience and resources in ways that could affect our competitive position, including by making acquisitions, investing aggressively in research and development, aggressively initiating intellectual property claims (whether or not meritorious) and competing aggressively for advertisers and websites. Emerging start-ups may be able to innovate and provide products and services faster than we can.
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Additionally, our operating results would suffer if our digital content is not appropriately timed with market opportunities, or if our digital content is not effectively brought to market. As technology continues to develop, our competitors may be able to offer user experiences that are, or that are seen to be, substantially similar to or better than, ours. This may force us to compete in different ways and expend significant resources in order to remain competitive. If our competitors are more successful than we are in developing compelling content or in attracting and retaining users and advertisers, our revenues and operating results could be adversely affected.
If we fail to retain existing users or add new users, or if our users decrease their level of engagement with our products, our revenue, financial results, and business may be significantly harmed.
The size of our user base and our user’s level of engagement are critical to our success. Our financial performance will be significantly determined by our success in adding, retaining, and engaging active users of our products, particularly Vocal. We anticipate that our active user growth rate will generally decline over time as the size of our active user base increases, and it is possible that the size of our active user base may fluctuate or decline in one or more markets, particularly in markets where we have achieved higher penetration rates. If people do not perceive Vocal to be useful, reliable, and trustworthy, weyou exercise your subscription rights, you may not be able to attractresell shares of common stock purchased by exercising your subscription rights, or retain usersshares of common stock issued to you upon exercise of your Series A warrants, until you (or your broker or otherwise maintainother nominee) have received a stock certificate or increasebook-entry representing those shares. Although we will endeavor to issue the frequencyappropriate certificates and durationbook entries promptly, there may be some delay between the expiration date of their engagement.this offering, or the exercise date of your Series A number of other content management systemswarrants, and publishing platforms that achieved early popularity have since seen their active user bases or levels of engagement decline, in some cases precipitously. There is no guaranteethe time that we will not experience a similar erosion of our active user base or engagement levels. Our user engagement patterns have changed over time,issue the new stock certificates and user engagement can be difficult to measure, particularly as we introduce new and different products and services. Any number of factors could potentially negatively affect user retention, growth, and engagement, including if:
book entries.
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If weIn addition, to the extent you are unablean affiliate, as defined in Rule 144 under the Securities Act, the resale of shares of common stock or Series A warrants by you will be subject to maintain or increase our user base and user engagement, our revenue and financial results may be adversely affected. Any decrease in user retention, growth, or engagement could render our products less attractive to users, marketers, and developers, which is likely to have a material and adverse impact on our revenue, business, financial condition, and results of operations. If our active user growth rate continues to slow, we will become increasingly dependent on our ability to maintain or increase levels of user engagement and monetization in order to drive revenue growth. certain restrictions, including volume limitations.
We face competitionmay have broad discretion in the use of a significant portion of the net proceeds from traditional media companies,this offering and may not use those net proceeds effectively.
We intend to use the net proceeds for sales and marketing and general working capital purposes. We cannot specify with any certainty the particular uses of the net proceeds, if any, that we receive from this offering. Our management will have broad discretion in the application of those additional net proceeds, and we may not be includedspend or invest those net proceeds in the advertising budgets of large advertisers,a way with which shareholders disagree. The failure by management to apply these funds effectively could harm our operating results.
In addition to internet companies, we face competition from companies that offer traditional media advertising opportunities. Most large advertisers have set advertising budgets, a very small portion of which is allocated to Internet advertising. We expect that large advertisers will continue to focus most of their advertising efforts on traditional media. If we fail to convince these companies to spend a portion of their advertising budgets with us, or if our existing advertisers reduce the amount they spend on our programs, our operating results would be harmed.
Acquisitions may disrupt growth.
We may pursue strategic acquisitions in the future. Risks in acquisition transactions include difficulties in the integration of acquired businesses into our operations and control environment, difficulties in assimilating and retaining employees and intermediaries, difficulties in retaining the existing clients of the acquired entities, assumed or unforeseen liabilities that arise in connection with the acquired businesses, the failure of counterparties to satisfy any obligations to indemnify us against liabilities arising from the acquired businesses, and unfavorable market conditions that could negatively impact our growth expectations for the acquired businesses. Fully integrating an acquired company or business into our operations may take a significant amount of time. We cannot assure you that we will be successful in overcoming these risks or any other problems encountered with acquisitions and other strategic transactions. These risks may prevent us from realizing the expected benefits from acquisitions and could result in the failure to realize the full economic value of a strategic transaction or the impairment of goodwill and/or intangible assets recognized at the time of an acquisition. These risks could be heightened if we complete a large acquisition or multiple acquisitions within a short period of time.
Our business depends on strong brands and relationships, and if we are not able to maintain our relationships and enhance our brands, our ability to expand our base of users, advertisers and affiliates will be impaired and our business and operating results could be harmed.
Maintaining and enhancing our brands’ profiles may require us to make substantial investments and these investments may not be successful. If we fail to promote and maintain the brands’ profiles, or if we incur excessive expenses in this effort, our business and operating results could be harmed. We anticipate that, as our market becomes increasingly competitive, maintaining and enhancing our brands’ profiles may become increasingly difficult and expensive. Maintaining and enhancing our brands will depend largely on our ability to be a technology leader and to continue to provide attractive products and services, which we may not do successfully.
We depend on our key management personnel and the loss of their services could adversely affect our business.
We place substantial reliance upon the efforts and abilities of Jeremy Frommer, our Chief Executive Officer, and our other executive officers and directors. Though no individual is indispensable, the loss of the services of these executive officers could have a material adverse effect on our business, operations, revenues or prospects. We do not currently maintain key man life insurance on the lives of these individuals.
We have not adopted various corporate governance measures, and, as a result, stockholders may have limited protections against interested director transactions, conflicts of interest and similar matters.
Federal legislation, including the Sarbanes-Oxley Act of 2002, has resulted in the adoption of various corporate governance measures designed to promote the integrity of corporate management and the securities markets. Because our securities are not yet listed on a national securities exchange, we are not required to adopt these corporate governance measures and have not done so voluntarily in order to avoid incurring the additional costs associated with such measures. Among these measures is the establishment of independent committees of the Board of Directors. However, to the extent a public market develops for our securities, such legislation will require us to make changes to our current corporate governance practices. Those changes may be costly and time-consuming. Furthermore, the absence of the governance measures referred to above with respect to our Company may leave our shareholders with more limited protection in connection with interested director transactions, conflicts of interest and similar matters.
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If we are unable to protect our intellectual property, the value of our brands and other intangible assets may be diminished, and our business may be adversely affected.
We rely and expect to continue to rely on a combination of confidentiality, assignment, and license agreements with our employees, consultants, and third parties with whom we have relationships, as well as trademark, copyright, patent, trade secret, and domain name protection laws, to protect our proprietary rights. In the United States and internationally, we have filed various applications for protection of certain aspects of our intellectual property, and we currently hold a number of registered trademarks and issued patents in multiple jurisdictions and have acquired patents and patent applications from third parties. Third parties may knowingly or unknowingly infringe our proprietary rights, third parties may challenge proprietary rights held by us, and pending and future trademark and patent applications may not be approved. In addition, effective intellectual property protection may not be available in every country in which we operate or intend to operate our business. In any or all of these cases, we may be required to expend significant time and expense in order to prevent infringement or to enforce our rights. Although we have generally taken measures to protect our proprietary rights, there can be no assurance that others will not offer products or concepts that are substantially similar to ours and compete with our business. In addition, we regularly contribute software source code under open source licenses and have made other technology we developed available under other open licenses, and we include open source software in our products. If the protection of our proprietary rights is inadequate to prevent unauthorized use or appropriation by third parties, the value of our brands and other intangible assets may be diminished and competitors may be able to more effectively mimic our products, services, and methods of operations. Any of these events could have an adverse effect on our business and financial results.
We are subject to payment processing risk.
We accept payments usingcondition. Pending their use, we may invest the net proceeds in a variety of different payment methods, including credit and debit cards and direct debit. We rely on third parties to process payments. Acceptance and processing of these payment methods are subject to certain certifications, rules and regulations. To the extent there are disruptions in ourmanner that does not produce income or third-party payment processing systems, material changes in the payment ecosystem, failure to recertify and/or changes to rules or regulations concerning payment processing, we could be subject to fines and/or civil liability, or lose our ability to accept credit and debit card payments, which would harm our reputation and adversely impact our results of operations.
We are subject to risk as it relates to software that we license from third parties.loses value.
If we terminate this offering, neither we nor the subscription agent will have any obligation to you except to promptly return your subscription payments.
We license software from third parties, much of which is integralmay terminate this offering at any time. If we do, neither we nor the subscription agent will have any obligation to our systems and our business. The licenses are generally terminable if we breach our obligations underyou with respect to subscription rights that you have exercised, other than to promptly return, without interest or deduction, the license agreements. If any of these relationships were terminated or if any of these parties weresubscription payment you delivered to cease doing business or cease to support the applications we currently utilize, we may be forced to spend significant time and money to replace the licensed software.subscription agent.
Failures or reduced accessibility of third-party software on which we rely could impair the availability of our platform and applications and adversely affect our business.
If you do not act on a timely basis and follow subscription instructions, your exercise of subscription rights may be rejected.
Holders of common stock and holders of Preferred Shares, Eligible Warrants, Eligible Convertible Notes, and/or Eligible Options who desire to purchase units in this offering must act on a timely basis to ensure that all required forms and payments are actually received by the subscription agent prior to 5:00 p.m. (Eastern time) on the expiration date, unless this offering is extended. If you are a beneficial owner of shares of common stock and you wish to exercise your subscription rights, you must act promptly to ensure that your broker, custodian bank or other nominee (including any mobile investment platform) acts for you and that all required forms and payments are actually received by your broker, custodian bank or other nominee (including any mobile investment platform) in sufficient time to deliver such forms and payments to the subscription agent in order to exercise your subscription rights by 5:00 p.m. (Eastern time) on the expiration date, unless extended. We license software from third parties for integration into our Vocal platform, including open source software. These licenses mightwill not continuebe responsible if your broker, custodian or nominee (including any mobile investment platform) fails to be availableensure that all required forms and payments are actually received by the subscription agent in a timely manner.
If you fail to uscomplete and sign the required subscription forms, send an incorrect payment amount, or otherwise fail to follow the subscription procedures that apply to your exercise of rights, the subscription agent may, depending on acceptable terms,the circumstances, reject your subscription or at all. While we are not substantially dependent upon any third-party software,accept it only to the lossextent of the payment received. Neither we nor the subscription agent undertakes to contact you concerning an incomplete or incorrect subscription form or payment, nor are we or the subscription agent under any obligation to correct such forms or payment. We have the sole discretion to determine whether a subscription exercise properly follows the subscription procedures.
If you pay the subscription price by uncertified check, your check may not clear in sufficient time to enable you to exercise your subscription rights.
Any uncertified check used to pay for the subscription price in this offering must clear prior to the expiration date of this offering. The clearing process may require five or more business days. If you choose to pay the subscription price, in whole or in part, by uncertified check and your check does not clear prior to the expiration date of this offering, you will not have satisfied the conditions to exercise your rights and you will not receive the units you wish to purchase.
You may not receive all of the units for which you subscribe under the over-subscription privilege.
Rights holders who fully exercise their basic rights will have the right, pursuant to usetheir over-subscription privileges, to purchase additional units to the extent other rights holders do not exercise their basic rights in full. Over-subscription privileges will be allocated pro rata among rights holders who over-subscribe, based on the number of over-subscription units for which the rights holders have subscribed. We cannot guarantee that you will receive all, or a significant portion, of our third-party software requiredthe units for which you subscribe pursuant to your over-subscription privilege.
If the development, maintenancenumber of units allocated to you is less than your subscription request, the excess funds held by the subscription agent on your behalf will be promptly returned to you, without interest or deduction, after this offering has expired, and deliverywe will have no further obligations to you.
Your receipt of subscription rights may be treated as a taxable dividend to you.
The distribution of subscription rights in this offering should be a non-taxable stock dividend under Section 305(a) of the Internal Revenue Code of 1986. This position is not binding on the Internal Revenue Service or the courts, however. If this offering is part of a “disproportionate distribution” under Section 305 of the Internal Revenue Code, your receipt of subscription rights may be treated as the receipt of a distribution equal to the fair market value of the rights. Any such distribution treated as a disproportionate distribution would be treated as dividend income to the extent of our applicationscurrent and accumulated earnings and profits, with any excess being treated as a return of basis to the extent thereof and then as capital gain. See “Material U.S. Federal Income Tax Considerations.”
Because we do not have a standby purchase agreement, backstop commitment or similar arrangement in connection with this offering, the net proceeds we receive from the offering may be less than we intend.
We have currently not entered into any standby purchase agreement, backstop commitment or similar arrangement in connection with this offering. We therefore cannot assure you that any of our shareholders will exercise all or any part of their subscription rights. If rights holders subscribe for fewer units than anticipated, the net proceeds we receive from this offering could result in delaysbe significantly reduced. Regardless of whether this offering is fully subscribed or we do enter into a standby purchase agreement, backstop commitment or similar arrangement, we may need to raise additional capital in the provision of our applications until we develop or identify, obtain and integrate equivalent technology, which could harm our business.future.
Any errors or defectsWe may in the hardwarefuture enter into a standby purchase agreement, backstop commitment or softwaresimilar arrangement in connection with this offering if we use could result in errors, interruptions, cyber incidentsare able to negotiate commercially reasonable terms with a standby purchaser or a failure of our applications. Any significant interruption in the availability of all or a significant portion ofbackstop purchaser. We cannot assure you that such software could have an adverse impact on our business unless and until we can replace the functionality provided by these applications at a similar cost. Furthermore, this software may notarrangement will be available on commercially reasonable terms or at all. The loss of the right to use all or a significant portion of this software could limit access to our platform and applications. Additionally, we rely upon third parties’ abilities to enhance their current applications, develop new applications on a timely and cost-effective basis and respond to emerging industry standards and other technological changes. We may be unable to effect changes to such third-party technologies, which may prevent us from rapidly responding to evolving customer requirements. We also may be unable to replace the functionality provided by the third-party software currently offered in conjunction with our applications in the event that such software becomes obsolete or incompatible with future versions of our platform and applications or is otherwise not adequately maintained or updated.
We need to manage growth in operations to maximize our potential growth and achieve our expected revenues and our failure to manage growth will cause a disruption of our operations, resulting in the failure to generate revenue.
In order to maximize potential growth in our current and potential markets, we believe that we must expand our marketing operations. This expansion will place a significant strain on our management and our operational, accounting, and information systems. We expect that we will need to continue to improve our financial controls, operating procedures, and management information systems. We will also need to effectively train, motivate, and manage our employees. Our failure to manage our growth could disrupt our operations and ultimately prevent us from generating the revenues we expect.
In order to achieve the general strategies of our company we need to maintain and search for hard-working employees who have innovative initiatives, while at the same time, keep a close eye on any and all expanding opportunities in our marketplace.
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We plan to generate a significant portion of our revenues from advertising and affiliate sales relationships, and a reduction in spending by or loss of advertisers and general decrease in online spending could adversely harm our business.
We plan to generate a substantial portion of our revenues from advertisers. Our advertisers may be able to terminate prospective contracts with us at any time. Advertisers will not continue to do business with us if their investment in advertising with us does not generate sales leads, and ultimately customers, or if we do not deliver their advertisements in an appropriate and effective manner. If we are unable to remain competitive and provide value to our advertisers, they may stop placing adsnegotiate commercially reasonable terms for a standby purchase agreement, backstop commitment or similar arrangement in connection with us, whichthis offering we would adversely affect our revenues and business.not enter into such an arrangement. In addition, expenditures by advertisers tend to be cyclical, reflecting overall economic conditions and budgeting and buying patterns. Adverse macroeconomic conditions can also havethe event we enter into a material negative impactstandby purchase agreement, backstop commitment or similar arrangement in connection with this offering we will file a Current Report on Form 8-K with a summary of the demand for advertising and cause our advertisers to reduce the amounts they spend on advertising, which could adversely affect our revenues and business.terms of such arrangement.
Security breaches could harm our business.
Security breaches have become more prevalentWe do not expect to pay dividends in the technology industry. We believe that we take reasonable steps to protect the security, integrity and confidentiality of the information we collect, use, store and disclose, but there is no guarantee that inadvertent (e.g., software bugs or other technical malfunctions, employee error or malfeasance, or other factors) or unauthorized data access or use will not occur despite our efforts. Although we have not experienced any material security breaches to date, we may in the future experience attempts to disable our systems or to breach the security of our systems. Techniques used to obtain unauthorized access to personal information, confidential information and/or the systemsfuture. Any return on which such information are stored and/or to sabotage systems change frequently and generally are not recognized until launched against a target. As a result, weinvestment may be unablelimited to anticipate these techniques or to implement adequate preventative measures.
If an actual or perceived security breach occurs, the market perception of our security measures could be harmed, and we could lose sales and customers and/or suffer other negative consequences to our business. A security breach could adversely affect the digital content experience and cause the loss or corruption of data, which could harm our business, financial condition and operating results. Any failure to maintain the security of our infrastructure could result in loss of personal information and/or other confidential information, damage to our reputation and customer relationships, early termination of our contracts and other business losses, indemnification of our customers, financial penalties, litigation, regulatory investigations and other significant liabilities. In the event of a major third-party security incident, we may incur losses in excess of their insurance coverage.
Moreover, if a high profile security breach occurs with respect to us or another digital entertainment company, our customers and potential customers may lose trust in the security of our business model generally, which could adversely impact our ability to retain existing customers or attract new ones.
The laws and regulations concerning data privacy and data security are continually evolving; our or our platform providers’ actual or perceived failure to comply with these laws and regulations could harm our business.
Customers view our content online, using third-party platforms and networks and on mobile devices. We collect and store significant amounts of information about our customers—both personally identifying and non-personally identifying information. We are subject to laws from a variety of jurisdictions regarding privacy and the protection of this player information. For example, the European Union (EU) has traditionally taken a broader view than the United States and certain other jurisdictions as to what is considered personal information and has imposed greater obligations under data privacy regulations. The U.S. Children’s Online Privacy Protection Act (COPPA) also regulates the collection, use and disclosure of personal information from children under 13 years of age. While none of our content is directed at children under 13 years of age, if COPPA were to apply to us, failure to comply with COPPA may increase our costs, subject us to expensive and distracting government investigations and could result in substantial fines.
Data privacy protection laws are rapidly changing and likely will continue to do so for the foreseeable future. The U.S. government, including the Federal Trade Commission and the Department of Commerce, is continuing to review the need for greater regulation over the collection of personal information and information about consumer behavior on the Internet and on mobile devices and the EU has proposed reforms to its existing data protection legal framework. Various government and consumer agencies worldwide have also called for new regulation and changes in industry practices. In addition, in some cases, we are dependent upon our platform providers to solicit, collect and provide us with information regarding our players that is necessary for compliance with these various types of regulations.
Customer interaction with our content is subject to our privacy policy and terms of service. If we fail to comply with our posted privacy policy or terms of service or if we fail to comply with existing privacy-related or data protection laws and regulations, it could result in proceedings or litigation against us by governmental authorities or others, which could result in fines or judgments against us, damage our reputation, impact our financial condition and harm our business. If regulators, the media or consumers raise any concerns about our privacy and data protection or consumer protection practices, even if unfounded, this could also result in fines or judgments against us, damage our reputation, and negatively impact our financial condition and damage our business.
In the area of information security and data protection, many jurisdictions have passed laws requiring notification when there is a security breach for personal data or requiring the adoption of minimum information security standards that are often vaguely defined and difficult to implement. Our security measures and standards may not be sufficient to protect personal information and we cannot guarantee that our security measures will prevent security breaches. A security breach that compromises personal information could harm our reputation and result in a loss of confidence in our products and ultimately in a loss of customers, which could adversely affect our business and impact our financial condition. This could also subject us to liability under applicable security breach-related laws and regulations and could result in additional compliance costs, costs related to regulatory inquiries and investigations, and an inability to conduct our business.
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Changes to federal, state or international laws or regulations applicable to our company could adversely affect our business.
Our business is subject to a variety of federal, state and international laws and regulations, including those with respect privacy, data, and other laws. These laws and regulations, and the interpretation or application of these laws and regulations, could change. In addition, new laws or regulations affecting our business could be enacted. These laws and regulations are frequently costly to comply with and may divert a significant portion of management’s attention. If we fail to comply with these applicable laws or regulations, we could be subject to significant liabilities which could adversely affect our business.
If any of our relationships with internet search websites terminate, if such websites’ methodologies are modified or if we are outbid by competitors, traffic to our websites could decline.
We depend in part on various internet search websites, such as Google.com, Bing.com, Yahoo.com and other websites to direct a significant amount of traffic to our websites. Search websites typically provide two types of search results, algorithmic and purchased listings. Algorithmic listings generally are determined and displayed as a result of a set of unpublished formulas designed by search engine companies in their discretion. Purchased listings generally are displayed if particular word searches are performed on a search engine. We rely on both algorithmic and purchased search results, as well as advertising on other internet websites, to direct a substantial share of visitors to our websites and to direct traffic to the advertiser customers we serve. If these internet search websites modify or terminate their relationship with us or we are outbid by our competitors for purchased listings, meaning that our competitors pay a higher price to be listed above us in a list of search results, traffic to our websites could decline. Such a decline in traffic could affect our ability to generate advertising revenue and could reduce the desirability of advertising on our websites.
Our business involves risks of liability claims arising from our media content, which could adversely affect our ability to generate revenue and could increase our operating expenses.
As a distributor of media content, we face potential liability for defamation, invasion of privacy, negligence, copyright or trademark infringement, obscenity, violation of rights of publicity and/or obscenity laws and other claims based on the nature and content of the materials distributed. These types of claims have been brought, sometimes successfully, against broadcasters, publishers, online services and other disseminators of media content. Any imposition of liability that is not covered by insurance or is in excess of our insurance coverage could have a material adverse effect on us. In addition, measures to reduce our exposure to liability in connection with content available through our internet websites could require us to take steps that would substantially limit the attractiveness of our internet websites and/or their availability in certain geographic areas, which could adversely affect our ability to generate revenue and could increase our operating expenses.
Intellectual property litigation could expose us to significant costs and liabilities and thus negatively affect our business, financial condition and results of operations.
We may be subject to claims of infringement of third party patents and trademarks and other violations of third party intellectual property rights. Intellectual property disputes are generally time-consuming and expensive to litigate or settle, and the outcome of such disputes is uncertain and difficult to predict. The existence of such disputes may require us to set-aside substantial reserves, and has the potential to significantly affect our overall financial standing. To the extent that claims against us are successful, they may subject us to substantial liability, and we may have to pay substantial monetary damages, change aspects of our business model, and/or discontinue any of our services or practices that are found to be in violation of another party’s rights. Such outcomes may severely restrict or hinder ongoing business operations and impact the value of our business. Successful claims against us could also result in us having to seek a license to continue our practices. Under such conditions, a license may or may not be offered or otherwise made available to us. If a license is made available to us, the cost of the license may significantly increase our operating burden and expenses, potentially resulting in a negative effect on our business, financial condition and results of operations.
common stock.
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Although we have been and are currently involved in multiple areas of commerce, internet services, and high technology where there is a substantial risk of future patent litigation, we have not obtained insurance for patent infringement losses. If we are unsuccessful at resolving pending and future patent litigation in a reasonable and affordable manner, it could disrupt our business and operations, including by negatively impacting areas of commerce or putting us at a competitive disadvantage.
If we are unable to obtain or maintain key website addresses, our ability to operate and grow our business may be impaired.
Our website addresses, or domain names, are critical to our business. We currently own more than 415 domain names. However, the regulation of domain names is subject to change, and it may be difficult for us to prevent third parties from acquiring domain names that are similar to ours, that infringe our trademarks or that otherwise decrease the value of our brands. If we are unable to obtain or maintain key domain names for the various areas of our business, our ability to operate and grow our business may be impaired.
We may have difficulty scaling and adapting our existing network infrastructure to accommodate increased traffic and technology advances or changing business requirements, which could cause us to incur significant expenses and lead to the loss of users and advertisers.
To be successful, our network infrastructure has to perform well and be reliable. The greater the user traffic and the greater the complexity of our products and services, the more computer power we will need. We could incur substantial costs if we need to modify our websites or our infrastructure to adapt to technological changes. If we do not maintain our network infrastructure successfully, or if we experience inefficiencies and operational failures, the quality of our products and services and our users’ experience could decline. Maintaining an efficient and technologically advanced network infrastructure is particularly critical to our business because of the pictorial nature of the products and services provided on our websites. A decline in quality could damage our reputation and lead us to lose current and potential users and advertisers. Cost increases, loss of traffic or failure to accommodate new technologies or changing business requirements could harm our operating results and financial condition.
Operating a network open to all internet users may result in legal consequences.
Our Terms and Conditions clearly state that our network and services are only to be used by users who are over 13 years old. Although we will terminate accounts that are known to be held by persons age 13 or younger, it is impractical to independently verify that all activity occurring on our network fits into this description. As such, we run the risk of federal and state law enforcement prosecution.
Unfavorable global economic, business, or political conditions could adversely affect our business, financial condition or results of operations.
Our results of operations could be adversely affected by general conditions in the global economy and in the global financial markets, including conditions that are outside of our control, including the impact of health and safety concerns, such as those relating to the current COVID-19 coronavirus (“COVID-19”) pandemic.
On January 30, 2020 the World Health Organization declared COVID-19 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.
Additionally, the global financial crisis in connection with the COVID-19 pandemic has caused extreme volatility and disruptions in the capital and credit markets. A severe or prolonged economic downturn could result in a variety of risks to our business, including weakened demand for our Vocal platform and our ability to raise additional capital when needed on acceptable terms, if at all. Any of the foregoing could harm our business and we cannot anticipate all the ways in which the current economic climate and financial market conditions could adversely impact our business.
Risks Related To Our Common Stock
The price of our common stock may be subject to wide fluctuations.
Even though we have our shares quoted on the OTCQB Venture Market, a consistently active trading market for our common stock may not exist. You may not be able to sell your shares quickly or at the current market price if trading in our stock is not active. You may lose all or a part of your investment. The market price of our Common Stock may be highly volatile and subject to wide fluctuations in response to a variety of factors and risks, many of which are beyond our control. In addition to the risks noted elsewhere in this prospectus, some of the other factors affecting our stock price may include:
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For these reasons, comparing our operating results on a period-to-period basis may not be meaningful, and you should not rely on past results as an indication of future performance. In the past, following periods of volatility in the market price of a public company’s securities, securities class action litigation has often been instituted against the public company. Regardless of its outcome, this type of litigation could result in substantial costs to us and a likely diversion of our management’s attention. You may not receive a positive return on your investment when you sell your shares and you may lose the entire amount of your investment.
We may, in the future, issue additional shares of common stock, which would reduce investors’ percent of ownership and dilute our share value
Our Amended and Restated Articles of Incorporation authorize the issuance of 15,000,000 shares of common stock, and 20,000,000 shares of preferred stock. Currently the Company has no shares of preferred stock outstanding. Additionally, as of July 2, 2020, there are outstanding (i) warrants to purchase 954,389 shares of our common stock; and (ii) options exercisable into 452,523 shares of our common stock.
In addition, the Company has convertible notes outstanding that are convertible into 1,295,819 shares of the Company’s common stock. Assuming all of the Company’s currently outstanding warrants and options be exercised and all convertible notes be converted, the Company would have to issue an additional 2,702,731 shares of common stock representing 26.7% of our current issued and outstanding common stock. The future issuance of this common stock would result in substantial dilution in the percentage of our common stock held by our then existing shareholders. We may value any Common Stock issued in the future on an arbitrary basis. The issuance of common stock for future services or acquisitions or other corporate actions may have the effect of diluting the value of the shares held by our investors, and might have an adverse effect on any trading market for our common stock.
Our common shares are subject to the “penny stock” rules of the SEC and the trading market in our securities is limited, which makes transactions in our stock cumbersome and may reduce the value of an investment in our stock.
SEC Rule 15g-9 establishes the definition of a “penny stock,” in pertinent part, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions.
For any transaction involving a penny stock, unless exempt, the rules require:
In order to approve a person’s account for transactions in penny stocks, the broker or dealer must: (a) obtain financial information and investment experience objectives of the person; and (b) make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating to the penny stock market, which, in highlight form: (a) sets forth the basis on which the broker or dealer made the suitability determination, and (b) that the broker or dealer received a signed, written agreement from the investor prior to the transaction. Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our Common shares and cause a decline in the market value of our stock.
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
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Liability of directors for breach of duty is limited under Nevada law.
Nevada law provides that directors must discharge their duties as a director in good faith and with a view to the interests of the corporation. Under Nevada law, directors owe a fiduciary duty to the corporation, which is generally comprised of the duty of care and duty of loyalty to the corporation. Except under limited circumstances set forth in NRS 78.138(7), or unless our Amended and Restated Articles of Incorporation or an amendment thereto provide for greater individual liability (which ours does not provide), a director or officer is not individually liable to the corporation or its stockholders or creditors for any damages as a result of any act or failure to act in his or her capacity as a director or officer unless it is proven that the director’s or officer’s act or failure to act constituted a breach of his or her fiduciary duties as a director or officer, and the breach of those duties involved intentional misconduct, fraud or a knowing violation of law.Our stockholders’ ability to recover damages for fiduciary breaches may be reduced by this statute.
We do not anticipate paying any cash dividends on our common stock in the foreseeable future and, as such, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.
We do not anticipate paying any cash dividends on our common stock in the foreseeable future. We currently intend to retain all available funds and any future earnings to fund the development and growth of our business. In addition, and any future loan arrangements we enter into may contain, terms prohibiting or limiting the amountThe payment of dividends that may be declared or paid on our common stock. As a result, capital appreciation, if any, of our common stock will depend on earnings, financial condition and other business and economic factors affecting us at such time as our board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on your sole source of gain for the foreseeable future.investment will only occur if our stock price appreciates.
We
Because the Series A warrants are executory contracts, they may issue additional shareshave no value in a bankruptcy or reorganization proceeding.
In the event a bankruptcy or reorganization proceeding is commenced by or against us, a bankruptcy court may hold that any then-unexercised Series A warrants are executory contracts subject to rejection by us with the approval of preferred stock ina bankruptcy court. As a result, even if we have sufficient funds, holders may not be entitled to receive any consideration for their Series A warrants or may receive an amount less than they would be entitled to if they had exercised their Series A warrants prior to the future that may adversely impact your rights as holderscommencement of any such bankruptcy or reorganization proceeding.
Each of our common stock.
Pursuant to ourSecond Amended and Restated Articles of Incorporation the aggregate number of shares of capital stock which we are authorized to issue is 35,000,000 shares, of which 15,000,000 shares are common stock, and 20,000,000 shares are “blank check” preferred stock with such designations, rights and preferences as may be determined from time to time by our board of directors. Our board of directors is empowered, without stockholder approval, to issue one or more series of preferred stock with dividend, liquidation, conversion, voting or other rights which could dilute the interest of, or impair the voting power of, our common stockholders. As of the date of this prospectus, we do not have any preferred stock outstanding.
The issuance of a series of preferred stock could be used as a method of discouraging, delaying or preventing a change in control. For example, it would be possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of our Company. In addition, advanced notice is required prior to stockholder proposals, which might further delay a change of control. Additionally, our board of directors could authorize the issuance of a series of preferred stock that would grant to holders preferred rights to our assets upon liquidation, the right to receive dividends before dividends are declared to holders of our common stock, and the right to the redemption of such preferred shares, together with a premium, prior to the redemption of the common stock. To the extent that we do issue such additional shares of preferred stock, your rights as holders of common stock could be impaired thereby, including, without limitation, dilution of your ownership interests in us.
Our Amended and Restated Bylaws provide that the Eighth Judicial District Court of Clark County, Nevada will be the sole and exclusive forum for certain disputes which could limit stockholders’ ability to obtain a favorable judicial forum for disputes with the Company or its directors, officers, employees or agents.
OurEach of our Second Amended and Restated Articles of Incorporation and our Amended and Restated Bylaws provide that unless the Company consents in writing to the selection of an alternative forum, the Eighth Judicial District Court of Clark County, Nevada shall be the sole and exclusive forum for state law claims with respect to: (i) any derivative action or proceeding brought in the name or right of the Company or on its behalf, (ii) any action asserting a claim for breach of any fiduciary duty owed by any director, officer, employee or agent of the Company to the Company or the Company’s stockholders, (iii) any action arising or asserting a claim arising pursuant to any provision of Nevada Revised Statutes Chapters 78 or 92A or any provision of the Company’s Second Amended and Restated Articles of Incorporation or Amended and Restated Bylaws or (iv) any action asserting a claim governed by the internal affairs doctrine, including, without limitation, any action to interpret, apply, enforce or determine the validity of the Company’s Second Amended and Restated Articles of Incorporation or Amended and Restated Bylaws. This exclusive forum provision would not apply to suits brought to enforce any liability or duty created by the Securities Act or the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. To the extent that any such claims may be based upon federal law claims, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder.
Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. However, each of our Second Amended Articles of Incorporation and our Amended and Restated Bylaws contain a federal forum provision which provides that unless the Company consents in writing to the selection of an alternative forum, the federal district courts of the United States of America will be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Company are deemed to have notice of and consented to this provision. As this provision applies to Securities Act claims, there may be uncertainty whether a court would enforce such a provision.
These choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company or its directors, officers or other employees, which may discourage such lawsuits against the Company and its directors, officers and other employees. Alternatively, if a court were to find our choice of forum provisions contained in either our Second Amended and Restated Articles of Incorporation or Amended and Restated Bylaws to be inapplicable or unenforceable in an action, the Company may incur additional costs associated with resolving such action in other jurisdictions, which could harm its business, results of operations, and financial condition.
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Risks Related to this Offering
The Company will have broad discretion in the use of the net proceeds from this offering and may fail to apply these proceeds effectively.
The Company’s management will have broad discretion in the application of the net proceeds of this offering, including using the proceeds to conduct operations, expand the Company’s business lines and for general working capital. The Company may also use the net proceeds of this offering to acquire or invest in complementary businesses, products, or technologies, or to obtain the right to use such complementary technologies. We have no commitments with respect to any acquisition or investment; however, we seek opportunities and transactions that management believes will be advantageous to the Company and its operations or prospects. We cannot specify with certainty the actual uses of the net proceeds of this offering. You may not agree with the manner in which our management chooses to allocate and spend the net proceeds. We may invest the net proceeds from this offering in a manner that does not produce income or that loses value. The failure by our management to apply these funds effectively could harm our business, financial condition and results of operations.
There is no assurance that an active and liquid trading market in our common stock will develop.
This offering will close only if our common stock is accepted to be listed on The Nasdaq Capital Market. There can be no assurance any broker will be interested in trading our common stock. Therefore, it may be difficult to sell any securities you purchase in this offering if you desire or need to sell them. Neither we nor the underwriters can provide any assurance that an active and liquid trading market in our common stock will develop or, if developed, that the market will continue.
There is no guarantee that we will successfully have our common stock listed on The Nasdaq Capital Market. Even if our common stock is accepted for listing on The Nasdaq Capital Market, upon our satisfaction of the exchange’s initial listing criteria, the exchange may subsequently delist our common stock if we fail to comply with ongoing listing standards.
In the event we are able to list our common stock on The Nasdaq Capital Market upon our satisfaction of the exchange’s initial listing criteria, the exchange will require us to meet certain financial, public float, bid price and liquidity standards on an ongoing basis in order to continue the listing of our common stock. If we fail to meet these continued listing requirements, our common stock may be subject to delisting. If our common stock is delisted and we are not able to list our common stock on another national securities exchange, we expect our securities would be quoted on an over-the-counter market; However, if this were to occur, our stockholders could face significant material adverse consequences, including limited availability of market quotations for our common stock and reduced liquidity for the trading of our securities. In addition, in the event of such delisting, we could experience a decreased ability to issue additional securities and obtain additional financing in the future. Even if our common stock is listed on The Nasdaq Capital Market, there can be no assurance that an active trading market for our common stock will develop or be sustained after our initial listing.
You will experience immediate and substantial dilution as a result of this offering and may experience additional dilution in the future.
If you purchase shares of common stock in this offering, the value of your shares based on our actual book value will immediately be less than the price you paid. This reduction in the value of your equity is known as dilution. This dilution occurs in large part because our existing stockholders paid less than the public offering price when they acquired their shares of common stock. Based upon the issuance and sale of shares of common stock by us in this offering at an assumed public offering price of $ per share, you will incur immediate dilution of $ in the net tangible book value per share of common stock. If the underwriters exercise their over-allotment option, or if outstanding options to purchase our common shares are exercised, investors will experience additional dilution. For more information, see “Dilution.”
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CAUTIONARY STATEMENTNOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 or the Securities Act, Section 21E of the Securities Exchange Act of 1934 or the Exchange Act, and the Private Securities Litigation Reform Act of 1995. Forward-looking statements are those that reflect our current views with respect to future events and financial performance, and all statements other than statements of historical fact are statements that are, or could be, deemed forward-looking statements. TheseIn some cases, you can identify forward-looking statements contain information about our expectations, beliefsby terms such as “may,” “might,” “will,” “intend,” “should,” “could,” “can,” “would,” “believe,” “expect,” “seek,” “anticipate,” “intend,” “estimate,” “plan,” “target,” “project,” “forecast,” “envision” or intentionsthe negative of these terms, and other similar phrases. All statements contained in this prospectus and any prospectus supplement regarding our product development and commercialization efforts, business,future financial condition,position, sales, costs, earnings, losses, cash flows, other measures of results of operations, strategiescapital expenditures or prospects,debt levels and other similar matters. Theseplans, objectives, outlook, targets, guidance or goals are forward-looking statements.
You should not place undue reliance on our forward-looking statements because they are not guarantees of future performance or expectations, and involve risks and uncertainties. Our forward-looking statements are based on management’s currentthe information currently available to us and speak only as of the date on the cover of this prospectus, the date of any prospectus supplement, or, in the case of forward-looking statements incorporated by reference, the date of the filing that includes the statement. Although we believe that the expectations and assumptions about future events, whichreflected in these forward-looking statements are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. These statements may be identified by words such as “expects,” “plans,” “projects,” “will,” “may,” “anticipates,” “believes,” “should,” “intends,” “estimates,” and other words of similar meaning.
Thesereasonable, these statements relate to future events or our future operational or financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Except as required by applicable law, we assume no obligation, and disclaim any obligation, to update forward-looking statements whether as a result of new information, events or otherwise.
The forward-looking statements contained in this prospectus are set forth principally in “Risk Factors” above, and in “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and other sections in our 2021 Annual Report and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors” and other sections in our Latest Form 10-Q. In addition, there may be events in the future that we are not able to predict accurately or control which may cause actual results to differ materially from current expectations include, among other things, those listed under the section titled “Risk Factors” and elsewhere in this prospectus, in any related prospectus supplement and in any related free writing prospectus.
Any forward-looking statement in this prospectus, in any related prospectus supplement and in any related free writing prospectus reflects our current view with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our business, results of operations, industry and future growth. Given these uncertainties, you should not place undue reliance on these forward-looking statements. No forward-looking statement is a guarantee of future performance. You should read this prospectus, any related prospectus supplement and any related free writing prospectus and the documents that we reference herein and therein and have filed as exhibits hereto and thereto completely and with the understanding that our actual future results may be materially different from any future results expressed or implied by these forward-looking statements. Except as required by law, we assume no obligation to update or revise thesePlease consider our forward-looking statements for any reason, even if new information becomes available in the future.
This prospectus, any related prospectus supplement and any related free writing prospectus also contain or may contain estimates, projections and other information concerning our industry, our business and the markets for our products, including data regarding the estimated sizelight of those markets and their projected growth rates. Information that is based on estimates, forecasts, projections or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected inthese risks as you read this information. Unless otherwise expressly stated, we obtained these industry, business, market and other data from reports, research surveys, studies and similar data prepared by third parties, industry and general publications, government data and similar sources. In some cases, we do not expressly refer to the sources from which these data are derived.prospectus.
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QUESTIONS AND ANSWERS RELATING TO THIS OFFERING
Assuming the saleThe following are examples of what we anticipate will be common questions about this offering. The answers are based on selected information included elsewhere in this prospectus. The following questions and answers do not contain all of the Units ininformation that may be important to you and may not address all of the questions that you may have about this offering. This prospectus, including the documents we incorporate by reference, contains more detailed descriptions of the terms and conditions of this offering and provides additional information about our company and our business, including potential risks related to our business, the offering and common stock.
What is the rights offering?
We are issuing to each holder of common stock as of the record date and each holder of the Preferred Shares, Eligible Warrants, Eligible Options, and/or Eligible Convertible Notes as of the record date, who we refer to as a rights holder or you, two non-transferable subscription rights for each share of common stock then owned or issuable upon conversion or exercise by the holder. Each basic right entitles the holder to purchase one unit at an assumed offeringa subscription price of $ , which we refer to as the subscription price. Holders of fractional shares shall be entitled, in proportion to their fractional holdings, to receive basic rights, provided that such basic rights may only be exercised in aggregate for whole numbers of units.
What securities comprise the units?
Each unit will consist of 1 share of common stock and a Series A warrant exercisable for one share of common stock at a price of $ per Unit,unit. Shares of common stock and Series A warrants comprising a unit may only be purchased as a unit, but will be issued separately. Subscription rights will not be transferrable. The subscription rights may only be exercised in aggregate for whole numbers of units.
What are the Company estimatesterms of the Series A warrants included in the units?
For each unit you purchase, you will be entitled to receive a Series A warrant exercisable to acquire one share of common stock at an exercise price of $1.00. Each warrant will expire on , 2027, and will be exercisable for cash or, solely during any period when a registration statement covering the issuance of the shares of common stock subject to the Series A warrants is not in effect, on a cashless basis. Each warrant is exercisable commencing upon issuance and expire on , 2027. The Series A warrants will be issued in registered forms under warrant agreements with Pacific Stock Transfer as warrant agent.
Will the Series A warrants be listed?
No, the Series A warrants will not be listed on an on any securities exchange or included in any automated quotation system.
What are the basic rights?
For each basic right held, each rights holder has the opportunity to purchase two units at a subscription price of $ , provided that (a) basic rights may be exercised in aggregate only to purchase whole numbers of units, (b) the total subscription price payable upon any exercise of subscription rights will be rounded to the nearest whole cent and (c) only whole numbers of shares of common stock and Series A warrants exercisable for whole numbers of shares will be to a holder in this offering, with any right to a fractional share to which a holder would otherwise be entitled being terminated without consideration to the rights holder. Holders of fractional shares shall be entitled, in proportion to their fractional holdings, to receive basic rights, provided that such basic rights may only be exercised in aggregate for whole numbers of units. We have granted to you, as a holder of common stock as of the record date or a holder of the Preferred Shares, Eligible Warrants, Eligible Convertible Notes, Eligible Options, and/or Eligible Convertible Notes as of the record date, two basic rights for each whole share of common stock you then owned or you are entitled to upon conversion or exercise of the Preferred Shares, Eligible Warrants, Eligible Convertible Notes and/or Eligible Options. For example, if you owned 1,000 shares of common stock as of the record date, you would receive 2,000 basic rights and would have the right to purchase, for an aggregate subscription price of $ , 2,000 units comprised of 2,000 shares of common stock and a Series A warrant to purchase 2,000 shares of common stock at an aggregate purchase price of $2,000. You may exercise all, a portion or none of your basic rights. If you exercise fewer than all of your basic rights, however, you will not be entitled to purchase any additional units pursuant to the over-subscription privilege. See “-What is the over-subscription privilege?” below.
What is the over-subscription privilege?
If you exercise all of your basic rights, you will have the right, which we refer to as the over-subscription privilege, to purchase additional units that remain unsubscribed as a result of any unexercised basic rights. We refer to the basic rights and over-subscription privilege together as subscription rights. You should indicate on your subscription certificate, or the form provided by your nominee if your shares are held in the name of a nominee, how many additional units you would like to purchase pursuant to your over-subscription privilege. You are entitled to exercise your over-subscription privilege only if you exercise your basic rights in full. If over-subscription requests exceed the number of units available, however, we will allocate the available units pro rata among rights holders who over-subscribe based on the number of over-subscription units for which they have subscribed. See “The Rights Offering-Over-Subscription Privilege.”
To properly exercise your over-subscription privilege, you must deliver the subscription payment related to your over-subscription privilege before this offering expires. Because we will not know the total number of unsubscribed units before this offering expires, if you wish to maximize the number of units you purchase pursuant to your over-subscription privilege, you will need to deliver payment in an amount equal to the aggregate subscription price for the maximum number of units available, assuming that no rights holder other than you has purchased any units pursuant to such rights holder’s basic right and over-subscription privilege.
Subject to the ownership limitation described below, we will seek to honor the over-subscription requests in full. If over-subscription requests exceed the number of units available, however, we will allocate the available units pro rata among the rights holders in proportion to the product (rounded down to the nearest whole number so that the aggregate number of units does not exceed the aggregate number offered) obtained by multiplying the number of units such rights holder subscribed for pursuant to the over-subscription privilege by a fraction (A) the numerator of which is the number of unsubscribed units and (B) the denominator of which is the total number of units sought to be subscribed for pursuant to the over-subscription privilege by all rights holders participating in such over-subscription.. Continental Stock Transfer & Trust, which will act as the subscription agent in connection with this offering and which we refer to as the subscription agent, will determine the over-subscription allocation based on the formula described above and will notify rights holders of the number of units allocated to each holder exercising the over-subscription privilege as promptly as may be practicable after the allocations are completed.
To the extent your aggregate subscription payment for the actual number of unsubscribed units available to you pursuant to the over-subscription privilege is less than the amount you actually paid in connection with the exercise of the over-subscription privilege, you will be allocated only the number of unsubscribed units available to you, and any excess subscription payment will be promptly returned to you, without interest or deduction, after the expiration of this offering.
May the subscription rights that I exercise be reduced for any reason?
There are a sufficient number of units available to honor your basic rights in full. As a result, if this offering is completed, you will receive whole units to the full extent you have properly exercised your basic rights in whole or in part for such whole units.
Sufficient units may not be available to honor your exercise of the over-subscription privilege. If exercises of over-subscription privileges exceed the number of units available, we will allocate the available units pro rata among rights holders who over-subscribe based on the number of over-subscription units for which the rights holders have subscribed.
Why are we conducting this offering?
In accordance with our strategic plan, we are conducting this offering primarily to raise funds for sales and marketing and general working capital purposes. Our board of directors has approved this offering. Based on information available to the board, the board believes that this offering is in the best interests of our company and shareholders. Our board is not, however, making any recommendation regarding your exercise of the subscription rights.
Our board considered and evaluated a number of factors relating to this offering, including:
● | our current capital resources and indebtedness, and our future need for additional liquidity and capital; |
● | our need for increased financial flexibility in order to enable us to achieve our business plan; |
● | the size and timing of the offering and alternative securities to be offered; |
● | the potential dilution to our current shareholders if they choose not to participate in the offering; |
● | the non-transferability of the subscription rights; |
● | alternatives available for raising capital; |
● | the potential impact of the offering on the public float for the common stock if the Series A warrants are exercised; and |
● | the fact that existing shareholders would have the opportunity to purchase additional units. |
Am I required to exercise the subscription rights I receive in this offering?
No. You may exercise any number of your subscription rights, or you may choose not to exercise any of your subscription rights. If, however, you choose not to exercise your subscription rights or you exercise less than your full amount of subscription rights and other rights holders fully exercise their subscription rights, the percentage of common stock owned by other shareholders will increase relative to your ownership percentage and your voting and other rights in our company will likewise be diluted-see “Description of Securities” for a description of the voting and liquidation rights of our common stock and preference stock.
May I sell, transfer or assign my subscription rights?
No. You may not transfer, sell or assign any of the subscription rights distributed to you, except that subscription rights will be transferable by operation of law (e.g., by death). The subscription rights are non-transferable and will not be listed on any securities exchange or included in any automated quotation system. Therefore, there will be no market for the subscription rights.
The shares of common stock and Series A warrants comprising the units will be issued separately. Units will not be issued as a separate security and will not be transferable.
Shares of common stock issued upon the exercise of subscription rights or Series A warrants are expected to be listed on The Nasdaq Capital Market under the symbol “CRTD.” We do not intent to apply to list the Series A warrants for trading on any national securities exchange or other nationally recognized trading system. See “The Rights Offering-Transferability- Series A warrants” below.
How do I exercise my subscription rights if my shares of common stock are held in my name?
If you hold your shares of common stock in your name and you wish to participate in this offering, you must deliver a properly completed and duly executed subscription certificate and all other required subscription documents, together with payment of the full subscription price, to the subscription agent before 5:00 p.m. (Eastern time) on the expiration date.
If you send an uncertified check, payment will not be deemed to have been delivered to the subscription agent until the check has cleared. In certain cases, you may be required to provide signature guarantees.
Please follow the delivery instructions on the subscription certificate. Do not deliver documents to us. You are solely responsible for completing delivery of your subscription certificate, all other required subscription documents and subscription payment to the subscription agent. You should allow sufficient time for delivery of your subscription materials to the subscription agent so that the subscription agent receives them by 5:00 p.m. (Eastern time) on the expiration date. See “-To whom should I send my forms and payment?” below.
If you send a payment that is insufficient to purchase the number of units you requested, or if the number of units you requested is not specified in the forms, the payment received will be applied to exercise your subscription rights to the fullest extent possible based on the amount of the payment received pursuant to your subscription rights. Any payment that is received but not so applied will be refunded to you without interest (subject to the rounding of the amount so applied to the nearest whole cent).
What form of payment is required to purchase units?
As described in the instructions accompanying the subscription certificate, payments submitted to the subscription agent must be made in U.S. dollars. Checks or bank drafts drawn on U.S. banks should be payable to the order of “Continental Stock Transfer & Trust, as Subscription Agent for Creatd, Inc.” Payments by uncertified check will be deemed to have been received upon clearance. Please note that funds paid by uncertified check may take five or more business days to clear. Accordingly, rights holders who wish to pay the subscription price by means of uncertified check are urged to make payment sufficiently in advance of the expiration time to ensure that such payment is received and clears by such date. If you hold your shares of common stock in the name of a broker, dealer, custodian bank or other nominee (including any mobile investment platform), separate payment instructions may apply. Please contact your nominee, if applicable, for further payment instructions.
How do I exercise my subscription rights if my shares of common stock are held in the name of a broker, dealer, custodian bank or other nominee?
If you hold shares of common stock in the name of a broker, dealer, custodian bank or other nominee (including any mobile investment platform) that uses the services of Depository Trust Company, then Depository Trust Company will credit two subscription rights to your nominee record holder for (i) each share of common stock that you beneficially owned as of the record date or (ii) each share of common stock issuable upon conversion of exercise of the Preferred Shares, Eligible Warrants, Eligible Options, and/or Eligible Convertible Notes you held as of the record date. If you are not contacted by your nominee (including any mobile investment platform), you should contact your nominee as soon as possible.
How soon must I act to exercise my subscription rights?
If your shares of common stock are registered in your name and you elect to exercise any of your subscription rights, the subscription agent must receive your properly completed and duly executed subscription certificate, all other required subscription documents and full subscription payment, including final clearance of any uncertified check, before 5:00 p.m. (Eastern time) on the expiration date on , 2022. If you hold shares in the name of a broker, dealer, custodian bank or other nominee (including any mobile investment platform), your nominee may establish an earlier deadline before the expiration of this offering by which time you must provide the nominee with your instructions and payment to exercise your subscription rights.
Although we will make reasonable attempts to provide this prospectus to our shareholders to whom rights are distributed, this offering and all related subscription rights will expire at 5:00 p.m. (Eastern time) on the expiration date, whether or not we have been able to locate and deliver this prospectus to you or any other shareholder.
After I exercise my subscription rights, can I change my mind?
No. Once made, all exercises of subscription rights are irrevocable.
Can this offering be terminated or extended?
Yes. If we terminate this offering, neither we nor the subscription agent will have any obligation with respect to subscription rights that have been exercised except to promptly return, without interest or deduction, any subscription payment the subscription agent received from you. If we were to terminate this offering, any money received from subscribing shareholders would be promptly returned, without interest or deduction, and we would not be obligated to issue units, shares of common stock, or Series A warrants to rights holders who have exercised their subscription rights prior to termination.
We may extend this offering for one or more additional periods in our sole discretion not to exceed 45 days from the initial expirations date. We will announce any extension in a press release issued no later than 9:00 a.m. (Eastern time) on the business day after the most recently announced expiration date.
How was the subscription price determined?
The subscription price was set by management and approved by our board of directors. The factors considered are discussed in “The Rights Offering-Reasons for this Offering” and “Determination of the Subscription Price.”
Has the board of directors made a recommendation to shareholders regarding the exercise of rights under this offering?
No. Our board of directors has not made, nor will it make, any recommendation to shareholders regarding the exercise of subscription rights in this offering. We cannot predict the price at which shares of our outstanding common stock will trade after this offering. You should make an independent investment decision about whether or not to exercise your subscription rights. Rights holders who exercise subscription rights risk investment loss on new money invested. We cannot assure you that the market price for common stock will remain above the price payable per share of common stock or the warrant exercise price, or that anyone purchasing units or exercising Series A warrants to purchase shares of common stock at the exercise price will be able to sell those shares in the future at the same price or a higher price. If you do not exercise your subscription rights, you will lose any value represented by your subscription rights, and if you do not exercise your rights in full, your percentage ownership interest and related rights in our company will be diluted.
By when must I purchase shares of common stock in order to participate in this offering? May I participate in this offering if I sell my common stock after the record date?
The record date for this offering is 5:00 p.m. (Eastern time) , 2022. If you purchase shares of our common stock and do not settle such purchase by 5:00 p.m. (Eastern time) , 2022, you will not receive subscription rights with respect to such shares. If you own common stock as of the record date, you will receive subscription rights and may participate in this offering even if you subsequently sell your common stock.
Are there any risks associated with this offering?
Yes. The exercise of your subscription rights involves risks. Exercising your subscription rights involves the purchase of common stock and Series A warrants and should be considered as carefully as you would consider any other equity investment. Among other things, you should carefully consider the risks described under the heading “Risk Factors” in this prospectus and all other information contained in this prospectus.
Will the directors and executive officers participate in this offering?
To the extent they hold common stock as of the record date or common stock issuable upon conversion or exercise of Preferred Shares, Eligible Warrants and/or Eligible Options, our directors and executive officers are entitled to participate in this offering on the same terms and conditions applicable to all other rights holders. We expect that each of our directors and executive officers will participate in this offering, although they have not committed to do so.
When will I receive my shares of common stock and Series A warrants?
Holders whose shares are held of record by Cede& Co., the nominee of Depository Trust Company, or by any other depository or nominee on their or their broker-dealers’ behalf will have any shares of common stock and warrants comprising units they acquire credited to the account of Cede & Co. or such other depository or nominee. With respect to all other shareholders, certificates for all shares of common stock and all Series A warrants acquired will be mailed after payment for all the subscribed securities has cleared, which may take up to 15 business days from the expiration date.
What effects will this offering have on our outstanding common stock?
Based on shares of common stock outstanding as of August 25, 2022, if this offering is fully subscribed and the Series A warrants issued in the offering are exercised in full, we will have 60,361,758 shares of common stock outstanding, representing an increase of 196% in our outstanding shares as of the record date. If you fully exercise your basic rights, your proportional interest in our company will not change. If you exercise only a portion, or none, of your basic rights, your interest in our company will be diluted and your proportional interest in our company will decrease.
The number of shares of common stock outstanding listed in each case above assumes that (a) all of the other shares of common stock issued and outstanding on the record date will remain issued and outstanding and owned by the same persons as of the closing of this offering, and (b) we will not issue any shares of common stock in the period between the record date and the closing of this offering.
How much will we receive from this offering, and how will the proceeds be used?
If this offering is fully subscribed, we estimate our net proceeds from the sale of Units it is offering will betotal approximately $ million. If the underwriters fully exercise the over-allotment option, the net proceeds will be approximately $ million. “Net proceeds” is what the Company expects to receivemillion, after deducting the underwriting discount and commission andour estimated offering expenses payable by the Company.
The Company intendsexpenses. We intend to use the net proceeds fromfor sales and marketing and general working capital purposes.
If my exercise of subscription rights is not valid or if this offering is not completed, will my subscription payment be refunded to conduct operations, increase marketing efforts,me?
Yes. An escrow agent retained by the subscription agent will hold all funds it receives in escrow until the completion or termination of this offering. If your exercise of subscription rights is deemed not to be valid or this offering is not completed, all subscription payments received by the subscription agent will be promptly returned, without interest or deduction, following the expiration of the offering. If you own shares through a nominee (including any mobile investment platform), it may take longer for you to receive your subscription price repayment because the subscription agent will return payments through your nominee.
What fees or charges apply if I purchase units in this offering?
We are not charging any fee or sales commission to issue rights to you or, if you exercise any of your subscription rights, to issue units to you. If you exercise your subscription rights through a broker, dealer, custodian bank or other nominee (including any mobile investment platform), you are responsible for paying any fees your nominee may charge you.
What are the U.S. federal income tax consequences of exercising my subscription rights?
For U.S. federal income tax purposes, a rights holder should not recognize income or loss in connection with the receipt or exercise of rights in this offering. You should consult your tax advisor as to your particular tax consequences resulting from the offering. For a summary of certain U.S. federal income tax consequences of this offering, see “Material U.S. Federal Income Tax Considerations.”
To whom should I send my forms and investmentspayment?
If your shares of common stock are held in the Company’s existing business initiativesname of a broker, dealer, custodian bank or other nominee (including any mobile investment platform), then you should deliver all required subscription documents and products,subscription payments pursuant to the instructions provided by your nominee. If your shares of common stock are held in your name, then you should send your subscription certificate, all other required subscription documents and your subscription payment by mail to:
Continental Stock Transfer & Trust
Attn: Corporate Actions
1 State Street, 30th Floor
New York, NY 10004
or by hand delivery or overnight courier to:
Continental Stock Transfer & Trust
Attn: Corporate Actions
1 State Street, 30th Floor
New York, NY 10004
You and, if applicable, your nominee are solely responsible for completing delivery to the subscription agent of your subscription certificate, as well as general working capital. The Company anticipates budgeting approximately $4,700,000for completing delivery of all other required subscription documents and your subscription payment. You should allow sufficient time for delivery of your subscription materials to the subscription agent and for clearance of payments before the expiration of this offering. If you hold your common stock through a broker, dealer, custodian bank or other nominee (including any mobile investment platform), your nominee may establish an earlier deadline before the expiration date of this offering.
Whom should I contact if I have other questions?
If you have any questions regarding this offering, completion of the subscription certificate or any other subscription documents or submitting payment in the offering, please contact D.F. King & Co., Inc., the information agent, by telephone at (212) 269-5550 (bankers and brokers) or (877) 283-0323 (all others) or by email at creatd@dfking.com.
USE OF PROCEEDS
If this offering is fully subscribed, we estimate our net proceeds from the offering for conducting operations and for working capital.will total approximately $ million, after deducting our estimated offering expenses.
The Company may alsoWe intend to use a portion of the net proceeds for sales and marketing and general working capital purposes. The Company also intends to repay certain outstanding convertible notes, totaling $6,150,000, in the event that they do not convert prior to the closing of this offering to acquire or invest in complementary businesses, products, or technologies, or to obtain the right to use such complementary technologies. The Company hasoffering. These notes mature on 11/30/2022 and bear no commitments with respect to any acquisition or investment and is notinterest. Because we cannot currently involved in any negotiations with respect to any such transactions.
As of the date of this prospectus, the Company cannot specify with any certainty all of the particular uses for theof a significant portion of our net proceeds, to be received upon the completion of this offering. The amounts and timing of its actual expenditures will depend on numerous factors, including the status of its product development efforts, sales and marketing activities, technological advances, amount of cash generated or used by its operations and competition. Accordingly, the Company’sour management will have broad discretion in the application of thethose net proceedsproceeds.
CAPITALIZATION
The table below sets forth our cash and investors will be relyingcash equivalents and capitalization as of June 30, 2022 on the judgmentan actual basis and on a pro forma basis to reflect our issuance and sale of its management regarding theshares of common stock, Series A warrants to purchase shares of common stock in this offering and our receipt and application of the proceeds of this offering.
The Company has not declared nor paid any cash dividend on its common stock, and it currently intends to retain future earnings, if any, to finance the expansion of its business, and the Company does not expect to pay any cash dividends in the foreseeable future. The decision whether to pay cash dividends on its common stock will be made by its boardamount of directors, in their discretion, and will depend on the Company’s financial condition, results of operations, capital requirements and other factors that its board of directors considers significant.
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The following table sets forth the Company’s cash and capitalization as of March 31, 2020 on:
The information in this table is unaudited and is illustrative only and the Company’s capitalization following the completion ofapproximately $ million from this offering, willafter deducting our estimated offering expenses. This table should be adjusted based on the actual public offering price and other terms of this offering determined at pricing. You should read this table in conjunction with the information contained in “Use“Use of Proceeds” “Summary Financial Information”above and “Management’s Discussionour consolidated audited and Analysis of Financial Condition and Results of Operation,” as well as theunaudited financial statements and the notes included elsewherethereto set forth in this prospectus.
As of March 31, 2020 | ||||||||||||
Actual | Pro Forma | |||||||||||
Cash and cash equivalents | $ | 118,361 | ||||||||||
Stockholders’ Deficit: | ||||||||||||
Common stock | 9,423 | |||||||||||
Additional paid-in capital | 37,748,356 | |||||||||||
Accumulated deficit | (47,566,434 | ) | ||||||||||
Accumulated other comprehensive income | (15,234 | ) | ||||||||||
Treasury stock | (367,174 | ) | ||||||||||
Total Stockholders’ Deficit | $ | (10,191,063 | ) |
June 30, 2022 | ||||||||||||
Actual | Adjustments | Pro Forma as Adjusted | ||||||||||
Cash | $ | 1,556,663 | (2,588,404 | ) | $ | (1,031,741 | ) | |||||
Marketable Securities | 48,646 | - | 48,646 | |||||||||
Notes Payable | 1,895,248 | - | 1,895,248 | |||||||||
Convertible Notes Payable | 2,291,010 | (2,291,010 | ) | - | ||||||||
Common stock - par value $0.001; 100,000,000 shares authorized; 20,254,839 issued and 20,249,182 outstanding as of June 30, 2022 | 20,255 | 20,000 | 40,255 | |||||||||
Additional paid-in capital | 122,068,892 | (317,394 | ) | 121,751,498 | ||||||||
Accumulated deficit | (124,314,530 | ) | - | (124,314,530 | ) | |||||||
Accumulated other comprehensive income (loss) | (107,881 | ) | - | (107,881 | ) | |||||||
Treasury Stock | (62,406 | ) | - | (62,406 | ) | |||||||
Stockholders’ equity | (1,500,233 | ) | (1,192,831 | ) | (2,693,064 | ) | ||||||
Total capitalization | 2,686,025 | (3,483,841 | ) | (797,816 | ) |
Each $1.00 increase (decrease) in the assumed public offering price of $ per share would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents, working capital, total assets and total stockholders’ equity (deficit) by approximately $ , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1.0 million shares in the number of shares offered by us at the assumed public offering price of $ per share would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents, working capital, total assets and total stockholders’ equity (deficit) by approximately $ .The table above excludes:
The number of shares of common stock outstanding is based on 9,422,683 shares of common stock issued and outstanding as of March 31, 2020, and excludes the following:
● |
● | ||
|
● | 4,000,000 shares of common stock issuable upon the conversion of convertible promissory notes having a conversion price of $1.00 per share; |
● | 121,359 shares of common stock issuable upon the conversion of Series E preferred shares; |
● | 1,720,000 shares of common stock issuable upon the conversion of convertible promissory notes having a conversion price of $1.25 per share; and | |
● |
Except as otherwise indicated herein, all information in this prospectus assumes:
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If you invest in the Company’s common stock in this offering, your ownership interest will be diluted to the extent of the difference between the offering price per share of its common stock and the as adjusted net tangible book value per share of its common stock immediately after the offering. Historical net tangible book value per share represents the amount of the Company’s total tangible assets less total liabilities, divided by the number of shares of its common stock outstanding.
The historical net tangible book value (deficit) of the Company’s common stock as of March 31, 2020June 30, 2022 was approximately $(12,576,982)$(7,608,175) or $(1.33)$(0.37) per share based upon shares of common stock outstanding on such date. Historical net tangible book value (deficit) per share represents the amount of its total tangible assets reduced by the amount of its total liabilities, divided by the total number of shares of common stock outstanding. After giving effect to the Company’s sale of all of the 20,000,000 Units (and the shares of common stock thereunder) offered in this offering at an assumed public offeringa subscription price of $ per Unit after deducting estimated underwriting discounts and commissions and the Company’s estimated offering expenses, the Company’s pro forma as adjusted net tangible book value as of March 31, 2020June 30, 2022 would have been $ or $ per share. This represents an immediate increase in net tangible book value of $ per share to the Company’s existing stockholders, and an immediate dilution in net tangible book value of $ per share to new investors. The following table illustrates this per share dilution:
Assumed public offering price per share | $ | 0.00 | ||||||
Pro forma net tangible book value per share as of June 30, 2022 | $ | (0.37 | ) | |||||
Increase in net tangible book value per share attributable to new investors in this offering | 0.18 | |||||||
Pro forma, as adjusted net tangible book value, after this offering | $ | (0.20 | ) | |||||
Adjusted net tangible book value per share as of June 30, 2022 after this offering | $ | 0.20 |
The information discussed above is illustrative only, and the dilution information following this offering will be adjusted based on the actual public offering price and other terms of this offering determined at pricing. A $1.00 increase (decrease) in the assumed public offeringsubscription price of $ per shareunit would increase (decrease) the pro forma as adjusted net tangible book value by $ per share and increase (decrease) the dilution to new investors by $ per share, assuming the number of shares offered by the Company, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by the Company. The Company may also increase or decrease the number of sharesunits it is offering. An increase of 1,000,000 shares100,000 units offered by it would increase the pro forma as adjusted net tangible book value by $ per share and decreaseincrease the dilution to new investors by $ per share, assuming the assumed public offeringsubscription price of $ per shareunit remains the same and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by the Company. Similarly, a decrease of 1,000,000 shares100,000 units offered by the Company would decrease the pro forma as adjusted net tangible book value by $ per share and increasedecrease the dilution to new investors by $ per share, assuming the assumed public offeringsubscription price of $ per shareunit remains the same and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by the Company.
If the underwriters’ over-allotment option to purchase additional shares from the Company is exercised in full, and based on the public offering price is $4.50 per share, the pro forma as adjusted net tangible book value per share after this offering would be $ per share, the increase in as adjusted net tangible book value per share to existing stockholders would be $ per share and the dilution to new investors purchasing shares in this offering would be $ per share.
The number of shares of common stock outstanding is based on 9,422,68320,254,839 shares of common stock issued and outstanding as of March 31, 2020,June 30, 2022, and excludes the following:
● |
● | ||
● | 4,000,000 shares of common stock issuable upon the conversion of convertible promissory notes having a conversion price of $1.00 per share; |
● | 121,359 shares of common stock issuable upon the conversion of Series E preferred shares; |
● | 1,720,000 shares of common stock issuable upon the conversion of convertible promissory notes having a conversion price of $1.25 per share; and | |
● |
Except as otherwise indicated herein, all information in this prospectus assumes:
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MARKET FOR COMMON STOCK AND DIVIDEND POLICY
Our common stock is listed on The Nasdaq Capital Market under the symbol “CRTD.” As of August 24, 2022, the last reported sale price of the common stock as reported on The Nasdaq Capital Market was $0.645 per share. As of August 25, 2022, there were approximately 374 holders of record of common stock. The actual number of shareholders is greater than this number of record holders and includes shareholders who are beneficial owners but whose shares are held in street name by brokers and other nominees (including any mobile investment platform).
To date, we have not paid cash dividends on our common stock and do not plan to pay such dividends in the foreseeable future. Our board of directors will determine our future dividend policy on the basis of many factors, including results of operations, capital requirements, and general business conditions. Dividends, under the Nevada Revised Statutes, may only be paid from our net profits or surplus.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with theour consolidated financial statements and related notes to the financial statements includedappearing elsewhere in this prospectus. ThisIn addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to those set forth in “Risk Factors.”
This prospectus 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 or our future financial performance. These statements involve known and unknownare subject to risks, uncertainties, assumptions, and other factors, that may cause ourincluding 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 levels of activity, performancemay differ significantly from those anticipated, believed, estimated, expected, intended, or achievements to be materially different from anyplanned.
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 expressed or impliedachievements. 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 forward-looking statements.statements to actual results.
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These risksaccounting principles require us to make certain estimates, judgments and other factors include, among others, those listed under “forward-looking statements”assumptions. We believe that the estimates, judgments and “risk factors”assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and those includedassumptions 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 prospectus.
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, which are included in the Company’s Annual Report on Form 10-K that was filed with the SEC on April 6, 2022 and the Company’s Quarterly Report on Form 10-Q that was filed with the SEC on August 15, 2022.
Overview
Jerrick Media Holdings,Creatd, Inc. (OTCQB: JMDA) providesis a company whose mission is to provide economic opportunities to creators and brands by multiplying the impact of platforms, people, and technology.
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.
Creator-Centric Strategy
Our purpose is to empower creators to prosper through exceptional tools, built-in communities, and opportunities for monetization and audience expansion. This creator-first approach is the foundation of our culture and mission, and how we choose to allocate our resources.
Creatd Labs
Creatd Labs is dedicated to the development of technology solutions for content creators, brands and their respective audiences through itsproducts that support the creator economy. This pillar houses Creatd’s proprietary technology platforms, including Creatd’s flagship digital media platformproduct, Vocal.
Vocal
Jerrick’s agile business framework and Vocal’s design and development capabilities provide a sustainable, capital light operational infrastructure. Vocal’s technology isVocal was built to scale, while the rateserve as a home base for digital creators. This robust, proprietary technology platform provides best-in-class tools, safe and curated communities, and monetization opportunities that enable creators to find a receptive audience and get rewarded. Creators of growth canall types call Vocal their home, from bloggers to social media influencers, to podcasters, founders, musicians, photographers, and more.
Since its initial launch in 2016, Vocal has grown to be modulated up or down based on available capital and the relative tightnessone of the capital markets. A business model that can generate a consistent and scalable return on capital by utilizing data is in a sense invaluable, much like the mythic “unicorn” that Silicon Valley seeks.
Vocal is a user-generated long-form digital publishing platform. The platform primarily focuses on providing publishing tools, monetization features and engagedfastest-growing communities for content creators to get discovered and fund their creativity.
There are estimated to be over 4.5 billion internet users; of that, approximately 83% publish some form of content on a monthly basis (photos, writing, reviews), and 3.8 billion of them are active on social media (according to data by GlobalWebIndex and Reddit). In 2020, the internet has become the linchpin of the modern information society, as well as the modern social society. We believe digital platforms, such as Vocal, exist to help the world find order in this vast ocean of opportunity.
A global crisis, like the 2020 COVID-19 pandemic, only further emphasizes how critical a role digital platforms play in society, as government bodies are encouraging social distancing and restricting travel, and employers are widely implementing work-from-home policies. These factors aside, Vocal exists in an environment where the total addressable market (TAM) of the platform is growing exponentially, and will continue to grow rapidly.
The Vocal platform is home to 650,000 content creators and brands of all shapes and sizes,sizes. 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 attracts audiences acrosspublish their stories, as well as benefit from Vocal’s monetization features. Creatd facilitates creators’ monetization on Vocal in numerous different ways, including i) by rewarding creators for each ‘read’ their story receives; ii) via Vocal Challenges, or writing contests through which creators can win cash and other rewards; iii) by awarding Bonuses; iv) by connecting creators with brands for opportunities to collaborate on Vocal for Brands branded content campaigns; v) through ’Subscribe,’ which enables creators to receive payment directly from their audience via monthly subscriptions and one-off microtransactions; vi) via Vocal’s Ambassador Program, which enables creators to receive additional rewards whenever they refer a networknew Vocal+ member.
In July 2022, Creatd released the first iteration of the new Vocal app for iOS, giving its premium Vocal+ members exclusive first access to the app ahead of its full release, and then launched the app in full in mid-August 2022. The app, which was designed based on Vocal audience insights, is focused on optimizing Vocal’s readership; the app works to increase audience’s ability to easily discover curated stories, thereby widening creators' distribution of content, and opening up new opportunities for monetization to creators.
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, reduced platform processing fees on tips received, eligibility to participate in exclusive Vocal+ Challenges, access to Vocal’s ‘Quick Edit’ feature for published stories, and more. The current cost of a Vocal+ membership is either $9.99 per month or $99 annually.
Moderation and Compliance
One of the key differentiating factors between Vocal and most other user-generated content platforms is the fact that each story submitted to Vocal is run through the Company’s owned-and-operatedproprietary moderation process before it goes live on the platform. The decision to implement moderation into the submission process was in direct response to the rise of misinformation and bad actors on many social platforms. In response to these inherent pitfalls within the content landscape, Vocal’s proprietary moderation system combines the algorithmic detection of copyrighted material, hate speech, graphic violence, and nudity, and 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. During the second quarter 2022, Creatd announced Vocal’s new integration partnership with Two Hat, a Microsoft acquiree and a leading provider of AI-assisted content moderation and protection solutions for digital communities. Through the partnership, the Company further updated its proprietary moderation technology, with the aim of ensuring that the Vocal platform remains a safe place for its creators, brand partners, and audiences.
Trust and safety are paramount to the Vocal ecosystem. We follow best practices when handling personally identifiable information, with guidance from the European Union’s General Data Protection Regulation (GDPR), the California Consumer Privacy Act (CCPA), and the Digital Millennium Copyright Act (DMCA).
Platform Compliance Policies include:
● | Human-led, technology-assisted moderation of every story submitted; |
● | Algorithmic detection of hate speech, nudity, and copyright infringement; |
● | Brand, creator, and audience safety enforced through community watch; and |
● | The rejection of what we consider toxic content, with the understanding that diverse opinions are encouraged. |
Technology Development
Vocal’s proprietary technology is built on Keystone, the same underlying open-source framework used by industry leaders such as Atlassian, a $43-billion Australian technology company. Some of the key differentiating elements of Vocal’s technology are speed, sustainability, and scalability. The platform’s unique canvas-style editor supports content creation utilizingCompany continues to invest heavily in research and development to continuously improve and innovate its platform, with the goal of optimizing the user experience for creators.
Additionally, the Vocal platform and its underlying technology allow us to maintain an advantageous capital-light infrastructure. By using cloud service providers, we are able to focus on platform and revenue growth rather than building and maintaining the costly internal infrastructures that have materially affected so many legacy media platforms.
Vocal’s technology has been specifically designed and built to scale without a wide range of rich-media assets including streaming content, photos, videos, podcasts,material corresponding increase in operational costs. While our users can embed rich media, such as video, audio, and product links, written word,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 more.thus derive earnings from both platforms when their video is viewed.
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).
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 as well as WHE influencers to produce marketing campaigns that are non-interruptive, engaging, and direct-response driven. Additionally, brands can opt to collaborate with Vocal on a sponsored Challenge, prompting the creation of high-quality stories that are centered around the brand’s mission and further disseminated through creators’ respective social channels and promotional outlets. All Vocal for Brands campaigns leverage Vocal’s first-party audience insights, which enables the creation of highly targeted and segmented audiences and optimized campaign results.
WHE Agency
The WHE Agency (“WHE”), acquired by Creatd in 2021, was founded with the goal of supporting top creators and influencers, by connecting them with leading brands and global audiences. Today, WHE manages a talent roster comprising over 100 creators across numerous verticals, including family and lifestyle, music, entertainment, and celebrity categories. Since acquiring WHE, the Company has helped WHE expand into new verticals, as well as facilitated partnerships on influencers’ behalf with leading brands including CBS, Amazon, Target, Disney, Warby Parker, CVS, Kay Jewelers, Walmart, Gerber, Masterclass, Procter & Gamble, Nike, and NFL, among others.
Seller’s Choice
Seller’s Choice is Creatd Partners’ performance marketing agency specializing in DTC (direct-to-consumer) and e-commerce clientele. Seller’s Choice provides direct-to-consumer brands with design, development, strategy, and sales optimization services.
Creatd Ventures
Creatd Ventures houses Creatd’s portfolio of e-commerce businesses, both majority and minority-owned as well as associated e-commerce technology and infrastructure. The Company supports founders by providing capital, as well as a host of services including design and development, marketing and distribution, and go-to-market strategy. While working to scale Creatd Ventures’ existing portfolio brands, including through the introduction of new product offerings, Creatd continues to actively explore new potential additions to the Creatd Ventures portfolio. Specifically, the Company expects to broaden Creatd Ventures’ portfolio through the acquisition of brands that are aligned and that can be easily consolidated into its supply chain and infrastructure.
Currently, the Creatd Ventures portfolio includes:
● | Camp, a direct-to-consumer (DTC) food brand which creates healthy upgrades to classic comfort food favorites. Each of Camp’s products are created with hidden servings of vegetables and contain Vitamins A, C, D, E, B1 + 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 and the Los Angeles-based Erewhon Market. Further, Creatd Ventures continues to leverage these and other successful partnerships to create similar opportunities for the other brands in its portfolio. |
● | Basis, a hydrating electrolyte drink mix formulated using rehydration therapies developed by the World Health Organization. Acquired by the Company in first quarter 2022, Basis has a history of strong sales volume both on the brand’s website as well as through third-party distribution channels such as Amazon. Creatd’s acquisition of 100% ownership in Basis marks its third majority ownership acquisition for Creatd Ventures. |
Creatd Studios
The goal of Creatd Studios is to partner with creators to produce stories for TV, film, podcasts, and print. With millions of compelling stories in its midst, Creatd’s Vocal technology surfaces the best candidates for transmedia adaptations, through a deep analysis of community, creator, and audience insights. Then, Creatd Studios helps creators tell their existing stories in new ways, by partnering them with entertainment and publishing studios to create unique content experiences that accelerate earnings, discoverability, and foster new opportunities.
● | In 2022, Creatd Studios announced a series of newly released and upcoming production projects, including: |
“Write Here, Write Now,” the Company’s first-ever podcast showcasing select Vocal creators and stories; a partnership with UK-based publisher, Unbound, for the publication of books featuring stories sourced from Vocal; the formation of a new graphic novel development arm which in Fall 2022 will release its first title, Steam Wars, created by artist and independent filmmaker Larry Blamire.
● | OG Gallery: The OG Collection is an extensive library of original artwork and imagery from the archives of some of the most iconic magazines of the 20th century. OG Gallery is an exploratory initiative aimed at identifying opportunities to propel the OG Collection into a new technological sphere: the NFT marketplace. |
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-party data is one of the value-drivers for the Company across its four business pillars.
Importantly, we do not sell the collected data, that being a common monetization opportunity for many other businesses. Instead, we use our collected first party data for the purposes of bettering the platform. Specifically, our data helps us understand the behaviors and attributes that are common among the creators, brands, and audiences within our ecosystem. We then pair our first-party Vocal data with third-party data from distribution platforms such as Facebook and Snapchat to provide a more granular profile of our creators, brands, and audiences.
It is through generating this valuable first-party data that we can continually enrich and refine our targeting capabilities for branded content promotion and creator acquisition, and specifically, to reduce our creator acquisition costs (CAC) and subscriber acquisition costs (SAC).
Competition
The idea for Vocal came as a response to what Creatd’s founders recognized as systemic flaws inherent to the digital media industry and its operational infrastructures. The depreciating value of digital media business models built on legacy technology platforms created a unique opportunity for the development of a creator-centric platform that could appeal to a global community and, at the same time, be capable of acquiring undervalued complimentary technology assets.
Creatd’s founders built the Vocal platform upon the general thesis that a closed and safe ecosystem utilizing first-party data to increase efficiencies could create a sustainable and defensible business model. Vocal was strategically developed to provide value for content creators, readers, and brands, and to serve as a home for the ever-increasing amount of digital content being produced and the libraries of digital assets lying dormant.
Vocal is most commonly discussed as a combination of:
● | Medium, a platform for writers built by former Twitter founder Ev Williams; |
● | Reddit, a social news aggregation, web content rating, and discussion website; and |
● | Patreon, a membership platform that provides business tools for content creators to run a subscription service. |
Creatd does not view Vocal as a substitute or competitor to segment-specific content platforms, such as Vimeo, YouTube, Instagram, Pinterest, TikTok, Spotify, or SoundCloud. We don’t want to replace anyone; we built Vocal to be accretive to the entire digital ecosystem. In fact, one of the most powerful components of our technology is the fact that Vocal makes it easy for creators to produce well-constructed, search engine optimized,embed their existing published content, including videos, songs, podcasts, photographs, and engaging content. Additionally, creatorsmore, directly into Vocal. We see this as a growth opportunity by building partnerships with the world’s greatest technology companies and to further spread our roots deeper into the digital landscape
Acquisition Strategy
Creatd’s hybrid finance and design culture is key to its acquisition strategy. Acquisition targets are companies that meet a set of opportunistic or financial standards or that are part of specific digital environments that are accretive and can upgradeseamlessly integrate into Creatd’s existing revenue lines. Creatd will continue to Vocal+,make strategic acquisitions when presented with opportunities that are in the interest of shareholder value.
Recent Developments
Resignation of Chief Executive Officer and payDirector
On August 9, 2022, Laurie Weisberg, the Company’s Chief Executive Officer and a premium subscription fee to access a suitemember of additional features such as an increased rate of CPM monetization, brand collaborations, the ability to enter exclusive members-only “Challenges,” early access to new features, and other rewards.
Given Vocal’s built-in monetization capabilities, topic-specific structure, and adaptability to a wide range of uses and industries, we believe that it is the ideal platform to help users adapt to evolving social, professional, and societal realities of a new digital world. Moderation and compliance are more important in a world where ambiguity can systematically damage value. Vocal’s enforcement of community guidelines and content moderation creates a secure environment for all stakeholders. Creators, audiences, and brands trust Vocal.
In 2018,Board, notified the Company launchedof her intention to resign from the positions of Chief Executive Officer, director, and any other positions held with the Company or any of its in-house creative studio, Vocal for Brands. Vocal for Brands partners brandssubsidiaries, regardless of whether Ms. Weisberg had been appointed. Such resignations are to become effective on a date to be determined following further discussion with authentic, like-minded Vocal creators to produce bespoke branded content campaigns, brand-sponsored creator Challenges, and other types of branded experiences on the Vocal platform that build brand engagement and trust, and drive results. With the introduction of ChallengesBoard, but in early first quarter 2020, brands can now tap into Vocal’s network of approximately 650,000 content creators and encourage them to interact with, learn about and promote their brand while benefiting from Vocal’s brand-safe, moderated, and curated environment. Brand-sponsored Challenges effectively yield a collection of crowdsourced branded content for brands and help them reach a wider audience. Weekly Vocal+ Exclusive Challenges currently generate on average 100 submissions, and is growing steadily. Branded Challenges have reached as many as 800 submissions, most recently in a collaboration with ScreenShot Magazine. Typical long-form branded content campaigns within the legacy world of publishing cost as much as $50,000 for a single article, let alone the exponential hundreds of submissions our Challenges can generate. Authentic storytelling from real creators is the common denominator for success.
Vocal’s first-party data enables our team to create highly targeted and segmented audiences for Vocal for Brands campaigns, and help the brand reach their ideal audience. Brands can access story performance data, engagement data, behavioral data, and sentiment data, all of which is used to further optimize the campaign’s success.
no event later than August 31, 2022.
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Appointment of Chief Executive Officer
Effective upon Ms. Weisberg’s resignation as Chief Executive Officer, Jeremy Frommer, currently the Company’s Executive Chairman, will be appointed as Chief Executive Officer, pursuant to the Board’s approval.
Jeremy Frommer
Following Jerrick’s acquisitionMr. Frommer was appointed Executive Chairman in February 2022 and has been a member of e-commerce agency Seller’s Choice, LLC (“Seller’s Choice”)our board of directors since February 2016. Previously, he served as our Chief Executive Officer from February 2016 to August 2021, and Co-Chief Executive Officer from August 2021 to February 2022. Mr. Frommer has over 20 years of experience in Septemberthe financial technology industry. Previously, Mr. Frommer held key leadership roles in the investment banking and trading divisions of large financial institutions. From 2009 to 2012, Mr. Frommer was briefly retired until beginning concept formation for Jerrick Ventures which he officially founded in 2013. From 2007 to 2009, Mr. Frommer was Managing Director of Global Prime Services at RBC Capital Markets, the investment banking arm of the Royal Bank of Canada, the largest financial institution in Canada, after the sale of Carlin Financial Group, a professional trading firm. From 2004 to 2007, Mr. Frommer was the Chief Executive Officer of Carlin Financial Group after the sale of NextGen Trading, a software development company focused on building equity trading platforms. From 2002 to 2004, Mr. Frommer was Founder and Chief Executive Officer of NextGen Trading. From 2000 to 2002, he was Managing Director of Merger Arbitrage Trading at Bank of America, a financial services firm. Mr. Frommer was also a director of LionEye Capital, a hedge fund from June 2012 to June 2014. He holds a B.A. from the University of Albany. We believe Mr. Frommer is qualified to serve on our board of directors due to his financial and leadership experience.
Appointment of Director
Effective upon Ms. Weisberg’s resignation as a director, Justin Maury, currently the Company’s President and Chief Operating Officer, will be appointed to the Board, pursuant to the Board’s approval.
Justin Maury
Mr. Maury has served as our President since January 2019 and was appointed Chief Operating Officer in August 2021. A full-stack designer and product developer by training, Mr. Maury partnered with Jeremy Frommer and founded the Company successfully integrated Seller’s Choice into its sales team and operations. The acquisition enabled Vocal for Brands to further expand its client basein 2013, having brought with him 10 years of experience in the direct-to-consumer (DTC) space, whilecreative industry. Since joining Creatd in 2013, Mr. Maury has been an instrumental force in the Company’s business and revenue expansion, and has overseen the Company’s product development since inception, including overseeing the design, development, launch, and ongoing growth of the Company’s flagship product, Vocal, the innovative creator that, under Mr. Maury’s leadership, has grown to a community of over 1.5 million users with a total audience reach of over 175 million.
As a director, we believe Mr. Maury will add considerable value, including through by providing a unique perspective into Creatd’s product performance and evolution and by providing invaluable direct input to help guide the Company’s ongoing refinement of its technology roadmap and maturation of its business model.
Trigger of Price Reset
On July 29, 2022, the Company announced that it was not moving forward with its previously announced Rights Offering. In doing so, it triggered a price reset in the July 2022 Financing and the May 2022 Securities Purchase Agreement. As a result of this price reset, the May 2022 Securities Purchase Agreement debentures now have a conversion price of $1.00, and both the Series C and Series D warrants have exercise prices of $0.96. As a result of the price reset, the July 2022 Financing debentures now have a conversion price of $1.25, and both the Series E and Series F warrants have exercise prices of $1.01.
July 2022 Financing
On July 25, 2022 (the “Effective Date”), the Company entered into and closed securities purchase agreements (each, a “Purchase Agreement”) with five accredited investors (the “Investors”), whereby the Investors purchased from the Company for an opportunityaggregate of $1,935,019 in subscription amount (i) debentures in the principal amount of $2,150,000 (the “Debentures”); (ii) 1,075,000 Series E Common Stock Purchase Warrants to purchase shares of the Common Stock (the “Series E Warrants”); and (iii) 1,075,000 Series F Common Stock Purchase Warrants to purchase shares of Common Stock (the “Series F Warrants”, and collectively with the Series E Warrants, the “Warrants”). The Company and the Investors also entered into registration rights agreements (each, a “Registration Rights Agreement”) pursuant to the Purchase Agreement.
The Debentures have an original issue discount of 10%, have a maturity date of November 30, 2022, 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 $2.00 per share, subject to adjustment upon certain events including a one-time adjustment to the price of the Common Stock offered in the Rights Offering (as defined therein), with such adjusted conversion price not to be lower than $1.25.
The Warrants are immediately exercisable for a term of five years until July 25, 2027. The Series E Warrants are exercisable at an exercise price of $3.00, subject to adjustment upon certain events including a one-time adjustment to the Seller’s Choice teamprice of the Common Stock offered in the Rights Offering, with such adjusted exercise price not to leverage Vocalbe lower than $1.01. The Series F Warrants are exercisable at an exercise price of $6.00 subject to adjustment upon certain events including a one-time adjustment to the price of the Common Stock offered in the Rights Offering, with such adjusted exercise price not to be lower than $1.01. The Warrants provide for Brand’s unique brand storytelling capabilities as a waycashless exercise to further support its e-commerce clientele. Given the global pandemic and rapid changes in consumer behavior,extent that there is no question that weregistration statement available for the underlying shares of Common Stock. The shares underlying the Debentures, the Series E Warrants and the Series F Warrants are going to see a systemic shift towards online purchasing in almost every aspectbe registered within 90 days of our daily lives. Our acquisition of Seller’s Choice has been pivotal in identifying new trendsthe Effective Date.
The representations and warranties contained in the DTC market that can scalePurchase Agreement were made by the parties to, and partner across Jerrick’s portfolio. The revenue becomes scalable as we are beginning to identify somesolely for the benefit of, the next generation consumer brandsother in the context of all of the terms and conditions of the Purchase Agreement and in the context of the specific relationship between the parties. The provisions of the Purchase Agreement, including the representations and warranties contained therein, are not for the benefit of any party other than the parties to potentially take equity positionsthe Purchase Agreement. The Purchase Agreement is not intended for investors and the public to obtain factual information about the current state of affairs of the parties.
Additionally, in while driving revenues at Vocal for Brands by establishing a long-term contractconnection with the clientPurchase Agreements, the subsidiaries of the Company delivered a guarantee (the “Guarantee”) in favor of the Investors whereby each such subsidiary guaranteed the full payment and investment opportunity.performance of all obligations of the Company pursuant to the Purchase Agreement.
Nasdaq - Continued Listing
On March 1, 2022, the Company received a letter from the staff of The Nasdaq Capital Market (the “Exchange”) notifying the Company that the Exchange has determined to delist the Company’s common stock from the Exchange based on the Company’s Market Value of Listed Securities for the 30-consecutive day period between January 15, 2022 and February 25, 2022 falling short of the requirements under Listing Rule 5550(b)(2) (the “Rule”). Although a 180-day period is typically allowed for an issuer to regain compliance, the Company was not eligible to use such compliance period, as the Exchange had instituted a Panel Monitor through March 9, 2022.
Jerrick’s resourcesThe Company pursued an appeal to the Nasdaq Hearings Panel (the “Panel”) of such determination, in accordance with the Exchange’s rules and, Vocal’s proprietary technologypursuant to such request by the Company to appeal, the delisting of the Company’s securities and the Form 25 Notification of Delisting filing was stayed pending the Panel’s decision.
On April 22, 2022, the Exchange notified the Company that the Panel has determined to continue the listing of the Company on the Exchange, subject to the following conditions: (i) on or before May 16, 2022, the Company will file its Quarterly Report on Form 10-Q for the period ended March 31, 2022 demonstrating compliance with Nasdaq Listing Rule 550(b)(1) requiring shareholders’ equity of $2.5 million and (ii) on or before August 29, 2022, the Company will file a Form 8-K documenting the successful completion of any fund-raising activity that has taken place since April 14, 2022 and the Company’s long-term compliance with the continued listing requirements of the Nasdaq Capital Market.
The Panel has advised that August 29, 2022 represents the full extent of the Panel’s discretion to grant continued listing during the time the Company is non-compliant and should the Company fail to demonstrate compliance by such date, the Panel will issue a final delist determination and the Company will be suspended from trading on the Exchange.
Securities Purchase Agreement
On May 31, 2022, the Company entered into and closed securities purchase agreements (each, a “Purchase Agreement”) with eight accredited investors (the “Investors”), whereby the Investors purchased from the Company for an aggregate of $3,600,036 in subscription amount (i) debentures in the principal amount of $4,000,000 (the “Debentures”); (ii) 2,000,000 Series C Common Stock Purchase Warrants to purchase shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”) (the “Series C Warrants”); and (iii) 2,000,000 Series D Common Stock Purchase Warrants to purchase shares of Common Stock (the “Series D Warrants”, and collectively with the Series C Warrants, the “Warrants”). The Company and the Investors also entered into registration rights agreements (each, a “Registration Rights Agreement”) pursuant to the Purchase Agreement.
The Debentures have an original issue discount of 10%, have a term of six months with a maturity date of November 30, 2022, 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 $2.00 per share, subject to adjustment upon certain events including a one-time adjustment to the price of the Common Stock offered in the Rights Offering (as defined therein), with such adjusted conversion price not to be lower than $1.00.
The Warrants are exercisable for a term of five years from the initial exercise date of November 30, 2022, until November 30, 2027. The Series C Warrants are exercisable at an exercise price of $3.00, subject to adjustment upon certain events including a one-time adjustment to the price of the Common Stock offered in the Rights Offering, with such adjusted exercise price not to be lower than $0.96. The Series D Warrants are exercisable at an exercise price of $6.00 subject to adjustment upon certain events including a one-time adjustment to the price of the Common Stock offered in the Rights Offering, with such adjusted exercise price not to be lower than $0.96. The Warrants provide for cashless exercise to the extent that there is no registration statement available for the underlying shares of Common Stock. The shares underlying the Debentures, the Series C Warrants and the Series D Warrants are to be registered within 90 days of the Effective Date.
Additionally, in connection with the Purchase Agreements, the subsidiaries of the Company delivered a guarantee (the “Guarantee”) in favor of the Investors whereby each such subsidiary guaranteed the full payment and performance of all obligations of the Company pursuant to the Purchase Agreement.
The Debentures, Warrants, Common Stock underlying the Debentures and the Common Stock underlying the Warrants were designednot registered under the Securities Act, but qualified for exemption under Section 4(a)(2) and Rule 506 promulgated thereunder. The Company is relying on this exemption from registration for private placements based in part on the representations made by Investors, including representations with respect to amplify creator subscriptionseach Investor’s status as wellan accredited investor, as convert on direct to consumer brand opportunities. Further,such term is defined in Rule 501(a) of the Vocal platform’s unique underlying framework generates scalableSecurities Act, and sustainable revenues, and lends itself well to future acquisitions and white-label opportunities for Jerrick.each Investor’s investment intent.
Results of Operations
Summary of Statements of Operations for the Years Ended December 31, 2019 and 2018:
Year Ended December 31, | ||||||||
2019 | 2018 | |||||||
Revenue | $ | 453,006 | $ | 80,898 | ||||
Gross Margin | $ | 453,006 | $ | 80,898 | ||||
Operating Expenses | $ | (7,669,984 | ) | $ | (5,767,153 | ) | ||
Loss from operations | $ | (7,216,978 | ) | $ | (5,686,255 | ) | ||
Other Expenses | $ | (818,394 | ) | $ | (6,327,287 | ) | ||
Net loss | $ | (8,035,372 | ) | $ | (12,013,542 | ) | ||
Loss per common share – basic and diluted | $ | (0.98 | ) | $ | (4.16 | ) |
Revenue
Revenue was $453,006 for the year ended December 31, 2019, as compared to $80,898 for the comparable year ended December 31, 2018, an increase of $372,108. The increase in revenue is primarily attributable to the launch and steady growth of Vocal+ paid subscribers, the rising price points for Vocal for Brands campaigns, and the integration of Seller’s Choice into Jerrick following the Company’s successful acquisition of Seller’s Choice in late third quarter. Over $400,000 of the $453,006 was generated in the second half of the year with approximately $300,000 generated in the fourth quarter alone.
Operating Expenses
Operating expenses for the year ended December 31, 2019 were $7,669,984 as compared to $5,767,153 for the year ended December 31, 2018. The increase of $1,902,831 in operating expenses is the result of an increase in general and administrative expenses and consulting fees. The increase to these expenses is mainly related to the acquisition of Seller’s Choice and the implementation of the Company’s future business plans.
Loss from Operations
Loss from operations for the year ended December 31, 2019 was $7,216,978 as compared to $5,686,255 for the year ended December 31, 2018. The increase in the loss from operations is primarily due to increased expenses due to the continued development of the Vocal platform and the acquisition of Seller’s Choice and the implementation of the Company’s future business plans.
Other Expenses
Other expenses for the year ended December 31, 2019 was $818,394 as compared to $6,327,287 for the year ended December 31, 2018. Other expenses during the year ended December 31, 2019 was comprised of interest expense of $612,830 on notes and related party notes, accretion of debt discount and issuance cost of $348,665 due to the incentives given with debentures, a loss on extinguishment of debt of $162,860. These expenses were offset by other income from an Australian tax credits for research and development of $292,387. During the year ended December 31, 2018, other expenses were comprised of interest expense of $923,008 on notes and related party notes and accretion of debt discount and issuance cost of $2,090,286 due to the incentives given with debentures, loss on extinguishment of liabilities of $3,453,137 for the incentives given to amend or convert debt.
Net Loss
Net loss attributable to common shareholder for the year ended December 31, 2019, was $8,035,372, or loss per share of $0.98, as compared to a net loss attributable to common shareholders of $14,204,408, or loss per share of $4.16, for the year ended December 31, 2018.
Inflation did not have a material impact on the Company’s operations for the applicable period. Other than the foregoing, management knows of no trends, demands, or uncertainties that are reasonably likely to have a material impact on the Company’s results of operations.
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Summary of Statements of Operations for the Three Months Ended March 31, 2020 and 2019:
Three Months Ended March 31, | ||||||||
2020 | 2019 | |||||||
Revenue | $ | 293,142 | $ | 34,334 | ||||
Operating Expenses | $ | (2,119,091 | ) | $ | (1,739,328 | ) | ||
Loss from operations | $ | (1,825,949 | ) | $ | (1,704,994 | ) | ||
Other Expenses | $ | (1,160,048 | ) | $ | (179,447 | ) | ||
Net loss | $ | (2,985,997 | ) | $ | (1,884,441 | ) | ||
Loss per common share – basic and diluted | $ | (0.32 | ) | $ | (0.28 | ) |
Revenue
Revenue was $293,142 for the three months ended March 31, 2020, as compared to $34,334 for the comparable three months ended March 31, 2019, an increase of $258,808. The increase in revenue is primarily attributable to the launch and steady growth of Vocal+ paid subscribers, the rising price points for Vocal for Brands campaigns, and the integration of Seller’s Choice into Jerrick following the Company’s successful acquisition in late third quarter 2019.
Operating Expenses
Operating expenses for the three months ended March 31, 2020 were $2,119,091 as compared to $1,739,328 for the three months ended March 31, 2019. The increase of $379,763 in operating expenses is the result of an increase in general and administrative expenses and consulting fees. The increase to these expenses is mainly related to the acquisition of Seller’s Choice and subsequent integration into Jerrick’s infrastructure, as well as the implementation of the Company’s future business plans.
Loss from Operations
Loss from operations for the three months ended March 31, 2020 was $1,825,949 as compared to $1,704,994 for the three months ended March 31, 2019. The increase in the loss from operations is primarily due to increased expenses due to the continued development of the Vocal platform, the acquisition of Seller’s Choice and the implementation of the Company’s future business plans.
Other Expenses
Other expenses for the three months ended March 31, 2020 was $1,160,048 as compared to $179,447 for the three months ended March 31, 2019. Other expenses during the three months ended March 31, 2020 was comprised of interest expense of $375,530 on notes and related party notes, accretion of debt discount and issuance cost of $186,947 due to the incentives given with debentures, a loss on extinguishment of debt of $535,040. These expenses were offset by other income from an Australian tax credit for research and development of $63,556. During the three months ended March 31, 2019, other expenses were comprised of interest expense of $54,569 on notes and related party notes and accretion of debt discount and issuance cost of $47,364 due to the incentives given with debentures, loss on extinguishment of liabilities of $77,514 for the incentives given to amend or convert debt.
Net Loss
Net loss for the three months ended March 31, 2020, was $2,985,997, or loss per share of $0.32, as compared to a net loss of $1,884,441, or loss per share of $0.28, for the three months ended March 31, 2019.
Inflation did not have a material impact on the Company’s operations for the applicable period. Other than the foregoing, management knows of no trends, demands, or uncertainties that are reasonably likely to have a material impact on the Company’s results of operations.
Liquidity and Capital Resources
The following table summarizes total current assets, liabilities and working capital at March 31, 2020June 30, 2022 compared to December 31, 2019:2021:
March 31, 2020 | December 31, 2019 | Increase / (Decrease) | ||||||||||
Current Assets | $ | 397,917 | $ | 78,063 | $ | 319,854 | ||||||
Current Liabilities | $ | 12,809,118 | $ | 10,928,830 | $ | 1,880,288 | ||||||
Working Capital Deficit | $ | (12,411,201 | ) | $ | (10,850,767 | ) | $ | (1,560,434 | ) |
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June 30, 2022 | December 31, 2021 | Increase / (Decrease) | ||||||||||
Current Assets | $ | 2,601,258 | $ | 4,475,242 | $ | (1,873,984 | ) | |||||
Current Liabilities | $ | 9,497,442 | $ | 5,421,015 | $ | 4,076,427 | ||||||
Working Capital (Deficit) | $ | (6,896,184 | ) | $ | (945,773 | ) | $ | (5,950,411 | ) |
At March 31, 2020,June 30, 2022, we had a working capital deficit of $12,411,201$6,896,184 as compared to a working capital deficit of $10,850,767$945,773 at December 31, 2019,2021, an increase in working capital deficit of $1,560,434.$5,950,411. The increase is primarily attributable to a reduction in cash, prepaid expenses and other current assets, an increase in accounts payable and notes payable, related party, convertible notes payable,as well as an increase in deferred revenue resulting primarily from an increase in Vocal+ customers opting for annual subscriptions, whose revenues are amortized over a 12-month period. This was offset by an increase in accounts receivable.
On January 30, 2020, the World Health Organization declared the COVID-19 novel coronavirus outbreak a “Public Health Emergency of International Concern” and accounts payable.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.
Net Cash
Net cash used in operating activities for the threesix months ended March 31, 2020June 30, 2022, and 2019,2021, was $1,314,863$(10,620,156) and $1,461,053,$(10,996,578), respectively. The net loss for the threesix months ended March 31, 2020June 30, 2022, and 20192021 was $2,985,997$(15,585,986) and $1,884,441,$(15,205,713), respectively. This change is primarily attributable to theThe decrease in net losscash used in operating activities reflects a decrease in cash paid for the current period offset by share-based payments in the amount of $ 392,143 to employeesmarketing expenditures, research and consultants for services rendered, the accretion of debt discountdevelopment, legal fees, and debt issuance costs of $186,947 due to the incentives given with debentures, and a loss on extinguishment of debt of $535,040 in addition to a change in accounts payable and accrued expenses of $418,340. These increases were offset by a change in accounts receivable during the three months ended March 31, 2020.accounting & audit fees.
Net cash used in investing activities for the threesix months ended March 31, 2020 and 2019June 30, 2022, was $0 and $2,801, respectively.$367,240. This change is primarily attributable to the cash paid forpurchase of digital assets, including Metaverse plots in Decentraland, the OG Gallery NFT portfolio and cryptocurrencies Ethereum, Polygon and Mana, as well as physical property and equipment and the cash consideration for the acquisition.equipment.
Net cash provided by financing activities for the threesix months ended March 31, 2020June 30, 2022, and 20192021 was $1,430,826$8,778,934 and $1,726,561.$5,967,733, respectively. During the threesix months ended March 31, 2020,June 30, 2022, the Company wasCompany’s operations were predominantly financed by issuancenet proceeds of debt$4,997,301 from the sale of common stock and related partywarrants and $5,152,350 from the proceeds of notes payable, which were partially offset by the repayments of $1,475,610 and $252,989, respectively to fund operations. These increasesnotes payable. Similarly, the Company’s financing activity for the six months ended June 30, 2021, generated $1,312,672 from the exercises of warrants, the proceeds of which were partially offset by repayment of notes and related party notes of $115,000 and $180,273, respectively.$1,218,718.
Summary of Statements of Operations for the Three Months Ended June 30, 2022, and 2021:
Three Months Ended June 30, | ||||||||
2022 | 2021 | |||||||
Revenue | $ | 1,625,901 | $ | 970,857 | ||||
Cost of revenue | $ | (1,794,419 | ) | $ | (731,309 | ) | ||
Operating expenses | $ | (7,824,906 | ) | $ | (8,620,343 | ) | ||
Loss from operations | $ | (7,993,424 | ) | $ | (8,380,795 | ) | ||
Other income (expenses) | $ | (711,514 | ) | $ | (181,681 | ) | ||
Net loss | $ | (8,704,938 | ) | $ | (8,562,476 | ) | ||
Loss per common share - basic and diluted | $ | (0.41 | ) | $ | (0.81 | ) |
Revenue
Revenue totaled $1,625,901 for the three months ended June 30, 2022, as compared to $970,857 for the comparable three months ended June 30, 2021, an increase of $655,044. The 67% increase in revenue is attributable to the steady growth of Creatd Partners (influencer and content marketing) which increased 19% year-over-year, as well as Creatd Ventures (e-Commerce), which generated sales totaling $634,966 across its portfolio of CPG brands, including Basis, which the Company acquired in the previous quarter, and continues to demonstrate revenue momentum. This growth was offset by a decrease in total revenues generated from Creatd Labs (Vocal and technology development), which comes as a result of the Company’s strategic shift in Vocal+ marketing toward driving annual versyus monthly subscriptions, with annual subscriptions being amortized over a 12-month period; the Company’s efforts continue to result in a steady increase in annual subscriptions. Going forward, the Company anticipates continued momentum as Creatd Ventures continues to grow sales and introduce new product SKUs for its portfolio of brands, continues to expand its retail and wholesale distribution partnerships, and completes additional direct-to-consumer brand acquisitions; as Creatd Partners expands its influencer and content marketing offerings and methodically increases its average revenue per brand campaign; as Creatd Labs increases conversion from freemium to Vocal+ subscriptions, supported by the recent launch of the new Vocal app as well as the introduction of new and upcoming Vocal features aimed at increasing creator audience growth, engagement, and monetization. In addition, during 2022, Creatd anticipates its first material revenue contribution from its fourth business segment Creatd Studios (Transmedia production).
Cost of Revenue
Cost of revenue for the three months ended June 30, 2022, were $1,794,419 as compared to $731,309 for the three months ended June 30, 2021. The increase of $1,063,110 in cost of revenue is related to an increase in payouts to Vocal creators, whose earnings are generated through content reads, winning Challenges, and other means. Additionally, the increase in cost of revenue is correlated with continued growth within the Creatd Ventures business segment, including sales growth for existing brands as well as the acquisition and integration of additional brands, which results in increases in inventory-related and other costs. Going forward, the Company expects the gross margin to continue to improve over time as Creatd Ventures continues to consolidate operations across its portfolio of e-commerce brands and, more broadly, as the Company continues to grow and scale a self-sustaining, organically driven revenue model across its business segments.
Operating Expenses
Operating expenses for the three months ended June 30, 2022, were $7,824,906 as compared to $8,620,343 for the three months ended June 30, 2021. The decrease of $795,437 in operating expenses is primarily attributable to the Company’s decrease in marketing expenses. This was offset by an increase in research and development, stock-based compensation, and general and administrative accounts, including office rent, employee compensation and productivity enhancing software & tools.
During the second quarter of 2022, the company’s non-cash charges totaled $2,814,980, a $457,798 increase from second quarter 2021. This increase primarily represents an increase in stock-based compensation to employees and consultants during the quarter.
The Company expects expenditures to decrease over coming quarters, as the Company continues to optimize and reduce its marketing expenditure and scrutinize many of the contributing expenses within G&A. Already, the Company has, subsequent to the second quarter, taken steps to reduce headcount materially to gain efficiencies, integrate acquired operations, reduce future expenses and other market factors.
Loss from Operations
Loss from operations for the three months ended June 30, 2022, was $7,993,424 as compared to $8,380,795 for the three months ended June 30, 2021. The $387,371 decrease in the loss from operations this quarter primarily reflects the decrease from total operating expenses. This was offset by the decrease from gross loss.
Other Income and (Expenses)
Other income (expenses) for the three months ended June 30, 2022, were $(711,514) as compared to $(181,681) for the three months ended June 30, 2021. The increase in second quarter 2022 other income was predominantly due to the increase in accretion of debt discount and issuance cost and a decrease from the gain on extinguishment of debt. This was offset by a decrease in interest expense and impairment of investment.
Net Loss
Net loss for the three months ended June 30, 2022, was $8,704,938, as compared to a net loss of $8,562,476 for the three months ended June 30, 2021.
Net loss attributable to common shareholders for the three months ended June 30, 2022, was $8,337,066, or loss per share of $0.41, as compared to a net loss attributable to common shareholders of $8,972,794, or loss per share of $0.81, for the three months ended June 30, 2021.
Summary of Statements of Operations for the Six Months Ended June 30, 2022, and 2021:
Six Months Ended June 30, | ||||||||
2022 | 2021 | |||||||
Revenue | $ | 2,974,639 | $ | 1,714,770 | ||||
Cost of revenue | $ | (3,366,589 | ) | $ | (1,940,715 | |||
Operating expenses | $ | (14,610,758 | ) | $ | (14,100,847 | ) | ||
Loss from operations | $ | (15,002,708 | ) | $ | (14,326,792 | ) | ||
Other income (expenses) | $ | (583,278 | ) | $ | (878,921 | ) | ||
Net loss | $ | (15,585,986 | ) | $ | (15,205,713 | ) | ||
Loss per common share - basic and diluted | $ | (0.77 | ) | $ | (1.49 | ) |
Revenue
Revenue totaled $2,974,639 for the six months ended June 30, 2022, as compared to $1,714,770 for the comparable six months ended June 30, 2021, an increase of $1,259,869. The 73% year-over-year increase in revenue is attributable to overall growth across the Company’s business segments, including growth in creator subscriptions, e-commerce sales, and brand and influencer marketing partnerships.
Cost of Revenue
Cost of revenue for the six months ended June 30, 2022, were $3,366,589 as compared to $1,940,715 for the six months ended June 30, 2021. The increase of $1,425,874 in cost of revenue is related to an increase in challenge- and read-related payouts to Vocal creators, as well as Company’s first-quarter 2022 acquisition of Basis and an increase in inventory related cost of revenues correlating with revenue growth within Ventures. The Company expects the gross margin to continue to improve over time as it continues to grow and improve upon a self-sustaining, organically driven revenue model across its business segments.
Operating Expenses
Operating expenses for the six months ended June 30, 2022, were $14,610,758 as compared to $14,100,847 for the six months ended June 30, 2021. The increase of $509,911 in operating expenses is mainly related to an increase in general and administrative expenses, including office rent, travel and entertainment, software and tools, and compensation. This increase was partially offset by a decrease in marketing expenses. The Company expects expenditures to decrease as the Company normalizes its marketing costs and scrutinizes many of the contributing expenses within G&A.
Loss from Operations
Loss from operations for the six months ended June 30, 2022, was $15,002,708 as compared to $14,326,792 for the six months ended June 30, 2021. The $675,916 increase in the loss from operations primarily reflects an increase in general and administrative expenses, including office rent, travel and entertainment, software and tools, and compensation, as well as a decrease in gross margin. Going forward, the Company expects the loss from operations to decrease as revenues continue to increase and expenses achieve normalcy levels.
Other Income and (Expenses)
Other income (expenses) for the six months ended June 30, 2022, were $(583,278) as compared to $(878,921) for the six months ended June 30, 2021. The decrease in other income was predominantly due to a decrease in interest expense, accretion of debt discount and issuance cost, derivative expense, market to market of derivative liability, and Impairment of investment. This was offset by a decrease in gain on forgiveness of debt and gain on settlement of vendor liabilities.
Net Loss
Net loss for the six months ended June 30, 2022, was $15,585,986, as compared to a net loss of $15,205,713 for the six months ended June 30, 2021.
Net loss attributable to common shareholders for the six months ended June 30, 2022, was $14,681,956, or loss per share of $0.77, as compared to a net loss attributable to common shareholders of $15,616,031, or loss per share of $1.49, for the six months ended June 30, 2021.
Off-Balance Sheet Arrangements
As of December 31, 2019,June 30, 2022, we had no off-balance sheet arrangements.
CriticalSignificant Accounting Policies
We believe that the followingOur significant accounting policies are described in Note 2 of the most critical to aid you in fully understanding and evaluating this “Management’s Discussion and Analysis of Financial Condition and Results of Operation.”
Use of Estimates and Assumptions and Critical Accounting Estimates and Assumptions
The preparation of financial statements in conformity with U.S. GAAP requires managementStatements. 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 the reported amounts of assetsour business prospects. Actual results may differ significantly from our estimates. For detailed information regarding our critical accounting policies and liabilities and disclosure of contingent assets and liabilities at the dates of theestimates, see our financial statements and the reported amounts of revenuesnotes thereto included in this Report and expenses during the reporting periods.
Critical accounting estimates are estimates for which (a) the nature of the estimate is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and (b) the impact of the estimatein our Annual Report on financial condition or operating performance is material. The Company’s critical accounting estimates and assumptions affecting the financial statements were:
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.
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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.
Actual results could differ from those estimates.
Principles of consolidation
The Company consolidates all majority-owned subsidiaries, if any, in which the parent’s power to control exists.
As of December 31, 2019, the Company’s consolidated subsidiaries and/or entities are as follows:
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All inter-company balances and transactions have been eliminated.
Fair Value of Financial Instruments
The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in U.S. GAAP and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
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Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.
The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
The carrying amount of the Company’s financial assets and liabilities, such as cash, prepaid expenses, accounts payable and accrued liabilities and accrued liquidating damages approximate their fair value because of the short maturity of those instruments. Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
The Company minimizes its credit risk associated with cash by periodically evaluating the credit quality of its primary financial institution. The balance at times may exceed federally insured limits.
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:
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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 consolidated statements of operations.
Leases
In February 2016, the FASB issued ASU 2016-02 “Leases” (Topic 842) which amended guidance for lease arrangements to increase transparency and comparability by providing additional information to users of financial statements regarding an entity’s leasing activities. Subsequent to the issuance of Topic 842, the FASB clarified the guidance through several ASUs; hereinafter the collection of lease guidance is referred to as ASC 842. The revised guidance seeks to achieve this objective by requiring reporting entities to recognize lease assets and lease liabilities on the balance sheet for substantially all lease arrangements.
On January 1, 2019, the Company adopted ASC 842 using the modified retrospective approach and recognized a right of use (“ROU”) asset and liability in the condensed consolidated balance sheet in the amount of $ 289,167 related to the operating lease for office and warehouse space. ResultsForm 10-K for the year ended December 31, 2019 are presented under ASC 842, while prior period amounts were not adjusted2021. There have been no material changes to our critical accounting policies and continue to be reportedestimates from those disclosed in accordance with the legacy accounting guidance under ASC Topic 840, Leases.our most recent Annual Report on Form 10-K.
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As partBUSINESS
Overview
Creatd, Inc. is a company whose mission is to provide economic opportunities to creators and brands by multiplying the impact of platforms, people, and technology.
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.
Creator-Centric Strategy
Our purpose is to empower creators to prosper through exceptional tools, built-in communities, and opportunities for monetization and audience expansion. This creator-first approach is the foundation of our culture and mission, and how we choose to allocate our resources.
Creatd Labs
Creatd Labs is dedicated to the development of technology products that support the creator economy. This pillar houses Creatd’s proprietary technology platforms, including Creatd’s flagship product, Vocal.
Vocal
Vocal was built to serve as a home base for digital creators. This robust, proprietary technology platform provides best-in-class tools, safe and curated communities, and monetization opportunities that enable creators to find a receptive audience and get rewarded. Creators of all types call Vocal their home, from bloggers to social media influencers, to podcasters, founders, musicians, photographers, and more.
Since its initial launch in 2016, Vocal has grown to be one of the adoption the Company elected the practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to:
Long-lived Assets Including Goodwillfastest-growing communities for content creators of all shapes and Other Acquired Intangibles Assets
We evaluate the recoverability of property and equipment and acquired finite-lived intangible assetssizes. Creators can opt to use Vocal for possible impairment whenever eventsfree, 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 amountsupgrade to the future undiscounted cash flows the assets are expectedpremium membership tier, Vocal+. Upon joining Vocal, either as a freemium or premium member, creators can immediately begin to generate from the useutilize Vocal’s storytelling tools to create and eventual disposition. If such review indicates that the carrying amount of property and equipment and intangible assets is not recoverable, the carrying amount of such assets is reduced to fair value. We have not recorded any significant impairment charges during the years presented.
We review goodwill for impairment at least annually or more frequently if events or changes in circumstances would more likely than not reduce the fair value of our single reporting unit below its carrying value. As of December 31, 2019, no impairment of goodwill has been identified.
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.
Commitments and Contingencies
The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the 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 claimspublish their stories, as well as the perceived merits of the amount of relief soughtbenefit from Vocal’s monetization features. Creatd facilitates creators’ monetization on Vocal in numerous different ways, including i) by rewarding creators for each ‘read’ their story receives; ii) via Vocal Challenges, or expectedwriting contests through which creators can win cash and other rewards; iii) by awarding Bonuses; iv) by connecting creators with brands for opportunities to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s 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 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 shareholders’ equity in accumulated other comprehensive income. Gains and losses from foreign currency transactions, which are included in SG&A, have not been significant in any period presented.
Revenue Recognition
On January 1, 2018, we adopted Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Accounting Standards Codification (ASC) Topic 605, Revenue Recognition (Topic 605), using the modified retrospective transition method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts have not been adjusted and continue to be reported in accordance with our historic accounting under Topic 605. The impact of adopting the new revenue standard was not material to our consolidated financial statements and there was no adjustment to beginning retained earnings on January 1, 2018.
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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:
Revenue disaggregated by revenue source for the years ended December 31, 2019 and 2018 consists of the following
Year Ended December 31, | ||||||||
2019 | 2018 | |||||||
Branded Content | $ | 107,335 | $ | 60,485 | ||||
Creator Subscriptions | 31,997 | - | ||||||
Managed Services | 283,332 | |||||||
Affiliate Sales | 15,300 | 11,553 | ||||||
Other Revenue | 15,042 | 8,860 | ||||||
$ | 453,006 | $ | 80,898 |
Branded Content
Revenues from branded content in 2019 increased 78% as compared to the previous year. Onboarding of additional brand clients as well as greater pricing strength contributed to a large part of the gain. The increased pricing strength was attributable to improved features, data analytics, and guidance on how to apply it. Clients are increasing their spendcollaborate on Vocal for Brands campaigns withbranded content campaigns; v) through ‘Subscribe,’ which enables creators to receive payment directly from their audience via monthly subscriptions and one-off microtransactions; vi) via Vocal’s Ambassador Program, which enables creators to receive additional rewards whenever they refer a new Vocal+ member.
In July 2022, Creatd released the company’s improved marketing strategies.first iteration of the new Vocal app for iOS, giving its premium Vocal+ members exclusive first access to the app ahead of its full release, expected in mid-August 2022. The continued developmentapp, which was designed based on Vocal audience insights, is focused on optimizing Vocal’s readership; the app works to increase audience’s ability to easily discover curated stories, thereby widening creators' distribution of content, and opening up new opportunities for monetization to creators.
Vocal+
Vocal+ is Vocal’s technology translates intopremium membership program. Subscribers pay a membership fee to access additional premium features on the platform, including: a higher value propositionrate of earnings per read, reduced platform processing fees on tips received, eligibility to participate in exclusive Vocal+ Challenges, access to Vocal’s ‘Quick Edit’ feature for brands. Revenue recognized from these tactical improvements occurred in the fourth quarter and have created a foundation for scale, future platform improvements, and continued pricing strength.
Branded content revenue is recognized when the Company fulfills its obligation to create and publish branded articles for clients on the Vocal platform, promote saidpublished stories, and meet any required promotional milestones as per the contract with the client.more. The revenue is recognized over time as the services are performed, with any payments received in advance being deferred until they are earned.
Below are the significant componentscurrent cost of a typical agreement pertaining to branded content revenue:Vocal+ membership is either $9.99 per month or $99 annually.
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Moderation and Compliance
Creator Subscriptions
Vocal+ is a premium subscription offering. The Company initially offeredOne of the subscription to a Founding Member beta group starting in May 2019, utilizing our first-party data from the 425,000‘key differentiating factors between Vocal Free’ creators we had onboarded onto Vocal up until that point. We have seen a greater than 50% growth rate in the last 12 months.
Currently, Vocal+ subscribers receive access to value-added features such as increased rate of monetization per reads and views, a decreased minimum withdrawal threshold, a discount on platform processing fees, member badges for their profiles, participation in exclusive Challenges with monetary rewards, and early access to new Vocal features.
Subscription revenues stem from both monthly and annual subscriptions, which cost $9.99 per month and $99 per year, respectively, 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 subscription revenue modelmost other user-generated content platforms is the most scalable and predictable revenue streamfact that each story submitted to Vocal is run through the Company’s proprietary moderation process before it goes live on the platform. New featuresThe decision to implement moderation into the submission process was in direct response to the rise of misinformation and opportunitiesbad 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, and 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 can introducebrands. During the second quarter 2022, Creatd announced Vocal’s new subscription offerings, thereby scalingintegration partnership with Two Hat, a Microsoft acquiree and a leading provider of AI-assisted content moderation and protection solutions for digital communities. Through the company verticallypartnership, the Company further updated its proprietary moderation technology, with the aim of ensuring that the Vocal platform remains a safe place for its creators, brand partners, and horizontally. Inaudiences.
Trust and safety are paramount to the future, premium services generate premium revenues. 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).
The continued development
Platform Compliance Policies include:
● | Human-led, technology-assisted moderation of every story submitted; |
● | Algorithmic detection of hate speech, nudity, and copyright infringement; |
● | Brand, creator, and audience safety enforced through community watch; and |
● | The rejection of what we consider toxic content, with the understanding that diverse opinions are encouraged. |
Technology Development
Vocal’s proprietary technology is built on Keystone, the same underlying open-source framework used by industry leaders such as Atlassian, a $43-billion Australian technology company. Some of the key differentiating elements of Vocal’s technology are speed, sustainability, and targeting efficiencies translates into a decreasing cost of acquisition per creator, a scalable onboarding process, and an increasing rate of subscription signups.
Managed Services
Managed Services are provided by Seller’s Choice, and encompass a suite of digital marketing solutions for e-commerce brands. Services offered include listing and storefront optimization on e-commerce platforms like Amazon and Shopify, the setup and ongoing management of clients’ websites, search engine optimization, digital advertising, and other various tactics for sales growth and customer retention. Additionally, Seller’s Choice draws upon Vocal for Brand’s storytelling capabilities to provide Seller’s Choice additional value and maximize their success. Seller’s Choice clients generate revenues of between $3,500-$10,000 per month.
Affiliate Sales
Affiliate sales represent the commission the Company receives when a purchase is made through referral links. Affiliate revenue is earned on a “click through” basis, upon referring visitors, via said links, to an affiliate’s site and having them complete a specific outcome, most commonly a product purchase.
scalability. The Company maintains multiple affiliate relationships, with platforms such as Skimlinks, Amazon, and Tune, to form and maintain thousands of vendor relationships. Each vendor establishes their own commission percentage payout, which typically range from 5-15%. The revenue is recognized upon receipt of commission fees. This opportunity continues to growinvest heavily in research and development to continuously improve and innovate its platform, with the current environment as consumer behavior continues to shift online.
Deferred Revenue
Deferred revenue consistsgoal of billings and payments from clients in advance of revenue recognition. As of December 31, 2019 and 2018,optimizing the Company had deferred revenue of $50,691 and $9,005, respectively.
Accounts Receivable and Allowances
Accounts receivable are recorded and carried when the Company uploads creator content and reaches pretetermind metrics and views on the platform. We make estimatesuser experience 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 year ended December 31, 2019 the Company recorded $33,503 as a reserve for doubtful accounts. As of December 31, 2019 and 2018 the Company has an allowance for doubtful accounts of $33,503 and $0 respectively. creators.
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Stock-Based Compensation
The Company recognizes compensation expense for all equity–based payments granted in accordance with ASC 718 “Compensation – Stock Compensation”. Under fair value recognition provisions, the Company recognizes equity–based compensation net of an estimated forfeiture rate and recognizes compensation cost only for those shares expected to vest over the requisite service period of the award.
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, typically over a five-year period (vesting on a straight–line basis). The fair value of a stock award is equal to the fair market value of a share of Company stock on the grant date.
The fair value of an option award is estimated on the date of grant using the Black–Scholes option valuation model. The Black–Scholes option valuation model requires the development of assumptions that are inputs into the model. These assumptions are the value of the underlying share, the expected stock volatility, the risk–free interest rate, the expected life of the option, the dividend yield on the underlying stock and the expected forfeiture rate. Expected volatility is benchmarked against similar companies in a similar industry over the expected option life and other appropriate factors. Risk–free interest rates are calculated based on continuously compounded risk–free rates for the appropriate term. The dividend yield is assumed to be zero as the Company has never paid or declared any cash dividends on its Common stock and does not intend to pay dividends on its Common stock in the foreseeable future. The expected forfeiture rate is estimated based on management’s best estimate.
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. In addition, the Company is required to estimate the expected forfeiture rate and recognize expense only for those shares expected to vest. If the Company’s actual forfeiture rate is materially different from its estimate, the equity–based compensation could be significantly different from what the Company has recorded in the current period.
Loss Per Share
Basic net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net loss per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. In periods when losses are reported, which is the case for the years ended December 31, 2019 and 2018 presented in these consolidated financial statements, the weighted-average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive.
The Company had the following common stock equivalents at December 31, 2019 and 2018:
December 31, | ||||||||
2019 | 2018 | |||||||
Options | 911,500 | 882,500 | ||||||
Warrants | 742,221 | 5,542,954 | ||||||
Convertible notes - related party | 5,438 | 2,889 | ||||||
Convertible notes | 724,751 | 41,989 | ||||||
Totals | 2,383,910 | 6,470,332 |
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Reclassifications
Certain prior year amounts in the consolidated financial statements and the notes thereto have been reclassified where necessary to conform to the current year presentation. These reclassifications did not affect the prior period total assets, total liabilities, stockholders’ deficit, net loss or net cash used in operating activities.
Recently Adopted Accounting Guidance
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” Under ASU 2016-02, lessees will, among other things, require lessees to recognize a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model and ASC Topic 606, “Revenue from Contracts with Customers.” ASU 2016-02 became effective for us on January 1, 2019 and initially required transition using a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. In July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842) - Targeted Improvements,” which, among other things, provides an additional transition method that would allow entities to not apply the guidance in ASU 2016-02 in the comparative periods presented in the financial statements and instead recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. In December 2018, the FASB also issued ASU 2018-20, “Leases (Topic 842) - Narrow-Scope Improvements for Lessors,” which provides for certain policy elections and changes lessor accounting for sales and similar taxes and certain lessor costs. As of January 1, 2019, the Company adopted ASU 2016-02 and has recorded a right-of-use asset and lease liability on the balance sheet for its operating leases. We elected to apply certain practical expedients provided under ASU 2016-02 whereby we will not reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases and (iii) initial direct costs for any existing leases. We also do not expect to apply the recognition requirements of ASU 2016-02 to any short-term leases (as defined by related accounting guidance). We expect to account for lease and non-lease components separately because such amounts are readily determinable under our lease contracts and because we expect this election will result in a lower impact on our balance sheet.
Recent Accounting Guidance Not Yet Adopted
In October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory”, which eliminates the exception that prohibits the recognition of current and deferred income tax effects for intra-entity transfers of assets other than inventory until the asset has been sold to an outside party. The updated guidance is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption of the update is permitted. The Company is currently evaluating the impact of the new standard.
Management does not believe that any recently issued, but not yet effective accounting pronouncements, when adopted, will have a material effect on the accompanying consolidated financial statements.
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Overview
Jerrick Media Holdings, Inc. (“JMDA” or “the Company”) is the parent company and creator of the Vocal platform. The Company develops technology-based solutions to solve problems for the creator community, connecting creators with their ideal audiences and with the brands that want to access those audiences. Through a combination of data analysis, design, and development, the Company conceptualizes, creates, and maintains a suite of technology products and resources that can influence and service a global audience.
Jerrick identifies and leverages opportunities within the digital space. Its technology is built to self sustain and scale multiple lines of revenue in a capital light operational infrastructure. In addition, the Company has successfully acquired and integrated complementary technology platforms and media assets into its existing ecosystem. The Company expects to see one of the best buyer’s markets for distressed companies in decades. The success we have had in integrating the Seller’s Choice digital agency, resuscitating legacy assets such as General Media’s iconic women’s magazine Viva into a digital community, absorbing blog sites like sports startup Unbalanced, and once-defunct content communities like Creators Media at one time was valued at $50MM, are prime examples of our acquisition and assimilation skills. The Vocal technology platform, trademark, and acquired intellectual property are wholly owned and operated by Jerrick.
Our operations are organized into the following business segments:
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Vocal
Vocal is Jerrick’s proprietary flagship technology platform that provides creators with storytelling tools, engaged communities, and opportunities to monetize their content. Vocal’s framework was engineered to support a scalable and easy-to-update platform that could adapt its capacity to meet the current and growing demand for digital resources and technologies that foster virtual connection and community. We invest in R&D and stay on top of modern practices in the open-source code community. Our processes have been tested and proven successful by the onboarding of 650,000 creators onto the Vocal platform.
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There are over 4.5 billion internet users; of that, 83% create some form of content on a monthly basis (blogs, photos, videos, and more), and 3.8 billion of them are active on social media (according to a report published by GlobalWebIndex). In 2020, the internet has become the linchpin of the modern information society, as well as the center for society’s social discourse. Vocal exists to help the world find order in a vast ocean of opportunity.
A global crisis like the current COVID-19 pandemic only further emphasizes how critical a role digital platforms play in society, as governmental bodies are encouraging social distancing and restricting travel, and employers are widely implementing work-from-home policies, many that last deep into the future. Vocal was born in an environment where the total addressable market (TAM) for our platform is near unimaginable in scale and magnitude. With the emerging effects of COVID-19 and increased interest in socio-political movements, like Me Too and Black Lives Matter , we expect that our TAM will continue to expand, along with the need for community organization and communication.
Vocal’s proprietary technology was developed with the help of Thinkmill, our Sydney-based development partners and friends. We used Thinkmill’s open-source content management framework, Keystone, as a foundation for our proprietary technology, which enables us to provide above industry standard rapid updates and cost effective agile development. Together with Thinkmill, our internal product design and quantitative groups are able to quickly distribute product improvements, updates, and new features to improve our users’ experience.
We believe thatAdditionally, the Vocal platform and its underlying technology allowsallow us to maintain an advantageous capital-light infrastructure. By using cloud service providers, we are able to focus on platform and revenue growth rather than building and maintaining the costly internal infrastructures that have materially affected so many legacy media platforms.
Vocal’s technology has been specifically designed and built to scale without a material corresponding increase in operational costs. While our users can embed rich media, such as video, audio, and product links, into their Vocal stories, the rich media content is hosted elsewhere (such as Tik Tok, 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.
Maintaining a sustainable and capital-light infrastructure is particularly important in tighter capital markets caused by external events that impact liquidity and credit, such asIn addition to the current COVID-19 pandemic. Our technology is builtbenefits this framework affords to scale, while the rate of growth can be modulated through limits on capital expenditure. This creates a predictive environment in which the Company, can continually reassess its capital needs and adjust its course when faced with unforeseen developments.
Since its 2016 launch, Vocal has amassed 650,000it provides the additional benefit to our content creators, acrossin that a wide range of mediumscreator can increase their monetization; for example, a creator can embed their YouTube video into a Vocal story and backgrounds, such as bloggers, journalists, influencers, musicians, artists, podcasters, gamers, entrepreneurs, and more. Vocal creators provide a steady stream of user-generated content, which can be monetized through reads, as well as through microtransactions, such as tips, receivedthus derive earnings from audiences.
The Vocal content creation process can be broken down into three key steps:
1. Create: Vocal’s storytelling tools make it easy for creators of all kinds to produce beautiful, engaging, rich-media content.
both platforms when their video is viewed.
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2. Share: Creators share stories on one of Vocal’s 34 genre-specific communities to get discovered and connect with like-minded creators and readers.Creatd Partners
3. Earn: Creators can earn money every time their story is read, through participation in Challenges, and through tips received from fans.
We believe there is a huge opportunity to capture market share for user-generated content. Jerrick does not see Vocal as a substitute or competitor to segment-specific content platforms, such as Vimeo, YouTube, or SoundCloud. We don't want to replace anyone; we built Vocal to be accretive toCreatd Partners houses the whole digital ecosystem. That’s why we made it easy for creators to embed their already published videos, songs, podcasts, photographs, and more directly into Vocal. We see this as a growth opportunity by building partnerships with the world’s greatest technology companies and to further spread our roots deeper into the digital foundation of society.
Vocal employs a number of strategies to collect first-party data around our users’ behavioral activity on the platform. The data is processed and analyzed by our internal business intelligence teamCompany’s agency businesses, with the goal of improving ourfostering partnerships between creators and brands. Creatd Partners’ offerings include: Vocal for Brands (content marketing), WHE Agency (influencer marketing), and Seller’s Choice (performance marketing).
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 as well as WHE influencers to produce marketing campaigns that are non-interruptive, engaging, and direct-response driven. Additionally, brands can opt to collaborate with Vocal on a sponsored Challenge, prompting the creation of high-quality stories that are centered around the brand’s mission and further disseminated through creators’ respective social channels and promotional outlets. All Vocal for Brands campaigns leverage Vocal’s first-party audience insights, which enables the creation of highly targeted and segmented audiences and optimized campaign results.
WHE Agency
The WHE Agency (“WHE”), acquired by Creatd in 2021, was founded with the goal of supporting top creators and influencers, by connecting them with leading brands and global audiences. Today, WHE manages a talent roster comprising over 100 creators across numerous verticals, including family and lifestyle, music, entertainment, and celebrity categories. Since acquiring WHE, the Company has helped WHE expand into new verticals, as well as facilitated partnerships on influencers’ behalf with leading brands including CBS, Amazon, Target, Disney, Warby Parker, CVS, Kay Jewelers, Walmart, Gerber, Masterclass, Procter & Gamble, Nike, and NFL, among others.
Seller’s Choice
Seller’s Choice is Creatd Partners’ performance marketing agency specializing in DTC (direct-to-consumer) and e-commerce clientele. Seller’s Choice provides direct-to-consumer brands with design, development, strategy, and sales optimization services.
Creatd Ventures
Creatd Ventures houses Creatd’s portfolio of e-commerce businesses, both majority and minority-owned as well as associated e-commerce technology and infrastructure. The Company supports founders by providing capital, as well as a host of services including design and development, marketing and distribution, and go-to-market strategy. While working to scale Creatd Ventures’ existing portfolio brands, including through the introduction of new product servicesofferings, Creatd continues to actively explore new potential additions to the Creatd Ventures portfolio. Specifically, the Company expects to broaden Creatd Ventures’ portfolio through the acquisition of brands that are aligned and users’ experience. Vocal’s growththat can be easily consolidated into its supply chain and infrastructure.
Currently, the Creatd Ventures portfolio includes:
● | Camp, a direct-to-consumer (DTC) food brand which creates healthy upgrades to classic comfort food favorites. Each of Camp’s products are created with hidden servings of vegetables and contain Vitamins A, C, D, E, B1 + 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 and the Los Angeles-based Erewhon Market. Further, Creatd Ventures continues to leverage these and other successful partnerships to create similar opportunities for the other brands in its portfolio. |
● | Basis, a hydrating electrolyte drink mix formulated using rehydration therapies developed by the World Health Organization. Acquired by the Company in first quarter 2022, Basis has a history of strong sales volume both on the brand’s website as well as through third-party distribution channels such as Amazon. Creatd’s acquisition of 100% ownership in Basis marks its third majority ownership acquisition for Creatd Ventures. |
Creatd Studios
The goal of Creatd Studios is to partner with creators to produce stories for TV, film, podcasts, and print. With millions of compelling stories in its midst, Creatd’s Vocal technology surfaces the best candidates for transmedia adaptations, through a deep analysis of community, creator, and audience insights. Then, Creatd Studios helps creators tell their existing stories in new ways, by partnering them with entertainment and publishing studios to create unique content experiences that accelerate earnings, discoverability, and foster new opportunities.
● | In 2022, Creatd Studios announced a series of newly released and upcoming production projects, including: |
“Write Here, Write Now,” the Company’s first-ever podcast showcasing select Vocal creators and stories; a partnership with UK-based publisher, Unbound, for the publication of books featuring stories sourced from Vocal; the formation of a new graphic novel development arm which in Fall 2022 will release its first title, Steam Wars, created by artist and independent filmmaker Larry Blamire.
● | OG Gallery: The OG Collection is an extensive library of original artwork and imagery from the archives of some of the most iconic magazines of the 20th century. OG Gallery is an exploratory initiative aimed at identifying opportunities to propel the OG Collection into a new technological sphere: the NFT marketplace. |
Application of First-Party Data
Creatd’s business intelligence and marketing strategies make use of theseteams 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 insights, resulting in a lower creatorworks to reduce acquisition costcosts for new creators and reduced subscription churn when targeting third-party networks. to help provide brands with conversions and an ideal targeted audience. In this way, our ability to apply first-party data is one of the value-drivers for the Company across its four business pillars.
Importantly, we do not sell the collected data, that being a common monetization opportunity for many other businesses. Instead, we use our users’ information.collected first party data for the purposes of bettering the platform. Specifically, our data helps us understand the behaviors and attributes that are common among the creators, brands, and audiences within our ecosystem. We utilizethen pair our first-party Vocal data with third-party data from distribution platforms such as Facebook and Snapchat to optimize the successprovide a more granular profile of our creators, brands, and generate revenue when our creators monetize their content or brands reach the right audience. Additionally, unlike traditional publishing platforms that rely on charging their audience to justify a digital infrastructure, we do not charge the audience for consuming content.audiences.
Key User Demographics:
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Vocal’s Value for Creators:
VocalIt is a proprietary technology platform, built to expand its digital audience through content distribution while providing an environment for creators to monetize and be rewarded for their content. We believegenerating this valuable first-party data that digital audiences have become increasingly wary of traditional display and programmatic advertising tactics–intrusive ads like pop-ups that disrupt the consumer experience. The Company is therefore focused on building a network of user generated content communities that emphasize discovery, creator monetization, and non-interruptive branded storytelling.
In response to what we recognize as the growing shift away from interruptive ads, brand marketing teams actively seek partners like Vocal, that can deliver key performance metrics in an authentic and safe network. By utilizing Vocal’s first-party behavioral data, we can effectively pair content creators with the right brands to produce predictive strategiescontinually enrich and successful non-interruptive marketing campaigns on the platform.
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:
Vocal Users: Stories Published
Based on our internal data collected from branded Challenges over the last 5+ months, there has been a steady increase in creators who are publishing on our platform, which we believe to be a direct result of the introduction of this feature.
As an example, we launched a branded Challenge called Pay It Forward, which was Sponsored by Vimeo. Vimeo came to us looking to promote their new tool Vimeo Create, which makes it easy to make high-impact videos that help you stand out on social media and boost your brand.
At this time, society was beginning to feel the economic impact of the pandemic. So we partnered to create a Challenge to not only promote Vimeo’s new tool, but also to give back and help champion and support small businesses by crowdsourcing promotional stories from our creators. The winner received a $5,000 prize to the small business they highlighted. The campaign was a success. We received over 600 hundred submissions and the campaign drove hundreds of signups to Vimeo’s premium subscription while increasing adoption to their new feature.
Figure 1 - # of Users who Published
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Vocal Users: Creator Acquisition Cost
As we continue to collect platform data, we are able to further refine our ideal user profile and hone our targeting strategies, such that the Creator Acquisition Cost (CAC)capabilities for both ‘Vocal Free’ (i.e. unpaid membership) and Vocal+ (i.e. paid premium membership) naturally declines over time. Having spent over three years executing marketing campaigns to attract Vocal Free users, and refining our strategy, the CAC for Vocal+ subscribers experienced an immediate decline; costs halved in the first 4 months following the launch of Vocal+. Meanwhile, the CAC for Vocal Free creators followed a similarly sharp rate of reduction, dropping from approximately $4.50 down to $2.00 in this same time frame.
Figure 2 - Vocal+ Creator Acquisition Cost (CAC)
Figure 3 - Vocal Free Creator Acquisition Cost (CAC)
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Digital Landscape and Industry
From 2006 through 2016, the online and digital content industry experienced rapid growth. This era resulted in various technology companies within the digital space expanding into some of the largest and most influential companies in the United States and around the world, such as Facebook, Amazon, Spotify, Vimeo, Etsy and more. Even with today’s market dislocation, many of these technology companies remain the industry leaders that will solve for a new era of social distancing.
During this same period of time, countless digital publishing platforms and tools were introduced that enabled creators and their audiences to create, share, and connect. However, hyper-growth in this sector eventually introduced a new series of problems. The largest issue was that the first wave of media publishing platforms and digital communities were reliant on a single line of revenue: traditional intrusive advertising.
As these companies scaled, so did their costs of operations, which eventually compelled them not only to compromise the integrity of their relationship to users, but to bombard audiences with invasive ads and use some aggressive marketing tactics in order to generate revenues and stay solvent. An intrusive user experience is not a sustainable model, particularly in the current socio-political environment.
Ad technology began experiencing rapidly declining margins and tended to require excessive traffic in order to monetize content. Digital content and media asset values deteriorated rapidly between 2016 and 2018, and continue to do so today. This was evident in the layoffs at companies like Vice and Buzzfeed. This compression of margins has, in recent years, also led to massive layoffs in multiple other industries that were dependent on this legacy form of advertising, from agencies to DTC brands. There will continue to be risk of future markdowns in legacy asset valuations, that will create new opportunities for the Vocal platform.
In designing Vocal, the Jerrick team focused on building a network of communities on a singular platform that would help people discover real stories, from authentic creators. Our team is always innovating and introducing new features based on two core principles: that creators and brands are our partners, and that we make money when our partners make money.
In the face of radical disruption in the digital marketing landscape, content distribution is undergoing a significant shift.
According to Statista, every 60 seconds on the internet:
Further, content monetization has become increasingly oriented toward native and creator-based fees. Facebook, Google, and Amazon already capture nearly 70% of digital ad spending, with that number projected to increase (Source: eMarketer). With these changes, and in light of more recent socio-economic developments – the shift toward remote workforces, the popularization of freelancing, and social distancing recommendations – we believe that digital content creation is at an all-time high. This new era will see these statistics grow rapidly and exponentially increase online activity, resulting in an evaluation of how to best support the creative community, its audiences, and the brands who want to reach them.
At the same time, branded content (a form of native advertising) is on the rise,promotion and experiencing continuing growth year-over-year.
According to data from Pressboard:
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Brands are actively seeking trustworthy and safe platforms like Vocal to drive engagement through non-interruptive brand storytelling and deliver invaluable performance metrics that help optimize their marketing efforts. The Vocal platform provides a needed alternative for creators to participate within a community-first environment and access sustainable revenue sources. It was built on these transparent core values, which continue to inform how we work with creators, readers, brands, and partners.
History
In earnest, Jerrick was founded in 2014 by CEO Jeremy Frommer and became publicly listed on the OTCQB in February 2016, at which point the Company was renamed Jerrick Media Holdings, Inc. Jerrick began working with its Australia-based development partners, Thinkmill, in early 2014 to begin building its flagship product. The Vocal technology platform was released to the public in December 2016 with six niche communities in its network and a small group of less than 1,000 beta creators.
In late 2018, we introduced our in-house creative studio, Vocal for Brands, which partners with direct-to-consumer (DTC) brands to create engaging and campaign-optimized stories on Vocal that build brand affinity and trust, and drive results
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2019 was marked by a series of important milestones for the Company. First, in July 2019, the Vocal+ premium membership offering was introduced on the Vocal platform. This was followed by the completion of ourcreator acquisition, and integration of boutique e-commerce marketing agency, Seller’s Choice, in September 2019. Earlier that year, we successfully tendered for the majority of Jerrick’s outstanding warrants, exchanging over 90% of outstanding warrants for common stock.
In January 2020, Vocal’s product team launched the latest feature for creators and brands, called “Challenges.” Challenges (which are either internally run or sponsored by brands) are themed story contests that incentivize content submissions and engage Vocal’s user base by providing creators with the chancespecifically, to win cash prizes and other rewards. The introduction of creator Challenges, which represents Vocal’s most important product update to date, showcases Jerrick’s unique ability to leverage its powerful network to host unique content experiences that drive success and value for brands, creators, and audiences simultaneously. Moreover, creator Challenges are accretive to Jerrick’s own marketing efforts; Challenges offer further incentive for new creators to join Vocal and, in particular, to upgrade to Vocal+ (which offers exclusive members-only Challenges). As a result, since the launch of creator Challenges, we’ve seenreduce our creator acquisition costs decrease.(CAC) and subscriber acquisition costs (SAC).
Competition
The idea for Vocal came as a response to what Jerrick’sCreatd’s founders recognized as systemic flaws inherent to the digital media industry and its operational infrastructures. DepreciatingThe depreciating value of digital media business models built on legacy technology platforms created a unique opportunity for the development of a creator-centric platform that could appeal to a global community and, at the same time, be capable of acquiring undervalued complimentary technology assets.
JerrickCreatd’s founders built the Vocal platform upon the general thesis that a closed and safe ecosystem utilizing first-party data to increase efficiencies could create a sustainable and defensible business model. Vocal was strategically developed to provide value for content creators, readers, and brands, and to serve as a home for the ever-increasing amount of digital content being produced and the libraries of digital assets lying dormant.
Since 2016,Vocal is most commonly discussed as a combination of:
● | Medium, a platform for writers built by former Twitter founder Ev Williams; |
● | Reddit, a social news aggregation, web content rating, and discussion website; and |
● | Patreon, a membership platform that provides business tools for content creators to run a subscription service. |
Creatd does not view Vocal as a substitute or competitor to segment-specific content platforms, such as Vimeo, YouTube, Instagram, Pinterest, TikTok, Spotify, or SoundCloud. We don’t want to replace anyone; we built Vocal to be accretive to the ‘creator era,’entire digital ecosystem. In fact, one of the industry has been marked bymost powerful components of our technology is the proliferation of democratized and transparent platforms. The digital space now encompasses an online global audience of over 4.5 billion internet users and over 1.7 billion websites. The “read, write and execute” web, or Web 3.0, is a data-drivenfact that Vocal makes it easy for creators to embed their existing published content, including videos, songs, podcasts, photographs, and more, intelligent webdirectly into Vocal. We see this as a growth opportunity by building partnerships with the world’s greatest technology companies and to further spread our roots deeper into the digital landscape
Acquisition Strategy
Creatd’s hybrid finance and design culture is key to its acquisition strategy. Acquisition targets are companies that meet a set of opportunistic or financial standards or that are part of specific digital environments that are accretive and can adjust its output according to the particular needs and habits of the individual user, fostering more intelligent creation, greater personalization and, ultimately, a more satisfied end user.
In this context, legacy sites and platforms are becoming increasingly threatened by factors like fragmented content creation tools, excessive traffic and marketing dollars required to monetize content, and compressing margins for traditional digital advertising. This has led to a qualitative deterioration of online content. In addition, it means that companies operating on these modelsseamlessly integrate into Creatd’s existing revenue lines. Creatd will continue to strugglemake strategic acquisitions when presented with limited paths to scalable profitability.
There is limited competitionopportunities that providesare in the specific typeinterest of resources and platform that Vocal provides the creative community. In addition, there are a limited number of digital media companies like Vocal that charge only creators and brands for publishing content, as opposed to charging the audience for accessing content. Jerrick’s management team believes that the primary competition for Vocal are other platforms that can draw attention or time from the creative community in general. These platforms can vary in scope, size, and genre. Simply put, platforms compete for the attention of the digital consumer.
Vocal’s Competitive Strengths
Digital platforms must differentiate themselves by providing executable solutions and fulfilling users’ empirical needs. Our focus on rewarding the creator for their content, partnering with them on distribution, and providing opportunities for monetization, is one of the key differentiating factors between Vocal and legacy publishing platforms.
shareholder value.
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Product Revenues
Quality content submissions from creators attract audiences and brands, representing the three primary stakeholders who exist in Vocal’s ecosystem. Each of these primary stakeholders presents a unique set of needs and motivations for using Vocal, and thus a unique revenue opportunity. The continuous interactions between creators, audiences, and brands propel a virtuous cycle of transactions
Through this essential framework, we were able to segment and understand the motivations and behaviors of the key players transacting on the Vocal platform. Eventually, this framework lent itself to the development of what we now call the Creatd Cycle, which illustrates not only Vocal’s key stakeholders, but the numerous revenue touchpoints that were built into the platform to ensure a balanced portfolio of revenue streams, sustainable infrastructures, and compounding scalability.
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RevenuesRevenue Model
Creatd’s revenues are primarily generated through:
Creator Subscriptions:
Vocal+ is a premium subscription membership for Vocal users. Vocal+ members pay a membership fee for premium features, including receiving increased earnings for their content, reduced platform processing fees for tips received, a Vocal+ badge on their creator page, eligibility to participate in exclusive Vocal+ Weekly Challenges, and more. Creators may sign up for a Vocal+ membership when they create an account, or they can upgrade an existing Vocal Free account to a Vocal+ account at any time. The current cost of a Vocal+ membership is either $9.99 per month or $99 annually.
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Brand Agency:
We believe that like our creators, brands have a story to tell. Our in-house content studio, Vocal for Brands, specializes in producing authentic and educational branded stories. We leverage our first-party platform data and creator community to help us do it.
Vocal for Brands pairs brands with active creators in the Vocal network to produce bespoke branded content campaigns, brand-sponsored creator Challenges, and other types of branded experiences on the Vocal platform that build brand engagement and trust, and drive results. The combination of Vocal’s hyper-engaged audiences, user-generated communities, and brand-safe environment help brands achieve maximum ROAS (return on ad spend).
Vocal’s first-party data enables our team to create highly targeted and segmented audiences for Vocal for Brands campaigns, and help the brand reach their ideal audience. Brands can access story performance data, engagement data, behavioral data, and sentiment data, all of which is used to further optimize the campaign’s success.
The Company typically collects fixed fees ranging from $5,000 to $50,000, depending on duration and scope of third-party marketing spend.
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● | Creator Subscriptions: 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. |
Marketing + Consulting Services:
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Seller’s Choice, LLC (“Seller’s Choice”), which we acquired in September 2019, is a digital marketing solution provider dedicated to the interests, growth, and profitability of e-commerce brands. Seller’s Choice cohesively focuses on the four key factors of online sellers – sell-through, differentiation, community and compliance – to help e-commerce businesses establish their brand identity and realize profitable and sustainable growth while maximizing customer engagement and retention.
Through Jerrick’s acquisition of Seller’s Choice, restructuring of their product line, and consolidation of staff, Jerrick has been able to expand its reach into the direct-to-consumer marketplace, while enabling some of Seller’s Choice’s clientele to leverage Vocal for Brand’s unique brand storytelling capabilities. With the power of Vocal, Jerrick has the ability to rapidly identify the winning aspects of an acquisition and eliminate unnecessary operational infrastructures.
Platform Processing Fees and Microtransactions:
With Tipping and other types of microtransactions, audiences can engage and support their favorite Vocal creators by actively investing in their creativity. Vocal takes a platform processing fee on all transactions. Each tip sent on Vocal generates revenue for the Company in the form of platform processing fees. For Vocal Free creators, we retain a 7% platform processing fee for every tip exchanged. For Vocal+ creators, we retain a 2.9% platform processing fee.
Vocal utilizes Stripe for payment processing, and currently supports Apple Pay and Google Wallet.
Additional applications for microtransactions on Vocal are in development, including the enablement of gated premium content, recurring tips, affiliate marketing features for brands, and incentivization fees for new creator referrals.
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Affiliate sales:
Vocal generates revenue through affiliate marketing relationships, which pays The Company a percentage of purchases made on our platform. Affiliate partnerships include Amazon, Skimlinks, Tune, and more. This represents a unique opportunity in the post-pandemic environment where brands need expansive distribution pipelines such as Vocal to reach broader audiences.
E-commerce:
Our e-commerce strategy involves revitalizing archival imagery and media content in dormant legacy portfolios. Our curation and data capabilities have helped us create scalable and definable value for our internal collection of media assets through financing, trademarking, licensing, and production opportunities. The collectibles auction space and associated technology platforms represent a growing opportunity for Vocal to utilize its operational framework to leverage media libraries.
Growth Strategy
Continued growth is likely to be achieved by focusing on the following key areas:
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Customers
There are three primary categories of stakeholders/customers that interact within Vocal’s ecosystem: creators, brands, and readers.
Creators
Vocal provides a large stage for creators to connect with fans and find new audiences. In addition to enabling access to millions of monthly visitors, the platform provides creators with a full suite of tools and services for content creation, discovery, distribution, and monetization, including:
Brands
Vocal for Brands leverages Vocal to produce branded stories and Challenges that build affinity and trust, while generating sales and awareness. The key value propositions for brands include:
Acquisition Strategy
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ReadersCreatd’s hybrid finance and design culture is key to its acquisition strategy. Acquisition targets are companies that meet a set of opportunistic or financial standards or that are part of specific digital environments that are accretive and can seamlessly integrate into Creatd’s existing revenue lines. Creatd will continue to make strategic acquisitions when presented with opportunities that are in the interest of shareholder value.
We are focused on enabling the discoveryCorporate History and curation of stories for our readers through a range of products and services:Information
Corporate Information
We were 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.
On 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 Merger Sub was merged with and into Jerrick, with Jerrick surviving as our wholly-owned subsidiary (the “Merger”). Pursuant to the terms of the Merger Agreement, we acquired, through a reverse triangular merger, all of the outstanding capital stock of Jerrick in exchange for issuing Jerrick’s shareholders (the “Jerrick Shareholders”), pro-rata, a total of 28,500,000475,000 shares of our common stock.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”).
Upon closing of the Merger on February 5, 2016, the Company changed its business plan to our current plan.
In 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 781,81813,030 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.
All share and per share amounts for the common stock indicated in this prospectus have been retroactively restated to give effect to the Reverse Stock Split.
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 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 prospectus have been adjusted to give effect to the August 2020 Reverse Stock Split.
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.
Recent Developments
Resignation of Chief Executive Officer and Director
On August 9, 2022, Laurie Weisberg, the Company’s Chief Executive Officer and a member of the Board, notified the Company of her intention to resign from the positions of Chief Executive Officer, director, and any other positions held with the Company or any of its subsidiaries, regardless of whether Ms. Weisberg had been appointed. Such resignations are to become effective on a date to be determined following further discussion with the Board, but in no event later than August 31, 2022.
Appointment of Chief Executive Officer
Effective upon Ms. Weisberg’s resignation as Chief Executive Officer, Jeremy Frommer, currently the Company’s Executive Chairman, will be appointed as Chief Executive Officer, pursuant to the Board’s approval.
Jeremy Frommer
Mr. Frommer was appointed Executive Chairman in February 2022 and has been a member of our board of directors since February 2016. Previously, he served as our Chief Executive Officer from February 2016 to August 2021, and Co-Chief Executive Officer from August 2021 to February 2022. Mr. Frommer has over 20 years of experience in the financial technology industry. Previously, Mr. Frommer held key leadership roles in the investment banking and trading divisions of large financial institutions. From 2009 to 2012, Mr. Frommer was briefly retired until beginning concept formation for Jerrick Ventures which he officially founded in 2013. From 2007 to 2009, Mr. Frommer was Managing Director of Global Prime Services at RBC Capital Markets, the investment banking arm of the Royal Bank of Canada, the largest financial institution in Canada, after the sale of Carlin Financial Group, a professional trading firm. From 2004 to 2007, Mr. Frommer was the Chief Executive Officer of Carlin Financial Group after the sale of NextGen Trading, a software development company focused on building equity trading platforms. From 2002 to 2004, Mr. Frommer was Founder and Chief Executive Officer of NextGen Trading. From 2000 to 2002, he was Managing Director of Merger Arbitrage Trading at Bank of America, a financial services firm. Mr. Frommer was also a director of LionEye Capital, a hedge fund from June 2012 to June 2014. He holds a B.A. from the University of Albany. We believe Mr. Frommer is qualified to serve on our board of directors due to his financial and leadership experience.
Appointment of Director
Effective upon Ms. Weisberg’s resignation as a director, Justin Maury, currently the Company’s President and Chief Operating Officer, will be appointed to the Board, pursuant to the Board’s approval.
Justin Maury
Mr. Maury has served as our President since January 2019 and was appointed Chief Operating Officer in August 2021. A full-stack designer and product developer by training, Mr. Maury partnered with Jeremy Frommer and founded the Company in 2013, having brought with him 10 years of experience in the creative industry. Since joining Creatd in 2013, Mr. Maury has been an instrumental force in the Company’s business and revenue expansion, and has overseen the Company’s product development since inception, including overseeing the design, development, launch, and ongoing growth of the Company’s flagship product, Vocal, the innovative creator that, under Mr. Maury’s leadership, has grown to a community of over 1.5 million users with a total audience reach of over 175 million.
As a director, we believe Mr. Maury will add considerable value, including through by providing a unique perspective into Creatd’s product performance and evolution and by providing invaluable direct input to help guide the Company’s ongoing refinement of its technology roadmap and maturation of its business model.
Trigger of Price Reset
On July 29, 2022, the Company announced that it was not moving forward with its previously announced Rights Offering. In doing so, it triggered a price reset in the July 2022 Financing and the May 2022 Securities Purchase Agreement. As a result of this price reset, the May 2022 Securities Purchase Agreement debentures now have a conversion price of $1.00, and both the Series C and Series D warrants have exercise prices of $0.96. As a result of the price reset, the July 2022 Financing debentures now have a conversion price of $1.25, and both the Series E and Series F warrants have exercise prices of $1.01.
July 2022 Financing
On July 25, 2022 (the “Effective Date”), the Company entered into and closed securities purchase agreements (each, a “Purchase Agreement”) with five accredited investors (the “Investors”), whereby the Investors purchased from the Company for an aggregate of $1,935,019 in subscription amount (i) debentures in the principal amount of $2,150,000 (the “Debentures”); (ii) 1,075,000 Series E Common Stock Purchase Warrants to purchase shares of the Common Stock (the “Series E Warrants”); and (iii) 1,075,000 Series F Common Stock Purchase Warrants to purchase shares of Common Stock (the “Series F Warrants”, and collectively with the Series E Warrants, the “Warrants”). The Company and the Investors also entered into registration rights agreements (each, a “Registration Rights Agreement”) pursuant to the Purchase Agreement.
The Debentures have an original issue discount of 10%, have a maturity date of November 30, 2022, 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 $2.00 per share, subject to adjustment upon certain events including a one-time adjustment to the price of the Common Stock offered in the Rights Offering (as defined therein), with such adjusted conversion price not to be lower than $1.25.
The Warrants are immediately exercisable for a term of five years until July 25, 2027. The Series E Warrants are exercisable at an exercise price of $3.00, subject to adjustment upon certain events including a one-time adjustment to the price of the Common Stock offered in the Rights Offering, with such adjusted exercise price not to be lower than $1.01. The Series F Warrants are exercisable at an exercise price of $6.00 subject to adjustment upon certain events including a one-time adjustment to the price of the Common Stock offered in the Rights Offering, with such adjusted exercise price not to be lower than $1.01. The Warrants provide for cashless exercise to the extent that there is no registration statement available for the underlying shares of Common Stock. The shares underlying the Debentures, the Series E Warrants and the Series F Warrants are to be registered within 90 days of the Effective Date.
The representations and warranties contained in the Purchase Agreement were made by the parties to, and solely for the benefit of, the other in the context of all of the terms and conditions of the Purchase Agreement and in the context of the specific relationship between the parties. The provisions of the Purchase Agreement, including the representations and warranties contained therein, are not for the benefit of any party other than the parties to the Purchase Agreement. The Purchase Agreement is not intended for investors and the public to obtain factual information about the current state of affairs of the parties.
Additionally, in connection with the Purchase Agreements, the subsidiaries of the Company delivered a guarantee (the “Guarantee”) in favor of the Investors whereby each such subsidiary guaranteed the full payment and performance of all obligations of the Company pursuant to the Purchase Agreement.
Nasdaq - Continued Listing
On March 1, 2022, the Company received a letter from the staff of The Nasdaq Capital Market (the “Exchange”) notifying the Company that the Exchange has determined to delist the Company’s common stock from the Exchange based on the Company’s Market Value of Listed Securities for the 30-consecutive day period between January 15, 2022 and February 25, 2022 falling short of the requirements under Listing Rule 5550(b)(2) (the “Rule”). Although a 180-day period is typically allowed for an issuer to regain compliance, the Company was not eligible to use such compliance period, as the Exchange had instituted a Panel Monitor through March 9, 2022.
The Company pursued an appeal to the Nasdaq Hearings Panel (the “Panel”) of such determination, in accordance with the Exchange’s rules and, pursuant to such request by the Company to appeal, the delisting of the Company’s securities and the Form 25 Notification of Delisting filing was stayed pending the Panel’s decision.
On April 22, 2022, the Exchange notified the Company that the Panel has determined to continue the listing of the Company on the Exchange, subject to the following conditions: (i) on or before May 16, 2022, the Company will file its Quarterly Report on Form 10-Q for the period ended March 31, 2022 demonstrating compliance with Nasdaq Listing Rule 550(b)(1) requiring shareholders’ equity of $2.5 million and (ii) on or before August 29, 2022, the Company will file a Form 8-K documenting the successful completion of any fund-raising activity that has taken place since April 14, 2022 and the Company’s long-term compliance with the continued listing requirements of the Nasdaq Capital Market.
The Panel has advised that August 29, 2022 represents the full extent of the Panel’s discretion to grant continued listing during the time the Company is non-compliant and should the Company fail to demonstrate compliance by such date, the Panel will issue a final delist determination and the Company will be suspended from trading on the Exchange.
Securities Purchase Agreement
On May 31, 2022, the Company entered into and closed securities purchase agreements (each, a “Purchase Agreement”) with eight accredited investors (the “Investors”), whereby the Investors purchased from the Company for an aggregate of $3,600,036 in subscription amount (i) debentures in the principal amount of $4,000,000 (the “Debentures”); (ii) 2,000,000 Series C Common Stock Purchase Warrants to purchase shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”) (the “Series C Warrants”); and (iii) 2,000,000 Series D Common Stock Purchase Warrants to purchase shares of Common Stock (the “Series D Warrants”, and collectively with the Series C Warrants, the “Warrants”). The Company and the Investors also entered into registration rights agreements (each, a “Registration Rights Agreement”) pursuant to the Purchase Agreement.
The Debentures have an original issue discount of 10%, have a term of six months with a maturity date of November 30, 2022, 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 $2.00 per share, subject to adjustment upon certain events including a one-time adjustment to the price of the Common Stock offered in the Rights Offering (as defined therein), with such adjusted conversion price not to be lower than $1.00.
The Warrants are exercisable for a term of five years from the initial exercise date of November 30, 2022, until November 30, 2027. The Series C Warrants are exercisable at an exercise price of $3.00, subject to adjustment upon certain events including a one-time adjustment to the price of the Common Stock offered in the Rights Offering, with such adjusted exercise price not to be lower than $0.96. The Series D Warrants are exercisable at an exercise price of $6.00 subject to adjustment upon certain events including a one-time adjustment to the price of the Common Stock offered in the Rights Offering, with such adjusted exercise price not to be lower than $0.96. The Warrants provide for cashless exercise to the extent that there is no registration statement available for the underlying shares of Common Stock. The shares underlying the Debentures, the Series C Warrants and the Series D Warrants are to be registered within 90 days of the Effective Date.
Additionally, in connection with the Purchase Agreements, the subsidiaries of the Company delivered a guarantee (the “Guarantee”) in favor of the Investors whereby each such subsidiary guaranteed the full payment and performance of all obligations of the Company pursuant to the Purchase Agreement.
The Debentures, Warrants, Common Stock underlying the Debentures and the Common Stock underlying the Warrants were not registered under the Securities Act, but qualified for exemption under Section 4(a)(2) and Rule 506 promulgated thereunder. The Company is relying on this exemption from registration for private placements based in part on the representations made by Investors, including representations with respect to each Investor’s status as an accredited investor, as such term is defined in Rule 501(a) of the Securities Act, and each Investor’s investment intent.
Employees
As of July 2, 2020,June 30, 2022, we had 2145 full-time employees and 17 part-time employees. None of our employees are subject to a collective bargaining agreement, and we believe thatour relationship with our employees to be good.
DescriptionWe believe that our future success will depend in part on our continued ability to attract, hire and retain qualified personnel. Our human capital resources objectives include identifying, recruiting, retaining, incentivizing and integrating our existing and new employees, advisors and consultants. The principal purposes of Propertyour equity and cash incentive plans are to attract, retain and reward personnel through the granting of stock-based and cash-based compensation awards, in order to increase stockholder value and the success of our company by motivating such individuals to perform to the best of their abilities and achieve our objectives.
Facilities
Our corporate headquarters consists of a total of 3,000approximately 8,000 square feet and is located at 419 Lafayette Street, 6th Floor, New York, NY 10003. The current lease term is effective May 1, 2022 through April 30, 2029, with monthly rent of $39,000 for the first year of the leasing period, and an increase in rent of 3% for every year thereafter. Previously in 2022, the Company also had additional office space located at 648 Broadway, Suite 200, New York, NY 10012. The lease term was effective September 9, 2021 through September 9, 2022, with monthly rent of $12,955 for the leasing period. During 2021, the Company also had additional office space located at 2050 Center Ave, Suite 640 and Suite 660, Fort Lee, NJ 07024. The current lease term iswas effective June 5, 2018 through July 5, 2023, with monthly rent of $7,693 for the first year and increases at a rate of 3% for each subsequent year thereafter. Subsequent to December 31, 2021, the Company reached an agreement with the landlord at the New Jersey location to terminate the lease effective February 28, 2022.
Legal Proceedings
From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. 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 June 25, 2020, Home Revolution, LLCor about August 30, 2021, Robert W. Monster and Anonymize, Inc. (“Home Revolution”Monster”) filed a lawsuit in the United States District Court for the Western District of New Jersey, entitled Home Revolution, LLC,Washington at Seattle, Robert W. Monster, et alal. v. Jerrick Media Holdings,Creatd, Inc., et al, Case No.al. (Western District of Washington at Seattle 2:20-cv-07775-JMV-MF.21-CV-1177). The complaint for the lawsuitComplaint alleges, among other things, that action for Declaratory Judgment under 28 U.S.C. § 2201 that Monster’s registration and use of the Company breachedinternet domain name VOCL.COM (the “Domain Name”) does not violate Creatd’s rights under the Membership Interest Purchase Agreement, as modified,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 ancillary transaction documentscertain other rights with respect 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 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, violationsACPA, and that Plaintiffs’ use of VOCL.COM constitutes neither a violation of the Exchange Act and Rule 10b-5 thereunder, fraud, equitable accounting, breach of fiduciary duty, conversion and unjust enrichment. The CompanyACPA nor trademark infringement or dilution under the Lanham Act. Creatd believes the lawsuit lacks merit and will vigorously challenge the action. At this time, the Company iswe are unable to estimate potential damage exposure, if any, related to the litigation.
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The Company’s address is 419 Lafayette Street, 6th Floor, New York, NY 10003. The Company’s telephone number is (201) 258-3770. Our website is https://creatd.com. The information on, or that can be accessed through, this website is not part of this prospectus, and you should not rely on any such information in making the decision whether to purchase the securities.
MANAGEMENT
The following table and biographical summaries set forth information, including principal occupation and business experience, about our directors and executive officers as of the date of this prospectus:
Name | Age | Positions | ||
Chief Executive Officer, Director | ||||
Executive Chairman of the Board of Directors | ||||
Director | ||||
Lorraine Hendrickson | 56 | Director | ||
Justin Maury | 33 | Chief Operating Officer & President | ||
Chelsea Pullano | 31 | Chief Financial Officer | ||
Jeremy FrommerLaurie Weisberg –Chief Executive Officer and Director
Mr. FrommerMs. Weisberg was elected to our board of directors in July 2020 and has served asbeen our Chief Executive Officer since 2022. Previously, she held the position of Co-Chief Executive Officer from August 2021 to February 2022, and Chief Operating Officer from September 2020 to August 2021. Weisberg, who has served as the Chief Sales Officer at Intent since February 2019, has spent over 25 years at the forefront of sales and marketing innovation in the technology space, having held leadership positions at various technology companies including Thrive Global, Curalate, and Oracle Data Cloud. From October 2010 to April 2015, Ms. Weisberg was a member of the executive leadership team at Datalogix, leading up to its acquisition by Oracle in 2015, at which point she assumed the role of VP of Oracle Data Cloud. Additionally, Ms. Weisberg has served on the Advisory Board at Crowdsmart, an intelligent data-driven investment prediction platform since April 2019. Ms. Weisberg was born and educated in England. We believe Ms. Weisberg is qualified to serve on our board of directors due to her extensive global sales and brand marketing expertise as well as her leadership experience working within the technology space.
Jeremy Frommer – Executive Chairman and Co-Founder
Mr. Frommer was appointed Executive Chairman in February 2022 and has been a member of our board of directors since February 2016. Previously, he served as our Chief Executive Officer from February 2016 to August 2021, and Co-Chief Executive Officer from August 2021 to February 2022. Mr. Frommer has over 20 years of experience in the financial technology industry. Previously, Mr. Frommer held key leadershipsleadership roles in the investment banking and trading divisions of large financial institutions. From 2009 to 2012, Mr. Frommer was briefly retired until beginning concept formation for Jerrick Ventures which he officially founded in 2013. From 2007 to 2009, Mr. Frommer was Managing Director of Global Prime Services at RBC Capital Markets, the investment banking arm of the Royal Bank of Canada, the largest financial institution in Canada, after the sale of Carlin Financial Group, a professional trading firm. From 2004 to 2007, Mr. Frommer was the Chief Executive Officer of Carlin Financial Group after the sale of NextGen Trading, a software development company focused on building equity trading platforms. From 2002 to 2004, Mr. Frommer was Founder and Chief Executive Officer of NextGen Trading. From 2000 to 2002, he was Managing Director of Merger Arbitrage Trading at Bank of America, a financial services firm. Mr. Frommer was also a director of LionEye Capital, a hedge fund from June 2012 to June 2014. He holds a B.A. from the University of Albany. We believe Mr. Frommer is qualified to serve on our board of directors due to his financial and leadership experience.
Joanna Bloor – Director
Ms. Bloor, age 52, Founder and CEO of The Amplify Lab, combines over 7 years of experience in Technology senior management following a 15-year career as a Senior Executive in Operations and Marketing. Previously, she had been involved in three companies in the Technology and Media industry, holding positions including VP of Sales Operations, AVP of Sales Operations and Director of Sales Operations, and board member. From 2010 through 2015, she held the position of VP of Sales Operations at Pandora, a technology and entertainment company. From 2000 to 2010, Ms. Bloor was the AVP of Sales Operations for CBS Interactive, Inc., a Digital Media and News organization. From 2000 to 2001, she was the Director of Sales Operations for OpenTable.com, an online restaurant reservation company. Joanna is also currently the Founder and CEO of The Amplify Lab., a career coaching company rooted in technology, data, and human experiences. We believe Joanna will be invaluable assisting Creatd shape and implement company culture transformation, overall operations, and human capital management. She has also had specific and deep experience in scaling revenue and implementing teams for numerous public and private companies, including leading technology companies and consumer brands that generate multi-million to hundreds of millions in annual revenue.
Brad Justus – Director
Mr. Justus, age 61, most recently Director of International Publishing at Riot Games, combines over 13 years of executive management experience in the game development and publishing industries with more than 10 years in multiple C-Suite officer roles. Previously, he had been involved in 3 companies in the technology and gaming industry, holding positions including Vice President of Marketing and Brand Experience, Chief Marketing Officer, Chief Executive Officer, and Senior Vice President. From 2015 to 2016, he served as Chief Experience Officer at Radiant Entertainment, a gaming company that was acquired by Riot Games in 2016. From 2012 to 2014, Mr. Justus was VP of Marketing and Brand Experience at ROBLOX Corporation, a digital community, and gaming company. From 2009 to 2012, he was Chief Marketing Officer at ClearStreet, Inc., a fintech startup company. From 2006 through 2007, Mr. Justus was the Senior Vice President for Art.com, an online art marketplace. From 2004 to 2005, he was President and CEO for Informative, Inc., an online technology survey company. Previously, he was Senior Vice President at LEGO, an industry-leading toy company from 1999 to 2004. Since 2016 Mr. Justus held titles including Director, Brand Marketing and Director, International Publishing at Riot Games, a video game company where he also led the creator-driven global launch of the blockbuster game VALORANT in 2020. Mr. Justus holds a Bachelor of Arts cum laude in Political Science from Amherst College. We believe Mr. Justus will be a strong addition to Creatd’s board of directors because of his experience leading branding, marketing, and product development teams at numerous direct to consumer companies. Many of these companies are tech- and community-focused, just like Creatd. He will also advise on overall online strategy and revenue growth.
Lorraine Hendrickson – Director
Lorraine Hendrickson, age 56, combines over 20 years of experience in the investment banking industry, having held numerous senior management and executive positions including Chief Administration Officer, Vice President of Business Development, Corporate Relations, and Investment Strategy as well as various Director positions. From 2004 to 2006, Ms. Hendrickson served as Vice President Investment Strategy & Corporate Relations at Merrill Lynch Investment Management. From 2006 to 2011, Ms. Hendrickson was Director at BNY Mellon. An investment management firm. From 2011 to 2012, she moved to Hong Kong with BNY Mellon to become their Chief Administration Officer, Global Distribution. From 20014 to 2015, Ms. Hendrickson moved to become a Director, within the Investment Management Advisory division of Deloitte UK, the leading London-based international consulting firm. She was subsequently recruited by a client and, from 2015-2018, served as the Program Director of London CIV (Collective Investment Vehicle), the City of London’s first alternative asset management company owned and operated by the local government. She holds a Bachelor of Science in Finance from Rider University. We believe Ms. Hendrickson will add considerable value, including through her comprehensive and diverse investment management experience, deep knowledge of governance and regulatory frameworks, and broad experience with business development, operations, and executive leadership.
Justin Maury –PresidentChief Operating Officer and Co-Founder
Mr. Maury has served as our President since January 2019.2019, and was appointed Chief Operating Officer in August 2021. He is a full stack design director with an expertise in product development. With over ten years of design and product management experience in the creative industry, Mr. Maury’s passion for the creative arts and technology ultimately resulted in the vision for Vocal. Since joining JerrickCreatd in 2013, Maury has overseen the development and launch of the company’s flagship product, Vocal, an innovative platform that provides storytelling tools and engaged communities for creators and brands to get discovered while funding their creativity. Under Maury’s supervision, Vocal has achieved growth to over 380,000 creators across 34 genre-specific communities in its first two years since launch.
Chelsea Pullano –Chief Financial Officer
Ms. Pullano has been our Chief Financial Officer since June 2020. She has a long history of leadership at Jerrick,Creatd, serving as a member of the Company’s Management Committee for four years. Prior to her current role, Ms. Pullano was an integral member of our finance department since 2017, most recently serving as our Head of Corporate Finance, a role in which she coordinated our periodic reports under the Exchange Act and other financial matters. Prior to joining the Finance Department, Ms. Pullano was a member of our operations team from 2015 to 2017. She holds a B.A. from the State University of New York College at Geneseo.
Danielle Banner –Chief Revenue Officer Nominee
Ms. Banner is a nominee for appointment as our Chief Revenue Officer, and such appointment will be effective upon the completion of this offering. Since joining Jerrick in 2015, Ms. Banner has managed teams in business development, sales and general operations in order to optimize revenue growth for the company through our subsidiaries, Vocal and Seller’s Choice. Ms. Banner is a member of the Company’s Management Committee and Chairs our Operating Committee. Before she joined the Jerrick team, Ms. Banner started her career at the Miami International Film Festival in 2012. She holds a B.A. in Multimedia Studies from Florida Atlantic University
Robert Tal –Chief Strategy Officer Nominee
Mr. Tal is a nominee for appointment as our Chief Strategy Officer, and such appointment will be effective upon the completion of this offering. After joining Jerrick in 2015, Mr. Tal built Jerrick’s business intelligence unit from the ground up and has since led his team through the successful deployment of a scalable and sustainable first-party data model that has mobilized over 650,000 creators to join the Vocal platform. In 2017, Mr. Tal joined Jerrick’s Management Committee, in which he plays a central role in advising the Company’s Chief Executive Officer and President on market intelligence, data insights, and growth strategy. He holds a B.A in Information Technology and Informatics from Rutgers University
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Leonard Schiller –Director
Mr. Schiller is the Chairman of our board of directors. He is President and Managing Partner of the Chicago law firm of Schiller, Strauss and Lavin PC and has been associated with the firm since 1977. Mr. Schiller also has served as the President of The Dearborn Group, a residential property management and real estate company with properties located in the Midwest. Mr. Schiller has also been involved in the ownership of residential properties and commercial properties throughout the country. Mr. Schiller has acted as a principal in numerous private loan transactions and has been responsible for the structure, and management of these transactions. Mr. Schiller has also served as a member of the Board of Directors of IMALL, an internet search engine company, which was acquired by Excite@Home. He also served as a member of the Board of AccuMed International, Inc., a company which manufactured and marketed medical diagnostic screening products, which was acquired by Molecular Diagnostics, Inc. He presently serves as a director of Milestone Scientific, Inc., a Delaware company. We believe Mr. Schiller is qualified to serve on our board of directors due to his legal and business experience.
Director Terms; Qualifications
Members of our board of directors serve until the next annual meeting of stockholders, or until their successors have been duly elected.
When considering whether directors and nominees have the experience, qualifications, attributes and skills to enable the board of directors to satisfy its oversight responsibilities effectively in light of the Company’s business and structure, the board of directors focuses primarily on the industry and transactional experience, and other background, in addition to any unique skills or attributes associated with a director.
Director or Officer Involvement in Certain Legal Proceedings
There are no material proceedings to which any director or officer, or any associate of any such director or officer, is a party that is adverse to our Company or any of our subsidiaries or has a material interest adverse to our Company or any of our subsidiaries. No director or executive officer has been a director or executive officer of any business which has filed a bankruptcy petition or had a bankruptcy petition filed against it during the past ten years. No director or executive officer has been convicted of a criminal offense or is the subject of a pending criminal proceeding during the past ten years. No director or executive officer has been the subject of any order, judgment or decree of any court permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities during the past ten years. No director or officer has been found by a court to have violated a federal or state securities or commodities law during the past ten years.
Directors and Officers Liability Insurance
The Company has directors’ and officers’ liability insurance insuring its directors and officers against liability for acts or omissions in their capacities as directors or officers, subject to certain exclusions. Such insurance also insures the Company against losses, which it may incur in indemnifying its officers and directors. In addition, officers and directors also have indemnification rights under applicable laws, and the Company’s Second Amended and Restated Articles of Incorporation and Amended and Restated Bylaws.
Director Independence
The listing rules of The Nasdaq Stock Market LLC (“Nasdaq”) require that independent directors must comprise a majority of a listed company’s board of directors. In addition, the rules of Nasdaq require that, subject to specified exceptions, each member of a listed company’s audit, compensation, and nominating and governance committees be independent. Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Exchange Act. Under the rules of Nasdaq, a director will only qualify as an “independent director” if, in the opinion of that company’s board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
Our board of directors has undertaken a review of the independence of our directors and director nominees and considered whether any director has a material relationship with it that could compromise his or her ability to exercise independent judgment in carrying out his or her responsibilities. Based upon information requested from and provided by each director concerning his background, employment and affiliations, including family relationships, the board of directors has determined that Leonard Shiller isJoanna Bloor, Brad Justus and Lorraine Hendrickson are “independent” as that term is defined under the applicable rules and regulations of the SEC and the listing standards of Nasdaq. In making these determinations, our board of directors considered the current and prior relationships that each non-employee director has with the Company and all other facts and circumstances our board of directors deemed relevant in determining their independence, including the beneficial ownership of the Company’s capital stock by each non-employee director, and any transactions involving them described in the section captioned “—Certain relationships and related transactions and director independence.”
Board Committees
Upon the consummation of this Offering, theThe Company’s Board will establishhas established three standing committees: Audit, Compensation, and Nominating and Corporate Governance. Each of the committees will operateoperates pursuant to its charter. The committee charters will be reviewed annually by the Nominating and Corporate Governance Committee. If appropriate, and in consultation with the chairs of the other committees, the Nominating and Corporate Governance Committee may propose revisions to the charters. The responsibilities of each committee are described in more detail below.
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Nasdaq permits a phase-in period of up to one year for an issuer registering securities in an initial public offering to meet the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee independence requirements. Under the initial public offering phase-in period, only one member of each committee is required to satisfy the heightened independence requirements at the time our registration statement becomes effective, a majority of the members of each committee must satisfy the heightened independence requirements within 90 days following the effectiveness of our registration statement, and all members of each committee must satisfy the heightened independence requirements within one year from the effectiveness of our registration statement.
Audit Committee
The Audit Committee, among other things, will be responsible for:
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The Board will adoptboard of directors has affirmatively determined that each member of the Audit Committee meets the additional independence criteria applicable to audit committee members under SEC rules and Nasdaq listing rules. The board of directors has adopted a written charter setting forth the authority and responsibilities of the Audit Committee. The Board has affirmatively determined that each member of the Audit Committee will be made up of members that areis financially literate, and one member will be required to meetthat Ms. Hendrickson meets the qualifications of an Audit Committee financial expert.
The Audit Committee consists of Ms. Bloor, Mr. Justus and Ms. Hendrickson. Ms. Hendrickson chairs the Audit Committee. We believe that after consummation of this Offering, the functioning of the Audit Committee will complycomplies with the applicable requirements of the rules and regulations of the Nasdaq listing rules and the SEC.
Compensation Committee
The Compensation Committee will be responsible for:
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The Board will adoptboard of directors has adopted a written charter setting forth the authority and responsibilities of the Compensation Committee.
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The Compensation Committee will be comprisedconsists of members whoMs. Bloor, Mr. Justus and Ms. Hendrickson. Ms. Bloor serves as chairman of the Compensation Committee. The board of directors has affirmatively determined that each member of the Compensation Committee meets the independence criteria applicable to compensation committee members under SEC rules and Nasdaq listing rules. The Company believes that the composition of the Compensation Committee meets the requirements for independence under, and the functioning of such Compensation Committee will comply with, any applicable requirements of the rules and regulations of Nasdaq listing rules and the SEC.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee, among other things, will beis responsible for:
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● | Evaluating and reporting to the Board on the performance and effectiveness of the directors, committees and the Board as a whole; |
● | Working with the Board to determine the appropriate and desirable mix of characteristics, skills, expertise and experience, including diversity considerations, for the full Board and each committee; |
● | Annually presenting to the Board a list of individuals recommended to be nominated for election to the Board; |
● | Reviewing, evaluating, and recommending changes to the Company’s Corporate Governance Principles and Committee Charters; |
● | Recommending to the Board individuals to be elected to fill vacancies and newly created directorships; |
● | Overseeing the Company’s compliance program, including the Code of Conduct; and |
● | Overseeing and evaluating how the Company’s corporate governance and legal and regulatory compliance policies and practices, including leadership, structure, and succession planning, may affect the Company’s major risk exposures. |
The board of directors will adopthas adopted a written charter setting forth the authority and responsibilities of the Corporate Governance/Nominating and Corporate Governance Committee.
The Nominating and Corporate Governance Committee will be compromisedconsists of members who are deemedMs. Bloor, Mr. Justus and Ms. Hendrickson. Mr. Justus serves as chair. The Company’s board of directors has determined that each member of the Nominating and Corporate Governance Committee is independent within the meaning of the independent director guidelines of Nasdaq listing rules.
Compensation Committee Interlocks and Insider Participation
None of the Company’s executive officers serves, or in the past has served, as a member of the board of directors or compensation committee, or other committee serving an equivalent function, of any entity that has one or more executive officers who serve as members of the Company’s board of directors or its compensation committee. None of the members of the Company’s compensation committee is, or has ever been, an officer or employee of the company.
Code of Business Conduct and Ethics
Prior to the completion of this offering, theThe Company’s Board of Directors will adopthas adopted a code of business conduct and ethics applicable to its employees, directors and officers, in accordance with applicable U.S. federal securities laws and the corporate governance rules of Nasdaq. The code of business conduct and ethics will be publicly available on the Company’s website. Any substantive amendments or waivers of the code of business conduct and ethics or code of ethics for senior financial officers may be made only by the Company’s board of directors and will be promptly disclosed as required by applicable U.S. federal securities laws and the corporate governance rules of Nasdaq.
Corporate Governance Guidelines
Prior to the completion of this offering, theThe Company’s board of directors will adopthas adopted corporate governance guidelines in accordance with the corporate governance rules of Nasdaq.
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Section 16(a) of the Exchange Act requires the Company’s officers and directors, and persons who beneficially own more than 10% of a registered class of the Company’s equity securities, to file reports of ownership and changes in ownership with the SEC and are required to furnish copies to the Company. Based solely on the review of the Changes of Beneficial Ownership disclosures on Forms 3, 4 and 5 filed with the Securities and Exchange Commission, the following persons filed the following number of transactions on Section 16 beneficial ownership disclosure filings late for transactions:
● | Mr. Mark Standish filed one Form 4 late with respect to one transaction; |
● | Mr. Arthur Rosen filed one Form 5 for late filings with respect to five transactions; and |
● | Mr. Eric Ellis Goldberg filed one Form 4 for late filings with respect to two transactions, and one Form 3 late with respect to two transactions. |
EXECUTIVE COMPENSATION
Summary Compensation Table
The following summary compensation table sets forth all compensation awarded to, earned by, or paidinformation is related to the named executive officerscompensation paid, distributed or accrued by us duringfor the years ended December 31, 2019,2021 and 2018.December 31, 2020 for our Chief Executive Officer (principal executive officer) serving during the year ended December 31, 2021 and the three other executive officers serving at December 31, 2021 whose total compensation exceeded $100,000 (the “Named Executive Officers”).
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | ||||||||||||||||||||||||||
Jeremy Frommer | 2019 | $ | 168,269 | $ | 300,080 | - | - | - | - | $ | 104,667 | (1) | $ | 573,016 | |||||||||||||||||||||
Chief Executive Officer | 2018 | $ | 152,879 | $ | 135,700 | - | - | - | - | $ | 96,463 | (3) | $ | 385,042 | |||||||||||||||||||||
Rick Schwartz | 2019 | $ | 33,642 | - | - | - | - | - | $ | 9,708 | $ | 43,350 | |||||||||||||||||||||||
Former President | 2018 | $ | 124,476 | - | - | - | - | - | - | $ | 124,476 | ||||||||||||||||||||||||
Justin Maury | 2019 | $ | 117,751 | - | - | - | - | - | $ | 8,094 | (4) | $ | 125,845 | ||||||||||||||||||||||
President | 2018 | $ | 90,846 | - | - | 107 | - | - | - | $ | 90,846 |
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||||||||
Laurie Weisberg | 2021 | $ | 313,750 | $ | 25,000 | $ | 20,226 | $ | 763,894 | - | - | $ | 24,925 | (1) | $ | 1,147,795 | ||||||||||||||||||||
Chief Executive Officer | 2020 | $ | 60,577 | $ | - | - | - | - | - | $ | 7,875 | (2) | $ | 68,452 | ||||||||||||||||||||||
Justin Maury | 2021 | $ | 306,923 | $ | 5,000 | - | $ | 1,479,328 | - | - | $ | 7,919 | (3) | $ | 1,799,170 | |||||||||||||||||||||
President & Chief Operating Officer | 2020 | $ | 147,009 | - | $ | 412,204 | (9) | $ | 713,563 | - | - | $ | 7,920 | (4) | $ | 1,280,696 | ||||||||||||||||||||
Chelsea Pullano | 2021 | $ | 207,616 | $ | - | - | $ | 610,052 | - | - | $ | 7,632 | (5) | $ | 825,300 | |||||||||||||||||||||
Chief Financial Officer | 2020 | $ | 123,500 | - | $ | 38,050 | (10) | $ | 522,121 | - | - | $ | 1,908 | (6) | $ | 685,579 | ||||||||||||||||||||
Jeremy Frommer | 2021 | $ | 665,433 | $ | 200,000 | - | $ | 1,709,628 | - | - | $ | 98,237 | (7) | $ | 2,673,298 | |||||||||||||||||||||
Executive Chairman | 2020 | $ | 234,231 | $ | 182,000 | $ | 469,255 | (11) | $ | 931,339 | - | - | $ | 86,686 | (8) | $ | 1,903,511 |
(1) |
(2) | The |
(3) | The $7,919 includes payment to Mr. Maury for health insurance. |
(4) | The $7,920 includes payment to Mr. Maury for health insurance. |
(5) | The $7,632 includes payment to Ms. Pullano for health insurance. |
(6) | The $1,908 includes payment to Ms. Pullano for health insurance. |
(7) | The $98,237 includes payment to Mr. Frommer for living expenses, health insurance and a vehicle allowance. |
(8) | The |
(9) | On May 13, 2020, the Company exchanged 167,955 stock options for 251,933 shares of Common Stock. $403,604 is attributable to this exchange. $8,660 of this amount is attributable to the issuance of shares in lieu of wages. | |
(10) | On May 13, 2020, the Company exchanged 14,205 stock options for 21,308 shares of Common Stock. | |
(11) | On May 13, 2020, the Company exchanged 200,000 stock options for 300,000 shares of Common Stock. $456,134 is attributable to this exchange. $12,121 of this amount is attributable to the issuance of shares in lieu of wages. |
Employment Agreements
As of July 2, 2020,December 31, 2021, the Company hashad not entered into any employment agreements, but intends on enteringhas entered into such agreements with its Chief Executive Officer, Executive Chairman, President& Chief Operating Officer, and President by the end of fiscal year 2020.Chief Financial Officer subsequent to December 31, 2021.
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2020 Equity Incentive Plan
Our 2020 Equity Incentive Plan (the “2020 Plan”) provides for the issuance of incentive stock options, non-statutory stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock units (“RSUs”), and other stock-based awards and there are 2,500,000 shares originally reserved under the 2020 Plan.
No further awards may be issued under the Jerrick Ventures 2015 Incentive and Award Plan (the “2015 Plan”), but all awards under the 2015 Plan that are outstanding as of the Effective Date will continue to be governed by the terms, conditions and procedures set forth in the 2015 Plan and any applicable award agreement.
Outstanding Equity Awards at Fiscal Year-End 20192021
At December 31, 2019,2021, we had outstanding equity awards as follows:
Name | Number of Securities Underlying Unexercised Options Exercisable | Number of Securities Underlying Unexercised Options Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options | Weighted Average Exercise Price | Expiration Date | Number of Shares or Units of Stock That Have Not Vested | Market Value of Shares or Units of Stock That Have Not Vested | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested | |||||||||||||||||||||||||
Jeremy Frommer (1) | 200,000 | - | 200,000 | $ | 7.5 | May 22, 2022 | - | $ | - | - | - | |||||||||||||||||||||||
Rick Schwartz (1) | 200,000 | - | 200,000 | $ | 7.5 | May 22, 2022 | - | $ | - | - | - | |||||||||||||||||||||||
Justin Maury (2) | 167,955 | - | 167,955 | $ | 9.9 | May 22, 2022 | - | - | - | - |
Name | Number of Securities Underlying Unexercised Options Exercisable | Number of Securities Underlying Unexercised Options Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options | Weighted Average Exercise Price | Expiration Date | Number of Shares or Units of Stock That Have Not Vested | Market Value of Shares or Units of Stock That Have Not Vested | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested | |||||||||||||||||||||||||
Jeremy Frommer (1) | 210,188 | 400,000 | - | $ | 5.94 | February 19, 2028 (5) | - | $ | - | - | - | |||||||||||||||||||||||
Laurie Weisberg (2) | 137,667 | 87,083 | - | $ | 7.13 | February 19, 2028 (6) | - | $ | - | - | - | |||||||||||||||||||||||
Justin Maury (3) | 149,333 | 374,000 | - | $ | 5.93 | February 19, 2028 (7) | - | $ | - | - | - | |||||||||||||||||||||||
Chelsea Pullano (4) | 87,000 | 150,000 | - | $ | 4.37 | February 19, 2028 (8) | - | $ | - | - | - |
(1) | Effective February 5, 2016, to August 13, 2021, Jeremy Frommer was appointed as our Chief Executive Officer. Starting August 13, 2021, Jeremy Frommer was appointed Co-Chief Executive Officer | |
(2) | Effective September 28, 2020, to August 13, 2021, Laurie Weisberg was appointed as our | |
(3) | |
(4) | Effective June 29, 2020, Chelsea Pullano was appointed Chief Financial Officer. |
(5) | 121,000 options expire on |
(6) | 53,750 options expire on February 4, 2026, 121,000 options expire on October 28, 2026, 25,000 options expire on February 19, 2027, 25,000 options expire on February 19, 2028. |
(7) | 81,000 options expire on October 28, 2026, 187,000 options expire on February 19, 2027, 187,000 options expire on February 19, 2028. |
(8) | 37,000 options expire on October 28, 2026, 75,000 options expire on February 19, 2027, 75,000 options expire on February 19, 2028. |
Director Compensation
The following table presents the total compensation for each person who served as a non-employee member of our board of directors and received compensation for such service during the fiscal year ended December 31, 2019.2021. Other than as set forth in the table and described more fully below, we did not pay any compensation, make any equity awards or non-equity awards to, or pay any other compensation to any of the non-employee members of our board of directors in 2019.2021.
Director | Option Awards (1) | Fees Earned or Paid in Cash | Total | |||||||||
Andrew Taffin(2) | $ | 3,021 | $ | - | $ | 3,021 | ||||||
Leonard Schiller | $ | - | $ | - | $ | - |
Director | Option Awards (1) | Fees Earned or Paid in Cash | Total | |||||||||
Mark Standish (4) | $ | 340,414 | $ | - | $ | 340,414 | ||||||
Mark Patterson (2) | $ | 131,845 | $ | - | $ | 131,845 | ||||||
Leonard Schiller (4) | $ | 171,453 | $ | - | $ | 171,453 | ||||||
LaBrena Martin (4) | $ | 169,078 | $ | - | $ | 169,078 | ||||||
Laurie Weisberg (3) | $ | 763,894 | $ | - | $ | 763,894 |
(1) | Amounts shown in this column do not reflect dollar amounts actually received by our non-employee directors. Instead, these amounts represent the aggregate grant date fair value of stock option awards determined in accordance with FASB ASC Topic 718. |
(2) |
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been limited public market for the Company’s common stock, and a liquid trading market for its common stock may not develop or be sustained after this offering. Future sales of substantial amounts of the Company’s common stock in the public market, or the anticipation of these sales, could materially and adversely affect market prices prevailing from time to time, and could impair the Company’s ability to raise capital through sales of equity or equity-related securities.
Only a limited number of shares of the Company’s common stock will be available for sale in the public market for a period of several months after completion of this offering due to contractual and legal restrictions on resale described below. Nevertheless, sales of a substantial number of shares of the Company’s common stock in the public market after such restrictions lapse, or the perception that those sales may occur, could materially and adversely affect the prevailing market price of its common stock. Although the Company intends to list its common stock on The Nasdaq Capital Market, the Company cannot assure you that there will be an active market for its common stock.
Of the shares to be outstanding immediately after the completion of this offering, the Company expects that the shares to be sold in this offering will be freely tradable without restriction under the Securities Act unless purchased by the Company’s “affiliates,” as that term is defined in Rule 144 under the Securities Act. The Company expects that of its remaining shares will be subject to the -day lock-up period under the lock-up agreements as described below. These restricted securities may be sold in the public market only if the lock-up expires and they are registered or sold pursuant to an exemption from registration, such as Rule 144 or Rule 701 under the Securities Act.
Rule 144
In general, under Rule 144 as currently in effect, once the Company has been subject to the public company reporting requirements of Section 13 or Section 15(d) of the Exchange Act for at least 90 days, a person who is not deemed to have been one of the Company’s affiliates for purposes of the Securities Act at any time during the 90 days preceding a sale and who has beneficially owned the shares of its common stock proposed to be sold for at least six months is entitled to sell those shares without complying with the manner of sale, volume limitation or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than Company affiliates, then that person would be entitled to sell those shares without complying with any of the requirements of Rule 144.
In general, under Rule 144, as currently in effect, the Company’s affiliates or persons selling shares of its common stock on behalf of its affiliates are entitled to sell upon expiration of the market standoff agreements and lock-up agreements described above, within any three-month period, a number of shares that does not exceed the greater of:
Sales under Rule 144 by the Company’s affiliates or persons selling shares of its common stock on behalf of its affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about the Company.
Rule 701
Rule 701 generally allows a stockholder who purchased shares of the Company’s common stock pursuant to a written compensatory plan or contract and who is not deemed to have been an affiliate of the Company during the immediately preceding 90 days to sell these shares in reliance upon Rule 144, but without being required to comply with the public information, holding period, volume limitation, or notice provisions of Rule 144. Rule 701 also permits affiliates of the Company to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. All holders of Rule 701 shares, however, are required to wait until 90 days after the date of this prospectus before selling such shares pursuant to Rule 701 and until expiration of the -day lock-up period described below.
Lock-Up Agreements
In connection with this offering, the Company, and its officers, directors and stockholders have agreed to a -day “lock-up” period from the closing of this offering, with respect to the shares that they beneficially own, including shares issuable upon the exercise of convertible securities and options that are currently outstanding or which may be issued. This means that, for a period of days following the closing of this offering, such persons may not offer, sell, pledge or otherwise dispose of these securities without the prior written consent of the underwriters. The -day restricted period is subject to extension upon certain events and the terms of the lock-up agreements may be waived at the underwriters’ discretion. The lock-up restrictions, specified exceptions and the circumstances under which the -day lock-up period may be extended are described in more detail under “Underwriting.”
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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS OF THE COMPANY’S COMMON STOCK
The following is a summary of the material U.S. federal income tax consequences to non-U.S. holders (as defined below) of the ownership and disposition of the Company’s common stock but does not purport to be a complete analysis of all the potential tax considerations relating thereto. This summary is based upon the provisions of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code, Treasury regulations promulgated thereunder, administrative rulings and judicial decisions, all as of the date hereof. These authorities may be changed, possibly retroactively, so as to result in U.S. federal income tax consequences different from those set forth below. No ruling on the U.S. federal, state, or local tax considerations relevant to the Company’s operations or to the purchase, ownership or disposition of its shares, has been requested from the IRS or other tax authority. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax consequences described below.
This summary also does not address the tax considerations arising under the laws of any non-U.S., state or local jurisdiction, or under U.S. federal gift and estate tax laws, except to the limited extent set forth below. In addition, this discussion does not address tax considerations applicable to an investor’s particular circumstances or to investors that may be subject to special tax rules, including, without limitation:
In addition, if a partnership or entity classified as a partnership for U.S. federal income tax purposes holds the Company’s common stock, the tax treatment of a partner generally will depend on the status of the partner and upon the activities of the partnership. Accordingly, partnerships that hold the Company’s common stock, and partners in such partnerships, should consult their tax advisors.
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You are urged to consult your tax advisor with respect to the application of the U.S. federal income tax laws to your particular situation, as well as any tax consequences of the purchase, ownership and disposition of the Company’s common stock arising under the U.S. federal estate or gift tax rules or under the laws of any state, local, non-U.S., or other taxing jurisdiction or under any applicable tax treaty.
Non-U.S. Holder Defined
For purposes of this discussion, you are a non-U.S. holder (other than a partnership) if you are any holder other than:
Distributions
As described in “Dividend Policy,” the Company has never declared or paid cash dividends on its common stock and do not anticipate paying any dividends on its common stock in the foreseeable future. However, if the Company does make distributions on its common stock, those payments will constitute dividends for U.S. tax purposes to the extent paid from the Company’s current or accumulated earnings and profits, as determined under U.S. federal income tax principles. To the extent those distributions exceed both the Company’s current and its accumulated earnings and profits, they will constitute a return of capital and will first reduce your basis in the Company’s common stock, but not below zero, and then will be treated as gain from the sale of stock as described below under “— Gain on Disposition of common stock.”
Subject to the discussion below on effectively connected income, backup withholding and foreign accounts, any dividend paid to you generally will be subject to U.S. withholding tax either at a rate of 30% of the gross amount of the dividend or such lower rate as may be specified by an applicable income tax treaty. In order to receive a reduced treaty rate, you must provide us with an IRS Form W-8BEN, IRS Form W-8BEN-E, or other appropriate version of IRS Form W-8 certifying qualification for the reduced rate. A non-U.S. holder of shares of the Company’s common stock eligible for a reduced rate of U.S. withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS. If the non-U.S. holder holds the stock through a financial institution or other agent acting on the non-U.S. holder’s behalf, the non-U.S. holder will be required to provide appropriate documentation to the agent, which then will be required to provide certification to the Company or its paying agent, either directly or through other intermediaries.
Dividends received by you that are effectively connected with your conduct of a U.S. trade or business (and, if required by an applicable income tax treaty, attributable to a permanent establishment maintained by you in the United States) are generally exempt from the withholding tax described above. In order to obtain this exemption, you must provide us with an IRS Form W-8ECI or other applicable IRS Form W-8 properly certifying such exemption. Such effectively connected dividends, although not subject to withholding tax, are taxed at the same graduated rates applicable to U.S. persons, net of certain deductions and credits. In addition, if you are a corporate non-U.S. holder, dividends you receive that are effectively connected with your conduct of a U.S. trade or business may also be subject to a branch profits tax at a rate of 30% or such lower rate as may be specified by an applicable income tax treaty. You should consult your tax advisor regarding any applicable tax treaties that may provide for different rules.
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Gain on Disposition of Common Stock
Subject to the discussion below regarding backup withholding and foreign accounts, you generally will not be required to pay U.S. federal income tax on any gain realized upon the sale or other disposition of the Company’s common stock unless:
The Company believes that it is not currently and will not become a USRPHC for U.S. federal income tax purposes, and the remainder of this discussion so assumes. However, because the determination of whether it is a USRPHC depends on the fair market value of its U.S. real property relative to the fair market value of its other business assets, there can be no assurance that the Company will not become a USRPHC in the future. Even if it becomes a USRPHC, however, as long as the Company’s common stock is regularly traded on an established securities market, such common stock will be treated as U.S. real property interests only if you actually or constructively hold more than five percent of such regularly traded common stock at any time during the shorter of (i) the five-year period preceding your disposition of the Company’s common stock, or (ii) your holding period for the Company’s common stock.
If you are a non-U.S. holder described in the first bullet above, you will be required to pay tax on the net gain derived from the sale under regular graduated U.S. federal income tax rates, and a corporate non-U.S. holder described in the first bullet above also may be subject to the branch profits tax at a 30% rate, or such lower rate as may be specified by an applicable income tax treaty. If you are an individual non-U.S. holder described in the second bullet above, you will be required to pay a flat 30% tax (or such lower rate specified by an applicable income tax treaty) on the gain derived from the sale, which gain may be offset by U.S. source capital losses for the year (provided you have timely filed U.S. federal income tax returns with respect to such losses). You should consult any applicable income tax or other treaties that may provide for different rules.
Backup Withholding and Information Reporting
Generally, the Company must report annually to the IRS, regardless of whether any tax was withheld, the amount of dividends paid to you, your name and address and the amount of tax withheld, if any. A similar report will be sent to you. Pursuant to applicable income tax treaties or other agreements, the IRS may make these reports available to tax authorities in your country of residence.
Payments of dividends or of proceeds on the disposition of stock made to you may be subject to information reporting and backup withholding at a current rate of 24% unless you establish an exemption, for example, by properly certifying your non-U.S. status on an IRS Form W-8BEN, IRS Form W-8BEN-E, or another appropriate version of IRS Form W-8.
Backup withholding is not an additional tax; rather, the U.S. federal income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund or credit may generally be obtained from the IRS, provided that the required information is furnished to the IRS in a timely manner.
Foreign Account Tax Compliance
The Foreign Account Tax Compliance Act, or FATCA, imposes withholding tax at a rate of 30% on dividends on and gross proceeds from the sale or other disposition of the Company’s common stock paid to “foreign financial institutions” (as specially defined under these rules), unless such institution enters into an agreement with the U.S. government to withhold on certain payments and to collect and provide to the U.S. tax authorities substantial information regarding the U.S. account holders of such institution (which includes certain equity and debt holders of such institution, as well as certain account holders that are foreign entities with U.S. owners) or otherwise establishes an exemption. FATCA also generally imposes a U.S. federal withholding tax of 30% on dividends on and gross proceeds from the sale or other disposition of the Company’s common stock paid to a “non-financial foreign entity” (as specially defined for purposes of these rules) unless such entity provides the withholding agent with a certification identifying certain substantial direct and indirect U.S. owners of the entity, certifies that there are none or otherwise establishes an exemption. The withholding provisions under FATCA generally apply to dividends on our common stock, and under current transition rules, are expected to apply with respect to the gross proceeds from the sale or other disposition of the Company’s common stock on or after January 1, 2019. An intergovernmental agreement between the United States and an applicable foreign country may modify the requirements described in this paragraph. Non-U.S. holders should consult their own tax advisors regarding the possible implications of this legislation on their investment in the Company’s common stock.
Each prospective investor should consult its own tax advisor regarding the particular U.S. federal, state and local and non-U.S. tax consequences of purchasing, holding and disposing of the Company’s common stock, including the consequences of any proposed change in applicable laws.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the Company’s common stock, beneficially owned as of July 2, 2020 (i) each person known to the Company to beneficially own more than 5% of its common stock, (ii) each executive officer, director and director nominee and (iii) all officers, directors and director nominees as a group. The following table is based on the Company having 10,127,420 shares of common stock issued and outstanding as of July 2, 2020. The Company calculated beneficial ownership according to Rule 13d-3 of the Securities Exchange Act of 1934, as amended as of that date. Shares of the Company’s common stock issuable upon exercise of options or warrants or conversion of notes that are exercisable or convertible within 60 days after July 2, 2020 are included as beneficially owned by the holder, but not deemed outstanding for computing the percentage of any other stockholder for Percentage of common stock Beneficially Owned. For each individual and group included in the table below, percentage ownership is calculated by dividing the number of shares beneficially owned by such person or group by the sum of the 9,347,682 shares of common stock outstanding at July 2, 2020, plus the number of shares of common stock that such person or group had the right to acquire on or within 60 days after July 2, 2020. Beneficial ownership generally includes voting and dispositive power with respect to securities. Unless otherwise indicated below, the persons and entities named in the table have sole voting and sole dispositive power with respect to all shares beneficially owned.
Shares Beneficially Owned (1) | Percentage Beneficially Owned | |||||||
Executive Officers and Directors | ||||||||
Jeremy Frommer | 903,508 | (2) | 8.92 | % | ||||
Justin Maury | 283,297 | (3) | 2.80 | % | ||||
Chelsea Pullano | 22,908 | (6) | * | |||||
Leonard Schiller | 238,521 | (4) | 2.36 | % | ||||
All current directors and officers as a group | 1,448,234 | 14.08 | % | |||||
5% or Greater Stockholders | ||||||||
Chris Gordon | 772,716 | 7.63 | % | |||||
Arthur Rosen | 1,337,453 | (5) | 13.56 | % |
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The following includes a summary of transactions during our fiscal years ended December 31, 20192021 and December 31, 20182020 to which we have been a party, including transactions in which the amount involved in the transaction exceeds the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed fiscal years, and in which any of our directors, executive officers or, to our knowledge, beneficial owners of more than 5% of our capital stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest, other than equity and other compensation, termination, change in control and other arrangements, which are described elsewhere in this proxy statement.Annual Report. We are not otherwise a party to a current related party transaction, and no transaction is currently proposed, in which the amount of the transaction exceeds the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed fiscal years and in which a related person had or will have a direct or indirect material interest.
Revenue
During the year ended December 31, 2021 the Company received revenue of $80,000 from Dune for branded content services prior to consolidation but after recognition as an equity method investee.
The July 2020 Convertible Note Offering
From July 2020 to September 2020, the Company conducted multiple closings of a private placement offering to accredited investors (the “July 2020 Convertible Note Offering”) of units of the Company’s securities by entering into subscription agreements with “accredited investors” (the “July 2020 Investors”) for aggregate gross proceeds of $50,000. The July 2020 Convertible Note Offering accrues interest at a rate of twelve percent per annum (12%). The July 2020 Convertible Note Offering mature on the six (6th) month anniversary of their issuance dates.
The July 2020 Note Offering is convertible into shares of the Company’s common stock, par value $.001 per share (“Conversion Shares”) at the lesser of (i) a fixed conversion price equal to $12.75 per share after the maturity date or (ii) any private placement offerings or one or more registered public offerings by the Company under the Securities Act in connection with its listing onto a national securities exchange (a “Qualified Offering”).
Upon default the July 2020 Convertible Note Offering is convertible into shares of the Company’s common stock, par value $.001 per share (“Conversion Shares”) equal to 61% multiplied by the lowest trade of the common stock during the twenty (15) consecutive trading day period immediately preceding the date of the respective conversion.
The conversion feature of the July 2020 Convertible Note Offering provides for an effective conversion price that is below market value on the date of issuance. Such feature is normally characterized as a beneficial conversion feature. When the Company records a BCF the relative fair value of the BCF is recorded as a debt discount against the face amount of the respective debt instrument. The Company recorded a BCF and related debt discount of $9,812, the discount is being accreted over the life of the Debenture to accretion of debt discount and issuance cost.
The Company recorded a $21,577 debt discount relating to 3,922 July 2020 Convertible Note Offering 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.
During the year ended December 31, 2020, the Company converted $50,000 of principal and $630 of unpaid interest into the September 2020 Equity Raise.
The January 20182020 Rosen Loan Agreement
On January 16, 2018,14, 2020, the Company entered into a loan agreement (the “January 20182020 Rosen Loan Agreement”) with Arthur Rosen, a shareholder of the Company,, whereby the Company issued Mr. Rosen a promissory note in the principal amount of $60,000$150,000 (the “January 20182020 Rosen Note”). The January 2018 Rosen Note is secured by Jeremy Frommer, our Chief Executive Officer, whereby upon default Mr. Frommer’s personal shares of the Company’s common stock would be available to Mr. Rosen in an amount equal to the principal outstanding divided by 0.20. Pursuant to the January 20182020 Rosen Loan Agreement, the January 20182020 Rosen Note bearsaccrues interest at a ratefixed amount of 6% per annum and is payable on$2,500 for the maturity dateduration of January 31, 2018 (the “January 2018 Rosen Maturity Date”) at which time all outstanding principal, accrued and unpaid interest and other amounts due under the May 2016 Rosen Loan are due. note.
During the year ended December 31, 2018,2020 the Company repaid $60,000$150,000 in principal and $200$15,273 in interest and the loan is no longer outstanding. interest.
The January 2018 GordonFebruary Banner 2020 Loan Agreement
On January 16, 2018,February 15, 2020, the Company entered into a loan agreement (the “January 2018 Gordon“February 2020 Banner Loan Agreement”) with Christopher Gordon (“Gordon”), whereby the Company issued Mr. Gordon a promissory note in the principal amount of $40,000$9,900 (the “January 2018 Gordon“February 2020 Note”). The January 2018 Gordon Note is secured by Jeremy Frommer, our Chief Executive Officer, whereby upon default Mr. Frommer’s personal shares for expenses paid on behalf of the Company’s common stock would be available to Mr. Gordon in amount equal to the principal outstanding dividedCompany by 0.20.an employee. Pursuant to the January 2018 GordonFebruary 2020 Loan Agreement, the January 2018 GordonFebruary 2020 Note bears interest at a rate of 6% per annum and payable on the maturity date of January 31, 2018 (the “January 2018 Gordon Maturity Date”) at which time all outstanding principal, accrued and unpaid interest and other amounts due under the January 2018 Gordon Note are due. During the year ended December 31, 2018, the Company repaid $40,000 in principal and $105 in interest and the loan is no longer outstanding.
The First March 2018 Rosen Loan Agreement
On March 4, 2018, the Company entered into a loan agreement (the “First March 2018 Rosen Loan Agreement”) with Mr. Rosen, whereby the Company issued Mr. Rosen a promissory note in the principal amount of $10,000 (the “First March 2018 Rosen Note”).$495. As additional consideration for entering in the First March 2018 Rosen NoteFebruary 2020 Loan Agreement, the Company issued Mr. Rosen a five-year warrant to purchase 10,00049 shares of the Company’s common stock at a purchase price of $0.20$18.00 per share. Pursuant to the First March 2018 Rosen Loan Agreement, the First March 2018 Rosen Note bears interest at a rate of 12% per annum and is payable on the maturity date of March 19, 2018 (the “First March 2018 Rosen Maturity Date”) at which time all outstanding principal, accrued and unpaid interest and other amounts due under the First March 2018 Rosen Note was due.
During the nine monthsyear ended December 31, 2018,2020 the Company repaid $10,000$9,900 in principal and $260$495 in interest and the loan is no longer outstanding.interest.
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The Second March 2018 RosenFebruary 2020 Frommer Loan Agreement
On March 9, 2018,February 18, 2020, the Company entered into a loan agreement (the “Second March 2018 Rosen Loan Agreement”) with Mr. Rosen, whereby the Company issued Mr. Rosen a promissory note in the principal amount of $15,000 (the “Second March 2018 Rosen Note”). As additional consideration for entering in the Second March 2018 Rosen Loan Agreement, the Company issued Mr. Rosen a five-year warrant to purchase 15,000 shares of the Company’s common stock at a purchase price of $0.20 per share. Pursuant to the Second March 2018 Rosen Loan Agreement, the Second March 2018 Rosen Note bears interest at a rate of 12% per annum and is payable on the maturity date of March 24, 2018 (the “Second March 2018 Rosen Maturity Date”) at which time all outstanding principal, accrued and unpaid interest and other amounts due under the Second March 2018 Rosen Note was due. During the nine months ended December 31, 2018, the Company repaid $15,000 in principal and $365 in interest and the loan is no longer outstanding.
The Third March 2018 Rosen Loan Agreement
On March 13, 2018, the Company entered into a loan agreement (the “Third March 2018 Rosen Loan Agreement”) with Mr. Rosen, whereby the Company issued Mr. Rosen a promissory note in the principal amount of $10,000 (the “Third March 2018 Rosen Note”). As additional consideration for entering in the Third March 2018 Rosen Loan Agreement, the Company issued Mr. Rosen a five-year warrant to purchase 10,000 shares of the Company’s common stock at a purchase price of $0.20 per share. Pursuant to the Third March 2018 Rosen Loan Agreement, the Third March 2018 Rosen Note bears interest at a rate of 12% per annum and is payable on the maturity date of March 28, 2018 (the “Third March 2018 Rosen Maturity Date”) at which time all outstanding principal, accrued and unpaid interest and other amounts due under the Third March 2018 Rosen Note was due. During the nine months ended December 31, 2018, the Company repaid $10,000 in principal and $230 in interest and the loan is no longer outstanding.
The May 2018 Schiller Loan Agreement
On May 2, 2018, the Company entered into a loan agreement (the “May 2018 Schiller Loan Agreement”) with Leonard Schiller, Chairman of our board of directors, whereby the Company issued Mr. Schiller a promissory note in the principal amount of $100,000 (the “May 2018 Schiller Note”). As additional consideration for entering in the May 2018 Schiller Loan Agreement, the Company issued Mr. Schiller a four-year warrant to purchase 300,000 shares of the Company’s common stock at a purchase price of $0.20 per share. Pursuant to the May 2018 Schiller Loan Agreement, the May 2018 Schiller Note bears interest at a rate of 13% per annum and is payable on the maturity date of February 02, 2019 (the “May 2018 Schiller Maturity Date”) at which time all outstanding principal, accrued and unpaid interest are due under the May 2018 Schiller Loan.
During the year ended December 31, 2018, the Company converted $100,000 of principal and $4,369 of unpaid interest into the August 2018 Equity Raise (as defined below) and the loan is no longer outstanding.
The June 2018 Frommer Loan Agreement
On June 29, 2018, the Company entered into a loan agreement (the “June 2018“February 2020 Frommer Loan Agreement”) with Jeremy Frommer, our Chief Executive Officer,an officer of the Company, whereby the Company issued Frommer a promissory note in the principal amount of $10,000$2,989 (the “June 2018“February 2020 Frommer Note”). As additional consideration for entering in the June 2018 Frommer Note Loan Agreement, the Company issued Frommer a four-yearfive-year warrant to purchase 30,00015 shares of the Company’s common stock at a purchase price of $0.20$18.00 per share. Pursuant to the June 2018February 2020 Frommer Loan Agreement, the June 2018 Frommer Note bears interest at a rate of 6% per annum andnote is payable on the maturity date of August 17, 2018February 28, 2020 (the “June 2018“February 2020 Frommer Maturity Date”).
During the year ended December 31, 2020 the Company repaid $2,989 in principal and $160 in interest.
The September 2020 Goldberg Loan Agreement
On September 15, 2020, the Company entered into a loan agreement (the “September 2020 Goldberg Loan Agreement”) with Goldberg whereby the Company issued a promissory note of $16,705 (the “September 2020 Goldberg Note”). Pursuant to the September 2020 Goldberg Loan Agreement, the September 2020 Goldberg Note has an interest rate of 7%. The maturity date of the September 2020 Goldberg Note is September 15, 2022 (the “September 2020 Goldberg Maturity Date”), at which time all outstanding principal, accrued and unpaid interest areand other amounts due under note are due. The September 2020 Goldberg Loan is secured by the June 2018 Frommer Loan. Subsequenttangible and intangible property of the Company.
Since the September 2020 Goldberg Note has a make-whole provision if the share price of the Company’s common stock is below 2.92 on September 14, 2020, they are subject to derivative liability treatment. The Company has applied ASC 815, due to the balance sheet date,potential for settlement in a variable quantity of shares. The make-whole feature of gave rise to a derivative liability of $2,557,275 which was recorded as a loss on November 8, 2018extinguishment of debt.
During the year ended December 31, 2020 the Company executed upon an agreement that extended the maturity dateaccrued interest of this loan to March 7, 2019. As part of the extension agreement, the Company issued 40,854 warrants to purchase common stock of the Company at an exercise price of $0.30. On March 29, 2019 the Company executed upon an agreement that extended the maturity date of this loan to May 15, 2019. On December 15, 2019 the Company executed upon an agreement that further extended the maturity date of this loan to May 15, 2020.
$347.
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The September 2020 Rosen Loan Agreement
The First July 2018 Schiller Loan Agreement
On July 3, 2018,September 15, 2020, the Company entered into a loan agreement (the “First July 2018 Schiller Loan Agreement”) with Leonard Schiller, a member of the Board, whereby the Company issued Mr. Schiller a promissory note of $35,000 (the “First July 2018 Schiller Note”). As additional consideration for entering in the First July 2018 Schiller Loan Agreement, the Company issued Schiller a four-year warrant to purchase 75,000 shares of the Company’s common stock at a purchase price of $0.20 per share. Pursuant to the agreement, the note bears interest at a rate of 6% per annum and payable on the maturity date of August 17, 2018 at which time all outstanding principal, accrued and unpaid interest were due under the First July 2018 Schiller Loan. Subsequent to the balance sheet date, on November 8, 2018 the Company executed upon an agreement that extended the maturity date of this loan to March 7, 2019. As part of the extension agreement, the Company issued 142,987 warrants to purchase common stock of the Company at an exercise price of $0.30. On March 29, 2019 the Company executed upon an agreement that extended the maturity date of this loan to May 15, 2019.
During the year ended December 31, 2018 the Company repaid $20,000 in principal. During the year ended December 31, 2019, the Company converted $15,000 in principal and $863.33 into the February 2019 Offering and the note is no longer outstanding.
The Second July 2018 Schiller Loan Agreement
On July 17, 2018, the Company entered into a loan agreement (the “Second July 2018 Schiller Loan Agreement”) with Schiller, a member of the Board, whereby the Company issued Mr. Schiller a promissory note of $25,000 (the “Second July 2018 Schiller Note”). As additional consideration for entering in the Second July 2018 Schiller Loan Agreement, the Company issued Mr. Schiller a four-year warrant to purchase 75,000 shares of the Company’s common stock at a purchase price of $0.20 per share. Pursuant to the Second July 2018 Schiller Loan Agreement, the Second July 2018 Schiller Note bears interest at a rate of 6% per annum and payable on the maturity date of August 17, 2018 at which time all outstanding principal, accrued and unpaid interest were due under the Second July 2018 Schiller Loan. Subsequent to the balance sheet date, on November 8, 2018 the Company entered into an agreement with Mr. Schiller that extended the maturity date of this loan to March 7, 2019. As part of the extension agreement, the Company issued 101,900 warrants to Mr. Schiller to purchase common stock of the Company at an exercise price of $0.30. On March 29, 2019 the Company entered into an agreement that extended the maturity date of this loan to May 15, 2019. On December 15, 2019 the Company executed upon an agreement that further extended the maturity date of this loan to May 15, 2020.
During the year ended December 31, 2019 the Company converted $4,136.67 in principal into the February 2019 Offering.
The First July 2018 Rosen Loan Agreements
On July 12, 2018, the Company entered into a loan agreement (the “First July 2018 Rosen Loan Agreement”) with Mr. Rosen, a shareholder of the Company, whereby the Company issued Mr. Rosen a promissory note of $10,000 (the “First July 2018 Rosen Note”). Pursuant to the First July 2018 Rosen Loan Agreement, the note bears interest at a rate of 6% per annum and payable on the maturity date of August 17, 2018 at which time all outstanding principal, accrued and unpaid interest are due under the First July 2018 Rosen Note. Subsequent to the balance sheet date, on November 8, 2018 the Company executed upon an agreement that extended the maturity date of this loan to March 7, 2019. As part of the extension agreement, the Company issued to Mr. Rosen 27,534 warrants to purchase common stock of the Company at an exercise price of $0.30. On March 29, 2019 the Company entered into an agreement that extended the maturity date of this loan to May 15, 2019.
During the year ended December 31, 2019, the Company repaid $10,000 of principal and all unpaid interest and the loan is no longer outstanding.
The Second July 2018 Rosen Loan Agreements
On July 18, 2018, the Company entered into a loan agreement (the “Second July 2018“September 2020 Rosen Loan Agreement”) with Rosen whereby the Company issued Mr. Rosen a promissory note of $50,000$3,295 (the “Second July 2018“September 2020 Rosen Note”) resulting from. Pursuant to the conversion of a demand note (as described below). As additional consideration for entering into the Second July 2018September 2020 Rosen Loan Agreement, the Company issued Mr. Rosen a four-year warrant to purchase 150,000 shares of the Company’s common stock at a purchase price of $0.20 per share. Pursuant to the Second July 2018 Rosen Loan Agreement, the Second July 2018September 2020 Rosen Note bearshas an interest at a rate of 6% per annum and payable on the7%. The maturity date of August 17, 2018 at which time all outstanding principal, accrued and unpaid interest are due under the Second July 2018 Rosen Note. Subsequent to the balance sheet date, on November 8, 2018 the Company entered into an agreement that extended the maturity date of this loan to March 7, 2019. As part of the extension agreement, the Company issued to Mr. Rosen 203,967 warrants to purchase common stock of the Company at an exercise price of $0.30. On March 29, 2019 the Company entered into an agreement that extended the maturity date of this loan to May 15, 2019.
During the year ended December 31, 2019, the Company repaid $50,000 of principal and all unpaid interest and the loan is no longer outstanding.
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The November 2018 Rosen Loan Agreement
On November 29, 2018, the Company entered into a loan agreement (the “November 2018 Rosen Loan Agreement”) with Mr. Rosen, whereby the Company issued Mr. Rosen a promissory note in the principal amount of $25,000 (the “November 2018 Rosen Note”). As additional consideration for entering in the November 2018September 2020 Rosen Note Loan Agreement, the Company issued Mr. Rosen a four-year warrant to purchase 25,000 shares of the Company’s common stock at a purchase price of $0.30 per share. Pursuant to the November 2018 Rosen Loan Agreement, the November 2018 Rosen Note bears interest at a rate of 6% per annum and payable on the maturity date of December 23, 2018is September 15, 2022 (the “November 2018“September 2020 Rosen Maturity Date”) at which time all outstanding principal, accrued and unpaid interest are due under the November 2018 Rosen Loan.
During the year ended December 31, 2018, the Company repaid $25,000 of principal and $33 of unpaid interest and the loan is no longer outstanding.
The December 2018 Rosen Loan Agreement
On December 27, 2018, the Company entered into a loan agreement (the “December 2018 Rosen Loan Agreement”) with Mr. Rosen, whereby the Company issued Mr. Rosen a promissory note in the principal amount of $75,000 (the “December 2018 Rosen Note”). As additional consideration for entering in the December 2018 Rosen Note Loan Agreement, the Company issued Mr. Rosen a four-year warrant to purchase 75,000 shares of the Company’s common stock at a purchase price of $0.30 per share. Pursuant to the December 2018 Rosen Loan Agreement, the December 2018 Rosen Note bears interest at a rate of 6% per annum and payable on the maturity date of January 26, 2018 (the “December 2018 Rosen Maturity Date”) at which time all outstanding principal, accrued and unpaid interest are due under the November 2018 Rosen Loan. On March 29, 2019 the Company entered into an agreement that extended the maturity date of this loan to May 15, 2019.
During the year ended December 31, 2019, the Company converted this loan and all unpaid interest into the June 2019 Loan Agreement and the loan is no longer outstanding.
The December 2018 Gravitas Capital Loan Agreement
On December 27, 2018, the Company entered into a loan agreement (the “December 2018 Gravitas Capital Loan Agreement”) with Gravitas Capital, whereby the Company issued Gravitas Capital a promissory note in the principal amount of $50,000 (the “December 2018 Gravitas Capital Note”). As additional consideration for entering in the December 2018 Gravitas Capital Note Loan Agreement, the Company issued Gravitas Capital a four-year warrant to purchase 50,000 shares of the Company’s common stock at a purchase price of $0.30 per share. Pursuant to the December 2018 Gravitas Capital Loan Agreement, the December 2018 Gravitas Capital Note bears interest at a rate of 6% per annum and payable on the maturity date of January 27, 2018 (the “December 2018 Gravitas Capital Maturity Date”) at which time all outstanding principal, accrued and unpaid interest are due under the November 2018 Gravitas Capital Loan. In January 2019, the Company repaid $50,000 in principal and $250 in interest, and the loan is no longer outstanding.
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The January 2019 Rosen Loan Agreement
On January 30, 2019, the Company entered into a loan agreement (the “January 2019 Rosen Loan Agreement”) with Mr. Rosen, whereby the Company issued Mr. Rosen a promissory note in the principal amount of $175,000 (the “January 2019 Rosen Note”). As additional consideration for entering in the January 2019 Rosen Note Loan Agreement, the Company issued Mr. Rosen a four-year warrant to purchase 15,000 shares of the Company’s common stock at a purchase price of $6.00 per share. Pursuant to the January 2019 Rosen Loan Agreement, the January 2019 Rosen Note bears interest at a rate of 10% per annum and payable on the maturity date of February 15, 2019 (the “January 2019 Rosen Maturity Date”). On February 19, 2018 the Company executed upon an agreement that extended the maturity date of this loan to March 7, 2019. As part of the extension agreement, the Company issued Mr. Rosen warrants to purchase 35,194 shares of common stock of the Company at an exercise price of $6.00. On March 29, 2019 the Company entered into an agreement with Mr. Rosen that extended the maturity date of this loan to May 15, 2019.
On August 8, 2019 the Company entered into an agreement further extending the maturity date to September 20, 2019.
During the year ended December 31, 2019 the Company repaid $175,000 in principal and $15,073 in interest and the loan is no longer outstanding.
The February 2019 Rosen Loan Agreement
On February 14, 2019, the Company entered into a loan agreement (the “February 2019 Rosen Loan Agreement”) with Mr. Rosen, whereby the Company issued Mr. Rosen a promissory note in the principal amount of $50,000 (the “February 2019 Rosen Note”). As additional consideration for entering in the February 2019 Rosen Note Loan Agreement, the Company issued Mr. Rosen a four-year warrant to purchase 5,000 shares of the Company’s common stock at a purchase price of $6.00 per share. Pursuant to the February 2019 Rosen Loan Agreement, the February 2019 Rosen Note bears interest at a rate of 10% per annum and payable on the maturity date of February 28, 2019 (the “February 2019 Rosen Maturity Date”). On March 29, 2019 the Company entered into an agreement with Mr. Rosen that extended the maturity date of this loan to May 15, 2019. On August 8, 2019 the Company entered into an agreement further extending the maturity date to September 20, 2019.
During the year ended December 31, 2019 the Company repaid $50,000 in principal and $3,208 in interest and the loan is no longer outstanding.
The June 2019 Loan Agreement
On June 3, 2019, the Company entered into a loan agreement (the “June 2019 Loan Agreement”) with Mr. Rosen, pursuant to which the Company was to be indebted in the amount of $2,400,000, of which $1,200,000 was funded by September 30, 2019 and $1,200,000 was exchanged from the May 2016 Rosen Loan Agreement dated May 26, 2016 in favor of Rosen for a joint and several interest in the Term Loan pursuant to the Debt Exchange Agreement. The June 2019 Loan Agreement, the June 2019 Loan bears interest at a rate of 12.5% per annum, compounded annually and payable on the maturity date of December 3, 2019 (the “June 2019 Maturity Date”), at which time all outstanding principal, accrued and unpaid interest and other amounts due under the June 2019. In connection withnote are due. The September 2020 Rosen Loan is secured by the conversiontangible and intangible property of the May 2016Company.
Since the September 2020 Rosen Loan AgreementNote has a make-whole provision if the Company recorded a debt discount of $92,752. The debt discount is being accreted over the life of the note to accretion of debt discount and issuance cost.
The August 2019 Schiller Loan Agreement
On August 6, 2019, the Company entered into a loan agreement (the “August 2019 Schiller Loan Agreement”) with Mr. Schiller, whereby the Company issued a promissory note to Mr. Schiller in the principal amount of $15,000 (the “August 2019 Schiller Note”). Pursuant to the August 2019 Schiller Loan Agreement, the August 2019 Schiller Note bears interest at a rate of $750 per month. As additional consideration for entering in the August 2019 Schiller Loan Agreement, the Company issued a five-year warrant to purchase 225 sharesshare price of the Company’s common stock atis below 2.92 on September 14, 2020, they are subject to derivative liability treatment. The Company has applied ASC 815, due to the potential for settlement in a purchase pricevariable quantity of $6.00 per share.shares. The make-whole feature of gave rise to a derivative liability of $504,413 which was recorded as a loss on extinguishment of debt.
During the year ended December 31, 20192020 the Company repaid $15,000 in principal and $750 inaccrued interest and the loan is no longer outstanding. of $67.
The September 2019 Schiller Loan Agreement
On September 26, 2019, the Company entered into a loan agreement (the “September 2019 Schiller Loan Agreement”)
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information, as of August 25, 2022, with Mr. Schiller, whereby the Company issued Mr. Schiller a promissory note in the principal amount of $50,000 (the “September 2019 Schiller Note”). Pursuantrespect to the September 2019 Schiller Loan Agreement,beneficial ownership of the September 2019 Schiller Note bears interest at a rateoutstanding common stock by (i) any holder of $2,250 per month. As additional consideration for entering in the First September 2019 Schiller Loan Agreement, the Company issued Schiller a five-year warrant to purchase 1,000 sharesmore than five (5%) percent; (ii) each of the Company’s common stock atexecutive officers and directors; and (iii) the Company’s directors and executive officers as a purchase price of $6.00 per share.
During the year ended December 31, 2019 the Company repaid $50,000 in principal and $2,250 in interest and the loan is no longer outstanding.
The October 2019 Frommer Loan Agreement
On October 7, 2019, the Company entered into a loan agreement (the “October 2019 Frommer Loan Agreement”) with Mr. Frommer, whereby the Company issued Mr. Frommer a promissory note in the principal amount of $10,000 (the “October 2019 Frommer Note”). Pursuant to the October 2019 Frommer Loan Agreement, the October 2019 Frommer Note bears interest at a flat rate of $500. As additional consideration for entering in the October 2019 Frommer Loan Agreement, the Company issued Mr. Frommer a five-year warrant to purchase 150 sharesgroup. Except as otherwise indicated, each of the Company’s common stock at a purchase pricestockholders listed below has sole voting and investment power over the shares beneficially owned. Except as otherwise indicated, each of $6.00 per share.
During the year ended December 31, 2019stockholders listed below has sole voting and investment power over the Company repaid $10,000 in principal and $225 in interest and the loanshares beneficially owned. The address for each person is no longer outstanding. 419 Lafayette Street, 6th Floor, New York, NY 10003.
Shares Beneficially Owned (1) | Percentage Ownership | |||||||
Executive Officers and Directors | ||||||||
Jeremy Frommer | 2,000,520 | (2) | 9.23 | % | ||||
Justin Maury | 1,160,536 | (3) | 5.43 | % | ||||
Chelsea Pullano | 420,818 | (4) | 2.03 | % | ||||
Joanna Bloor | 25,039 | (7) | 0.12 | % | ||||
Brad Justus | 33,059 | (5) | 0.16 | % | ||||
Lorraine Hendrickson | 26,519 | (6) | 0.13 | % | ||||
Laurie Weisberg | 888,206 | (8) | 4.20 | % | ||||
All current directors and officers as a group | 4,554,697 | 21.31 | % |
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(1) | The securities “beneficially owned” by a person are determined in accordance with the definition of “beneficial ownership” set forth in the regulations of the SEC and accordingly, may include securities owned by or for, among others, the spouse, children or certain other relatives of such person, as well as other securities over which the person has or shares voting or investment power or securities which the person has the right to acquire within 60 days. |
(2) | Includes 685,046 shares of common stock, 1,121,188 shares of common stock underlying stock options, and 194,286 shares of common stock underlying warrants. |
(3) | Includes 159,060 shares of common stock, 994,333 shares of common stock underlying stock options, and 7,143 shares of common stock underlying warrants. |
(4) | Includes 44,818 shares of common stock and 374,000 shares of common stock underlying stock options and 2,000 shares of common stock underlying warrants |
(5) | Includes 28,059 shares of common stock and 5,000 shares of common stock underlying warrants. |
(6) | Includes 26,519 shares of common stock. |
(7) | Includes 25,039 shares of common stock. |
(8) | Includes 114,249 shares of common stock and 735,750 shares of common stock underlying stock options and 38,207 shares of common stock underlying warrants. |
UNDERWRITINGSecurities Authorized for Issuance Under Equity Compensation Plans
The Benchmark Company, LLCAs of December 31, 2021, we had awards outstanding under our 2020 Equity Incentive Plan:
Number of securities to be issued upon exercise of outstanding options and warrants | Weighted- average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a) | ||||||||||
Plan Category | (a) | (b) | (c) | |||||||||
Equity compensation plans approved by security holders | 2,950,402 | (1) | $ | 7.07 | 351,515 | |||||||
Equity compensation plans not approved by stockholders | N/A | N/A | N/A | |||||||||
Total | 2,950,402 | $ | 7.07 | 351,515 |
(1) | During the year ended December 31, 2021, we had awards outstanding under the 2020 Plan. As of the end of fiscal year 2021, we had 3,039,308 shares of our common stock issuable upon the exercise of outstanding options granted pursuant to the 2020 Plan. The securities available under the Plan for issuance and issuable pursuant to exercises of outstanding options may be adjusted in the event of a change in outstanding stock by reason of stock dividend, stock splits, reverse stock splits, etc. Pursuant to the terms of the 2020 Plan we can grant stock options, restricted stock unit awards, and other awards at levels determined appropriate by our Board and/or compensation committee. The 2020 Plan also allows us to utilize a broad array of equity incentives and performance cash incentives in order to secure and retain the services of our employees, |
THE RIGHTS OFFERING
Before deciding whether to exercise your subscription rights, you should carefully read this prospectus, including the information set forth under the heading “Risk Factors” and the information set forth in this prospectus.
Reasons for this Offering
In accordance with our strategic plan, we are conducting this offering primarily for sales and marketing and general working capital purposes. Our board of directors has approved this offering. Based on information available to the board, the board believes that this offering is acting asin the underwriterbest interests of our company and shareholders. Our board is not, however, making any recommendation regarding your exercise of the subscription rights.
Our board considered and evaluated a number of factors relating to this offering, and the Company has entered into an underwriting agreement on the dateincluding:
● | our current capital resources and indebtedness, and our future need for additional liquidity and capital; |
● | our need for increased financial flexibility in order to enable us to achieve our business plan; |
● | the size and timing of the offering and alternative securities to be offered; |
● | the potential dilution to our current shareholders if they choose not to participate in the offering; |
● | the non-transferability of the subscription rights; |
● | alternatives available for raising capital; |
● | the potential impact of the offering on the public float for the common stock if the Series A warrants are exercised; and |
● | the fact that existing shareholders would have the opportunity to purchase additional units. |
Terms of this prospectus, with itOffering
We are issuing, at no charge, non-transferable subscription rights entitling holders of common stock as underwriter. Subject to the terms and conditions of the underwriting agreement,record date and holders of the Company has agreedPreferred Shares, Eligible Warrants and/or Eligible Options, whom we refer to sell to the underwritersas rights holders or you. Your subscription rights will consist of:
● | your basic right, which will entitle you to purchase a number of units equal to two times the number of (i) shares of common stock you held as of the record date and (ii) the number of shares of common stock issuable upon conversion or exercise of the Preferred Shares, Eligible Warrants, Eligible Options, and/or Eligible Convertible Notes you held as of the record date; and |
● | your over-subscription privilege, which will be exercisable only if you exercise your basic right in full and will entitle you to purchase additional units for which other rights holders do not subscribe, subject to the pro rata allocations and ownership limitation described in “-Over-Subscription Privilege.” |
All units are being offered and the underwriters have agreed to purchase from us, Units, consistingsold at a subscription price of $ per unit.
Each unit will consist of:
● | one share of common stock; and |
● | a Series A warrant exercisable for one share of common stock at an exercise price of $1.00. |
The shares of common stock and Series A warrants less the underwriting discounts set forth on the cover pagecomprising a unit may only be purchased as a unit, but will be issued separately. Subscription rights will not be transferrable. The subscription rights may only be exercised in aggregate for whole numbers of this prospectus.units.
Subscription rights may be exercised at any time during the subscription period, which commences on , 2022, and ends at 5:00 p.m. (Eastern time) on , 2022, the expiration date, unless extended by us.
The underwritersshares of common stock issued upon the exercise of subscription rights are committedexpected to purchase allbe listed on The Nasdaq Capital Market under the symbol “CRTD.” The subscription rights will be evidenced by subscription certificates that will be mailed to shareholders, except as discussed below under “Foreign Shareholders.”
For purposes of determining the number of units a rights holder may acquire in this offering, broker-dealers, trust companies, banks or others whose shares are held of record by Cede& Co. or by any other depository or nominee will be deemed to be the holders of the subscription rights that are issued to Cede & Co. or the other depository or nominee on their behalf.
There is no minimum number of subscription rights that must be exercised in order for this offering to close.
Over-Subscription Privilege
If you exercise your basic rights in full, you may also choose to exercise your over-subscription privilege.
Allocation of Units offered by us other than those covered byAvailable for Over-Subscription Privileges
Subject to the option to purchase additional securitiesownership limitation described below, if they purchase anywe will seek to honor the over-subscription requests in full. If over-subscription requests exceed the number of units available, however, we will allocate the available units pro rata among the rights holders in proportion to the product (rounded down to the nearest whole number so that the aggregate number of units does not exceed the aggregate number offered) obtained by multiplying the number of units such securities. The obligations of the underwriters may be terminated upon the occurrence of certain events specified in the underwriting agreement. Furthermore,rights holder subscribed for pursuant to the underwriting agreement,over-subscription privilege by a fraction (A) the underwriters’ obligations are subjectnumerator of which is the number of unsubscribed units and (B) the denominator of which is the total number of units sought to customary conditions, representations and warranties contained in the underwriting agreement, such as receipt by the underwriters of officers’ certificates and legal opinions.
The Company has agreed to indemnify the underwriters against specified liabilities, including liabilities under the Securities Act of 1933, as amended, and to contribute to payments the underwriters may be required to make in respect thereof.
The underwriters are offering the Units, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel and other conditions specified in the underwriting agreement. The underwriters reserve the right to withdraw, cancel or modify offerssubscribed for pursuant to the public and to reject ordersover-subscription privilege by all rights holders participating in whole or in part.
Over-allotment Option
The Company has grantedsuch over-subscription. Continental Stock Transfer & Trust, which will act as the underwriters an over-allotment option. This option, which is exercisable for up to 45 days after the date of this prospectus, permits the underwriters to purchase a maximum of additional shares (15% of the shares sold in this offering) from us to cover over-allotments, if any. If the underwriters exercise all or part of this option, it will purchase shares covered by the option at the public offering price per share that appears on the cover page of this prospectus, less the underwriting discount. If this option is exercised in full, the total offering price to the public will be $ and the total net proceeds, before expenses, to us will be $ ..
Discount
The following table shows the public offering price, underwriting discount and proceeds, before expenses, to us. The information assumes either no exercise or full exercise by the underwriters of their over-allotment option.
The underwriters propose to offer the shares offered by us to the public at the public offering price per share set forth on the cover of this prospectus. In addition, the underwriters may offer some of the shares to other securities dealers at such price less a concession of $ per share. If all of the shares offered by us are not sold at the public offering price per share, the underwriters may change the offering price per share and other selling terms by means of a supplement to this prospectus.
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The Company will pay the out-of-pocket accountable expenses of the underwriterssubscription agent in connection with this offering. The underwriting agreement, however, provides that in the event the offering is terminated, any advance expense deposits paidand which we refer to the underwriters will be returned to the extent that offering expenses are not actually incurred in accordance with FINRA Rule 5110(f)(2)(C).
The Company has agreed to pay the underwriters’ non-accountable expenses allowance equal to 1% of the aggregate gross proceeds of this offering. The Company has also agreed to pay for a certain amount of the underwriter’s accountable expenses including actual accountable road show expenses for the offering; prospectus tracking and compliance software for the offering; the reasonable and documented fees and disbursements of the underwriter’s counsel up to an amount of $75,000; background checks of the Company’s officers and directors; preparation of bound volumes and cube mementos in such quantities as the underwriter may reasonably request; provided that these actual accountable expenses ofsubscription agent, will determine the underwriter shall not exceed $100,000 inover-subscription allocation based on the aggregate, including the feesformula described above and disbursements of the underwriter’s counsel.
The Company estimates that the total expenses of the offering payable by us, excluding underwriting discounts and commissions, will be approximately $ ..
Discretionary Accounts
The underwriters do not intend to confirm sales of the securities offered hereby to any accounts over which they have discretionary authority.
Lock-Up Agreements
Pursuant to certain “lock-up” agreements, the Company, its executive officers, directors andnotify rights holders of the Company’s common stock and securities exercisablenumber of units allocated to each holder exercising the over-subscription privilege as promptly as may be practicable after the allocations are completed.
To the extent your aggregate subscription payment for or convertible into its common stock outstanding immediately upon the closingactual number of this offering, have agreed, subjectunsubscribed units available to certain exceptions, notyou pursuant to offer, sell, assign, transfer, pledge, contract to sell, or otherwise dispose of or announce the intention to otherwise dispose of, or enter into any swap, hedge or similar agreement or arrangement that transfers,over-subscription privilege is less than the amount you actually paid in whole or in part,connection with the economic risk of ownership of, directly or indirectly, engage in any short selling of any common stock or securities convertible into or exchangeable or exercisable for any common stock, whether currently owned or subsequently acquired, without the prior written consentexercise of the underwriters, for a period of nine (9) months from the date of effectiveness of the offering.
The lock-up period described in the preceding paragraphover-subscription privilege, you will be automatically extended if: (1) duringallocated only the last 17 daysnumber of the restricted period, the Company issues an earnings releaseunsubscribed units available to you, and any excess subscription payment will be promptly returned to you, without interest or announce material news or a material event; or (2) prior to the expiration of the lock-up period, the Company announces that it will release earnings results during the 16-day period beginning on the last day of the lock-up period, in which case the restrictions described in the preceding paragraph will continue to apply until the expiration of the 18-day period beginning on the date of the earnings release, unless the underwriters waive this extension in writing; provided, however, that this lock-up period extension shall not apply to the extent that FINRA has amended or repealed NASD Rule 2711(f)(4), or has otherwise provided written interpretive guidance regarding such rule, in each case, so as to eliminate the prohibition of any broker, dealer, or member of a national securities association from publishing or distributing any research report, with respect to the securities of an emerging growth company (as defined in the JOBS Act) prior to ordeduction, after the expiration of any agreement between the broker, dealer, or member of a national securities association and the emerging growth company or its stockholders that restricts or prohibits the sale of securities held by the emerging growth company or its stockholders after the initial public offering date.
this offering.
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Underwriter Warrants
The Company has agreedTo the extent your aggregate subscription payment for the actual number of unsubscribed units available to issueyou pursuant to the underwriters warrants to purchase up to a total of 7.5% ofover-subscription privilege is less than the shares of common stock soldamount you actually paid in this offering (excluding the shares sold throughconnection with the exercise of the over-allotment option). The warrants are exercisableover-subscription privilege, you will be allocated only the number of unsubscribed units available to you, and any excess subscription payment will be promptly returned to you, without interest or deduction, after the expiration of this offering.
We can provide no assurances that you will actually be entitled to purchase the number of units issuable upon the exercise of your over-subscription privilege in full at $ per share (110%the expiration of this offering.
Expiration of Offer
This offering will expire at 5:00 p.m. (Eastern time) on , 2022, unless extended or terminated by us, and subscription rights may not be exercised thereafter.
Our board of directors may determine to extend the public offering price) commencing on asubscription period, and thereby postpone the expiration date, which is six (6) monthsnot to exceed 45 days from the effectiveinitial expiration date, to the extent it determines that doing so is in the best interest of our shareholders.
Any extension of this offering will be followed as promptly as practicable by announcement thereof, and in no event later than 9:00 a.m. (Eastern time) on the next business day following the previously scheduled expiration date. Without limiting the manner in which we may choose to make such announcement, we will not, unless otherwise required by law, have any obligation to publish, advertise or otherwise communicate any such announcement other than by issuing a press release or such other means of announcement as we deem appropriate.
Placement Period
If this offering is not fully subscribed following the expiration date of the offering, underwe will use commercially reasonable efforts to place any unsubscribed units at the subscription price for an additional period of up to 45 days. The number of units that may be sold by us during this prospectus supplementperiod will depend upon the number of units that are subscribed for pursuant to the exercise of subscription rights by our shareholders and expiring on a date which is no more than five (5) years from the effective dateother rights holders. No assurance can be given that any unsubscribed units will be sold during this period.
Determination of the offering in compliance with FINRA Rule 5110(f)(2)(G). Subscription Price
The warrants have been deemed compensation$ subscription price was set by FINRAmanagement and are therefore subject to a 6-month lock-up pursuant to Rule 5110(g)(1)approved by our board of FINRA. The underwriters (or their permitted assignees underdirectors considering. In approving the Rule) will not sell, transfer, assign, pledge, or hypothecate these warrants orsubscription price, our board considered, among other things, the securities underlying these warrants, nor will it engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective economic dispositionfollowing factors:
● | the market price of common stock prior to public announcement of the subscription price; |
● | the fact that the subscription rights will be non-transferable; |
● | the fact that holders of rights will have an over-subscription privilege; |
● | the terms and expenses of this offering relative to other alternatives for raising capital and our ability to access capital through such alternatives; |
● | comparable precedent transactions, including the range of discounts to market value represented by the subscription prices in other rights offerings; |
● | the size of this offering; and |
● | the general condition of the securities market. |
No Recombination of the warrants or the underlying securities for a period of 12 months from effectiveness. Units
The warrants may be exercised as to all, or a lesser number of shares of common stock and Series A warrants comprising the units will provide for cashlessbe issued separately upon the exercise of subscription rights, and the units will contain provisions for one demand registration of the sale of the underlyingnot trade as a separate security. Rights holders may not recombine shares of common stock and unlimited “piggyback” registration rights, bothSeries A warrants to receive a unit.
Subscription Agent
Continental Stock Transfer & Trust, the subscription agent, will receive for its administrative, processing, invoicing and other services a periodfee estimated to be approximately $30,000, plus reimbursement for all out-of-pocket expenses related to the offering.
A completed subscription certificate, together with full payment of no greater than five (5) years from the effectivesubscription price, must be sent to the subscription agent for all whole numbers of units subscribed for through the exercise of a basic right and the over-subscription privilege by one of the methods described below. We will accept only properly completed and duly executed subscription certificates actually received at any of the addresses listed below, at or prior to 5:00 p.m. (Eastern time) on the expiration date of this offering or by the close of business on the second business day after the expiration date of the offering in compliance with FINRA Rule 5110(f)(2)(G)(iv). The Company will bear all fees and expenses attendant to registering the securities issuable on exercise of the warrants other than underwriting commissions incurred and payable by the holders. The exercise price and number of shares issuable upon exercise of the warrants may be adjusted in certain circumstances including in the eventfollowing timely receipt of a stock dividend, extraordinary cash dividend or the Company’s recapitalization, reorganization, merger or consolidation. However, the warrant exercise price or underlying shares will not be adjustednotice of guaranteed delivery. See “Payment for issuancesSecurities” below. In this prospectus, close of shares of common stock at a price below the warrant exercise price.
Electronic Offer, Sale and Distribution of Shares
A prospectus in electronic format may be made availablebusiness means 5:00 p.m. (Eastern time) on the websites maintained by the underwriters, if any, participating in this offering and the underwriters participating in this offering may distribute prospectuses electronically. The underwriters may agree to allocate a number of shares for sale to its online brokerage account holders. Internet distributions will be allocated by the underwriters that will make internet distributions on the same basis as other allocations. Other than the prospectus in electronic format, the information on these websites is not part of, nor incorporated by reference into, this prospectus or the registration statement of which this prospectus forms a part, has not been approved or endorsed by us or the underwriters in their capacity as underwriters, and should not be relied upon by investors.relevant date.
Stabilization
In connection with this offering, the underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate-covering transactions, penalty bids and purchases to cover positions created by short sales.
Subscription Certificate Delivery Method | ||
By Notice of Guaranteed Delivery: | Contact an Eligible Guarantor Institution, which may include a commercial bank or trust company, a member firm of a domestic stock exchange or a savings bank or credit union, to | |
By Mail: | Attn: Corporate Actions 1 State Street, 30th Floor New York, NY 10004 | |
By Hand or Overnight Courier: |
Attn: Corporate Actions 1 State Street, 30th Floor New York, NY 10004 |
Delivery to an address other than one of the addresses listed above may not constitute valid delivery and, accordingly, may be rejected by us.
Information Agent
Any questions or requests for assistance concerning the method of subscribing for units or for additional copies of this prospectus or subscription certificates or notices of guaranteed delivery may be directed to D.F. King & Co., Inc., the information agent, by telephone at (212) 269-5550 (bankers and brokers) or (877) 283-0323 (all others) or by email at creatd@dfking.com.
Rights holders may also contact their broker-dealers or nominees (including any mobile investment platform) for information with respect to this offering.
Warrant Agent
The warrant agent for the Series A warrants is Pacific Stock Transfer.
Methods for Exercising Subscription Rights
Exercise of the Subscription Right
Subscription rights are evidenced by subscription certificates that, except as described below under “Foreign Shareholders,” will be mailed to record date shareholders and record date holders of Preferred Shares, Eligible Warrants, Eligible Options, and/or Eligible Convertible Notes or, if a record date shareholder’s shares are held by a depository or nominee (including any mobile investment platform) on his, her or its behalf, to such depository or nominee. Subscription rights may be exercised by completing and signing the subscription certificate that accompanies this prospectus and mailing it in the envelope provided, or otherwise delivering the completed and duly executed subscription certificate to the subscription agent, together with payment in full for the units at the estimated subscription price by the expiration date of this offering. Subscription rights may also be exercised by contacting your broker, trustee or other nominee (including any mobile investment platform), who can arrange, on your behalf, to guarantee delivery of payment and delivery of a properly completed and duly executed subscription certificate pursuant to a notice of guaranteed delivery by the close of business on the second business day after the expiration date. A fee may be charged by your broker, trustee or other nominee (including any mobile investment platform) for this service. Completed subscription certificates and related payments must be received by the subscription agent prior to 5:00 p.m. (Eastern time) on or before the expiration date (unless payment is effected by means of a notice of guaranteed delivery as described below under “Payment for Securities”) at the offices of the subscription agent at the address set forth above.
-66-Exercise of the Over-Subscription Privilege
Rights holders who fully exercise all of their basic rights may purchase additional shares in accordance with the over-subscription privilege by indicating on their subscription certificate the number of additional units they are willing to acquire. If sufficient units are available after all exercises of basic rights, we will seek to honor over-subscriptions requests in full, subject to the pro rata allocations and ownership limitation described in “-Over-Subscription Privilege.”
Record Date Shareholders Whose Shares are Held by a Nominee
These stabilizing transactions, syndicate covering transactions and penalty bids may haveRecord date shareholders whose shares are held by a nominee, such as a bank, broker-dealer, trustee, depositories or mobile investment platform, must contact that nominee to exercise their subscription rights. In that case, the effect of raising or maintainingnominee will complete the market pricesubscription certificate on behalf of the Company’srecord date shareholder and arrange for proper payment by one of the methods set forth under “Payment for Securities” below.
Nominees
Nominees, such as brokers, trustees, depositories or mobile investment platforms for securities, who hold shares of common stock or preventing or retarding a declinefor the account of others, should notify the respective beneficial owners of the shares as soon as possible to ascertain the beneficial owners’ intentions and to obtain instructions with respect to the subscription rights. If the beneficial owner so instructs, the nominee should complete the subscription certificate and submit it to the subscription agent with the proper payment as described under “Payment for Securities” below.
Guaranteed Delivery Procedures
If you wish to exercise subscription rights, but you do not have sufficient time to deliver the rights certificate evidencing your subscription rights to the subscription agent prior to the expiration of the rights offering, you may exercise your subscription rights by the following guaranteed delivery procedures:
deliver to the subscription agent prior to the expiration of the rights offering the subscription payment for each share you elected to purchase pursuant to the exercise of subscription rights in the market price of its shares of common stock. As a result,manner set forth below under “Payment for Securities;”
deliver to the pricesubscription agent prior to the expiration of the Company’s common stock or warrantsrights offering the form entitled “Notice of Guaranteed Delivery;” and
deliver the properly completed rights certificate evidencing your subscription rights being exercised and the related Nominee Holder Certification, if applicable, with any required signatures guaranteed, to the subscription agent within three (3) business days following the date you submit your Notice of Guaranteed Delivery.
Your Notice of Guaranteed Delivery must be delivered in substantially the open market maysame form provided with the “Instructions for Use of Non-Transferable Subscription Rights Certificates,” which will be higher than it would otherwise be indistributed to you with your rights certificate. Your Notice of Guaranteed Delivery must include a signature guarantee from an eligible institution acceptable to the absencesubscription agent. A form of these transactions. Neitherthat guarantee is included with the Company nor the underwriters make any representation or predictionNotice of Guaranteed Delivery.
In your Notice of Guaranteed Delivery, you must provide:
● | your name; |
● | the number of subscription rights represented by your rights certificate, the number of shares of units for which you are subscribing under your basic rights, and the number of units for which you are subscribing under your over-subscription privilege, if any; and |
● | your guarantee that you will deliver to the subscription agent a rights certificate evidencing the subscription rights you are exercising within three (3) business days following the date the subscription agent receives your Notice of Guaranteed Delivery. |
General
All questions as to the effect thatvalidity, form, eligibility (including times of receipt and matters pertaining to beneficial ownership) and the transactions described above may have onacceptance of subscription forms and the subscription price will be determined by us, which determinations will be final and binding. No alternative, conditional or contingent subscriptions will be accepted. We reserve the right to reject any or all subscriptions not properly submitted or the acceptance of the Company’s common stock. These transactions may be effected on the Nasdaq Capital Market,which would, in the over-the-counter marketopinion of our counsel, be unlawful.
We reserve the right to reject any exercise of rights if such exercise is not in accordance with the terms of this offering or otherwise and,not in proper form or if commenced, maythe acceptance thereof or the issuance of units thereto could be discontinued atdeemed unlawful. We reserve the right to waive any time.
Passive Market Making
Indeficiency or irregularity with respect to any subscription certificate. Subscriptions will not be deemed to have been received or accepted until all irregularities have been waived or cured within such time as we determine in our sole discretion. We will not be under any duty to give notification of any defect or irregularity in connection with this offering, the underwriters may engage in passive market making transactions insubmission of subscription certificates or incur any liability for failure to give such notification.
No Revocation or Change
Once you submit the Company’s common stocksubscription certificate or have instructed your nominee of your subscription request, you are not allowed to revoke or change the exercise or request a refund of monies paid. All exercises of subscription rights are irrevocable, even if you learn information about us that you consider to be unfavorable. You should not exercise your subscription rights unless you are certain that you wish to purchase units at the subscription price.
Transferability
Subscription Rights. The subscription rights are evidenced by a subscription certificate and are non-transferable. The subscription rights will not be listed for trading on The Nasdaq Capital Market or any other securities exchange or trading system.
Units. The common stock and Series A warrants comprising the units will be issued separately. The units will not be issued as a separate security and will not be transferable.
Common Stock. The shares of common stock included in accordanceunits will be separately transferable following their issuance. All of the shares of common stock issued in this offering are expected to be listed on The Nasdaq Capital Market.
Series A warrants. We do not intent to apply to list the Series A warrants on any national securities exchange or other nationally recognized trading system. Subject to applicable laws, the Series A warrants may be transferred at the option of the holder upon surrender of the Series A warrant to us together with the appropriate instruments of transfer.
Foreign Shareholders
Subscription certificates will not be mailed to foreign shareholders. Foreign shareholders will receive written notice of this offering. The subscription agent will hold the subscription rights to which those subscription certificates relate for these shareholders’ accounts until instructions are received to exercise the subscription rights, subject to applicable law.
Payment for Securities
Participating rights holders may choose between the following methods of payment:
(1) A participating rights holder may send to the subscription agent (a) payment of the subscription price for units acquired in the basic right and any additional units subscribed for pursuant to the over-subscription privilege and (b) a properly completed and duly executed subscription certificate, which must be received by the subscription agent at the subscription agent’s offices set forth above (see “-Subscription Agent”), at or prior to 5:00 p.m. (Eastern time) on the expiration date. A properly completed and duly executed subscription certificate and full payment for the units must be received by the subscription agent at or prior to 5:00 p.m. (Eastern time) on , 2022, unless this offering is extended by us.
(2) A participating rights holder may request an Eligible Guarantor Institution as that term is defined in Rule 103 of Regulation M17Ad-15 under the Exchange Act duringto send a period before the commencementnotice of offersguaranteed delivery or salesotherwise guaranteeing delivery of (a) payment of the shares and extending throughfull subscription price for the completion of the distribution. A passive market maker must display its bid at a price not in excess of the highest independent bid of that security. However, if all independent bids are lowered below the passive market maker’s bid, then that bid must then be lowered when specified purchase limits are exceeded.
Other Relationships
The underwriters and their respective affiliates may,units subscribed for in the future provide various investment banking, commercial bankingbasic right and other financial servicesany additional units subscribed for pursuant to the over-subscription privilege, and (b) a properly completed and duly executed subscription certificate. The subscription agent will not honor a notice of guaranteed delivery unless a properly completed and duly executed subscription certificate and full payment for the Company and its affiliates for which they haveunits is received and mayby the subscription agent at or prior to 5:00 p.m. (Eastern time) on , 2022, unless this offering is extended by us.
All payments by a participating rights holder must be in the future receive, customary fees. However, except as disclosed in this prospectus, the Company has no present arrangements with the underwriters for any further services.
Offer Restrictions Outside the United States
Other thanU.S. dollars by money order or check or bank draft drawn on a bank or branch located in the United States no action has been takenand payable to the order of “Continental Stock Transfer & Trust, as Subscription Agent for Creatd, Inc.” Payment also may be made by wire transfer to the account maintained by Continental Stock Transfer & Trust, as subscription agent, for purposes of accepting subscriptions in this offering at JPMorgan Chase Bank, 4 Metrotech Center, 14th Floor Brooklyn, NY 11245, ABA # 021000021, Account # 475-466-845, with reference to the rights holder’s name. The subscription agent will deposit all funds received by it prior to the final payment date into a segregated account pending pro-ration and distribution of the units.
The method of delivery of subscription certificates and payment of the subscription price to us will be at the election and risk of the participating rights holders, but if sent by mail it is recommended that such certificates and payments be sent by registered mail, properly insured, with return receipt requested, and that a sufficient number of days be allowed to ensure delivery to the subscription agent and clearance of payment prior to 5:00 p.m. (Eastern time) on the expiration date or the date guaranteed payments are due under a notice of guaranteed delivery (as applicable). Because uncertified personal checks may take at least five business days to clear, you are strongly urged to pay, or arrange for payment, by means of certified or cashier’s check or money order.
Whichever of the two methods described above is used, subscription rights will not be successfully exercised unless the subscription agent actually receives checks and actual payment. If a participating rights holder who subscribes for units as part of the basic right or over-subscription privilege does not make payment of any amounts due by the expiration date, the date guaranteed payments are due under a notice of guaranteed delivery or as promptly as practicable of the confirmation date, as applicable, the subscription agent reserves the right to take any or all of the following actions: (i) reallocate the units to other participating rights holders in accordance with the over-subscription privilege; (ii) apply any payment actually received by it from the participating rights holder toward the purchase of the greatest whole number of units that could be acquired by such participating rights holder upon exercise of the basic right and/or the over-subscription privilege; and/or (iii) exercise any and all other rights or remedies to which it may be entitled, including the right to set off against payments actually received by it with respect to such subscribed for units.
All questions concerning the timeliness, validity, form and eligibility of any exercise of subscription rights will be determined by us, whose determinations will be final and binding. We may waive any defect or the underwriters that wouldirregularity, or permit a public offeringdefect or irregularity to be corrected within such time as we may determine, or reject the purported exercise of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus mayright. Subscriptions will not be offereddeemed to have been received or sold, directlyaccepted until all irregularities have been waived or indirectly, nor may this prospectuscured within such time as we determine. The subscription agent will not be under any duty to give notification of any defect or any other offering material or advertisementsirregularity in connection with the offersubmission of subscription certificates or incur any liability for failure to give such notification.
Escrow Arrangements; Return of Funds
An escrow agent retained by the subscription agent will hold funds received in payment for units in a segregated escrow account pending completion of the rights offering. An escrow agent retained by the subscription agent will hold this money in escrow until the rights offering is completed or is terminated. If the rights offering is terminated for any reason, all subscription payments received by the subscription agent will be promptly returned, without interest or penalty.
Delivery of Securities
Shareholders whose shares are held of record by Cede & Co. or by any other depository or nominee on their behalf or their broker-dealers’ behalf will have any shares of common stock and saleSeries A warrants comprising units that they acquire credited to the account of Cede & Co. or the other depository or nominee. With respect to all other shareholders, certificates for all common stock or Series A warrants acquired will be mailed after payment for all the units subscribed for has cleared, which may take up to 15 business days from the expiration date.
Termination
We reserve the right to terminate the rights offering before its expiration for any reason. In particular, we may terminate the rights offering, in whole or in part, if at any time before completion of the rights offering there is any judgment, order, decree, injunction, statute, law or regulation entered, enacted, amended or held to be applicable to the rights offering that in the sole judgment of the board would or might make the rights offering or its completion, whether in whole or in part, illegal or otherwise restrict or prohibit completion of the rights offering. We may choose to proceed with the rights offering even if one or more of these events occur. If we terminate the rights offering in whole or in part, we will issue a press release notifying the shareholders of such event, all affected subscription rights will expire without value, and all excess subscription payments received by the subscription agent will be promptly returned, without interest or penalty, following such termination.
If this offering is terminated, all rights will expire without value and we will promptly arrange for the refund, without interest or deduction, of all funds received from rights holders. All monies received by the subscription agent in connection with this offering will be held in escrow by an escrow agent retained by the subscription agent, on our behalf, in a segregated account. Any interest earned on such account shall be payable to us even if we determine to terminate this offering and return your subscription payment.
No Recommendation to Rights Holders
Our board of directors has not made, nor will it make, any recommendation to rights holders regarding the exercise of subscription rights under this offering. We cannot predict the price at which shares of our outstanding common stock will trade after this offering. You should consult with your legal, tax and financial advisors prior to making your independent investment decision about whether or not to exercise your subscription rights.
Holders who exercise subscription rights risk investment loss on new money invested. We cannot assure you that the market price for common stock will ever be above the subscription price or above the exercise price of the Series A warrants, or that anyone purchasing units, or exercising the Series A warrants to purchase shares, will be able to sell those shares in the future at the same price or a higher price. If you do not exercise your subscription rights, you will lose any value represented by your subscription rights, and if you do not exercise your basic rights in full, your percentage ownership interest in our company will be diluted. For more information on the risks of participating in this offering, see “Risk Factors.”
Effect of the Rights Offering on Existing Shareholders; Interests of Certain Shareholders, Directors and Officers
Based on shares outstanding as of , 2022, after giving effect to this offering (assuming that it is fully subscribed and that the Series A warrants issued in the offering are exercised in full), we would have approximately 60,361,758 shares of common stock outstanding, representing an increase in outstanding shares of approximately 196%. If you fully exercise the basic rights that we distribute to you, your proportional interest in our company will remain the same. If you do not exercise any subscription rights, or you exercise less than all of your basic rights, your interest in our company will be diluted, as you will own a smaller proportional interest in our company compared to your interest prior to this offering.
The number of shares of common stock outstanding listed in each case above assumes that (a) all of the other shares of common stock issued and outstanding on the record date will remain issued and outstanding and owned by the same persons as of the closing of this offering, and (b) we will not issue any shares of common stock in the period between the record date and the closing of the offering.
Material U.S. Federal Income Tax Treatment of Rights Distribution
The receipt and exercise of subscription rights by shareholders should generally not be taxable for U.S. federal income tax purposes. You should seek specific tax advice from your tax advisor in light of your particular circumstances and as to the applicability and effect of any such securities be distributedother tax laws. See “Material U.S. Federal Income Tax Consequences.”
Fees and Expenses
We will pay all fees charged by the subscription agent, the information agent and the warrant agent. See “Plan of Distribution.” You are responsible for paying any commissions, fees, taxes or publishedother expenses incurred in connection with the exercise of your subscription rights.
Other Matters
We are not making this offering in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sellstate or a solicitation of an offer to buy any securities offered by this prospectus in anyother jurisdiction in which such an offerit is unlawful to do so, nor are we distributing or accepting any offers to purchase any shares of common stock from rights holders who are residents of those states or other jurisdictions or who are otherwise prohibited by federal or state laws or regulations to accept or exercise the subscription rights. We may delay the commencement of this offering in those states or other jurisdictions, or change the terms of the offering, in whole or in part, in order to comply with the securities laws or other legal requirements of those states or other jurisdictions. Subject to state securities laws and regulations, we also have the discretion to delay allocation and distribution of any units you may elect to purchase by exercise of your subscription rights in order to comply with state securities laws. We may decline to make modifications to the terms of this offering requested by those states or other jurisdictions, in which case, if you are a solicitation is unlawful.resident in those states or jurisdictions or if you are otherwise prohibited by federal or state laws or regulations from accepting or exercising the subscription rights, you will not be eligible to participate in the offering. However, we are not currently aware of any states or jurisdictions that would preclude participation in this offering.
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DESCRIPTION OF SECURITIES
AuthorizedWe are issuing non-transferable subscription rights, at no charge, to each holder of common stock as of a record date of 5:00 p.m. (Eastern time) on , 2022 and Outstanding Capital Stockholders of the Preferred Shares, Eligible Warrants and/or Eligible Options, whom we refer to as a “holder” or “you.” For each share of common stock you hold as of the record date or each share of common stock issuable upon conversion or exercise of the Preferred Shares, Eligible Warrants, Eligible Options, and/or Eligible Convertible Notes you held as of the record date, we will issue to you two subscription rights, each of which includes (a) a basic right entitling you to purchase one unit at a subscription price of $ per unit and (b) an over-subscription privilege which will entitle you to purchase additional units for which other rights holders do not subscribe, subject to you exercising your basic right in full and other limitations. Each unit will consist of one share of common stock and a Series A warrant exercisable to acquire one share of common stock at an exercise price of $1.00. The subscription rights may only be exercised in aggregate for whole numbers of units. The common stock and Series A warrants comprising the units may only be purchased as a unit, but will be issued separately.
The following description of the Company’s capital stock and provisions of its Second Amended and Restated Articles of Incorporation and Amended and Restated Bylaws are summaries and are qualified by reference to the Company’s Second Amended and Restated Articles of Incorporation and Amended and Restated Bylaws.
Description of Common Stock
The Company is authorized to issue 35,000,000120,000,000 shares of capital stock, par value $0.001 per share, of which 15,000,000100,000,000 are shares of common stock and 20,000,000 are shares of “blank check” preferred stock. As of August 25, 2022, there were 20,361,758 shares of common stock issued and outstanding. There were 500 shares of Preferred Series E Stock issued or outstanding as of August 25, 2022.
On July 25, 2019, the CompanyAugust 13, 2020, we filed a certificate of amendment to itsour Second Amended and Restated Articles of Incorporation as amended (the “Amendment”), with the Secretary of State of the State of Nevada to effectuate a one-for-twentyone-for-three (1:20)3) reverse stock split (the “Reverse“August 2020 Reverse Stock Split”) of itsour common stock without any change to its par value. The Amendment became effective on July 30, 2019. The number of shares authorized common stock was proportionately reduced from 300,000,000 to 15,000,000 as a result of the Reverse Stock Split. The number of authorized preferred stock was not affected by the Reverse Stock Split.August 17, 2020. No fractional shares were issued in connection with the August 2020 Reverse Stock Split as all fractional shares were “rounded up”rounded down to the next whole share.
As of July 2, 2020, the Company had outstanding 10,127,420 shares of common stock held by 276 shareholders of record.
Units Offered Hereby
We are offering Units at a fixed price of per Unit. Each Unit shall consist of (a) one share of our common stock, and (b) one warrant to purchase one share of our common stock, with an exercise price of $ per share.
Common Stock
The holders of the Company’s common stockCommon Stock are entitled to one vote per share. In addition, the holders of the Company’s common stock will be entitled to receive dividends ratably, if any, declared by the Company’s board of directors out of legally available funds; however, the current policy of the board of directors is to retain earnings, if any, for operations and growth. Upon liquidation, dissolution or winding-up, the holders of the Company’s common stock are entitled to share ratably in all assets that are legally available for distribution. The holders of the Company’s common stock have no preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of the Company’s common stock are subject to, and may be adversely affected by, the rights of the holders of any series of preferred stock, which may be designated solely by action of the board of directors and issued in the future.
Warrants Offered HerebyThe Common Stock is listed on The Nasdaq Capital Market under the trading symbol “CRTD.”
The Company’s transfer agent is Pacific Stock Transfer.
Series A Warrants Included in Units Issuable in this Offering
The warrants entitle the registered holder to purchase one sharebe issued as a part of our common stock at a price equal to $ per share, subject to adjustment as discussed below, at any time commencing on date of issuance (the “Issuance Date”) and terminating at 5:00 p.m., New York City time, on the fifth (5th) anniversary of the Issuance Date.
The warrantsthis offering will be issued in registered form under a warrant agent agreement (the “Warrant Agent Agreement”) between us and our warrant agent, Pacific Stock Transfer (the “Warrant Agent”). The material provisions of the warrants are set forth herein and a copy of the Warrant Agent Agreement has been fileddesignated as an exhibitSeries A warrants. Subject to the Registration Statement on Form S-1, of which this prospectus forms a part. The Company and the Warrant Agent may amend or supplement the Warrant Agent Agreement without the consent of any holder for the purpose of curing any ambiguity, or curing, correcting or supplementing any defective provision contained therein or adding or changing any other provisions with respect to matters or questions arising under the Warrant Agent Agreement as the parties thereto may deem necessary or desirable and that the parties determine, in good faith, shall not adversely affect the interest of the holders. All other amendments and supplements shall require the vote or written consent of holders of at least 50.1%. The exercise price and number of shares of common stock issuable upon exercise of theapplicable laws, these Series A warrants may be adjusted in certain circumstances, including intransferred at the eventoption of a stock dividend, extraordinary dividend on or recapitalization, reorganization, merger or consolidation.
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The warrants may be exercisedthe holder upon surrender of the Series A warrant certificate on or prior to the expiration date at the offices of the Warrant Agent,us together with the exercise form attached to the warrant certificate completed and executed as indicated, accompanied by full paymentappropriate instruments of the exercise price, by certified or official bank check payable to us, for the number of warrants being exercised.transfer. The warrant holders do not have the rights or privileges of holders of common stock and any voting rights until they exercise theirunderlying the Series A warrants, and receive shares of common stock. Afterupon issuance, is expected to be listed for trading on The Nasdaq Capital Market under the issuance of shares of common stock upon exercise of the warrants, each holdersymbol “CRTD.”
Exercisability. Each warrant will be entitledexercisable at any time and from time to one vote for each share heldtime after the date of recordissuance and will expire on all matters to be voted on by stockholders.
No, 2027. The Series A warrants will be exercisable, unless at the timeoption of the exercise a prospectus or prospectus relating to common stock issuable upon exercise of the warrants is current and the common stock has been registered or qualified or deemed to be exempt under the securities laws of the state of residence of the holder of the warrants. Under the terms of the Warrant Agent Agreement, we have agreed to use our best efforts to maintain a current prospectus or prospectus relating to common stock issuable upon exercise of the warrants until the expiration of the warrants. If we are unable to maintain the qualification or effectiveness of such registration statement until the expiration of the warrants, and therefore are unable to deliver registered shares of common stock, the warrants may become worthless. Such expiration would result in each holder, payingin whole or in part by delivering to us the warrant certificate or warrant, as applicable a duly executed exercise notice and payment in full Unit purchase price solely for the shares of common stock underlying the Units. Additionally, the market for the warrants may be limited if the prospectus or prospectus relating to the common stock issuable upon exercise of the warrants is not current or if the common stock is not qualified or exempt from qualification in the jurisdictions in which the holders of such warrants reside. In no event will the registered holders of a Warrant be entitled to receive a net-cash settlement, stock or other consideration in lieu of physical settlement in shares of our common stock.
No fractional shares of common stock will be issued upon exercise of the warrants. If, upon exercise of the warrants, a holder would be entitled to receive a fractional interest in a share, we will, upon exercise, round up to the nearest whole number the number of shares of common stock to be issued topurchased upon such exercise, except in the Warrant holder.case of a cashless exercise as discussed below.
Cashless Exercise. If multiple warrants are exercised by the holder at the same time we will aggregateof exercise of the numberSeries A warrants there is no effective registration statement registering, or the prospectus contained therein is not available for issuance of, wholethe shares issuable upon exercise of all the warrants.
The pricewarrant, the holder may exercise the warrant on a cashless basis. When exercised on a cashless basis, a portion of the warrants has been arbitrarily established by us and the Underwriter after giving consideration to numerous factors, including but not limited to, the pricingwarrant is cancelled in payment of the Unitspurchase price payable in this offering. No particular weighting was given to any one aspectrespect of those factors considered. We have not performed any method of valuation of the warrants.
Preferred Stock
The Company’s board of directors are authorized, subject to any limitations prescribed by law, without further vote or action by its stockholders, to issue from time to time shares of preferred stock in one or more series. Each series of preferred stock will have the number of shares designations, preferences, voting powers, qualificationsof common stock purchasable upon such exercise.
Exercise Price. Each Series A warrant represents the right to purchase one share of common stock at an exercise price of $1.00 per share. In addition, the exercise price per share is subject to adjustment for stock dividends, distributions, subdivisions, combinations, reclassifications or certain similar transactions.
Transferability. Subject to applicable laws and special or relative rights or privileges as shall be determined by the Company’s board of directors, whichrestrictions, a holder may include, among others, dividend rights, voting rights, liquidation preferences, conversion rights and preemptive rights.
It is not possible to state the actual effecttransfer a warrant upon surrender of the issuancewarrant to us with a completed and signed assignment in the form attached to the warrant. The transferring holder will be responsible for any tax that liability that may arise as a result of the transfer.
Rights as Shareholder. The holder of a Series A warrant, solely in such holder’s capacity as a holder of a Series A warrant, will not be entitled to vote or to any shares of preferred stock upon the other rights of holdersour shareholders.
Amendments and Waivers. The provisions of each Series A warrant may be modified or amended or the Company’s common stock untilprovisions thereof waived with the boardwritten consent of directors determines the specific rights ofus and the holders of its preferred stock. However,a majority of the effects might include, among other things:outstanding Series A warrant.
The Series A warrants will be issued pursuant to a warrant agreement by and between us and Pacific Stock Transfer, the warrant agent.
Applicable Anti-Takeover Law
Set forth below is a summary of provisions in our Articles of Incorporation and |
Blank Check Preferred Stock
The ability to authorize “blank check” preferred stock makes it possible for the Company’s board of directors to issue preferred stock with voting or other rights or preferencesBylaws that could impede the success of any attempt to acquire the Company. These and other provisions may have the effect of deferring hostile takeoversdelaying or delaying changespreventing a change in control or management of the Company.
The following description is only a summary and it is qualified by refence our Articles of Incorporation, Bylaws and relevant provisions of the Nevada Revised Statutes.
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No Cumulative Voting
Our Articles of Incorporation and the Bylaws do not provide holders of our common stock cumulative voting rights in the election of directors. The absence of cumulative voting could have the effect of preventing stockholders holding a minority of our shares of common stock from obtaining representation on our board of directors. The absence of cumulative voting might also, under certain circumstances, render more difficult or discourage a merger, tender offer or proxy contest favored by a majority of our stockholders, the assumption of control by a holder of a large block of our stock or the removal of incumbent management.
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of the material U.S. federal income tax considerations with respect to the receipt and exercise (or expiration) of the subscription rights acquired through this offering, the ownership and disposition of shares of common stock, Series A warrants received upon exercise of the subscription rights, but does not purport to be a complete analysis of all potential tax effects. The effects of other U.S. federal tax laws, such as estate and gift tax laws, and any applicable state, local or non-U.S. tax laws are not discussed. This discussion is based on the U.S. Internal Revenue Code of 1986, as amended, or Code, Treasury Regulations promulgated thereunder, judicial decisions, and published rulings and administrative pronouncements of the U.S. Internal Revenue Service, or IRS, in each case in effect as of the date hereof. These authorities may change or be subject to differing interpretations. Any such change or differing interpretation may be applied retroactively in a manner that could adversely affect a holder of the subscription rights, Series A warrants, or shares of common stock. We have not sought and will not seek any rulings from the IRS regarding the matters discussed below. There can be no assurance the IRS or a court will not take a contrary position to that discussed below regarding the tax consequences of the receipt of subscription rights acquired through this offering by persons holding shares of common stock, the exercise (or expiration) of the subscription rights, the acquisition, ownership and disposition (or expiration) of Series A warrants acquired upon exercise of the subscription rights, and the acquisition, ownership and disposition of shares of common stock acquired upon exercise of the Series A warrants.
This discussion is limited to rights holders that hold the subscription rights, Series A warrants and shares of common stock, in each case, as a “capital asset” within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all U.S. federal income tax consequences relevant to a rights holder’s particular circumstances, including the impact of the alternative minimum tax or the unearned income Medicare contribution tax. In addition, it does not address consequences relevant to rights holders subject to particular rules, including:
● | U.S. expatriates and former citizens or long-term residents of the United States; |
● | persons holding the subscription rights, Series A warrants, or shares of common stock as part of a hedge, straddle or other risk reduction strategy or as part of a conversion transaction or other integrated investment; |
● | banks, insurance companies, and other financial institutions; |
● | brokers, dealers or traders in securities; |
● | “controlled foreign corporations,” “passive foreign investment companies,” and corporations that accumulate earnings to avoid U.S. federal income tax; |
● | entities or arrangements treated as partnerships for U.S. federal income tax purposes (and investors therein); |
● | tax-exempt organizations or governmental organizations; |
● | persons deemed to sell Series A warrants, or shares of common stock under the constructive sale provisions of the Code; |
● | persons subject to special tax accounting rules as a result of any item of gross income with respect to the subscription rights, Series A warrants, or shares of common stock being considered in an “applicable financial statement” (as defined in the Code); |
● | persons for whom our capital stock constitutes “qualified small business stock” within the meaning of Section 1202 of the Code; |
● | persons who hold or receive the subscription rights, Series A warrants, or shares of common stock pursuant to the exercise of any employee stock option or otherwise as compensation; and |
● | tax-qualified retirement plans. |
If an entity treated as a partnership for U.S. federal income tax purposes holds subscription rights, shares of common stock, and Series A warrants acquired upon exercise of subscription rights or shares of common stock acquired upon exercise of the Series A warrants, as the case may be, the tax treatment of a partner in the partnership will depend on the status of the partner, the activities of the partnership and certain determinations made at the partner level. Accordingly, partnerships and the partners in such partnerships should consult their tax advisors regarding the U.S. federal income tax consequences to them.
THIS DISCUSSION IS FOR INFORMATION PURPOSES ONLY AND IS NOT TAX ADVICE. INVESTORS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES OF THE RECEIPT, OWNERSHIP AND EXERCISE OF SUBSCRIPTION RIGHTS AND THE ACQUISITION, OWNERSHIP, AND DISPOSITION OF SHARES OF COMMON STOCK AND SERIES A WARRANTS ACQUIRED UPON EXERCISE OF SUBSCRIPTION RIGHTS AND SHARES OF COMMON STOCK ACQUIRED UPON EXERCISE OF THE SERIES A WARRANTS ARISING UNDER THE U.S. FEDERAL ESTATE OR GIFT TAX LAWS OR UNDER THE LAWS OF ANY STATE, LOCAL OR NON-U.S. TAXING JURISDICTION OR UNDER ANY APPLICABLE INCOME TAX TREATY.
Tax Considerations Applicable to U.S. Holders
Common Stock Purchase WarrantsDefinition of a U.S. Holder
AsFor purposes of July 2, 2020 the Company had outstanding warrants to purchase 954,389 sharesthis discussion, a “U.S. holder” is any beneficial owner of its common stock outstanding with various exercise prices and expiration dates, held by 176 warrant holders.
Common Stock Purchase Options
As of July 2, 2020 the Company had stock options to purchase 452,523 shares of its common stock outstanding, all of which were exercisable, with various exercise prices and expiration dates, held by 20 option holders.
Listing
Oursubscription rights, shares of common stock and Series A warrants acquired upon exercise of subscription rights, or shares of common stock acquired upon exercise of Series A warrants as the case may be, that, for U.S. federal income tax purposes, is:
● | an individual who is a citizen or resident of the United States; |
● | a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States, any state thereof, or the District of Columbia; |
● | an estate, the income of which is subject to U.S. federal income tax regardless of its source; or |
● | a trust that (a) is subject to the primary supervision of a U.S. court and the control of one or more United States persons (within the meaning of Section 7701(a)(30) of the Code), or (b) has made a valid election under applicable Treasury Regulations to continue to be treated as a United States person. |
Receipt of Subscription Rights
Section 305(a) of the Code states that a shareholder’s taxable income does not include in-kind stock dividends. The general non-recognition rule in Section 305(a) of the Code is, however, subject to exceptions described in Section 305(b) of the Code, which include “disproportionate distributions” and certain distributions with respect to certain preferred stock. A disproportionate distribution is a distribution or a series of distributions, including deemed distributions, that has the effect of the receipt of cash or other property by some shareholders or holders of debt instruments convertible into stock and an increase in the proportionate interest of other shareholders in a corporation’s assets or earnings and profits.
Although the authorities governing transactions such as this offering are currently quotedcomplex and do not speak directly to the consequences of certain aspects of the offering, including the effects of the over-subscription privilege, we do not believe a U.S. holder’s receipt of subscription rights pursuant to the offering should be treated as a taxable distribution with respect to their existing shares of common stock for U.S. federal income tax purposes. Our position regarding the tax-free treatment of the receipt of subscription rights with respect to existing shares of common stock is not binding on the IRS or the courts. If this position were finally determined by the IRS or a court to be incorrect, whether on the basis that the issuance of the subscription rights is a “disproportionate distribution” or otherwise, the fair market value of the subscription rights would be taxable to U.S. rights in the manner described under “-Tax Consequences Applicable to U.S. Holders- Distributions on Common Stock” below. If our position were incorrect, the U.S. federal income tax consequences applicable to the rights holders may also be materially different than as described below.
The OTCQB Venture Market, operated by OTC Markets Group, underfollowing discussion is based upon the symbol “JMDA”. We have appliedtreatment of the subscription right issuance as a non-taxable distribution with respect to list oura U.S. holder’s existing shares of common stock for U.S. federal income tax purposes.
Tax Basis and Holding Period in the Subscription Rights
If the fair market value of the subscription rights a U.S. holder receives with respect to existing shares of common stock is less than 15% of the fair market value of the U.S. holder’s existing shares of common stock (with respect to which the subscription rights are distributed) on the date the U.S. holder receives the subscription rights, the subscription rights will be allocated a zero tax basis for U.S. federal income tax purposes, unless the U.S. holder elects to allocate its tax basis in its existing shares of common stock between its existing shares of common stock and the subscription rights in proportion to the relative fair market values of the existing shares of common stock and the subscription rights determined on the date of receipt of the subscription rights. If a U.S. holder chooses to allocate tax basis between its existing shares of common stock and the subscription rights, the U.S. holder must make this election on a statement included with its timely filed tax return (including extensions) for the taxable year in which the U.S. holder receives the subscription rights. Such an election is irrevocable. If the fair market value of the subscription rights a U.S. holder receives is 15% or more of the fair market value of their existing shares of common stock on the date the U.S. holder receives the subscription rights, however, then the U.S. holder must allocate its tax basis in its existing shares of common stock between those shares and the subscription rights the U.S. holder receives in proportion to their fair market values determined on the date the U.S. holder receives the subscription rights. The Nasdaq Capital Market upon our satisfactionholding period of subscription rights received will include a holder’s holding period in shares of common stock with respect to which the subscription rights were distributed. Please refer to discussion below regarding the U.S. tax treatment of a U.S. holder that, at the time of the exchange’sreceipt of the subscription right, no longer holds the common stock with respect to which the subscription right was distributed.
The fair market value of the subscription rights on the date that the subscription rights are distributed is uncertain, and we have not obtained, and do not intend to obtain, an appraisal of the fair market value of the subscription rights on that date. In determining the fair market value of the subscription rights, U.S. holders should consider all relevant facts and circumstances, including any difference between the subscription price of the subscription rights and the trading price of common stock on the date that the subscription rights are distributed, the exercise price of the Series A warrants, the length of the period during which the subscription rights may be exercised and the fact that the subscription rights are non-transferable.
Exercise of Subscription Rights
Generally, a U.S. holder will not recognize gain or loss upon the exercise of a subscription right received in this offering. A U.S. holder’s adjusted tax basis, if any, in the subscription right plus the subscription price should be allocated between the new shares of common stock and the warrants acquired upon exercise of the subscription right in proportion to their relative fair market values on the exercise date. This allocation will establish the U.S. holder’s initial listing criteria. We anticipate thattax basis for U.S. federal income tax purposes in the new shares of common stock and warrants received upon exercise. The holding period of a share of common stock or a warrant acquired upon exercise of a subscription right in this offering will begin on the date of exercise.
If, at the time of the receipt or exercise of the subscription right, the U.S. holder no longer holds the common stock with respect to which the subscription right was distributed, then certain aspects of the tax treatment of the receipt and exercise of the subscription right are unclear, including (1) the allocation of the tax basis between the shares of common stock previously sold and the subscription right, (2) the impact of such allocation on the amount and timing of gain or loss recognized with respect to the shares of common stock previously sold, and (3) the impact of such allocation on the tax basis of the shares of common stock and the Series A warrants underlyingacquired upon exercise of the Units (once they begin separate trading), will be listed on Nasdaq under the symbols “JMDA” and “JMDAW”, respectively.subscription right. If oura U.S. holder exercises a subscription right received in this offering after disposing of shares of common stock is not approved for listing on the Nasdaq Capital Market, we will not consummate this offering.
Exclusive Forum
Our Amended and Restated Bylaws provide that unless the Company consents in writing to the selection of an alternative forum, the Eighth Judicial District Court of Clark County, Nevada shall be the sole and exclusive forum for state law claims with respect to: (i) any derivative action or proceeding brought in the name or right of the Company or on its behalf, (ii) any action asserting a claim for breach of any fiduciary duty owed by any director, officer, employee or agent of the Company to the Company or the Company’s stockholders, (iii) any action arising or asserting a claim arising pursuant to any provision of Nevada Revised Statutes Chapters 78 or 92A or any provision of the Company’s Articles of Incorporation or Amended and Restated Bylaws or (iv) any action asserting a claim governed by the internal affairs doctrine, including, without limitation, any action to interpret, apply, enforce or determine the validity of the Company’s Articles of Incorporation or Amended and Restated Bylaws. This exclusive forum provision would not apply to suits brought to enforce any liability or duty created by the Securities Act or the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. Tosubscription right is received, the extent that any such claims may be based upon federal law claims, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. The enforceability of similar exclusive forum provisions in other corporations’ bylaws has been challenged in legal proceedings, and it is possible that a court could rule that this provision in our Amended and Restated Bylaws is inapplicable or unenforceable.U.S. holder should consult its tax advisor.
Additionally, our Amended and Restated Bylaws provide that unless the Company consents in writing to the selection of an alternative forum, the federal district courts of the United States of America will be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Company are deemed to have notice of and consented to this provision. As this provision applies to Securities Act claims, there may be uncertainty whether a court would enforce such a provision.
Transfer Agent and Warrant Agent
The Company’s transfer agent and Warrant Agent is Pacific Stock Transfer with an address 6725 Via Austi Parkway, Suite 300 Las Vegas, NV 89119.
IndemnificationExpiration of DirectorsSubscription Rights
If a U.S. holder that receives subscription rights with respect to their common stock allows such subscription rights received in this offering to expire, the U.S. holder should not recognize any gain or loss for U.S. federal income tax purposes, and Officersthe U.S. holder should re-allocate any portion of the tax basis in its existing shares of common stock previously allocated to the subscription rights that have expired to the existing shares of common stock.
Our AmendedSale or Other Disposition, Exercise or Expiration of the Series A warrants
Upon the sale or other disposition of a Series A warrants (other than by exercise), a U.S. holder will generally recognize capital gain or loss equal to the difference between the amount realized on the sale or other disposition and Restated Bylaws providethe U.S. holder’s tax basis in the warrant. This capital gain or loss will be long-term capital gain or loss if the U.S. holder’s holding period in such warrant is more than one year at the time of the sale or other disposition. The deductibility of capital losses is subject to certain limitations.
In general, a U.S. holder will not be required to recognize income, gain or loss upon exercise of a warrant for its exercise price. A U.S. holder’s tax basis in a share of common stock received upon exercise of the Series A warrants will be equal to the sum of (1) the U.S. holder’s tax basis in the warrants exchanged therefor and (2) the exercise price of such Series A warrants. A U.S. holder’s holding period in the shares of common stock received upon exercise will commence on the day after such U.S. holder exercises the Series A warrants. Although there is no direct legal authority as to the U.S. federal income tax treatment of an exercise of a warrant on a cashless basis, we intend to take the position that such exercise will not be taxable, either because the exercise is not a gain realization event or because it qualifies as a tax-free recapitalization. In the former case, the holding period of the shares of common stock received upon exercise of warrants should commence on the day after the warrants are exercised. In the latter case, the holding period of the shares of common stock received upon exercise of warrants would include the holding period of the exercised warrants. However, our position is not binding on the IRS and the IRS may treat a cashless exercise of a warrant as a taxable exchange. U.S. holders are urged to consult their tax advisors as to the consequences of an exercise of a warrant on a cashless basis, including with respect to their holding period and tax basis in the common stock received.
If a Series A warrant expires without being exercised, a U.S. holder will recognize a capital loss in an amount equal to such holder’s tax basis in the warrant. Such loss will be long-term capital loss if, at the time of the expiration, the U.S. holder’s holding period in such warrant is more than one year. The deductibility of capital losses is subject to certain limitations.
Constructive Dividends on Series A Warrants
If at any time during the period in which a U.S. holder holds the Series A warrants, we will indemnifywere to pay a taxable dividend to our shareholders and, in accordance with the anti-dilution provisions of the Series A warrants, if any, person who was or is a party or threatenedthe exercise price of the Series A warrants were decreased, that decrease would be deemed to be madethe payment of a partytaxable dividend to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative (other than an action by or in the righta U.S. holder of the corporation) by reasonSeries A warrants to the extent of our earnings and profits, notwithstanding the fact that such personU.S. holder will not receive a cash payment. If the exercise price is or wasadjusted in certain other circumstances (or in certain circumstances, there is a director or officerfailure to make an adjustment), such adjustments may also result in the deemed payment of a taxable dividend to a U.S. holder. U.S. holders should consult their tax advisors regarding the proper treatment of any adjustments to the exercise price of the corporation,Series A warrants.
Distributions on Common Stock
If we make distributions of cash or property on common stock, such distributions will constitute dividends to the extent paid out of our current or accumulated earnings and profits, as determined for U.S. federal income tax purposes. Dividends received by a corporate U.S. holder may be eligible for a dividends received deduction, subject to applicable limitations. Dividends received by certain non-corporate U.S. holders, including individuals, are generally taxed at the lower applicable capital gains rate provided certain holding period and other requirements are satisfied. Distributions in excess of our current and accumulated earnings and profits will constitute a return of capital and first be applied against expenses (including attorney’s fees)and reduce a U.S. holder’s adjusted tax basis in its common stock, but not below zero. Any excess will be treated as capital gain and will be treated as described below in the section relating to the sale or disposition of common stock.
Sale, Exchange or Other Disposition of Common Stock
Upon a sale, exchange, or other disposition of common stock, a U.S. holder generally will recognize capital gain or loss equal to the difference between the amount realized (not including any amount attributable to declared and unpaid dividends, which will be taxable as described above to U.S. holders of record who have not previously included such dividends in income) and the U.S. holder’s adjusted tax basis in common stock. A U.S. holder’s adjusted tax basis in common stock generally will equal its initial tax basis in common stock reduced by the amount of any cash distributions treated as a return of capital as described above. Such capital gain or loss generally will be long-term capital gain or loss if the U.S. holder’s holding period for common stock exceeded one year at the time of disposition). Long-term capital gains recognized by certain non-corporate U.S. holders, including individuals, generally are subject to reduced rates of taxation. The deductibility of capital losses is subject to limitations.
Information Reporting and Backup Withholding
A U.S. holder may be subject to information reporting and backup withholding when such holder receives dividend payments or receives proceeds from the sale or other taxable disposition of the Series A warrants or shares of common stock acquired through exercise of the Series A warrants. Certain U.S. holders are exempt from backup withholding, including corporations and certain tax-exempt organizations. A U.S. holder will be subject to backup withholding if such holder is not otherwise exempt and such U.S. holder:
● | fails to furnish such U.S. holder’s taxpayer identification number; |
● | furnishes an incorrect taxpayer identification number; |
● | is notified by the IRS that such U.S. holder previously failed to properly report payments of interest or dividends; or |
● | fails to certify under penalties of perjury that such U.S. holder has furnished a correct taxpayer identification number and that the IRS has not notified the holder that such U.S. holder is subject to backup withholding. |
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a U.S. holder’s U.S. federal income tax liability, provided the required information is timely furnished to the IRS. U.S. holders should consult their tax advisors regarding their qualification for an exemption from backup withholding and the procedures for obtaining such an exemption.
Tax Considerations Applicable to Non-U.S. Holders
For purposes of this discussion, a “non-U.S. holder” is any beneficial owner of subscription rights, shares of common stock and Series A warrants acquired upon exercise of subscription rights, or shares of common stock acquired upon exercise of the Series A warrants, as the case may be, that is neither a U.S. holder nor an entity treated as a partnership for U.S. federal income tax purposes.
Receipt, Exercise and Expiration of the Subscription Rights
The discussion assumes that the receipt of subscription rights with respect to existing shares of common stock will be treated as a nontaxable distribution. See “-Tax Consequences Applicable to U.S. Holders-Receipt of Subscription Rights” above. Non-U.S. holders that receive subscription rights with respect to existing shares of common stock will generally not be subject to U.S. federal income tax (or any withholding thereof) on the receipt, exercise or expiration of the subscription rights.
Exercise of the Series A warrants
A non-U.S. holder generally will not be subject to U.S. federal income tax on the exercise of Series A warrants into shares of common stock. If a cashless exercise of the Series A warrants results in a taxable exchange, however, as described in “-Tax Considerations Applicable to U.S. holders-Sale or Other Disposition, Exercise or Expiration of Warrants,” the rules described below under “Sale or Other Disposition of Common Stock or Series A warrants” would apply.
Constructive Dividends on Series A Warrants
If at any time during the period in which a non-U.S. holder holds Series A warrants we were to pay a taxable dividend to our shareholders and, in accordance with the anti-dilution provisions of the Series A warrants, the exercise price of the Series A warrants were decreased, that decrease would be deemed to be the payment of a taxable dividend to a non-U.S. holder to the extent of our earnings and profits, notwithstanding the fact that such non-U.S. holder will not receive a cash payment. If the exercise price is adjusted in certain other circumstances (or in certain circumstances, there is a failure to make an adjustment), judgments, finessuch adjustments may also result in the deemed payment of a taxable dividend to a non-U.S. holder. Any resulting withholding tax attributable to deemed dividends may be collected from other amounts payable or distributable to, or other assets of, the non-U.S. holder. Non-U.S. holders should consult their tax advisors regarding the proper treatment of any adjustments to the warrants.
Distributions on Common Stock
If we make distributions of cash or property on common stock, such distributions will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and amountsprofits, as determined under U.S. federal income tax principles. Amounts not treated as dividends for U.S. federal income tax purposes will constitute a return of capital and first be applied against and reduce a non-U.S. holder’s adjusted tax basis in its common stock, as the case may be, but not below zero. Any excess will be treated as capital gain and will be treated as described below in the section relating to the sale or disposition of common stock or the Series A warrants. Because we may not know the extent to which a distribution is a dividend for U.S. federal income tax purposes at the time it is made, for purposes of the withholding rules discussed below we or the applicable withholding agent may treat the entire distribution as a dividend.
Subject to the discussion below on backup withholding and foreign accounts, dividends paid to a non- U.S. holder of common stock that are not effectively connected with the non-U.S. holder’s conduct of a trade or business within the United States will be subject to U.S. federal withholding tax at a rate of 30% of the gross amount of the dividends (or such lower rate specified by an applicable income tax treaty).
Non-U.S. holders will be entitled to a reduction in settlement actually and reasonably incurred by such personor an exemption from withholding on dividends as a result of either (a) an applicable income tax treaty or (b) the non-U.S. holder holding common stock in connection with the conduct of a trade or business within the United States and dividends being effectively connected with that trade or business. To claim such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to bereduction in or exemption from withholding, the non-U.S. holder must provide the applicable withholding agent with a properly executed (a) IRS Form W-8BEN or W-8BEN-E (or other applicable documentation) claiming an exemption from or reduction of the withholding tax under the benefit of an income tax treaty between the United States and the country in which the non-U.S. holder resides or is established, or (b) IRS Form W-8ECI stating that the dividends are not opposedsubject to withholding tax because they are effectively connected with the conduct by the non-U.S. holder of a trade or business within the United States, as may be applicable. These certifications must be provided to the best interestsapplicable withholding agent prior to the payment of dividends and must be updated periodically. Non-U.S. holders that do not timely provide the applicable withholding agent with the required certification, but that qualify for a reduced rate under an applicable income tax treaty, may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS.
If dividends paid to a non-U.S. holder are effectively connected with the non-U.S. holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, the non-U.S. holder maintains a permanent establishment in the United States to which such dividends are attributable), then, although exempt from U.S. federal withholding tax (provided the non-U.S. holder provides appropriate certification, as described above), the non-U.S. holder will be subject to U.S. federal income tax on such dividends on a net income basis at the regular graduated U.S. federal income tax rates. In addition, a non-U.S. holder that is a corporation may be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on its effectively connected earnings and profits for the taxable year that are attributable to such dividends, as adjusted for certain items. Non-U.S. holders should consult their tax advisors regarding their entitlement to benefits under any applicable income tax treaty.
Sale or Other Disposition of Common Stock or Series A warrants
Subject to the discussions below on backup withholding and foreign accounts, a non-U.S. holder will not be subject to U.S. federal income tax on any gain realized upon the sale or other taxable disposition of the Company,Series A warrants or common stock unless:
● | the gain is effectively connected with the non-U.S. holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, the non-U.S. holder maintains a permanent establishment in the United States to which such gain is attributable); |
● | the non-U.S. holder is a nonresident alien individual present in the United States for 183 days or more during the taxable year of the disposition and certain other requirements are met; or |
● | The Series A warrants or common stock constitutes a U.S. real property interest, or USRPI, by reason of our status as a U.S. real property holding corporation, or USRPHC, for U.S. federal income tax purposes. |
Gain described in the first bullet point above generally will be subject to U.S. federal income tax on a net income basis at the regular graduated rates. A Non-U.S. holder that is a corporation also may be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on such effectively connected gain, as adjusted for certain items.
Gain described in the second bullet point above will be subject to U.S. federal income tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on any gain derived from the disposition, which may be offset by U.S. source capital losses of the non-U.S. holder (even though the individual is not considered a resident of the United States), provided the non-U.S. holder has timely filed U.S. federal income tax returns with respect to any criminal actionsuch losses.
With respect to the third bullet point above, we believe we are not currently and do not anticipate becoming a USRPHC. Because the determination of whether we are a USRPHC depends on the fair market value of our USRPIs relative to the fair market value of our other business assets and our non- U.S. real property interests, however, there can be no assurance we are not a USRPHC or proceeding, had no reasonable cause to believe such person’s conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent will not without more, create a presumptionbecome one in the future.
Non-U.S. holders should consult their tax advisors regarding potentially applicable income tax treaties that the person did not act in good faithmay provide for different rules.
Information Reporting and in a manner which such person reasonably believed to be in or not opposedBackup Withholding
Subject to the best interest of the corporation, and,discussion below on foreign accounts, a non-U.S. holder will not be subject to backup withholding with respect to distributions on common stock we make to the non-U.S. holder, provided the applicable withholding agent does not have actual knowledge or reason to know such non-U.S. holder is a United States person and such non-U.S. holder certifies its non-U.S. status, such as by providing a valid IRS Form W-8BEN, W-8BEN-E or W-8ECI, or other applicable certification. Information returns generally will be filed with the IRS, however, in connection with any criminal actiondistributions (including deemed distributions) made on Series A warrants and common stock to the non-U.S. holder, regardless of whether any tax was actually withheld. Copies of these information returns may also be made available under the provisions of a specific treaty or proceeding, had reasonable causeagreement to believe that his conduct was unlawful. The Company may by action of its Board of Directors, grant rights to indemnification and advancement of expenses to employees and agentsthe tax authorities of the Company withcountry in which the same scopenon-U.S. holder resides or is established.
Information reporting and effectsbackup withholding may apply to the proceeds of a sale or other taxable disposition of Series A warrants or common stock within the United States, and information reporting may (although backup withholding generally will not) apply to the proceeds of a sale or other taxable disposition of the Series A warrants or common stock outside the United States conducted through certain U.S.-related financial intermediaries, in each case, unless the beneficial owner certifies under penalty of perjury that it is a non-U.S. holder on IRS Form W-8BEN or W-8BEN-E, or other applicable form (and the payor does not have actual knowledge or reason to know that the beneficial owner is a U.S. person) or such owner otherwise establishes an exemption. Proceeds of a disposition of the Series A warrants or common stock conducted through a non-U.S. office of a non-U.S. broker generally will not be subject to backup withholding or information reporting.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a non-U.S. holder’s U.S. federal income tax liability, provided the indemnification provisions for officers and directors.required information is timely furnished to the IRS.
Disclosure of Commission PositionAdditional Withholding Tax on Indemnification for Securities Act LiabilitiesPayments Made to Foreign Accounts
Insofar as indemnification for liabilitiesWithholding taxes may be imposed under the SecuritiesForeign Account Tax Compliance Act, or FATCA, on certain types of payments made to non-U.S. financial institutions and certain other non-U.S. entities. Specifically, a 30% withholding tax may be permittedimposed on dividends (including deemed dividends) or gross proceeds from the sale or other disposition of the Series A warrants or common stock paid to a “foreign financial institution” or a “non-financial foreign entity” (each as defined in the Code), unless (1) the foreign financial institution undertakes certain diligence and reporting obligations, (2) the non-financial foreign entity either certifies it does not have any “substantial United States owners” (as defined in the Code) or furnishes identifying information regarding each substantial United States owner, or (3) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules. If the payee is a foreign financial institution and is subject to the diligence and reporting requirements in (1) above, it must enter into an agreement with the U.S. Department of the Treasury requiring, among other things, that it undertake to identify accounts held by certain “specified United States persons” or “United States-owned foreign entities” (each as defined in the Code), annually report certain information about such accounts, and withhold 30% on certain payments to non-compliant foreign financial institutions and certain other account holders. Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing FATCA may be subject to different rules.
Under the applicable Treasury Regulations and administrative guidance, withholding under FATCA generally applies to payments of dividends (including deemed dividends), and will apply to payments of gross proceeds from the sale or other disposition of Series warrants or common stock on or after January 1, 2019. Because we may not know the extent to which a distribution is a dividend for U.S. federal income tax purposes at the time it is made, for purposes of these withholding rules we or the applicable withholding agent may treat the entire distribution as a dividend. Prospective investors should consult their tax advisors regarding the potential application of these withholding provisions.
PLAN OF DISTRIBUTION
As soon as practicable after 5:00 p.m. (Eastern time) on , 2022, the record date for this offering, we will distribute the subscription rights and subscription certificates to persons who owned settled shares of common stock at 5:00 p.m. (Eastern time) on the record date or held the Preferred Shares, Eligible Warrants, Eligible Options, and/or Eligible Convertible Notes as of the record date. If you wish to exercise your subscription rights and purchase units, you should complete the subscription certificate and return it with the subscription payment to Continental Stock Transfer & Trust, the subscription agent.
See “The Rights Offering-Methods for Exercising Subscription Rights.” If you have any questions or need further information about this offering, please contact D.F. King & Co., Inc., the information agent, by telephone at (212) 269-5550 (bankers and brokers) or (877) 283-0323 (all others) or by email at creatd@dfking.com.
Dealer-Manager
We do not know of any existing agreements between or among any shareholder, broker, dealer, underwriter or agent relating to the sale or distribution of the underlying shares of common stock.
Some of our officers, employees and directors may solicit responses from holders of subscription rights. None of our officers, directors or persons controllingemployees will be compensated in connection with these actions by the Company pursuant topayment of commissions or other remuneration based either directly or indirectly on the foregoing provisions, the Company has been informed that is it is the opinion of the Securities and Exchange Commission that such indemnification is against public policy as expressed in such Securities Act and is, therefore, unenforceable.subscriptions, but will be reimbursed for reasonable expenses.
-70-We have agreed to pay the subscription agent and the information agent customary fees plus certain expenses in connection with the offering. Except as described in this section, we are not paying any commissions, underwriting fees or discounts in connection with this offering.
Electronic Distribution
This prospectus may be made available in electronic format on websites or via email or through other online services maintained by us. Other than this prospectus in electronic format, the information on our websites is not part of this prospectus or the registration statement of which this prospectus forms a part, has not been approved or endorsed by us, and should not be relied upon by investors.
Price Stabilization
We have not authorized any person to engage in any form of price stabilization in connection with this offering.
LEGAL MATTERS
The validity of the issuance of the Units, and the common stock and warrants underlying the Units,securities offered by us in this offeringhereby will be passed upon for us by Sheppard, Mullin, Richter & Hampton LLP, New York, New York. Certain legal matters will be passed upon for the underwriter by Lucosky Brookman LLP, Woodbridge, New Jersey.LLP.
EXPERTS
The financial statements as of and for the yearsfiscal year ended December 31, 20192021 and 20182020 have been audited by Rosenberg Rich Baker Berman, P.A., 265 Davidson Avenue, Suite 210, Somerset, NJ 08873, an independent registered public accounting firm, as set forthstated in their report and arereports. Such financial statements have been so included in reliance upon such report given as authoritythe reports of such firm given upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MOREADDITIONAL INFORMATION
The Company files annual, quarterly and currentAvailable Information
We file reports, proxy statements and other information with the SEC. The Company hasInformation filed with the SEC a registration statement on Form S-1 under the Securities Act, with respect to the common stock being offered under this prospectus. This prospectus does not contain all of the information set forth in the registration statementby us can be inspected and the exhibits to the registration statement. For further information with respect to the Company and the securities being offered under this prospectus, please refer to the complete registration statement and the exhibits and schedules filed as a part of the registration statement.
You may read and copy the registration statement, as well as the Company’s reports, proxy statements and other information,copied at the SEC’s Public Reference Room maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. Please callYou may also obtain copies of this information by mail from the Public Reference Room of the SEC at 1-800-SEC-0330 for moreprescribed rates. Further information abouton the operation of the SEC’s Public Reference Room.Room in Washington, D.C. can be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Interneta web site that contains reports, proxy and information statements and other information regardingabout issuers, thatsuch as us, who file electronically with the SEC. The SEC’s Internet site can be found ataddress of that website is http://www.sec.gov. You may access
Our website address is https://creatd.com. The information on our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-Kwebsite, however, is not, and other reportsshould not be deemed to be, a part of this prospectus.
This prospectus and any prospectus supplement are part of a registration statement that we filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act with the SEC freeand do not contain all of charge onthe information in the registration statement. The full registration statement may be obtained from the SEC or us, as provided below. Forms of the documents establishing the terms of the offered securities are or may be filed as exhibits to the registration statement. Statements in this prospectus or any prospectus supplement about these documents are summaries and each statement is qualified in all respects by reference to the document to which it refers. You should refer to the actual documents for a more complete description of the relevant matters. You may inspect a copy of the registration statement at the SEC’s website.Public Reference Room in Washington, D.C. or through the SEC’s website, as provided above.
-71-
INDEX TO FINANCIAL STATEMENTSCreatd, Inc.
June 30, 2022
Index to the Condensed Consolidated Financial Statements
Jerrick Media Holdings, Inc.
Creatd, Inc.
Condensed Consolidated Balance Sheets
June 30, 2022 | December 31, 2021 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Current Assets | ||||||||
Cash | $ | 1,556,663 | $ | 3,794,734 | ||||
Accounts receivable, net | 379,312 | 337,440 | ||||||
Inventory | 429,754 | 106,403 | ||||||
Marketable securities | 48,646 | - | ||||||
Prepaid expenses and other current assets | 186,883 | 236,665 | ||||||
Total Current Assets | 2,601,258 | 4,475,242 | ||||||
Property and equipment, net | 250,915 | 102,939 | ||||||
Intangible assets | 2,526,763 | 2,432,841 | ||||||
Goodwill | 1,383,785 | 1,374,835 | ||||||
Deposits and other assets | 1,169,329 | 718,951 | ||||||
Minority investment in businesses | - | 50,000 | ||||||
Operating lease right of use asset | 2,197,394 | 18,451 | ||||||
Total Assets | $ | 10,129,444 | $ | 9,173,259 | ||||
Liabilities and Stockholders’ Deficit | ||||||||
Current Liabilities | ||||||||
Accounts payable and accrued liabilities | $ | 4,899,108 | $ | 3,730,540 | ||||
Share liability | 31,080 | - | ||||||
Convertible Notes, net of debt discount and issuance costs | 2,291,010 | 159,193 | ||||||
Current portion of operating lease payable | 149,830 | 18,451 | ||||||
Note payable, net of debt discount and issuance costs | 1,863,831 | 1,278,672 | ||||||
Deferred revenue | 262,583 | 234,159 | ||||||
Total Current Liabilities | 9,497,442 | 5,421,015 | ||||||
Non-current Liabilities: | ||||||||
Note payable | 31,417 | 63,992 | ||||||
Operating lease payable | 2,100,818 | - | ||||||
Total Non-current Liabilities | 2,132,235 | 63,992 | ||||||
Total Liabilities | 11,629,677 | 5,485,007 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ Equity (Deficit) | ||||||||
Preferred stock, $0.001 par value: 20,000,000 shares authorized | ||||||||
Series E Preferred stock, $0.001 par value: 8,000 shares authorized; 500 and 500 shares issued and outstanding, respectively | - | - | ||||||
Common stock par value $0.001: 100,000,000 shares authorized; 20,254,839 issued and 20,249,182 outstanding as of June 30, 2022 and 16,691,170 Outstanding 16,685,513 outstanding as of December 31, 2021 | 20,255 | 16,691 | ||||||
Additional paid in capital | 122,068,892 | 111,563,618 | ||||||
Less: Treasury stock, 5,657 and 5,657 shares, respectively | (62,406 | ) | (62,406 | ) | ||||
Accumulated deficit | (124,314,530 | ) | (109,632,574 | ) | ||||
Accumulated other comprehensive income | (107,881 | ) | (78,272 | ) | ||||
Total Creatd, Inc. Stockholders’ Equity | (2,395,670 | ) | 1,807,057 | |||||
Non-controlling interest in consolidated subsidiaries | 895,437 | 1,881,195 | ||||||
(1,500,233 | ) | 3,688,252 | ||||||
Total Liabilities and Stockholders’ Equity (Deficit) | $ | 10,129,444 | $ | 9,173,259 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Creatd, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
For the Three Months Ended | For the Three Months Ended | For the Six Months Ended | For the Six Months Ended | |||||||||||||
June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||
Net revenue | $ | 1,625,901 | $ | 970,857 | $ | 2,974,639 | $ | 1,714,770 | ||||||||
Cost of revenue | 1,794,419 | 731,309 | 3,366,589 | 1,940,715 | ||||||||||||
Gross margin (loss) | (168,518 | ) | 239,548 | (391,950 | ) | (225,945 | ) | |||||||||
Operating expenses | ||||||||||||||||
Research and development | 224,512 | 56,598 | 451,166 | 385,450 | ||||||||||||
Marketing | 1,277,510 | 4,194,524 | 3,369,531 | 6,237,179 | ||||||||||||
Stock based compensation | 2,141,218 | 1,940,250 | 3,222,010 | 3,510,489 | ||||||||||||
General and administrative | 4,181,666 | 2,428,971 | 7,568,051 | 3,967,729 | ||||||||||||
Total operating expenses | 7,824,906 | 8,620,343 | 14,610,758 | 14,100,847 | ||||||||||||
Loss from operations | (7,993,424 | ) | (8,380,795 | ) | (15,002,708 | ) | (14,326,792 | ) | ||||||||
Other income (expenses) | ||||||||||||||||
Other income | - | - | 99 | - | ||||||||||||
Interest expense | (20,360 | ) | (60,760 | ) | (34,256 | ) | (259,431 | ) | ||||||||
Accretion of debt discount and issuance cost | (623,531 | ) | (354,199 | ) | (647,008 | ) | (851,364 | ) | ||||||||
Derivative expense | - | - | - | (100,502 | ) | |||||||||||
Change in derivative liability | - | (65,442 | ) | 3,729 | (262,831 | ) | ||||||||||
Impairment of investment | (50,000 | ) | (62,733 | ) | (50,000 | ) | (62,733 | ) | ||||||||
Settlement of vendor liabilities | (17,392 | ) | - | (2,867 | ) | 92,909 | ||||||||||
Gain on extinguishment of debt | - | 82,431 | - | 286,009 | ||||||||||||
Loss on marketable securities | (231 | ) | - | (231 | ) | - | ||||||||||
Gain on extinguishment of debt | - | - | 147,256 | - | ||||||||||||
Gain on forgiveness of debt | - | 279,022 | - | 279,022 | ||||||||||||
Other income (expenses), net | (711,514 | ) | (181,681 | ) | (583,278 | ) | (878,921 | ) | ||||||||
Loss before income tax provision | (8,704,938 | ) | (8,562,476 | ) | (15,585,986 | ) | (15,205,713 | ) | ||||||||
Income tax provision | - | - | - | - | ||||||||||||
Net loss | (8,704,938 | ) | (8,562,476 | ) | (15,585,986 | ) | (15,205,713 | ) | ||||||||
Non-controlling interest in net loss | 367,872 | 432 | 985,758 | 432 | ||||||||||||
Net Loss attributable to Creatd, Inc. | (8,337,066 | ) | (8,562,044 | ) | (14,600,228 | ) | (15,205,281 | ) | ||||||||
Deemed dividend | - | (410,750 | ) | (81,728 | ) | (410,750 | ) | |||||||||
Net loss attributable to common shareholders | $ | (8,337,066 | ) | $ | (8,972,794 | ) | $ | (14,681,956 | ) | $ | (15,616,031 | ) | ||||
Comprehensive loss | ||||||||||||||||
Net loss | (8,704,938 | ) | (8,562,476 | ) | (15,585,986 | ) | (15,205,713 | ) | ||||||||
Currency translation gain (loss) | (24,659 | ) | (552 | ) | (29,609 | ) | (7,863 | ) | ||||||||
Comprehensive loss | $ | (8,729,597 | ) | $ | (8,563,028 | ) | $ | (15,615,595 | ) | $ | (15,213,576 | ) | ||||
Per-share data | ||||||||||||||||
Basic and diluted loss per share | $ | (0.41 | ) | $ | (0.81 | ) | $ | (0.77 | ) | $ | (1.49 | ) | ||||
Weighted average number of common shares outstanding | 20,233,585 | 11,081,354 | 18,977,745 | 10,465,815 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Creatd, Inc.
Condensed Consolidated Statement of Changes in Stockholders’ Equity (Deficit)
For the Three Months Ended June 30, 2022
(Unaudited)
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, April 1, 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 | |||||||||||||||||||||
Stock based compensation | - | - | 289,749 | 290 | - | - | 2,186,865 | - | - | - | 2,187,155 | |||||||||||||||||||||||||||||||||
Shares issued for prepaid services | - | - | 50,000 | 50 | - | - | 37,150 | - | - | - | 37,200 | |||||||||||||||||||||||||||||||||
Stock warrants issued with note payable | - | - | - | - | - | - | 1,895,390 | - | - | - | 1,895,390 | |||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | - | - | - | - | - | - | - | - | - | (24,659 | ) | (24,659 | ) | |||||||||||||||||||||||||||||||
Net loss for the three months ended June 30, 2022 | - | - | - | - | - | - | - | (8,337,066 | ) | (367,872 | ) | - | (8,704,938 | ) | ||||||||||||||||||||||||||||||
Balance, June 30, 2022 | 500 | $ | - | 20,254,839 | $ | 20,255 | (5,657 | ) | $ | (62,406 | ) | $ | 122,068,892 | $ | (124,314,530 | ) | $ | 895,437 | $ | (107,881 | ) | $ | (1,500,233 | ) |
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 Six Months Ended June 30, 2022
(Unaudited)
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, 2022 | 500 | $ | - | 16,691,170 | $ | 16,691 | (5,657 | ) | $ | (62,406 | ) | $ | 111,563,618 | $ | (109,632,574 | ) | $ | 1,881,195 | $ | (78,272 | ) | $ | 3,688,252 | |||||||||||||||||||||
Stock based compensation | - | - | 307,920 | 308 | - | - | 3,254,456 | - | - | - | 3,254,764 | |||||||||||||||||||||||||||||||||
Shares issued for prepaid services | - | - | 100,000 | 100 | - | - | 106,100 | - | - | - | 106,200 | |||||||||||||||||||||||||||||||||
Stock warrants issued with note payable | - | - | - | - | - | - | 1,895,390 | - | - | - | 1,895,390 | |||||||||||||||||||||||||||||||||
Cash received for common stock and warrants, net of $115,000 of issuance costs | - | - | 3,046,314 | 3,046 | - | - | 4,994,254 | - | - | - | 4,997,300 | |||||||||||||||||||||||||||||||||
Common stock issued upon conversion of notes payable | - | - | 109,435 | 110 | - | - | 173,346 | - | - | - | 173,456 | |||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | - | - | - | - | - | - | - | - | - | (29,609 | ) | (29,609 | ) | |||||||||||||||||||||||||||||||
Dividends | - | - | - | - | - | - | 81,728 | (81,728 | ) | - | - | - | ||||||||||||||||||||||||||||||||
Net loss for the six months ended June 30, 2022 | - | - | - | - | - | - | - | (14,600,228 | ) | (985,758 | ) | - | (15,585,986 | ) | ||||||||||||||||||||||||||||||
Balance, June 30, 2022 | 500 | $ | - | 20,254,839 | $ | 20,255 | (5,657 | ) | $ | (62,406 | ) | $ | 122,068,892 | $ | (124,314,530 | ) | $ | 895,437 | $ | (107,881 | ) | $ | (1,500,233 | ) |
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 June 30, 2021
(Unaudited)
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, April 1, 2021 | 1,088 | $ | 1 | 10,925,026 | $ | 10,925 | (5,657 | ) | $ | (62,406 | ) | $ | 80,633,380 | $ | (78,572,159 | ) | $ | - | $ | (44,545 | ) | $ | 1,965,196 | |||||||||||||||||||||
Stock based compensation | - | - | 89,050 | 89 | - | - | 2,064,575 | - | - | - | 2,064,664 | |||||||||||||||||||||||||||||||||
Conversion of warrants to stock | - | - | 18,259 | 18 | - | - | (18 | ) | - | - | - | - | ||||||||||||||||||||||||||||||||
Stock warrants issued with note payable | - | - | - | - | - | - | 1,601,452 | - | - | - | 1,601,452 | |||||||||||||||||||||||||||||||||
Cash received for common stock | - | - | 750,000 | 750 | - | - | 2,212,750 | - | - | - | 2,213,500 | |||||||||||||||||||||||||||||||||
Shares issued for prepaid services | - | - | 10,000 | 10 | - | - | 34,490 | - | - | - | 34,500 | |||||||||||||||||||||||||||||||||
Common stock issued upon conversion of notes payable | - | - | 55,631 | 56 | - | - | 173,964 | - | - | - | 174,020 | |||||||||||||||||||||||||||||||||
Conversion of preferred series E to stock | (40 | ) | - | 9,709 | 10 | - | - | (10 | ) | - | - | - | - | |||||||||||||||||||||||||||||||
Foreign currency translation adjustments | - | - | - | - | - | - | - | - | - | (552 | ) | (552 | ) | |||||||||||||||||||||||||||||||
Non-controlling interest in consolidated subsidiary from acquisition | - | - | - | - | - | - | - | - | 56,865 | - | 56,865 | |||||||||||||||||||||||||||||||||
Dividends | - | - | - | - | - | - | 410,750 | (410,750 | ) | - | - | - | ||||||||||||||||||||||||||||||||
Net loss for the three months ended June 30, 2021 | - | - | - | - | - | - | - | (8,562,044 | ) | (432 | ) | - | (8,562,476 | ) | ||||||||||||||||||||||||||||||
Balance, June 30, 2021 | 1,048 | $ | 1 | 11,857,675 | $ | 11,858 | (5,657 | ) | $ | (62,406 | ) | $ | 87,131,333 | $ | (87,544,953 | ) | $ | 56,433 | $ | (45,097 | ) | $ | (452,831 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Creatd, Inc.
Condensed Consolidated Statement of Changes in Stockholders’ Equity (Deficit)
For the Six Months Ended June 30, 2021
(Unaudited)
Series E Preferred Stock | Common Stock | Treasury stock | Additional Paid In | Subscription | Accumulated | Non-Controlling | Other Comprehensive | Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Receivable | Deficit | Interest | Income | (Deficit) | |||||||||||||||||||||||||||||||||||||
Balance, January 1, 2021 | 7,738 | $ | 8 | 8,736,378 | $ | 8,737 | (5,657 | ) | $ | (62,406 | ) | $ | 77,505,013 | $ | (40,000 | ) | $ | (71,928,922 | ) | $ | - | $ | (37,234 | ) | $ | 5,445,196 | ||||||||||||||||||||||
Stock based compensation | - | - | 201,311 | 201 | - | - | 3,410,380 | - | - | - | - | 3,410,581 | ||||||||||||||||||||||||||||||||||||
Shares issued for prepaid services | - | - | 50,000 | 50 | - | - | 226,450 | - | - | - | - | 226,500 | ||||||||||||||||||||||||||||||||||||
Shares issued to settle vendor liabilities | - | - | 44,895 | 45 | - | - | 181,341 | - | - | - | - | 181,386 | ||||||||||||||||||||||||||||||||||||
Common stock issued upon conversion of notes payable | - | - | 120,959 | 121 | - | - | 316,699 | - | - | - | - | 316,820 | ||||||||||||||||||||||||||||||||||||
Exercise of warrants to stock | - | - | 320,693 | 321 | - | - | 1,272,350 | - | - | - | - | 1,272,671 | ||||||||||||||||||||||||||||||||||||
Cash received for common | - | - | 750,000 | 750 | - | - | 2,212,750 | - | - | - | - | 2,213,500 | ||||||||||||||||||||||||||||||||||||
Cash received for preferred series E and warrants | 40 | - | - | - | - | - | (4,225 | ) | 40,000 | - | - | - | 35,775 | |||||||||||||||||||||||||||||||||||
Conversion of preferred series E to stock | (6,730 | ) | (7 | ) | 1,633,439 | 1,633 | - | - | (1,626 | ) | - | - | - | - | - | |||||||||||||||||||||||||||||||||
Stock warrants issued with note payable | - | - | - | - | - | - | 1,601,451 | - | - | - | - | 1,601,451 | ||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | - | - | - | - | - | - | - | - | - | - | (7,863 | ) | (7,863 | ) | ||||||||||||||||||||||||||||||||||
Non-controlling interest in consolidated subsidiary from acquisition | - | - | - | - | - | - | - | - | - | 56,865 | - | 56,865 | ||||||||||||||||||||||||||||||||||||
Dividends | - | - | - | - | - | - | 410,750 | - | (410,750 | ) | - | - | - | |||||||||||||||||||||||||||||||||||
Net loss for the six months ended June 30, 2021 | - | - | - | - | - | - | - | - | (15,205,281 | ) | (432 | ) | - | (15,205,713 | ) | |||||||||||||||||||||||||||||||||
Balance, June 30, 2021 | 1,048 | $ | 1 | 11,857,675 | $ | 11,858 | (5,657 | ) | $ | (62,406 | ) | $ | 87,131,333 | $ | - | $ | (87,544,953 | ) | $ | 56,433 | $ | (45,097 | ) | $ | (452,831 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Creatd, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the Six Months Ended | For the Six Months Ended | |||||||
June 30, 2022 | June 30, 2021 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (15,585,986 | ) | $ | (15,205,713 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 283,947 | 91,042 | ||||||
Impairment of investment | 50,000 | 62,733 | ||||||
Impairment of intangible assets | 7,531 | |||||||
Accretion of debt discount and issuance cost | 647,008 | 851,364 | ||||||
Share-based compensation | 3,349,362 | 3,510,489 | ||||||
Bad debt expense | 53,166 | - | ||||||
Gain on Forgiveness of debt | (147,256 | ) | (279,022 | ) | ||||
Settlement of vendor liabilities | 2,867 | (92,909 | ) | |||||
Change in fair value of derivative liability | (3,729 | ) | 262,831 | |||||
Derivative Expense | - | 100,502 | ||||||
Loss on marketable securities | 231 | - | ||||||
Gain on extinguishment of debt | - | (286,009 | ) | |||||
Non cash lease expense | 71,705 | 39,717 | ||||||
Changes in operating assets and liabilities: | ||||||||
Prepaid expenses | 66,090 | (742,565 | ) | |||||
Inventory | (128,986 | ) | - | |||||
Accounts receivable | (86,286 | ) | (186,420 | ) | ||||
Deposits and other assets | (450,378 | ) | 63,356 | |||||
Deferred revenue | 28,424 | 119,209 | ||||||
Accounts payable and accrued expenses | 1,240,585 | 734,643 | ||||||
Operating lease liability | (18,451 | ) | (39,826 | ) | ||||
Net Cash Used In Operating Activities | (10,620,156 | ) | (10,996,578 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Cash paid for property and equipment | (170,544 | ) | (25,650 | ) | ||||
Deposits | - | (100,000 | ) | |||||
Cash paid for minority investment in business | - | (150,000 | ) | |||||
Cash paid for investments in marketable securities | (48,878 | ) | ||||||
Cash consideration for acquisition | 44,977 | (469,768 | ) | |||||
Purchases of digital assets | (192,795 | ) | - | |||||
Net Cash Used In Investing Activities | (367,240 | ) | (745,418 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from the exercise of warrant | - | 1,312,672 | ||||||
Net proceeds from issuance of notes | 1,277,614 | 199,788 | ||||||
Repayment of notes | (1,258,442 | ) | (276,838 | ) | ||||
Proceeds from issuance of convertible note | 3,874,736 | 3,460,491 | ||||||
Repayment of convertible notes | (112,275 | ) | (941,880 | ) | ||||
Proceeds from issuance of common stock and warrants | 4,997,301 | 2,213,500 | ||||||
Net Cash Provided By Financing Activities | 8,778,934 | 5,967,733 | ||||||
Effect of exchange rate changes on cash | (29,609 | ) | (7,863 | ) | ||||
Net Change in Cash | (2,238,071 | ) | (5,782,126 | ) | ||||
Cash - Beginning of period | 3,794,734 | 7,906,782 | ||||||
Cash - End of period | $ | 1,556,663 | $ | 2,124,656 | ||||
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 | ||||
Warrants issued with debt | $ | 1,895,390 | $ | 1,601,452 | ||||
Issuance of common stock for prepaid services | $ | 106,200 | $ | 226,500 | ||||
Operating Lease liability incurred for right-of-use asset | $ | 2,250,648 | $ | - | ||||
Deferred offering costs | $ | - | $ | 4,225 | ||||
Common stock and warrants issued upon conversion of notes payable | $ | 173,456 | $ | 316,820 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Creatd, Inc.
June 30, 2022
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 13,030 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.
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 bene included since the date of acquisition in the Statements of Operations.
On July 20, 2021, the Company acquired 44% of the membership interests of WHE Agency, Inc. WHE Agency, Inc, is a talent management and public relations agency based in New York. WHE Agency, Inc, has been consolidated due to the Company’s ownership of 55% voting control, and the results of operations have been included since the date of acquisition in the Statements of Operations.
On August 16, 2021, the Company acquired 16% of the membership interests of Dune, Inc. bring our total membership interests to 21%.
On October 3, 2021, the Company acquired 29% of the membership interests of Dune, Inc. bring our total membership interests to 50%. Dune, Inc. is a direct-to-consumer brand focused on promoting wellness through its range of health-oriented beverages. Dune, Inc, has been consolidated due to the Company’s ownership of 50% voting control, and the results of operations have been included since the date of acquisition in the Statements of Operations.
On March 7, 2022, the Company acquired 100% of the membership interests of Denver Bodega, LLC, d/b/a Basis, a Colorado limited liability company (“Basis”). Basis is a direct-to-consumer functional beverage brand that makes high-electrolyte mixes meant to aid hydration. Denver Bodega, LLC has been consolidated due to the Company’s ownership of 100% voting control, and the results of operations have been included since the date of acquisition in the Statement of Operations.
Note 2 – Significant Accounting Policies and Practices
Management of the Company is responsible for the selection and use of appropriate accounting policies and the appropriateness of accounting policies and their application. Critical accounting policies and practices are those that are both most important to the portrayal of the Company’s financial condition and results and require management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain. The Company’s significant and critical accounting policies and practices are disclosed below as required by the accounting principles generally accepted in the United States of America.
Basis of Presentation
The Company’s condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and following the requirements of the U.S. Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. These interim financial statements have been prepared on the same basis as the Company’s annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair statement of the Company’s financial information. These interim results are not necessarily indicative of the results to be expected for the year ending December 31, 2022 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, included in the Company’s 2021 Annual Report on Form 10-K filed with the SEC. The balance sheet as of December 31, 2021 has been derived from audited financial statements at that date but does not include all of the information required by U.S. GAAP for complete financial statements.
Use of Estimates and Critical Accounting Estimates and Assumptions
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
These significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to these estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.
Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly. The Company uses estimates in accounting for, among other items, revenue recognition, allowance for doubtful accounts, stock-based compensation, income tax provisions, excess and obsolete inventory reserve, and impairment of intellectual property.
Actual results could differ from those estimates.
Presentation
During 2021, we adopted a change in presentation on our Condensed Consolidated Statements of Comprehensive Loss in order to present a gross profit line and allocate certain overhead expenses, the presentation of which is consistent with our peers. Under the new presentation, we began allocating overhead expenses related to cost of goods sold. Prior periods have been revised to reflect this change in presentation.
Principles of consolidation
The Company consolidates all majority-owned subsidiaries, if any, in which the parent’s power to control exists.
As of June 30, 2022, the Company’s consolidated subsidiaries and/or entities are as follows:
Name of combined affiliate | State or other jurisdiction of incorporation or organization | Company Ownership Interest | ||||
Jerrick Ventures LLC | Delaware | 100 | % | |||
Abacus Tech Pty Ltd | Australia | 100 | % | |||
Seller’s Choice, LLC | New Jersey | 100 | % | |||
Creatd Studios, LLC | Delaware | 100 | % | |||
Give, LLC | Delaware | 100 | % | |||
Creatd Partners LLC | Delaware | 100 | % | |||
Denver Bodega, LLC | Colorado | 100 | % | |||
Dune Inc. | Delaware | 50 | % | |||
Plant Camp LLC | Delaware | 89 | % | |||
Sci-Fi.com, LLC | Delaware | 100 | % | |||
OG Collection LLC | Delaware | 100 | % | |||
OG Gallery, Inc. | Delaware | 100 | % | |||
VMENA LLC | Delaware | 100 | % | |||
Vocal For Brands, LLC | Delaware | 100 | % | |||
Vocal Ventures LLC | Delaware | 100 | % | |||
What to Buy, LLC | Delaware | 100 | % | |||
WHE Agency, Inc. | Delaware | 44 | % |
All inter-company balances and transactions have been eliminated. The condensed consolidated financial statements include Denver Bodega, LLC activity since March 7, 2022.
Variable Interest Entities
Management performs an ongoing assessment of its noncontrolling interests from investments in unrelated entities to determine if those entities are variable interest entities (VIEs), and if so, whether the Company is the primary beneficiary. If an entity in such a transaction, by design, meets the definition of a VIE and the Company determines that it, or a condensed consolidated subsidiary is the primary beneficiary, the Company will include the VIE in its condensed consolidated financial statements. If such an entity is deemed to not be condensed consolidated, the Company records only its investment in equity securities as a marketable security or investment under the equity method, as applicable
Fair Value of Financial Instruments
The fair value measurement disclosures are grouped into three levels based on valuation factors:
● | Level 1 – quoted prices in active markets for identical investments |
● | Level 2 – other significant observable inputs (including quoted prices for similar investments and market corroborated inputs) |
● | Level 3 – significant unobservable inputs (including our own assumptions in determining the fair value of investments) |
The Company’s Level 1 assets/liabilities include cash, accounts receivable, marketable trading securities, accounts payable, 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 June 30, 2022 approximate their carrying value as reflected in the balance sheets due to the short-term nature of these instruments or the use of market interest rates for debt instruments.
The Company’s Level 2 assets/liabilities include certain of the Company’s notes payable. 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 provides a summary of the relevant assets that are measured at fair value on a recurring basis:
Fair Value Measurements as of
June 30, 2022
Total | Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) | Quoted Prices for Similar Assets or Liabilities in Active Markets (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
Assets: | ||||||||||||||||
Marketable securities - equity securities | $ | 48,646 | $ | 48,646 | $ | - | $ | - | ||||||||
Total assets | $ | 48,646 | $ | 48,646 | $ | - | $ | - |
Our marketable equity securities are publicly traded stocks measured at fair value using quoted prices for identical assets in active markets and classified as Level 1 within the fair value hierarchy. Marketable equity securities as of June 30, 2022 are $48,646.
The change in net realized depreciation on equity trading securities that has been included in other expenses for the six months ended June 30, 2022 and 2021 was $(231) and $0, respectively.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
At times, cash balances may exceed the Federal Deposit Insurance Corporation (“FDIC”) or Financial Claims Scheme (“FCS”) insurable limits. The Company has never experienced any losses related to these balances. As of June 30, 2022, cash amounts in excess of $250,000 were not fully insured. The uninsured cash balance as of June 30, 2022, was $414,055. 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 $1,029,137. It is reasonably possible that operations located outside an entity’s home country will be disrupted in the near term.
Property and Equipment
Property and equipment are recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation is computed by the straight-line method (after taking into account their respective estimated residual values) over the estimated useful lives of the respective assets as follows:
Estimated Useful Life (Years) | |||
Computer equipment and software | 3 | ||
Furniture and fixtures | 5 |
Upon sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the condensed consolidated statements of operations.
Long-lived Assets Including Goodwill and Other Acquired Intangible Assets
We evaluate the recoverability of property and equipment, 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 temporary 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 and six months ended June 30, 2022, the Company recorded an impairment charge of $7,531 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 6.32 years.
Scheduled amortization over the next five years are as follows: |
Twelve months ending June 30, | ||||
2023 | $ | 489,968 | ||
2024 | 418,007 | |||
2025 | 276,960 | |||
2026 | 249,079 | |||
2027 | 206,743 | |||
Thereafter | 691,296 | |||
Total | 2,332,053 | |||
Intangible assets not subject to amortization | 194,710 | |||
Total Intangible Assets | $ | 2,526,763 |
Goodwill is not amortized but is subject to periodic testing for impairment in accordance with ASC Topic 350 “Intangibles – Goodwill and Other – Testing Indefinite-Lived Intangible Assets for Impairment” (“ASC Topic 350”). The Company tests goodwill for impairment on an annual basis as of the last day of the Company’s fiscal December each year or more frequently if events occur or circumstances change indicating that the fair value of the goodwill may be below its carrying amount. The Company has four reporting units. The Company uses an income-based approach to determine the fair value of the reporting units. This approach uses a discounted cash flow methodology and the ability of our reporting units to generate cash flows as measures of fair value of our reporting units.
During the year ended December 31, 2021, the Company completed its annual impairment test of goodwill. The Company performed the qualitative assessment as permitted by ASC 350-20 and determined for three of its reporting units that the fair value of those reporting units was more likely than not greater than their carrying value, including Goodwill. However, based on this qualitative assessment, the Company determined that the carrying value of the Seller’s Choice reporting unit was more likely than not greater than its carrying value, including Goodwill. Based on completion of the annual impairment test, the Company recorded an impairment charge of $1,035,795 for goodwill.
The following table sets forth a summary of the changes in goodwill for the six months ended June 30, 2022.
For the six months ended June 30, 2022 | ||||
Total | ||||
As of January 1, 2022 | $ | 1,374,835 | ||
Goodwill acquired in a business combination | 8,950 | |||
Impairment of goodwill | - | |||
As of June 30, 2022 | $ | 1,383,785 |
Commitments and Contingencies
The Company follows subtopic 450-20 of the FASB ASC to report accounting for contingencies. Certain conditions may exist as of the date the condensed consolidated financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or un-asserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or un-asserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s condensed consolidated financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.
Foreign Currency
Foreign currency denominated assets and liabilities are translated into U.S. dollars using the exchange rates in effect at our Condensed Consolidated Balance Sheet dates. Results of operations and cash flows are translated using the average exchange rates throughout the periods. The effect of exchange rate fluctuations on the translation of assets and liabilities is included as a component of stockholders’ equity in accumulated other comprehensive income. Gains and losses from foreign currency transactions, which are included in operating expenses, have not been significant in any period presented.
Derivative Liability
The Company evaluates its debt and equity issuances to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with paragraph 815-10-05-4 and Section 815-40-25 of the FASB Accounting Standards Codification. The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet date and recorded as either an asset or a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the condensed consolidated statement of operations as other income or expense. Upon conversion, exercise or cancellation of a derivative instrument, the instrument is marked to fair value at the date of conversion, exercise or cancellation and then the related fair value is reclassified to equity.
In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.
The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to liability at the fair value of the instrument on the reclassification date. Derivative instrument liabilities will be classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument is expected within 12 months of the balance sheet date.
The Company adopted Section 815-40-15 of the FASB Accounting Standards Codification (“Section 815-40-15”) to determine whether an instrument (or an embedded feature) is indexed to the Company’s own stock. Section 815-40-15 provides that an entity should use a two-step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument’s contingent exercise and settlement provisions.
The Company 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 of revenue.
Revenue Recognition
Under Topic 606, revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
We determine revenue recognition through the following steps:
● | identification of the contract, or contracts, with a customer; |
● | identification of the performance obligations in the contract; |
● | determination of the transaction price. The transaction price for any given subscriber could decrease based on any payments made to that subscriber. A subscriber may be eligible for payment through one or more of the monetization features offered to Vocal creators, including earnings through reads (on a cost per mile basis) and cash prizes offered to Challenge winners; |
● | allocation of the transaction price to the performance obligations in the contract; and |
● | recognition of revenue when, or as, we satisfy a performance obligation. |
Revenue disaggregated by revenue source for the three and six months ended June 30, 2022 and 2021 consists of the following:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Agency (Managed Services, Branded Content, & Talent Management Services) | $ | 587,916 | $ | 488,836 | $ | 1,171,057 | $ | 917,136 | ||||||||
Platform (Creator Subscriptions) | 400,367 | 451,965 | 908,600 | 758,867 | ||||||||||||
Ecommerce | 634,966 | 5,526 | 889,690 | 5,526 | ||||||||||||
Affiliate Sales | 2,652 | 7,798 | 5,292 | 15,806 | ||||||||||||
Other Revenue | - | 16,732 | - | 17,435 | ||||||||||||
$ | 1,625,901 | $ | 970,857 | $ | 2,974,639 | $ | 1,714,770 |
The Company utilizes the output method to measures the results achieved and value transferred to a customer over time. Timing of revenue recognition for the three and six months ended June 30, 2022 and 2021 consists of the following:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Products and services transferred over time | $ | 988,283 | $ | 940,801 | $ | 2,079,657 | $ | 1,676,003 | ||||||||
Products transferred at a point in time | 637,618 | 30,056 | 894,982 | 38,767 | ||||||||||||
$ | 1,625,901 | $ | 970,857 | $ | 2,974,639 | $ | 1,714,770 |
Agency Revenue
Managed Services
The Company provides Studio/Agency Service offerings to business-to-business (B2B) and business-to-consumer (B2C) product and service brands which encompasses a full range of digital marketing and e-commerce solutions. The Company’s services include the setup and ongoing management of clients’ websites, Amazon and Shopify storefronts and listings, social media pages, search engine marketing, and other various tools and sales channels utilized by e-commerce sellers for sales and growth optimization. Contracts are broken into three categories: Partners, Monthly Services, and Projects. Contract amounts for Partner and Monthly Services clients range from approximately $500-$7,500 per month while Project amounts vary depending on the scope of work. Partner and Monthly clients are billed monthly for the work completed within that month. Partner Clients may or may not have an additional billing component referred to as Sales Performance Fee, which is a fee based upon a previously agreed upon percentage point of the client’s total sales for the month. Some Partners may also have projects within their contracts that get billed and recognized as agreed upon project milestones are achieved. Revenue is recognized over time as service obligations and milestones in the contract are met.
Branded Content
Branded content represents the revenue recognized from the Company’s obligation to create and publish branded articles and/or branded challenges for clients on the Vocal platform and promote said stories, tracking engagement for the client. 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 $7,500 per article. | |
● | 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 20% of the value of an influencer’s contract with a brand. Revenue is recognized net of the 80% of the contract that is collected by the influencer and is recognized when performance obligations of the contract are met. Performance obligations are complete when milestones and deliverables of contracts are delivered to the client.
Below are the significant components of a typical agreement pertaining to talent management revenue:
● | Total gross contracts range from $500-$50,000. |
● | The Company collects fixed fees in the amount of 20% of the gross contract amount, ranging from $100 to $20,000 in net revenue per contract. |
● | The campaign is created and made live by the influencer within one month of the signed agreement, or as previously negotiated with the client. |
● | Campaigns are promoted per the contract and the customer is provided a link to the live deliverables on the influencer’s social media channels. |
● | Most billing for contracts occur 100% at execution of the performance obligation. Net payment terms vary by client. |
Platform Revenue
Creator Subscriptions
Vocal+ is a premium subscription offering for Vocal creators. In addition to joining for free, Vocal creators now have the option to sign up for a Vocal+ membership for either $9.99 monthly or $99 annually, though these amounts are 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 for payments made for earnings through reads, by establishing the lifetime a subscriber has had a Vocal account, determining the percentage of that lifetime that the subscriber has been a paying customer, and applying that percentage to payments for earnings through reads in the relevant reporting period.
Affiliate Sales Revenue
Affiliate sales represents the commission the Company receives when a purchase is made through affiliate links placed within content hosted on the Vocal platform. Affiliate revenue is earned on a “click through” basis, upon referring visitors, via said links, to an affiliate’s site and having them complete a specific outcome, most commonly a product purchase. The Company uses multiple affiliate platforms, such as Skimlinks, Amazon, and Tune, to form and maintain thousands of vendor relationships. Each vendor establishes their own commission percentage, which typically range from 2-20%. The revenue is recognized upon receipt as reliable estimates could not be made.
E-Commerce Revenue
The Company’s e-commerce businesses are housed under Creatd Ventures, and currently consists of three majority-owned e-commerce companies, Camp (previously Plant Camp), Dune Glow Remedy (“Dune”), and Basis. The Company generates revenue through the sale of Camp, Dune, and Basis’ consumer products through its e-commerce distribution channels. The Company satisfies its performance obligation upon shipment of product to its customers and recognizes shipping and handling costs as a fulfillment cost. Customers have 30 days from receipt of an item to return unopened, unused, or damaged items for a full refund. All returns are processed within the relevant recording period and accounted for as a reduction in revenue. The Company runs discounts from time to time to promote sales, improve market penetration, and increase customer retention. Any discounts are run as coupon codes applied at the time of transaction and accounted for as a reduction in gross revenue. The Company assesses variable consideration using the most likely amount method.
Deferred Revenue
Deferred revenue consists of billings and payments from clients in advance of revenue recognition. The Company has two types of deferred revenue, subscription revenue whereas the revenue is recognized over the subscription period and contract liabilities where the performance obligation was not satisfied. The Company will recognize the deferred revenue within the next twelve months. As of June 30, 2022, the Company had deferred revenue of $262,583.
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 six months ended June 30, 2022, the Company recorded $53,166, as a bad debt expense. During six months ended June 30, 2022, the Company wrote off $81,925 of allowance for doubtful accounts. As of June 30, 2022, the Company has an allowance for doubtful accounts of $239,313
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 June 30, 2022, the Company has no valuation allowance.
Stock-Based Compensation
The Company recognizes compensation expense for all equity–based payments granted in accordance with Accounting Standards Codification (“ASC”) 718 “Compensation – 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 based compensation and forfeitures are recognized as they occur.
Restricted stock awards are granted at the discretion of the Company. These awards are restricted as to the transfer of ownership and generally vest over the requisite service periods.
The fair value of an option award is estimated on the date of grant using the Black–Scholes option valuation model. The Black–Scholes option valuation model requires the development of assumptions that are inputs into the model. These assumptions are the value of the underlying share, the expected stock volatility, the risk–free interest rate, the expected life of the option, the dividend yield on the underlying stock and the expected forfeiture rate. Expected volatility is 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.
Loss Per Share
Basic net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net loss per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. In periods when losses are reported, which is the case for the three and six months ended June 30, 2022 and 2021 presented in these condensed consolidated financial statements, the weighted-average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive.
The Company had the following common stock equivalents at June 30, 2022 and 2021:
June 30, | ||||||||
2022 | 2021 | |||||||
Series E preferred | 121 | 254 | ||||||
Options | 2,994,267 | 2,363,187 | ||||||
Warrants | 8,607,661 | 7,496,070 | ||||||
Convertible notes | 2,000,000 | 1,008,798 | ||||||
Totals | 11,602,049 | 10,868,309 |
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 for small reporting companies to interim and annual periods beginning after December 15, 2022. The Company is currently evaluating the impact of these amendments to the Company’s financial position and results of operations and currently does not know or cannot reasonably quantify the impact of the adoption of the amendments as a result of the complexity and extensive changes from the amendments. The Company does not believe the adoption will have a material impact on the Company’s condensed consolidated financial statements. The adoption of the guidance will affect disclosers and estimates around accounts receivable.
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 2020-06 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 do 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.
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations — Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805), Which aims to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in recognition and payment terms that effect subsequent revenue recognition. ASU 2021-08 is effective for the fiscal year beginning after December 15, 2022, including interim periods within that fiscal year. The Company expects that there would be no material impact on the Company’s condensed consolidated financial statements upon the adoption of this ASU.
Management does not believe that any recently issued, but not yet effective accounting pronouncements, when adopted, will have a material effect on the accompanying condensed consolidated financial statements.
Note 3 – Going Concern
The Company’s condensed consolidated financial statements have been prepared assuming that it will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
As reflected in the condensed consolidated financial statements, as of June 30, 2022, the Company had an accumulated deficit of $124 million, a net loss of $15.6 million and net cash used in operating activities of $10.6 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 June 30, 2022 and December 31, 2021:
June 30, 2022 | December 31, 2021 | |||||||
Raw Materials | $ | 206,510 | $ | - | ||||
Packaging | 16,504 | 2,907 | ||||||
Finished goods | 206,740 | 103,496 | ||||||
$ | 429,754 | $ | 106,403 |
Note 5 – Property and Equipment
Property and equipment stated at cost, less accumulated depreciation and amortization, consisted of the following:
June 30, 2022 | December 31, 2021 | |||||||
Computer Equipment | $ | 383,665 | $ | 353,880 | ||||
Furniture and Fixtures | 195,289 | 102,416 | ||||||
Leasehold Improvements | 47,616 | 11,457 | ||||||
640,134 | 467,753 | |||||||
Less: Accumulated Depreciation | (389,219 | ) | (364,814 | ) | ||||
$ | 250,915 | $ | 102,939 |
Depreciation expense was $24,405 and $20,094 for the six months ended June 30, 2022 and 2021, respectively.
Note 6 – Notes Payable
Notes payable as of June 30, 2022 and December 31, 2021 is as follows:
Outstanding Principal as of | ||||||||||||||
June 30, 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 | 98,025 | 185,655 | 10 | % | June 2023 | |||||||||
The Second December 2021 Loan Agreement | 308,113 | 313,979 | 14 | % | June 2022 | |||||||||
The First February 2022 Loan Agreement | 156,513 | - | 14 | % | June 2022 | |||||||||
First Denver Bodega LLC Loan | 45,507 | - | - | % | March 2025 | |||||||||
The First May 2022 Loan Agreement | 563,462 | - | - | % | December 2022 | |||||||||
The Second May 2022 Loan Agreement | 301,125 | - | - | % | November 2022 | |||||||||
The Third May 2022 Loan Agreement | 20,282 | - | - | % | November 2022 | |||||||||
The Fourth May 2022 Loan Agreement | 35,170 | - | - | % | November 2022 | |||||||||
The June 2022 Loan Agreement | 539,600 | - | - | % | November 2022 | |||||||||
2,266,374 | 1,358,211 | |||||||||||||
Less: Debt Discount | (371,126 | ) | (15,547 | ) | ||||||||||
Less: Debt Issuance Costs | - | - | ||||||||||||
1,895,248 | 1,342,664 | |||||||||||||
Less: Current Debt | (1,863,831 | ) | (1,278,672 | ) | ||||||||||
Total Long-Term Debt | $ | 31,417 | $ | 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 was 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.
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 six months ended June 30, 2022, the Company accrued interest of $2,312.
The Company is in the process of returning the funds received from the Loan.
As of June 30, 2022, the Loan is in default, and the lender may require immediate payment of all amounts owed under the Loan or file suit and obtain judgment.
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 six months ended June 30, 2022, the Company repaid $87,630 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 Company has the option to extend the Maturity date by 60 days. The loan is secured by the Australian research & development credit.
During the six months ended June 30, 2022, the Company accrued $31,052 AUD in interest.
As of the date of this filing the Company has exercised its option to extend the maturity date to August 29, 2022.
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 six months ended June 30, 2022, the Company accrued $10,926 AUD in interest.
As of the date of this filing the Company has exercised its option to extend the maturity date to August 29, 2022.
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 six months ended June 30, 2022, the Company repaid $248,381. As of June 30, 2022, the Company has one note outstanding. This note has a principal balance of $45,507, bears interest at 5%, and requires 36 monthly payments of $1,496.
The First May 2022 Loan Agreement
On May 9, 2022, the Company entered into a loan agreement (the “First May 2022 Loan Agreement”) with a lender (the “First May 2022 Lender”), whereby the First May 2022 Lender issued the Company a promissory note of $693,500 (the “First May 2022 Note”). The Company received cash proceeds of $455,924. Pursuant to the First May 2022 Loan Agreement, the First May 2022 Note has an effective interest rate of 34%. The maturity date of the First May 2022 Note is December 18, 2022 (the “First May 2022 Maturity Date”). The Company is required to make weekly payment of $21,673. The First May 2022 Note is secured by officers of the Company.
The Company recorded a $237,576 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.
During the six months ended June 30, 2022, the Company repaid $130,038 in principal.
The Second May 2022 Loan Agreement
On May 9, 2022, the Company entered into a loan agreement (the “Second May 2022 Loan Agreement”) with a lender (the “Second May 2022 Lender”), whereby the Second May 2022 Lender issued the Company a promissory note of $401,500 (the “Second May 2022 Note”). The Company received cash proceeds of $263,815. Pursuant to the Second May 2022 Loan Agreement, the Second May 2022 Note has an effective interest rate of 34%. The maturity date of the Second May 2022 Note is November 20, 2022 (the “Second May 2022 Maturity Date”). The Company is required to make weekly payment of $14,339. The Second May 2022 Note is secured by officers of the Company.
The Company recorded a $137,685 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.
During the six months ended June 30, 2022, the Company repaid $100,375 in principal.
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 $23,900 (the “Third May 2022 Note”). Pursuant to the Third May 2022 Loan Agreement, the Third May 2022 Note has 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.
During the six months ended June 30, 2022, the Company repaid $3,618 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 $40,000 (the “Fourth May 2022 Note”). Pursuant to the Fourth May 2022 Loan Agreement, the Fourth May 2022 Note has an effective interest rate of 20%. The maturity date of the Fourth May 2022 Note is November 23, 2022 (the “Fourth May 2022 Maturity Date”).
During the six months ended June 30, 2022, the Company repaid $4,829 in principal.
The June 2022 Loan Agreement
On June 17, 2022, the Company entered into a loan agreement (the “June 2022 Loan Agreement”) with a lender (the “June 2022 Lender”), whereby the June 2022 Lender issued the Company a promissory note of $568,000 (the “June 2022 Note”). The Company received cash proceeds of $378,000. Pursuant to the June 2022 Loan Agreement, the June 2022 Note has an effective interest rate of 33%. The maturity date of the June 2022 Note is November 4, 2022 (the “June 2022 Maturity Date”). The Company is required to make weekly payment of $28,400. The June 2022 Note is secured by officers of the Company.
The Company recorded a $190,000 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.
During the six months ended June 30, 2022, the Company repaid $28,400 in principal.
Note 7 – Convertible Notes Payable
Convertible notes payable as of June 30, 2022, is as follows:
Outstanding Principal as of | Warrants granted | ||||||||||||||||||||||
June 30, 2022 | Interest Rate | Conversion Price | Maturity Date | Quantity | Exercise Price | ||||||||||||||||||
The Second February 2022 Loan Agreement | $ | 224,888 | 11 | % | - | (*) | February-23 | - | - | ||||||||||||||
The May 2022 Convertible Loan Agreement | 115,163 | 11 | % | - | (*) | May-23 | - | - | |||||||||||||||
The May 2022 Convertible Note Offering | 4,000,000 | 18 | % | 2.00 | (*) | November-22 | 4,000,000 | $3.00 – $6.00 | |||||||||||||||
4,340,051 | |||||||||||||||||||||||
Less: Debt Discount | (1,944,282 | ) | |||||||||||||||||||||
Less: Debt Issuance Costs | (104,759 | ) | |||||||||||||||||||||
2,291,010 |
(*) | As subject to adjustment as further outlined in the notes |
The July 2021 Convertible Loan Agreement
On July 6, 2021, the Company entered into a loan agreement (the “July 2021 Loan Agreement”) with an individual (the “July 2021 Lender”), whereby the July 2021 Lender issued the Company a promissory note of $168,850 (the “July 2021 Note”). Pursuant to the July 2021 Loan Agreement, the July 2021 Note has interest of six percent (6%). The July 2021 Note matures on the first (12th) month anniversary of its issuance date.
Upon default or 180 days after issuance the July 2021 Note is convertible into shares of the Company’s common stock, par value $0.001 per share (“Conversion Shares”) equal to 75% of average the lowest three trading prices of the Company’s common stock on the fifteen-trading day immediately preceding the date of the respective conversion.
The Company recorded a $15,850 debt discount relating to an original issue discount and $3,000 of debt issuance costs related to fees paid to vendors relating to the offering. The debt discount and debt issuance costs are being accreted over the life of the note to accretion of debt discount and issuance cost.
During the six months ended June 30, 2022, 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. The Company has applied ASC 815, due to the potential for settlement in a variable quantity of shares. The conversion feature has been measured at fair value using a Binomial model at the conversion date. The conversion feature of July 2021 Note gave rise to a derivative liability of $100,532. The Company recorded this as a debt discount. The debt discount is charged to accretion of debt discount over the remaining term of the convertible note.
During the six months ended June 30, 2022, the note holder converted $168,850 of principal and $4,605 of interest into 109,435 shares of the Company’s common stock. The unamortized debt discount of $96,803 was recorded to extinguishment of debt due to conversion.
The Second February 2022 Loan Agreement
On February 22, 2022, the Company entered into a loan agreement (the “Second February 2022 Loan Agreement”) with a lender (the “Second February 2022 Lender”), whereby the Second February 2022 Lender issued the Company a promissory note of $337,163 (the “Second February 2022 Note”). Pursuant to the Second February 2022 Loan Agreement, the Second February 2022 Note has an interest rate of 11%. The maturity date of the Second February 2022 Note is February 22, 2023 (the “Second February 2022 Maturity Date”). The Company is required to make 10 monthly payments of $37,425.
Upon default the May 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 $37,163 debt discount relating to an original issue discount. The debt discount is being accreted over the life of the note to accretion of debt discount and issuance cost.
During the six months ended June 30, 2022, the Company repaid $112,275 in principal.
The May 2022 Convertible Loan Agreement
On May 20, 2022, the Company entered into a loan agreement (the “May 2022 Loan Agreement”) with an individual (the “May 2022 Lender”), whereby the May 2022 Lender issued the Company a promissory note of $115,163 (the “July 2021 Note”). Pursuant to the Third May 2022 Loan Agreement, the Third May 2022 Note has an interest rate of 11%. The May 2022 Note matures on the first (12th) month anniversary of its issuance date.
Upon default the May 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 $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.
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 matures 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 $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.
Note 8 – Related Party
Equity raises
During the six months ended June 30, 2022, the company conducted two equity raises in which officers, directors, employees, and an affiliate of an officer cumulatively invested $421,001 for 240,571 shares of common stock and 240,571 warrants to purchase common stock.
Officer compensation
During the six months ended June 30, 2022 and 2021, the Company paid $48,655 and $72,328, respectively for living expenses for officers of the Company.
Note 9 – Derivative Liabilities
The Company has identified derivative instruments arising from convertible notes that have an option to convert at a variable number of shares in the Company’s convertible notes payable during the six months ended June 30, 2022. For the terms of the conversion features see Note 7. The Company had no derivative assets measured at fair value on a recurring basis as of June 30, 2022.
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.
Risk-free interest rate: The Company uses the risk-free interest rate of a U.S. Treasury Note adjusted to be on a continuous return basis to align with the Monte Carlo simulation model and binomial model.
Dividend yield: The Company uses a 0% expected dividend yield as the Company has not paid dividends to date and does not anticipate declaring dividends in the near future.
Volatility: The Company calculates the expected volatility based on the company’s historical stock prices with a look back period commensurate with the period to maturity.
Expected term: The Company’s remaining term is based on the remaining contractual maturity of the convertible notes.
The following are the changes in the derivative liabilities during the six months ended June 30, 2022.
Six Months Ended June 30, 2022 | ||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||
Derivative liabilities as January 1, 2022 | $ | - | $ | - | $ | - | ||||||
Addition | - | - | 100,532 | |||||||||
Changes in fair value | - | - | (3,729 | ) | ||||||||
Extinguishment | - | - | (96,803 | ) | ||||||||
Derivative liabilities as June 30, 2022 | $ | - | $ | - | $ | - |
Note 10 – Stockholders’ Equity
Shares Authorized
The Company is authorized to issue up to one hundred and twenty million (120,000,000) shares of capital stock, of which one hundred million (100,000,000) 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 June 30, 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
During the six months ended June 30, 2022, the Company issued 82,342 shares of its restricted common stock to settle outstanding vendor liabilities of $130,625. In connection with this transaction the Company also recorded a loss on settlement of vendor liabilities of $17,024.
On January 6, 2022, the Company issued 8,850 shares of its restricted common stock to consultants in exchange for services at a fair value of $19,736.
On February 24, 2022, the Company issued 50,000 shares of its restricted common stock to consultants in exchange for four months of services at a fair value of $69,000. These shares 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 six months ended June 30, 2022 the Company recorded $69,000 to share based payments.
On March 1, 2022, the Company entered into securities purchase agreements with twenty-eight accredited investors whereby, at the closing, such investors purchased from the Company an aggregate of 1,401,457 shares of the Company’s common stock and (ii) 1,401,457 warrants to purchase shares of common stock, for an aggregate purchase price of $2,452,550. Such warrants are exercisable for a term of five-years from the date of issuance, at an exercise price of $1.75 per share. The Company has recorded $40,000 to stock issuance costs, which are part of Additional Paid-in Capital.
On March 7, 2022, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with thirteen accredited investors resulting in the raise of $2,659,750 in gross proceeds to the Company. Pursuant to the terms of the Purchase Agreement, the Company agreed to sell in a registered direct offering an aggregate of 1,519,857 shares of the Company’s common stock together with warrants to purchase an aggregate of 1,519,857 shares of Common Stock at an exercise price of $1.75 per share. The warrants are immediately exercisable and will expire on March 9, 2027. The Company has recorded $75,000 to stock issuance costs, which are part of Additional Paid-in Capital.
During the 3 months ended March 31, 2022, the Company issued 7,488 shares of its restricted common stock to consultants in exchange for services at a fair value of $8,364.
On April 5, 2022 the Company issued 185,000 shares of its restricted common stock to officers of the company in exchange for services at a fair value of $192,400.
On June 24, 2022, the Company issued 50,000 shares of its restricted common stock to consultants in exchange for four months of services at a fair value of $37,200. These shares 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 six months ended June 30, 2022 the Company recorded $2,405 to share based payments.
During the three months ended June 30, 2022, the Company issued 29,387 shares of its restricted common stock to consultants in exchange for services at a fair value of $24,001.
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) | ||||||||||
Balance – January 1, 2022 – outstanding | 2,902,619 | 7.07 | 4.71 | |||||||||
Granted | 1,940,000 | 1.38 | - | |||||||||
Exercised | - | - | - | |||||||||
Forfeited/Cancelled | (433,519 | ) | 13.56 | - | ||||||||
Balance – June 30, 2022 – outstanding | 4,409,100 | 3.93 | 4.68 | |||||||||
Balance – June 30, 2022 – exercisable | 2,994,267 | 4.06 | 4.57 |
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) | |||||||||||||||||
$ | 3.93 | 4,409,100 | 4.68 | 4.06 | 2,994,267 | 4.57 |
During the year ended December 31, 2018 the Company granted options of 11,667 to consultants that have a fair value of $57,123. As of the date of this filing the company has not issued these options and they are recorded as an accrued liability on the Condensed Consolidated Balance Sheet.
Stock-based compensation for stock options has been recorded in the condensed consolidated statements of operations and totaled $2,831,696, for the six months ended June 30, 2022.
As of June 30, 2022, there was $1,806,860 of total unrecognized compensation expense related to unvested employee options granted under the Company’s share-based compensation plans that is expected to be recognized over a weighted average period of approximately 1.37 years.
Warrants
The Company applied fair value accounting for all share-based payments awards. The fair value of each warrant granted is estimated on the date of grant using the Black-Scholes option-pricing model.
The assumptions used for warrants granted during the six months ended June 30, 2022 are as follows:
June 30, 2022 | ||||
Exercise price | $ | 3.00 – 6.00 | ||
Expected dividends | 0 | % | ||
Expected volatility | 169,75 | % | ||
Risk free interest rate | 2.81 | % | ||
Expected life of warrant | 5.50 years |
Warrant Activities
The following is a summary of the Company’s warrant activity:
Warrant | Weighted Average Exercise Price | |||||||
Balance – January 1, 2022 – outstanding | 5,658,830 | 4.98 | ||||||
Granted | 6,988,487 | 3.48 | ||||||
Exercised | - | - | ||||||
Forfeited/Cancelled | (39,656 | ) | 12.00 | |||||
Balance – June 30, 2021 – outstanding | 12,607,661 | 4.02 | ||||||
Balance – June 30, 2021 – exercisable | 8,607,661 | $ | 3.79 |
Warrants Outstanding | Warrants Exercisable | |||||||||||||||||||||
Exercise price | Number Outstanding | Weighted Average Remaining Contractual Life (in years) | Weighted Average Exercise Price | Number Exercisable | Weighted Average Exercise Price | |||||||||||||||||
$ | 4.02 | 12,607,661 | 4.30 | 3.79 | 8,607,661 | 3.78 |
During the six months ended June 30, 2022, some of the Company’s warrants had a down-round provision triggered that also resulted in an additional 67,173 warrants to be issued. A deemed dividend of $81,728 was recorded to the Statements of Operations and Comprehensive Loss.
During the six months ended June 30, 2022, a total of 4,000,000 warrants were issued with convertible notes (See Note 7 above). The warrants have a grant date fair value of $4,074,803 using a Black-Scholes option-pricing model and the above assumptions.
Note 11 – Commitments and Contingencies
Litigation
On or about June 25, 2020, Home Revolution, LLC (“Home Revolution”) filed a lawsuit in the United States District Court for the District of New Jersey, Home Revolution, LLC, et al. 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. Monster and Anonymize, Inc. (“Monster”) filed a lawsuit in the United States District Court for the Western District of Washington at Seattle, Robert W. Monster, et al. v. Creatd, Inc., et al. (Western District of Washington at Seattle 2:21-CV-1177). The Complaint alleges, among other things, that action for Declaratory Judgment under 28 U.S.C. § 2201 that Monster’s registration and use of the internet domain name VOCL.COM (the “Domain Name”) does not violate Creatd’s rights under the Anticybersquatting Consumer Protection Act (“ACPA”), 15 U.S.C. § 1125(d), or otherwise under the Lanham Act, 15 U.S.C. § 1051 et seq. Creatd claims trademark rights and certain other rights with respect to the term and the domain name VOCL.COM. Monster seeks a determination by the Court 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.
Lease Agreements
On April 26, 2022, the Company signed a 7-year lease for approximately 8,000 square feet of office space at 419 Lafayette Street, 6th Floor, New York, NY, 10003. Commencement date of the lease is May 1, 2022. The total amount due under this lease is $3,502,033.
The components of lease expense were as follows:
Three Months Ended June 30, 2022 | ||||
Operating lease cost | $ | 93,155 | ||
Short term lease cost | 72,826 | |||
Total net lease cost | $ | 165,980 |
Six Months Ended June 30, 2022 | ||||
Operating lease cost | $ | 93,155 | ||
Short term lease cost | 148,540 | |||
Total net lease cost | $ | 241,694 |
Supplemental cash flow and other information related to leases was as follows:
Six Months Ended June 30, 2022 | ||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||
Operating lease payments | 39,900 | |||
Weighted average remaining lease term (in years): | 6.83 | |||
Weighted average discount rate: | 12.50 | % |
Total future minimum payments required under the lease as of June 30, are as follows:
For the Twelve Months Ended June 30, | Operating Leases | ||||
2023 | $ | 361,440 | |||
2024 | 495,250 | ||||
2025 | 509,784 | ||||
2026 | 524,753 | ||||
2027 | 540,172 | ||||
Thereafter | 951,971 | ||||
Total lease payments | 3,383,370 | ||||
Less: Amounts representing interest | (1,132,722 | ) | |||
Total lease obligations | 2,250,648 | ||||
Less: Current | (149,830 | ) | |||
$ | 2,100,818 |
Rent expense for the six months ended June 30, 2022 and 2021 was $241,694 and $53,869, respectively.
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.
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.
Management Restructuring
On February 17, 2022, the Board of the Company approved the restructuring of the Company’s senior management team to eliminate the Co-Chief Executive Officer role, appointing Jeremy Frommer as Executive Chairman and Founder, and appointing Laurie Weisberg as Chief Executive Officer (the “Second Restructuring”). Prior to the Second Restructuring, Mr. Frommer and Ms. Weisberg served as the Company’s co-Chief Executive Officers and Ms. Weisberg served as the Company’s Chief Operating Officer. The Second Restructuring does not impact the role or functions of the Company’s Chief Financial Officer, Chelsea Pullano, or the role or functions of the Company’s President and Chief Operating Officer, Justin Maury.
Nasdaq Notice of Delisting
On January 4, 2021, the Company received a letter from the staff of The Nasdaq Capital Market (the “Exchange”) notifying the Company that the Exchange had determined to delist the Company’s common stock and warrants from the Exchange based on the Company’s non-compliance with the Exchange’s (i) $5 million stockholders’ equity requirement for initial listing pursuant to Nasdaq Listing Rule 5505(b), (ii) the $2.5 million stockholders’ equity requirement or any of the alternatives for continued listing pursuant to Nasdaq Listing Rule 5550(b), and (iii) the Company’s failure to provide material information to the Exchange pursuant to Nasdaq Listing Rule 5250(a)(1).
On February 11, 2021, the Company met with the Exchange’s Hearings Panel (the “Panel”) with respect to such determination, in accordance with the Exchange’s rules and, pursuant to such request by the Company to appeal, the delisting of the Company’s securities and the Form 25 Notification of Delisting filing was stayed pending the Panel’s decision.
On March 9, 2021, the Exchange notified the Company that the Panel had determined to continue the listing of the Company on the Exchange. Notwithstanding the Panel’s determination to continue the listing of the Company’s securities on the Exchange, the Panel issued a public reprimand letter to the Company, pursuant to Listing Rule 5815(c)(1)(D), based on its finding “that the Company failed to meet the initial listing criteria with respect to stockholders’ equity and failed to provide Nasdaq with material information with respect to that deficiency.” Specifically, the Panel found that the Company failed to comply with Listing Rule 5250(a)(1), requiring it to notify Nasdaq of certain significant developments that led to the Company’s prior representations about its ability to satisfy the initial listing requirements being inaccurate. In reaching its determination to continue the listing of the Company on Nasdaq, the Panel acknowledged that the Company has since demonstrated compliance with the initial listing requirement for stockholders’ equity and all other applicable initial listing requirements. The Panel also determined that the violations were inadvertent and that the Company had relied on advice of counsel at the time in its interactions with the Nasdaq staff (“Staff”). The Panel also acknowledged the Company’s efforts to implement structural changes within the Company to avoid similar misstatements in the future and that would allow for proper accounting and disclosure on an ongoing basis.
On March 1, 2022, the Company received a letter (the “Letter”) from the staff of The Nasdaq Capital Market (the “Exchange”) notifying the Company that the Exchange has determined to delist the Company’s common stock from the Exchange based on the Company’s Market Value of Listed Securities for the 30-consecutive day period between January 15, 2022 and February 25, 2022 falling short of the requirements under Listing Rule 5550(b)(2) (the “Rule”). Although a 180-day period is typically allowed for an issuer to regain compliance, the Company is not eligible to use such compliance period, as the Exchange had instituted a Panel Monitor through March 9, 2022.
The Company pursued an appeal to the Nasdaq Hearings Panel (the “Panel”) of such determination, in accordance with the Exchange’s rules and, pursuant to such request by the Company to appeal, the delisting of the Company’s securities and the Form 25 Notification of Delisting filing was stayed pending the Panel’s decision.
On April 22, 2022, the Exchange notified the Company that the Panel has determined to continue the listing of the Company on the Exchange, subject to the following conditions: (i) on or before May 16, 2022, the Company will file its Quarterly Report on Form 10-Q for the period ended 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.
Employment Agreements
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”).
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.
Note 12 – 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 | ||
Trade Names & Trademarks | 8,949 | |||
Know-How and Intellectual Property | 107,392 | |||
Website | 8,949 | |||
Customer Relationships | 44,747 | |||
Excess purchase price | $ | 178,987 |
The goodwill represents the assembled workforce, acquired capabilities, and future economic benefits resulting from the acquisition.
The following presents the unaudited pro-forma combined results of operations of the Company with Plant Camp, WHE, Dune, and Denver Bodega as if the entities were combined on January 1, 2021.
Three Months Ended | ||||
June 30, | ||||
2021 | ||||
Revenues | $ | 2,262,295 | ||
Net loss attributable to common shareholders | $ | (15,781,931 | ) | |
Net loss per share | $ | (1.48 | ) | |
Weighted average number of shares outstanding | 10,690,318 |
Six Months Ended | ||||
June 30, | ||||
2022 | ||||
Revenues | $ | 3,108,171 | ||
Net loss attributable to common shareholders | $ | (14,689,511 | ) | |
Net loss per share | $ | (0.77 | ) | |
Weighted average number of shares outstanding | 18,977,745 |
Six Months | ||||
Ended | ||||
2021 | ||||
Revenues | $ | 2,662,114 | ||
Net loss attributable to common shareholders | $ | (16,111,758 | ) | |
Net loss per share | $ | (1.54 | ) | |
Weighted average number of shares outstanding | 10,465,815 |
Note 13 – Segment Information
We operate in three reportable segments: Creatd Labs, Creatd Ventures, and Creatd Partners. Our segments were determined based on the economic characteristics of our products and services, our internal organizational structure, the manner in which our operations are managed and the criteria used by our Chief Operating Decision Maker (CODM) to evaluate performance, which is generally the segment’s operating losses.
Operations of: | Products and services provided: | |
Creatd Labs | Creatd Labs is the segment focused on development initiatives. Creatd Labs houses the Company’s proprietary technology, including its flagship platform, Vocal, as well as oversees the Company’s content creation framework, and management of its digital communities. Creatd Labs derives revenues from Vocal creator subscriptions, platform processing fees and technology licensing fees. | |
Creatd Ventures | Creatd Ventures builds, develops, and scales e-commerce brands. This segment generates revenues through product sales of its two majority-owned direct-to-consumer brands, Camp and Dune Glow Remedy. | |
Creatd Partners | Creatd Partners fosters relationships between brands and creators through its suite of agency services, including content marketing (Vocal for Brands), performance marketing (Seller’s Choice), and influencer marketing (WHE Agency). Creatd Partners derives revenues in the form of brand fees and talent management commissions. |
The following tables present certain financial information related to our reportable segments and Corporate:
As of June 30, 2022 | ||||||||||||||||||||
Creatd Labs | Creatd Ventures | Creatd Partners | Corporate | Total | ||||||||||||||||
Accounts receivable, net | $ | - | $ | 9,433 | $ | 369,879 | $ | - | $ | 379,312 | ||||||||||
Prepaid expenses and other current assets | 41,512 | - | - | 145,371 | 186,883 | |||||||||||||||
Deposits and other assets | 976,744 | - | - | 192,585 | 1,169,329 | |||||||||||||||
Intangible assets | - | 1,652,151 | 679,902 | 194,710 | 2,526,763 | |||||||||||||||
Goodwill | - | 34,089 | 1,349,696 | - | 1,383,785 | |||||||||||||||
Inventory | - | 429,754 | - | - | 429,754 | |||||||||||||||
All other assets | - | - | - | 4,053,618 | 4,053,618 | |||||||||||||||
Total Assets | $ | 1,018,256 | $ | 2,125,427 | $ | 2,399,477 | $ | 4,586,284 | $ | 10,129,444 | ||||||||||
Accounts payable and accrued liabilities | $ | 36,730 | $ | 1,165,016 | $ | 78,333 | $ | 3,619,029 | $ | 4,899,108 | ||||||||||
Note payable, net of debt discount and issuance costs | 464,626 | 100,959 | - | 1,329,663 | 1,895,248 | |||||||||||||||
Deferred revenue | 161,112 | - | 101,471 | - | 262,583 | |||||||||||||||
All other Liabilities | - | - | - | 4,572,738 | 4,572,738 | |||||||||||||||
Total Liabilities | $ | 662,468 | $ | 1,265,975 | $ | 179,804 | $ | 9,521,430 | $ | 11,629,677 |
As of December 31, 2021 | ||||||||||||||||||||
Creatd Labs | Creatd Ventures | Creatd Partners | Corporate | Total | ||||||||||||||||
Accounts receivable, net | $ | - | $ | 2,884 | $ | 334,556 | $ | - | $ | 337,440 | ||||||||||
Prepaid expenses and other current assets | 48,495 | - | - | 188,170 | 236,665 | |||||||||||||||
Deposits and other assets | 626,529 | - | - | 92,422 | 718,951 | |||||||||||||||
Intangible assets | - | 1,637,924 | 783,676 | 11,241 | 2,432,841 | |||||||||||||||
Goodwill | - | 25,139 | 1,349,696 | - | 1,374,835 | |||||||||||||||
Inventory | - | 106,403 | - | - | 106,403 | |||||||||||||||
All other assets | - | - | - | 3,966,124 | 3,966,124 | |||||||||||||||
Total Assets | $ | 675,024 | $ | 1,772,350 | $ | 2,467,928 | $ | 4,257,957 | $ | 9,173,259 | ||||||||||
Accounts payable and accrued liabilities | $ | 9,693 | $ | 766,253 | $ | 6,232 | $ | 2,948,362 | $ | 3,730,540 | ||||||||||
Note payable, net of debt discount and issuance costs | 313,979 | - | - | 1,028,685 | 1,342,664 | |||||||||||||||
Deferred revenue | 161,112 | 13,477 | 59,570 | - | 234,159 | |||||||||||||||
All other Liabilities | - | - | - | 177,644 | 177,644 | |||||||||||||||
Total Liabilities | $ | 484,784 | $ | 779,730 | $ | 65,802 | $ | 4,154,691 | $ | 5,485,007 |
For the three months ended June 30, 2022 | ||||||||||||||||||||
Creatd Labs | Creatd Ventures | Creatd Partners | Corporate | Total | ||||||||||||||||
Net revenue | $ | 496,673 | $ | 486,250 | $ | 642,978 | $ | - | $ | 1,625,901 | ||||||||||
Cost of revenue | 718,636 | 649,433 | 426,350 | - | 1,794,419 | |||||||||||||||
Gross margin (loss) | (221,963 | ) | (163,183 | ) | 216,628 | - | (168,518 | ) | ||||||||||||
Research and development | 134,724 | - | 89,788 | - | 224,512 | |||||||||||||||
Marketing | 665,293 | 538,296 | 73,921 | - | 1,277,510 | |||||||||||||||
Stock based compensation | 413,585 | 374,922 | 429,729 | 922,982 | 2,141,218 | |||||||||||||||
General and administrative not including depreciation, amortization, or Impairment | 130,342 | 367,222 | 381,432 | 3,302,670 | 4,181,666 | |||||||||||||||
Depreciation and amortization | - | 76,440 | 38,100 | 27,515 | 142,055 | |||||||||||||||
Total operating expenses | $ | 1,343,944 | $ | 1,280,440 | $ | 974,870 | $ | 4,225,652 | $ | 7,824,906 | ||||||||||
Interest expense | (15,099 | ) | - | - | (5,261 | ) | (20,360 | ) | ||||||||||||
All other expenses | - | - | - | (691,154 | ) | (691,154 | ) | |||||||||||||
Other expenses, net | (15,099 | ) | - | - | (696,415 | ) | (711,514 | ) | ||||||||||||
Loss before income tax provision | $ | (1,570,239 | ) | $ | (1,443,623 | ) | $ | (758,242 | ) | $ | (4,932,834 | ) | $ | (8,704,938 | ) |
For the three months ended June 30, 2021 | ||||||||||||||||
Creatd Labs | Creatd Partners | Corporate | Total | |||||||||||||
Net revenue | $ | 295,805 | $ | 675,052 | $ | - | $ | 970,857 | ||||||||
Cost of revenue | 336,339 | 394,970 | - | 731,309 | ||||||||||||
Gross margin | (40,534 | ) | 280,082 | - | 239,548 | |||||||||||
Research and development | 33,963 | 22,635 | - | 56,598 | ||||||||||||
Marketing | 3,565,345 | 419,452 | - | 4,194,524 | ||||||||||||
Stock based compensation | 374,768 | 389,396 | 209,727 | 1,940,250 | ||||||||||||
General and administrative not including depreciation, amortization, or Impairment | 75,711 | 221,560 | 1,176,086 | 2,428,971 | ||||||||||||
Depreciation and amortization | 1,507 | 13,368 | 2,131,700 | 49,843 | ||||||||||||
Total operating expenses | $ | 4,049,787 | $ | 1,053,043 | $ | 34,968 | $ | 8,620,343 | ||||||||
Interest expense | (11,521 | ) | - | (49,239 | ) | (60,760 | ) | |||||||||
All other expenses | - | - | (170,160 | ) | (181,681 | ) | ||||||||||
Other expenses, net | (11,521 | ) | - | (672,644 | ) | (697,240 | ) | |||||||||
Loss before income tax provision | $ | (4,094,653 | ) | $ | (772,961 | ) | $ | (3,694,862 | ) | $ | (8,562,476 | ) |
For the six months ended June 30, 2022 | ||||||||||||||||||||
Creatd Labs | Creatd Ventures | Creatd Partners | Corporate | Total | ||||||||||||||||
Net revenue | $ | 908,680 | $ | 889,610 | $ | 1,176,349 | $ | - | $ | 2,974,639 | ||||||||||
Cost of revenue | 1,348,265 | 1,218,430 | 799,894 | - | 3,366,589 | |||||||||||||||
Gross margin (loss) | (439,585 | ) | (328,820) | 376,455 | - | (391,950 | ) | |||||||||||||
Research and development | 270,733 | - | 180,433 | - | 451,166 | |||||||||||||||
Marketing | 1,754,761 | 1,419,797 | 194,973 | - | 3,369,531 | |||||||||||||||
Stock based compensation | 622,345 | 564,166 | 646,637 | 1,388,862 | 3,222,010 | |||||||||||||||
General and administrative not including depreciation, amortization, or Impairment | 227,045 | 639,669 | 664,423 | 5,752,967 | 7,284,104 | |||||||||||||||
Depreciation and amortization | - | 152,793 | 76,156 | 54,998 | 283,947 | |||||||||||||||
Total operating expenses | $ | 2,874,884 | $ | 2,776,425 | $ | 1,762,622 | $ | 7,196,827 | $ | 14,610,758 | ||||||||||
Interest expense | (30,198 | ) | - | - | (4,058 | ) | (34,256 | ) | ||||||||||||
All other expenses | - | - | - | (549,022) | (549,022) | |||||||||||||||
Other expenses, net | (30,198 | ) | - | - | (553,080) | (583,278) | ||||||||||||||
Loss before income tax provision | $ | (3,344,667 | ) | $ | (3,105,245 | ) | $ | (1,386,167 | ) | $ | (7,749,907 | ) | $ | (15,585,986 | ) |
For the six months ended June 30, 2021 | ||||||||||||||||
Creatd Labs | Creatd Partners | Corporate | Total | |||||||||||||
Net revenue | $ | 522,463 | $ | 1,192,307 | $ | - | $ | 1,714,770 | ||||||||
Cost of revenue | 892,562 | 1,048,153 | - | 1,940,715 | ||||||||||||
Gross margin | (370,099 | ) | 144,154 | - | (225,945) | |||||||||||
Research and development | 231,299 | 154,151 | - | 385,450 | ||||||||||||
Marketing | 5,301,602 | 623,718 | 311,859 | 6,237,179 | ||||||||||||
Stock based compensation | 678,066 | 704,533 | 2,127,890 | 3,510,489 | ||||||||||||
General and administrative not including depreciation, amortization, or Impairment | 120,836 | 353,614 | 3,402,237 | 3,876,687 | ||||||||||||
Depreciation and amortization | 2,753 | 24,418 | 63,871 | 91,042 | ||||||||||||
Total operating expenses | $ | 6,334,556 | $ | 1,860,434 | $ | 5,905,857 | $ | 14,100,847 | ||||||||
Interest expense | (49,192 | ) | - | (210,239 | ) | (259,431 | ) | |||||||||
All other expenses | - | - | (619,490 | ) | (619,490 | ) | ||||||||||
Other expenses, net | (49,192 | ) | - | (829,729 | ) | (878,921 | ) | |||||||||
Loss before income tax provision | $ | (6,753,847 | ) | $ | (1,716,280 | ) | $ | (6,735,586 | ) | $ | (15,205,713 | ) |
Note 14 – Subsequent Events
Securities Purchase Agreement
On July 25, 2022, the Company entered into and closed securities purchase agreements with five accredited investors for debentures in the principal amount of $2,150,000, 1,075,000 Series E Common Stock Purchase Warrants to purchase shares of the Company’s Common Stock, and 2,000,000 Series F Common Stock Purchase Warrants to purchase shares of Common Stock.
The debentures have an original issue discount of 10%, have a maturity date of November 30, 2022, 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 $2.00 per share, subject to adjustment upon certain events including a one-time adjustment to the price of the Common Stock offered in the Rights Offering (as defined therein), with such adjusted conversion price not to be lower than $1.25.
The Warrants are immediately exercisable for a term of five years until July 25, 2027. The Series E Warrants are exercisable at an exercise price of $3.00, subject to adjustment upon certain events including a one-time adjustment to the price of the Common Stock offered in the Rights Offering, with such adjusted exercise price not to be lower than $1.01. The Series F Warrants are exercisable at an exercise price of $6.00 subject to adjustment upon certain events including a one-time adjustment to the price of the Common Stock offered in the Rights Offering, with such adjusted exercise price not to be lower than $1.01. The Warrants provide for cashless exercise to the extent that there is no registration statement available for the underlying shares of Common Stock. The shares underlying the Debentures, the Series E Warrants and the Series F Warrants are to be registered within 90 days of the Effective Date.
Trigger of Price Reset
On July 29, 2022, the Company announced that it was not moving forward with its previously announced Rights Offering. In doing so, it triggered a price reset in the Securities Purchase Agreements entered into on May 31, 2022 and the Securities Purchase Agreements entered into on July 25, 2022. As a result of this price reset, the May 31, 2022 debentures now have a conversion price of $1.00, and both the Series C and Series D warrants have exercise prices of $0.96. As a result of the price reset, the July 25, 2022 debentures now have a conversion price of $1.25, and both the Series E and Series F warrants have exercise prices of $1.01.
Acquisition of Orbit
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.
Consultant Shares
Subsequent to June 30, 2022, the Company issued 55,000 shares of Common Stock to consultants.
Creatd, Inc.
December 31, 2021 and 2020
Index to the Consolidated Financial Statements
F-48 |
www.rrbb.com | ||
ROSENBERG RICH BAKER BERMAN & COMPANY | ||
265 Davidson Avenue, Suite 210 ● Somerset, NJ 08873-4120 ● PHONE 908-231-1000 ● FAX 908-231-6894 | ||
111 Dunnell Road, Suite 100 ● Maplewood, NJ 07040 ● PHONE 973-763-6363 ● FAX 973-763-4430 | ||
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Jerrick Media Holdings,Creatd, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Jerrick Media Holdings,Creatd, Inc. and Subsidiaries (the Company) as of December 31, 20192021 and 2018,2020, and the related statements of income, comprehensive income, (loss), changes in stockholders’ equity, (deficit), and cash flows for each of the years in the two-year periodthen ended, December 31, 2019, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20192021 and 2018,2020, and the results of its operations and its cash flows for each of the years in the two-year periodthen ended, December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company had an accumulated deficit at December 3 1, 2019, and a net loss and net cash used in operating activities for the year then ended. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in this regard are described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS ● CENTER FOR AUDIT QUALITY ● PRIVATE COMPANIES PRACTICE SECTION ● PRIME GLOBAL ● REGISTERED WITH THE PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD
ROSENBERG RICH BAKER BERMAN & COMPANY |
To the Board of Directors and
Stockholders of Creatd, Inc. and Subsidiaries
Revenue Recognition
As described in Note 2 to the consolidated financial statements, the Company recognizes revenue in accordance with FASB Accounting Standards Codification 606, Revenue from Contracts with Customers (“ASC 606”). ASC 606 requires the Company to apply the following steps: (1) identify the contract with the customers; (2) identify performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the Company satisfies the performance obligations.
For subscription revenue recognized by the Company, the transaction price is reduced for consideration payable to customers. Because such consideration is paid to both customers and “freemium” subscribers, it requires significant estimates as to the allocation and timing of these reductions in the transaction price. These estimates required auditor judgment and consideration of some subjective factors in evaluating the estimates.
How the Critical Matter Was Addressed in the Audit
The primary audit procedures we performed to address this critical audit matter included:
● | Gained detailed understanding of processes related to subscription revenue, including evaluation of controls within the Company and the results of an audit of internal controls at the external payment processing organization. |
● | Verified the validity of customer payment data by testing the completeness and accuracy of the population of customer payments and by subscriber type. |
● | Critically evaluated management’s estimated allocations based on supportable information, including refined methodologies and estimates based on historical data for consideration paid to customers. |
Evaluation of Variable Interest Entities for Consolidation
As described in Note 2 to the consolidated financial statements, the Company’s 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 consolidated subsidiary is the primary beneficiary, the Company will include the VIE in its consolidated financial statements. If such an entity is deemed to not be consolidated, the Company records only its investment in equity securities as a marketable security or investment under the equity method, as applicable.
We identified management’s accounting for variable interest entities as a critical audit matter because there is significant judgment required by management to evaluate the contractual arrangements under the variable interest entity consolidation model. Auditing such considerations involved especially challenging auditor judgment in evaluating the appropriateness of the Company’s assessment and an increased audit effort.
ROSENBERG RICH BAKER BERMAN & COMPANY |
To the Board of Directors and
Stockholders of Creatd, Inc. and Subsidiaries
How the Critical Matter Was Addressed in the Audit
The primary audit procedures we performed to address this critical audit matter included:
● | Evaluating the reasonableness and appropriateness of management’s evaluation of each VIE and determination of primary beneficiary of the VIE through a decision-making workflow. |
● | Reading pertinent supporting organizational documents and agreements associated with each VIE and relevant business plans and documentation to agree key terms with those used in management’s evaluation of each VIE. |
● | Performed corroborative interviews with personnel involved in each entity analyzed to determine the business purpose of the transactions in the time frame the initial equity interests were acquired. |
Rosenberg Rich Baker Berman, P.A.
We have served as the Company’s auditor since 2018.
Somerset, New Jersey
March 30, 2020April 6, 2022
F-2
Creatd, Inc.
Consolidated Balance Sheets
December 31, 2019 | December 31, 2018 | |||||||
Assets | ||||||||
Current Assets | ||||||||
Cash | $ | 11,637 | $ | - | ||||
Prepaid expenses | 4,127 | - | ||||||
Accounts receivable | 50,849 | 6,500 | ||||||
Note receivable – related party | 11,450 | - | ||||||
Current portion of operating lease right of use asset | 105,763 | - | ||||||
Total Current Assets | 183,826 | 6,500 | ||||||
Property and equipment, net | 42,363 | 42,443 | ||||||
Intangible assets | 1,087,278 | - | ||||||
Goodwill | 1,035,795 | - | ||||||
Deferred offering costs | - | 143,146 | ||||||
Security deposit | 16,836 | 16,836 | ||||||
Operating lease right of use asset | 205,948 | - | ||||||
Total Assets | $ | 2,572,046 | $ | 208,925 | ||||
Liabilities and Stockholders’ Deficit | ||||||||
Current Liabilities | ||||||||
Cash overdraft | $ | - | $ | 33,573 | ||||
Accounts payable and accrued liabilities | 1,763,222 | 1,246,207 | ||||||
Demand loan | 225,000 | - | ||||||
Convertible Notes - related party, net of debt discount | 20,387 | - | ||||||
Convertible Notes, net of debt discount and issuance costs | 2,896,425 | - | ||||||
Current portion of operating lease payable | 105,763 | - | ||||||
Note payable - related party, net of debt discount | 5,129,342 | 1,223,073 | ||||||
Note payable, net of debt discount and issuance costs | 660,000 | 49,926 | ||||||
Unrecognized tax benefit | 68,000 | - | ||||||
Deferred revenue | 50,691 | 9,005 | ||||||
Warrant liability | 10,000 | - | ||||||
Deferred rent | - | 7,800 | ||||||
Total Current Liabilities | 10,928,830 | 2,569,584 | ||||||
Non-current Liabilities: | ||||||||
Operating lease payable | 201,944 | - | ||||||
Deferred rent | - | 6,150 | ||||||
Convertible Notes - related party, net of debt discount | - | 314 | ||||||
Convertible Notes, net of debt discount and issuance costs | - | 123,481 | ||||||
Total Non-current Liabilities | 201,944 | 129,945 | ||||||
Total Liabilities | 11,130,774 | 2,699,529 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ Deficit | ||||||||
Common stock par value $0.001: 15,000,000 shares authorized; 9,178,937 issued and 9,019,087 outstanding as of December 31, 2019 and 6,475,340 issued and 6,447,673 outstanding as of December 31, 2018 | 9,179 | 6,475 | ||||||
Additional paid in capital | 36,385,699 | 34,100,327 | ||||||
Accumulated deficit | (44,580,437 | ) | (36,545,065 | ) | ||||
Accumulated other comprehensive income | (5,995 | ) | - | |||||
Less: Treasury stock, 159,850 and 27,667 shares, respectively | (367,174 | ) | (52,341 | ) | ||||
(8,558,728 | ) | (2,490,604 | ) | |||||
Total Liabilities and Stockholders’ Deficit | $ | 2,572,046 | $ | 208,925 |
December 31, 2021 | December 31, 2020 | |||||||
Assets | ||||||||
Current Assets | ||||||||
Cash | $ | 3,794,734 | $ | 7,906,782 | ||||
Accounts receivable, net | 337,440 | 90,355 | ||||||
Inventory | 106,403 | - | ||||||
Prepaid expenses and other current assets | 236,665 | 23,856 | ||||||
Total Current Assets | 4,475,242 | 8,020,993 | ||||||
Property and equipment, net | 102,939 | 56,258 | ||||||
Intangible assets | 2,432,841 | 960,611 | ||||||
Goodwill | 1,374,835 | 1,035,795 | ||||||
Marketable securities | - | 62,733 | ||||||
Deposits and other assets | 718,951 | 191,836 | ||||||
Minority investment in businesses | 50,000 | 217,096 | ||||||
Operating lease right of use asset | 18,451 | 239,158 | ||||||
Total Assets | $ | 9,173,259 | $ | 10,784,480 | ||||
Liabilities and Stockholders’ Deficit | ||||||||
Current Liabilities | ||||||||
Accounts payable and accrued liabilities | $ | 3,730,540 | $ | 2,638,688 | ||||
Derivative liabilities | - | 42,231 | ||||||
Convertible Notes, net of debt discount and issuance costs | 159,193 | 897,516 | ||||||
Current portion of operating lease payable | 18,451 | 79,816 | ||||||
Note payable, net of debt discount and issuance costs | 1,278,672 | 1,221,539 | ||||||
Deferred revenue | 234,159 | 88,637 | ||||||
Total Current Liabilities | 5,421,015 | 4,968,427 | ||||||
Non-current Liabilities: | ||||||||
Note payable | 63,992 | 213,037 | ||||||
Operating lease payable | - | 157,820 | ||||||
Total Non-current Liabilities | 63,992 | 370,857 | ||||||
Total Liabilities | 5,485,007 | 5,339,284 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ Equity | ||||||||
Series E Preferred stock, $0.001 par value, 500 and 7,738 shares issued and outstanding, respectively | - | 8 | ||||||
Common stock par value $0.001: 100,000,000 shares authorized; 16,691,170 issued and 16,685,513 outstanding as of December 31, 2021 and 8,736,378 issued and 8,727,028 outstanding as of December 31, 2020 | 16,691 | 8,737 | ||||||
Additional paid in capital | 111,563,618 | 77,505,013 | ||||||
Subscription receivable | - | (40,000 | ) | |||||
Less: Treasury stock, 5,657 and 5,657 shares, respectively | (62,406 | ) | (62,406 | ) | ||||
Accumulated deficit | (109,632,574 | ) | (71,928,922 | ) | ||||
Accumulated other comprehensive income | (78,272 | ) | (37,234 | ) | ||||
Total Creatd, Inc. Stockholders’ Equity | 1,807,057 | 5,445,196 | ||||||
Non-controlling interest in consolidated subsidiaries | 1,881,195 | - | ||||||
3,688,252 | 5,445,196 | |||||||
Total Liabilities and Stockholders’ Equity | $ | 9,173,259 | $ | 10,784,480 |
The accompanying notes are an integral part of these consolidated financial statements.
F-3
Creatd, Inc.
Consolidated Statements of Comprehensive Income (Loss)Loss
For the Year Ended | For the Year Ended | |||||||
December 31, 2021 | December 31, 2020 | |||||||
Net revenue (related party of $80,000 and $0) | $ | 4,299,717 | $ | 1,212,870 | ||||
Cost of revenue | 5,300,037 | 1,495,042 | ||||||
Gross loss | (1,000,320 | ) | (282,172 | ) | ||||
Operating expenses | ||||||||
Research and development | 983,528 | 257,431 | ||||||
Marketing | 9,626,982 | 2,854,904 | ||||||
Stock based compensation | 9,661,168 | 6,861,163 | ||||||
Impairment of goodwill | 1,035,795 | - | ||||||
General and administrative | 11,060,927 | 6,027,665 | ||||||
Total operating expenses | 32,368,400 | 16,001,163 | ||||||
Loss from operations | (33,368,720 | ) | (16,283,335 | ) | ||||
Other income (expenses) | ||||||||
Other income | 396,223 | 512,071 | ||||||
Interest expense | (372,106 | ) | (1,376,902 | ) | ||||
Accretion of debt discount and issuance cost | (3,612,669 | ) | (4,303,072 | ) | ||||
Derivative expense | (100,502 | ) | - | |||||
Change in derivative liability | (1,096,287 | ) | 3,019,457 | |||||
Impairment of investment | (589,461 | ) | (11,450 | ) | ||||
Impairment of debt security | - | (50,000 | ) | |||||
Settlement of vendor liabilities | 59,792 | (126,087 | ) | |||||
Loss on marketable securities | - | (7,453 | ) | |||||
Gain (loss) on extinguishment of debt | 1,025,555 | (5,586,482 | ) | |||||
Gain on forgiveness of debt | 279,022 | 470 | ||||||
Other expenses, net | (4,010,433 | ) | (7,929,448 | ) | ||||
Loss before income tax provision and equity in net loss from unconsolidated investments | (37,379,153 | ) | (24,212,783 | ) | ||||
- | - | |||||||
Equity in net loss from equity method investment Income tax provision | - | - | ||||||
Net loss | (37,379,153 | ) | (24,212,783 | ) | ||||
Non-controlling interest in net loss | 86,251 | - | ||||||
Net Loss attributable to Creatd, Inc. | (37,292,902 | ) | (24,212,783 | ) | ||||
Deemed dividend | (410,750 | ) | (3,135,702 | ) | ||||
Inducement expense | - | - | ||||||
Net loss attributable to common shareholders | $ | (37,703,652 | ) | $ | (27,348,485 | ) | ||
Comprehensive loss | ||||||||
Net loss | (37,379,153 | ) | (24,212,783 | ) | ||||
Currency translation gain (loss) | (41,038 | ) | (31,239 | ) | ||||
Comprehensive loss | $ | (37,420,191 | ) | $ | (24,244,022 | ) | ||
Per-share data | ||||||||
Basic and diluted loss per share | $ | (2.98 | ) | $ | (5.68 | ) | ||
Weighted average number of common shares outstanding | 12,652,470 | 4,812,153 |
For the Year Ended December 31, | ||||||||
2019 | 2018 | |||||||
Net revenue | $ | 453,006 | $ | 80,898 | ||||
Gross margin | 453,006 | 80,898 | ||||||
Operating expenses | ||||||||
Compensation | 2,204,265 | 2,378,664 | ||||||
Consulting fees | 1,624,786 | 1,086,557 | ||||||
Research and development | 1,131,180 | 636,180 | ||||||
General and administrative | 2,709,753 | 1,665,752 | ||||||
Total operating expenses | 7,669,984 | 5,767,153 | ||||||
Loss from operations | (7,216,978 | ) | (5,686,255 | ) | ||||
Other expenses | ||||||||
Other income | 292,387 | - | ||||||
Interest expense | (612,830 | ) | (923,008 | ) | ||||
Accretion of debt discount and issuance cost | (348,665 | ) | (2,090,286 | ) | ||||
Settlement of vendor liabilities | 13,574 | 122,886 | ||||||
Loss on extinguishment of debt | (162,860 | ) | (3,453,137 | ) | ||||
Gain (loss) on settlement of debt | - | 16,258 | ||||||
Other expenses, net | (818,394 | ) | (6,327,287 | ) | ||||
Loss before income tax provision | (8,035,372 | ) | (12,013,542 | ) | ||||
Income tax provision | - | - | ||||||
Net loss | (8,035,372 | ) | (12,013,542 | ) | ||||
Deemed dividend | - | 174,232 | ||||||
Inducement expense | - | 2,016,634 | ||||||
Net loss attributable to common shareholders | (8,035,372 | ) | (14,204,408 | ) | ||||
Other comprehensive income | ||||||||
Currency translation loss | (5,995 | ) | - | |||||
Comprehensive loss | $ | (8,041,367 | ) | $ | (14,204,408 | ) | ||
Per-share data | ||||||||
Basic and diluted loss per share | $ | (0.98 | ) | $ | (4.16 | ) | ||
Weighted average number of common shares outstanding | 8,223,410 | 3,418,491 |
The accompanying notes are an integral part of these consolidated financial statements.
Creatd, Inc.
Consolidated Statement of Changes in Stockholders’ Equity (Deficit)
For the Years Ended December 31, 20192021 and 20182020
Series A Preferred Stock | Series B Preferred Stock | Common Stock | Treasury stock | Additional Paid In | Accumulated | Other Comprehensive | Stockholders’ | |||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Loss | Equity | |||||||||||||||||||||||||||||||||||||
Balance, December 31, 2017 | 31,581 | 31 | 8,063 | $ | 8 | 1,976,034 | $ | 1,976 | (27,667 | ) | $ | (19,007 | ) | $ | 14,424,831 | $ | (21,775,107 | ) | $ | - | $ | (7,367,307 | ) | |||||||||||||||||||||||||
Common stock issued to settle vendor liabilities | - | - | - | - | 938 | 1 | - | - | 3,374 | - | - | 3,375 | ||||||||||||||||||||||||||||||||||||
Stock based compensation | - | - | - | - | 81,849 | 81 | - | - | 547,224 | - | - | 547,305 | ||||||||||||||||||||||||||||||||||||
Issuance of common stock and warrants in exchange for Series A and accrued dividend | (31,581 | ) | (31 | ) | - | - | 1,112,488 | 1,112 | - | - | 2,199,011 | - | - | 2,200,092 | ||||||||||||||||||||||||||||||||||
Issuance of common stock and warrants in exchange for series B and accrued dividend | - | - | (8,063 | ) | (8 | ) | 230,842 | 231 | - | - | 468,953 | - | - | 469,176 | ||||||||||||||||||||||||||||||||||
Cash received for common stock and warrants | - | - | - | - | 557,492 | 557 | - | - | 2,786,905 | - | - | 2,787,462 | ||||||||||||||||||||||||||||||||||||
Common stock and warrants issued upon conversion of notes payable | - | - | - | - | 2,256,448 | 2,256 | - | - | 11,938,507 | - | - | 11,940,763 | ||||||||||||||||||||||||||||||||||||
Stock issuance cost | - | - | - | - | 210,000 | 210 | - | - | (161,613 | ) | - | - | (161,403 | ) | ||||||||||||||||||||||||||||||||||
Stock warrants issued with note payable | - | - | - | - | - | - | - | - | 1,660,986 | - | - | 1,660,986 | ||||||||||||||||||||||||||||||||||||
Issuance of common stock for prepaid services | - | - | - | - | 30,500 | 31 | - | - | 116,269 | - | - | 116,300 | ||||||||||||||||||||||||||||||||||||
Common stock issued with note payable | - | - | - | - | 18,750 | 19 | - | - | 77,468 | - | - | 77,487 | ||||||||||||||||||||||||||||||||||||
BCF issued with note payable | - | - | - | - | - | - | - | - | 38,413 | - | - | 38,413 | ||||||||||||||||||||||||||||||||||||
Purchase of treasury stock | - | - | - | - | - | - | - | (33,334 | ) | - | - | - | (33,334 | ) | ||||||||||||||||||||||||||||||||||
Inducement expense | - | - | - | - | - | - | - | - | - | (2,016,635 | ) | - | (2,016,635 | ) | ||||||||||||||||||||||||||||||||||
�� | ||||||||||||||||||||||||||||||||||||||||||||||||
Dividends | - | - | - | - | - | - | - | - | - | (739,782 | ) | - | (739,782 | ) | ||||||||||||||||||||||||||||||||||
Net loss for the year ended December 31, 2018 | - | - | - | - | - | - | - | - | - | (12,013,542 | ) | - | (12,013,542 | ) | ||||||||||||||||||||||||||||||||||
Balance, December 31, 2018 | - | - | - | - | 6,475,340 | 6,475 | (27,667 | ) | (52,341 | ) | 34,100,327 | (36,545,065 | ) | - | (2,490,604 | ) | ||||||||||||||||||||||||||||||||
Stock based compensation | - | - | - | - | 125,227 | 126 | - | - | 436,980 | - | - | 437,106 | ||||||||||||||||||||||||||||||||||||
Cash received for common stock and warrants | - | - | - | - | 129,966 | 130 | - | - | 649,699 | - | - | 649,829 | ||||||||||||||||||||||||||||||||||||
Tender offering | - | - | - | - | 2,100,173 | 2,100 | - | - | (2,100 | ) | - | - | - | |||||||||||||||||||||||||||||||||||
Stock issuance cost | - | - | - | - | - | - | - | - | (178,146 | ) | - | - | (178,146 | ) | ||||||||||||||||||||||||||||||||||
Stock warrants issued with note payable | - | - | - | - | - | - | - | - | 427,692 | - | - | 427,692 | ||||||||||||||||||||||||||||||||||||
Purchase of treasury stock and warrants | - | - | - | - | - | - | (132,183 | ) | (314,833 | ) | (271,658 | ) | - | - | (586,491 | ) | ||||||||||||||||||||||||||||||||
Shares issued for acquisition | - | - | - | - | 333,334 | 333 | - | - | 1,166,336 | - | - | 1,166,669 | ||||||||||||||||||||||||||||||||||||
BCF issued with note payable | - | - | - | - | - | - | - | - | 4,444 | - | - | 4,444 | ||||||||||||||||||||||||||||||||||||
Shares issued to settle vendor payable | - | - | - | - | 14,897 | 15 | - | - | 52,125 | - | - | 52,140 | ||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | - | - | - | - | - | - | - | - | - | - | (5,995 | ) | (5,995 | ) | ||||||||||||||||||||||||||||||||||
Net loss for the year ended December 31, 2019 | - | - | - | - | - | - | - | - | - | (8,035,372 | ) | - | (8,035,372 | ) | ||||||||||||||||||||||||||||||||||
Balance, December 31, 2019 | - | $ | - | - | $ | - | 9,178,937 | $ | 9,179 | (159,850 | ) | $ | (367,174 | ) | $ | 36,385,699 | $ | (44,580,437 | ) | $ | (5,995 | ) | $ | (8,558,728 | ) |
Series E Preferred Stock | Common Stock | Treasury stock | Additional Paid In | Subscription | Accumulated | Non-Controlling | Other Comprehensive | Stockholders’ | ||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Receivable | Deficit | Interest | Income | Equity | |||||||||||||||||||||||||||||||||||||
Balance, December 31, 2019 | - | $ | - | 3,059,646 | $ | 3,059 | (53,283 | ) | $ | (367,174 | ) | $ | 36,391,819 | $ | - | $ | (44,580,437 | ) | $ | - | $ | (5,995 | ) | $ | (8,558,728 | ) | ||||||||||||||||||||||
Shares issued with notes payable | - | - | 59,774 | 60 | - | - | 243,685 | - | - | - | - | 243,745 | ||||||||||||||||||||||||||||||||||||
Stock based compensation | - | - | 169,800 | 170 | - | - | 5,743,970 | - | - | - | - | 5,744,140 | ||||||||||||||||||||||||||||||||||||
Shares issued to settle vendor liabilities | - | - | 23,565 | 24 | - | - | 235,607 | - | - | - | - | 235,631 | ||||||||||||||||||||||||||||||||||||
Conversion of warrants to stock | - | - | 7,239 | 7 | - | - | (4,236 | ) | - | - | - | - | (4,229 | ) | ||||||||||||||||||||||||||||||||||
Conversion of options to stock | - | - | 229,491 | 229 | - | - | 1,116,802 | - | - | - | - | 1,117,031 | ||||||||||||||||||||||||||||||||||||
Stock warrants issued with note payable | - | - | - | - | - | - | 1,078,501 | - | - | - | - | 1,078,501 | ||||||||||||||||||||||||||||||||||||
Cancellation of Treasury stock | - | - | (50,650 | ) | (50 | ) | 54,343 | 374,184 | (374,134 | ) | - | - | - | - | - | |||||||||||||||||||||||||||||||||
Purchase of treasury stock | - | - | - | - | (6,717 | ) | (69,416 | ) | - | - | - | - | - | (69,416 | ) | |||||||||||||||||||||||||||||||||
Recognition of intrinsic value of beneficial conversion features – convertible notes | - | - | - | - | - | - | 3,099,837 | - | - | - | - | 3,099,837 | ||||||||||||||||||||||||||||||||||||
Cash received for common stock and warrants | - | - | 1,725,000 | 1,725 | - | - | 7,028,355 | - | - | - | - | 7,030,080 | ||||||||||||||||||||||||||||||||||||
Cash received for preferred series E and warrants | 7,738 | 8 | - | - | - | - | 6,710,417 | (40,000 | ) | - | - | - | 6,670,425 | |||||||||||||||||||||||||||||||||||
Common stock and warrants issued upon conversion of notes payable | - | - | 768,225 | 769 | - | - | 3,182,898 | - | - | - | - | 3,183,667 | ||||||||||||||||||||||||||||||||||||
Common stock and warrants issued upon extinguishment of notes payable | 2,744,288 | 2,744 | - | - | 9,915,790 | - | - | - | - | 9,918,534 | ||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | - | - | - | - | - | - | - | - | - | - | (31,239 | ) | (31,239 | ) | ||||||||||||||||||||||||||||||||||
Dividends | - | - | - | - | - | - | 3,135,702 | - | (3,135,702 | ) | - | - | - | |||||||||||||||||||||||||||||||||||
Net loss for the year ended December 31, 2020 | - | - | - | - | - | - | - | - | (24,212,783 | ) | - | - | (24,212,783 | ) | ||||||||||||||||||||||||||||||||||
Balance, December 31, 2020 | 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 | - | - | 388,411 | 388 | - | - | 9,446,687 | - | - | - | - | 9,447,075 | ||||||||||||||||||||||||||||||||||||
Shares issued for prepaid services | - | - | 50,000 | 50 | - | - | 226,450 | - | - | - | - | 226,500 | ||||||||||||||||||||||||||||||||||||
Shares issued to settle vendor liabilities | - | - | 294,895 | 295 | - | - | 791,091 | - | - | - | - | 791,386 | ||||||||||||||||||||||||||||||||||||
Common stock issued upon conversion of notes payable | - | - | 1,128,999 | 1,129 | - | - | 5,155,865 | - | - | - | - | 5,156,994 | ||||||||||||||||||||||||||||||||||||
Exercise of warrants to stock | - | - | 2,250,691 | 2,251 | - | - | 9,484,972 | - | - | - | - | 9,487,223 | ||||||||||||||||||||||||||||||||||||
Cash received for common stock and warrants | - | - | 1,687,500 | 1,687 | - | - | 5,665,263 | - | - | - | - | 5,666,950 | ||||||||||||||||||||||||||||||||||||
Cash received for preferred series E and warrants | 40 | - | - | - | - | - | (4,225 | ) | 40,000 | - | - | - | 35,775 | |||||||||||||||||||||||||||||||||||
Conversion of preferred series E to stock | (7,278 | ) | (8 | ) | 1,766,449 | 1,766 | - | - | (1,758 | ) | - | - | - | - | - | |||||||||||||||||||||||||||||||||
Stock warrants issued with note payable | - | - | - | - | - | - | 1,665,682 | - | - | - | - | 1,665,682 | ||||||||||||||||||||||||||||||||||||
Shares issued for acquisition | - | - | 387,847 | 388 | - | - | 1,217,828 | - | - | 1,967,446 | - | 3,185,662 | ||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | - | - | - | - | - | - | - | - | - | - | (41,038 | ) | (41,038 | ) | ||||||||||||||||||||||||||||||||||
Dividends | - | - | - | - | - | - | 410,750 | - | (410,750 | ) | - | - | - | |||||||||||||||||||||||||||||||||||
Net loss for the year months ended December 31, 2021 | - | - | - | - | - | - | - | - | (37,292,902 | ) | (86,251 | ) | - | (37,379,153 | ) | |||||||||||||||||||||||||||||||||
Balance, December 31, 2021 | 500 | $ | - | 16,691,170 | $ | 16,691 | (5,657 | ) | $ | (62,406 | ) | $ | 111,563,618 | $ | - | $ | (109,632,574 | ) | $ | 1,881,195 | $ | (78,272 | ) | $ | 3,688,252 |
SeeThe accompanying notes to theare an integral part of these consolidated financial statementsstatements.
Creatd, Inc.
Condensed Consolidated Statements of Cash Flows
For the Year Ended | For the Year Ended | |||||||
December 31, 2021 | December 31, 2020 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (37,379,153 | ) | $ | (24,212,783 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 397,440 | 157,760 | ||||||
Impairment of investments | 589,461 | 11,450 | ||||||
Impairment of intangible assets | 1,727,032 | - | ||||||
Accretion of debt discount and issuance cost | 3,612,669 | 4,303,072 | ||||||
Share-based compensation | 9,661,174 | 6,861,163 | ||||||
Bad debt expense | 110,805 | 53,692 | ||||||
Change in fair value of derivative liabilities | - | (3,019,457 | ) | |||||
Gain on marketable securities | - | 7,453 | ||||||
Gain on Forgiveness of debt | (279,022 | ) | - | |||||
Settlement of vendor liabilities | (59,692 | ) | 126,087 | |||||
Change in fair value of derivative liability | 1,096,287 | - | ||||||
Derivative Expense | 100,502 | - | ||||||
(Gain) loss on extinguishment of debt | (1,025,655 | ) | 5,586,012 | |||||
Non cash lease expense | 82,511 | 72,553 | ||||||
Equity interest granted for other income | (123,710 | ) | - | |||||
Equity in net loss from unconsolidated investment | 16,413 | - | ||||||
Changes in operating assets and liabilities: | ||||||||
Prepaid expenses | (174,819 | ) | (19,729 | ) | ||||
Inventory | (39,182 | ) | - | |||||
Accounts receivable | (80,407 | ) | (93,198 | ) | ||||
Deposits and other assets | (527,115 | ) | (4,829 | ) | ||||
Deferred revenue | 144,851 | 37,946 | ||||||
Accounts payable and accrued expenses | 1,714,902 | 2,930,392 | ||||||
Unrecognized tax benefit | - | (68,000 | ) | |||||
Operating lease liability | (84,099 | ) | (70,071 | ) | ||||
Net Cash Used In Operating Activities | (20,518,807 | ) | (7,340,487 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Issuance of note receivable | - | - | ||||||
Cash paid for property and equipment | (95,935 | ) | (44,988 | ) | ||||
Deposits | - | (175,000 | ) | |||||
Cash paid for minority investment in business | (325,000 | ) | - | |||||
Cash paid for equity method investment | (510,000 | ) | (115,000 | ) | ||||
Cash paid for investments in marketable securities | - | (248,272 | ) | |||||
Sale of marketable securities | - | 36,048 | ||||||
Cash consideration for acquisition | (225,947 | ) | - | |||||
Purchases of digital assets | (11,241 | ) | - | |||||
Net Cash Used In Investing Activities | (1,168,123 | ) | (547,212 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from the exercise of warrant | 9,487,223 | - | ||||||
Net proceeds from issuance of notes | 747,937 | 1,501,661 | ||||||
Repayment of notes | (456,233 | ) | (492,665 | ) | ||||
Proceeds from issuance of demand loan | - | 440,000 | ||||||
Repayment of demand Loan | - | (90,000 | ) | |||||
Proceeds from issuance of convertible note | 3,610,491 | 3,650,835 | ||||||
Repayment of convertible notes | (941,880 | ) | (1,658,001 | ) | ||||
Proceeds from issuance of convertible notes - related party | - | 50,000 | ||||||
Proceeds from issuance of note payable - related party | - | 152,989 | ||||||
Repayment of note payable - related party | (538,574 | ) | (983,752 | ) | ||||
Proceeds from issuance of common stock and warrants | 5,666,951 | 6,662,015 | ||||||
Cash received for preferred series E and warrants | - | 6,670,417 | ||||||
Purchase of treasury stock and warrants | - | (89,416 | ) | |||||
Net Cash Provided By Financing Activities | 17,615,915 | 15,814,083 | ||||||
Effect of exchange rate changes on cash | (41,038 | ) | (31,239 | ) | ||||
Net Change in Cash | (4,112,048 | ) | 7,895,145 | |||||
Cash - Beginning of Year | 7,906,782 | 11,637 | ||||||
Cash - End of year | $ | 3,794,734 | $ | 7,906,782 | ||||
SUPPLEMENTARY CASH FLOW INFORMATION: | ||||||||
Cash Paid During the Year for: | ||||||||
Income taxes | $ | - | $ | - | ||||
Interest | $ | 60,073 | $ | 178,461 | ||||
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
Settlement of vendor liabilities | $ | 168,667 | $ | 475,220 | ||||
Conversion of marketable debt securities into equity securities | $ | - | $ | 102,096 | ||||
Beneficial conversion feature on convertible notes | $ | - | $ | 3,099,837 | ||||
Warrants issued with debt | $ | 1,665,682 | $ | 1,078,500 | ||||
Shares issued with debt | $ | - | $ | 243,741 | ||||
Issuance of common stock for prepaid services | $ | 226,500 | $ | 585,000 | ||||
Cancellation of Treasury stock | $ | - | $ | 374,184 | ||||
Conversion of note payable and interest into convertible notes | $ | - | $ | 385,000 | ||||
Conversion of Demand loan into notes payable | $ | - | $ | 200,000 | ||||
Deferred offering costs | $ | 4,225 | $ | - | ||||
Common stock and warrants issued upon conversion of notes payable | $ | 5,156,994 | $ | 11,217,362 | ||||
Shares issued for acquisition | $ | 1,318,218 | $ | - | ||||
Conversion of note payable and interest into convertible notes | $ | - | $ | 385,000 | ||||
Reduction of ROU asset related to re-measurement of lease liability | $ | 135,086 | $ | - | ||||
Repayment of promissory notes from Australian R&D credits | $ | 146,630 | $ | - |
For the Year Ended December 31, | ||||||||
2019 | 2018 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (8,035,372 | ) | $ | (12,013,542 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 57,492 | 42,218 | ||||||
Accretion of debt discount and issuance cost | 348,665 | 2,090,286 | ||||||
Share-based compensation | 437,106 | 346,954 | ||||||
Bad debt expense | 33,503 | - | ||||||
Gain (loss) on settlement of vendor liabilities | (13,574 | ) | (122,886 | ) | ||||
Gain (loss) on settlement of debt | - | (16,257 | ) | |||||
Gain on extinguishment of debt | 162,860 | 3,610,049 | ||||||
Amortization of ROU Asset | 60,764 | - | ||||||
Changes in operating assets and liabilities: | ||||||||
Operating Lease liability | (56,240 | ) | ||||||
Prepaid expenses | (3,458 | ) | 40,680 | |||||
Accounts receivable | (54,174 | ) | (5,175 | ) | ||||
Security deposit | - | 164 | ||||||
Deferred revenue | 41,686 | 9,005 | ||||||
Accounts payable and accrued expenses | 985,716 | 1,039,690 | ||||||
Unrecognized tax benefit | 68,000 | - | ||||||
Warrant liability | 10,000 | |||||||
Deferred rent | - | 6,000 | ||||||
Net Cash Used In Operating Activities | (5,957,027 | ) | (4,972,814 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Issuance of note receivable | (11,450 | ) | - | |||||
Cash paid for property and equipment | (27,887 | ) | (27,605 | ) | ||||
Cash consideration for acquisition | (340,000 | ) | - | |||||
Net cash received in business combination | 16,049 | - | ||||||
Net Cash Used In Investing Activities | (363,288 | ) | (27,605 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Cash overdraft | (33,573 | ) | 33,573 | |||||
Net proceeds from issuance of notes | - | 791,833 | ||||||
Repayment of notes | (50,000 | ) | (264,939 | ) | ||||
Proceeds from issuance of demand loan | 250,000 | 50,000 | ||||||
Repayment of demand Loan | (25,000 | ) | - | |||||
Proceeds from issuance of convertible note | 2,472,525 | 1,525,154 | ||||||
Repayment of convertible notes | - | (226,250 | ) | |||||
Proceeds from issuance of convertible notes - related party | - | 299,852 | ||||||
Proceeds from issuance of note payable - related party | 4,186,500 | 465,000 | ||||||
Repayment of note payable - related party | (501,500 | ) | (205,000 | ) | ||||
Proceeds from issuance of common stock and warrants | 684,829 | 2,787,462 | ||||||
Repayment of line of credit | - | (44,996 | ) | |||||
Cash paid to preferred holder | - | (87,111 | ) | |||||
Cash paid for debt issuance costs | - | (166,761 | ) | |||||
Cash paid for stock issuance costs | (35,000 | ) | (35,115 | ) | ||||
Purchase of treasury stock and warrants | (575,834 | ) | (33,334 | ) | ||||
Net Cash Provided By Financing Activities | 6,337,947 | 4,889,368 | ||||||
Effect of exchange rate changes on cash | (5,995 | ) | - | |||||
Net Change in Cash | 11,637 | (111,051 | ) | |||||
Cash - Beginning of Year | - | 111,051 | ||||||
Cash - End of Year | $ | 11,637 | $ | - | ||||
SUPPLEMENTARY CASH FLOW INFORMATION: | ||||||||
Cash Paid During the Year for: | ||||||||
Income taxes | $ | - | $ | - | ||||
Interest | $ | 55,987 | $ | 64,892 | ||||
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
Settlement of vendor liabilities | $ | 32,500 | $ | 123,750 | ||||
Deferred offering costs | $ | 143,146 | $ | 143,146 | ||||
Beneficial conversion feature on convertible notes | $ | 4,444 | $ | 38,413 | ||||
Accrued dividends | $ | - | $ | 174,232 | ||||
Warrants issued with debt | $ | 427,692 | $ | 1,133,820 | ||||
Issuance of common stock for prepaid services | $ | - | $ | 116,300 | ||||
Operating Lease liability | $ | 349,997 | $ | - | ||||
Conversion of note payable and interest into convertible notes | $ | - | $ | 341,442 | ||||
Warrants with amendment to notes payable | $ | - | $ | 135,596 | ||||
Issuance of common stock and warrants in exchange for Series A and accrued dividend | $ | - | $ | 2,200,123 | ||||
Issuance of common stock and warrants in exchange for series B and accrued dividend | $ | - | $ | 469,184 | ||||
Common stock and warrants issued upon conversion of notes payable | $ | - | $ | 11,940,763 | ||||
Promissory Note issued for acquisition | $ | 660,000 | $ | - | ||||
Shares issued for acquisition | $ | 1,166,669 | $ | - | ||||
Conversion of note payable - related party and interest into convertible notes - related party | $ | 4,119 | $ | - | ||||
Conversion of accounts payable and interest into convertible notes | $ | 318,678 | $ | - | ||||
Conversion of interest into note payable - related party | $ | 128,992 | $ | - | ||||
Leasehold improvements reclassified to right-of-use asset | $ | 22,478 | $ | - |
The accompanying notes are an integral part of these consolidated financial statements.
Creatd, Inc.
December 31, 2019 and 20182021
Notes to the Consolidated Financial Statements
Note 1 – Organization and Operations
Creatd, Inc., formerly Jerrick Media Holdings, Inc. (“we,” “us,” the “Company,” or “Jerrick Media” or “Jerrick”“Creatd”), is a technology company focused on the development of digital communities, marketing branded digital content,providing economic opportunities for creators, which it accomplishes through its four main business pillars: Creatd Labs, Creatd Partners, Creatd Ventures, and e-commerce opportunities. Jerrick’s content distribution platform,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 Jerrick’sCreatd’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 1,425,000475,000 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 39,09113,030 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 Media.Jerrick.
Effective February 28, 2016, GTPH entered into an Agreement and Plan of Merger (the “Statutory Merger Agreement”) with Jerrick, pursuant to which GTPH became the parent company of Jerrick Ventures, LLC, a wholly-owned operating subsidiary of Jerrick (the “Statutory Merger”) and GTPH changed its name to Jerrick Media Holdings, Inc. to better reflect its new business strategy.
On September 11, 2019, the Company acquired 100% of the membership interests of Seller’s Choice, LLC, a New Jersey limited liability company (“Seller’s Choice”). Seller’s Choice is a digital e-commerce agency based in New Jersey (see Note 4).Jersey.
On September 9, 2020, the Company filed a certificate of amendment with the Secretary of State of the State of Nevada to change our name to “Creatd, Inc.”, which became effective on September 10, 2020.
On June 4, 2021, the Company acquired 89% of the membership interests of Plant Camp, LLC, a Delaware limited liability company (“Plant Camp”), which the Company subsequently rebranded as Camp. Plant Camp is a direct-to-consumer (DTC) food brand which creates healthy upgrades to classic comfort food favorites. The results of Plant Camp’s operations have bene included since the date of acquisition in the Statements of Operations.
On July 20, 2021, the Company acquired 44% of the membership interests of WHE Agency, Inc,. WHE Agency, Inc, is a talent management and public relations agency based in New York. WHE Agency, Inc, has been consolidated due to the Company’s ownership of 55% voting control, and the results of operations have been included since the date of acquisition in the Statements of Operations.
On August 16, 2021, the Company acquired 16% of the membership interests of Dune, Inc. bring our total membership interests to 21%.
On October 3, 2021, the Company acquired 29% of the membership interests of Dune, Inc. bring our total membership interests to 50%. Dune, Inc. is a direct-to-consumer brand focused on promoting wellness through its range of health-oriented beverages. Dune, Inc, has been consolidated due to the Company’s ownership of 50% voting control, and the results of operations have been included since the date of acquisition in the Statements of Operations.
Note 2 – Significant and Critical 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.
F-7
Use of Estimates and Assumptions and Critical Accounting Estimates and Assumptions
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
Critical accounting estimates are estimates for which (a) the nature of the estimate is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and (b) the impact of the estimate on financial condition or operating performance is material. The Company’s critical accounting estimates and assumptions affecting the financial statements were:
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.
During the fourth quarter of 2021, management changed its estimates for cost of revenues. This change in estimates did not result in a change to loss from operations or net loss.
Actual results could differ from those estimates.
Presentation
During 2021, we adopted a change in presentation on our Consolidated Statements of Comprehensive Loss in order to present a gross profit line and allocate certain overhead expenses, the presentation of which is consistent with our peers. Under the new presentation, we began allocating overhead expenses related to cost of goods sold. Prior periods have been revised to reflect this change in presentation.
Principles of consolidation
The Company consolidates all majority-owned subsidiaries, if any, in which the parent’s power to control exists.
As of December 31, 2019,2021, 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 | % | |||||
Seller’s Choice, LLC | New Jersey | % | |||||
Delaware | % | ||||||
Delaware | % | ||||||
Delaware | % | ||||||
Delaware | % | ||||||
Plant Camp LLC | Delaware | 89 | % | ||||
Sci-Fi Shop, LLC | Delaware | 100 | % | ||||
OG Collection LLC | Delaware | % | |||||
VMENA LLC | Delaware | % | |||||
Vocal For Brands, LLC | Delaware | % | |||||
Vocal Ventures LLC | Delaware | % | |||||
What to Buy, LLC | Delaware | % | |||||
WHE Agency, Inc. | Delaware | 44 | % |
All inter-company balances and transactions have been eliminated.
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 consolidated subsidiary is the primary beneficiary, the Company will include the VIE in its consolidated financial statements. If such an entity is deemed to not be consolidated, the Company records only its investment in equity securities as a marketable security or investment under the equity method, as applicable
Fair Value of Financial Instruments
The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in U.S. GAAP and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority tomeasurement disclosures are grouped into three levels based on valuation factors:
● | Level 1 – quoted prices
The Company’s Level The Company’s Level 3 assets/liabilities include goodwill, intangible assets, marketable debt securities, 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
The Fair Value Measurements as December 31, 2020
Fair Value Measurements as of December 31, 2021
The following table shows the valuation methodology and
The following tables provides a summary of the Fair Value Measurements as of December 31, 2021
Fair Value Measurements as of December 31, 2020
The following table shows the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on non-recurring basis as of December 31, 2021:
The Company recognizes impairment on loans or notes receivable (that do not
The change in net realized depreciation on equity trading securities that has been included in other expenses for the year ended December 31, 2021 and 2020 was $0 and $(7,453), respectively. The Company valued the initial value of debt securities, which are investments in convertible notes receivable, by assessing the separate values of the debt and equity components for similar instruments convertible into private company equity (Level 3). The investment was initially measured at cost, which was determined to approximate fair value due to the lack of marketability of the conversion shares underlying these convertible instruments and the expected recoverability of the note principal. The key assumption affecting the level 3 fair values would be observable price changes to the equity investments. The Company monitors for impairment indicators at each balance sheet date. Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. At times, cash balances may exceed the Federal Deposit Insurance Corporation (“FDIC”) or Financial Claims Scheme (“FCS”) insurable limits . The Company 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 The 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:
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 consolidated statements of operations. Long-lived Assets Including Goodwill and Other Acquired We evaluate the recoverability of property and equipment and acquired finite-lived intangible assets for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. The evaluation is performed at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Recoverability of these assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the assets are expected to generate from the use and eventual disposition. If such review indicates that the carrying amount of property and equipment and intangible assets is not recoverable, the carrying amount of such assets is reduced to fair value.
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 7.26 years.
Goodwill is not amortized but is subject to periodic testing for impairment in accordance with ASC Topic 350 “Intangibles - Goodwill and Other - Testing Indefinite-Lived Intangible Assets for Impairment” (“ASC Topic 350”). The Company tests goodwill for impairment on an annual basis as of the last day of the Company’s fiscal December each year or more frequently if events occur or circumstances change indicating that the fair value of the goodwill may be below its carrying amount. The Company has four reporting units. The Company uses an income-based approach to determine the fair value of the reporting units. This approach uses a discounted cash flow methodology and the ability of our reporting units to generate cash flows as measures of fair value of our reporting units. During the year ended December 31, 2021, the Company completed its annual impairment test of goodwill. The Company performed the qualitative assessment as permitted by ASC 350-20 and determined for three of its reporting units that the fair value of those reporting units was more likely than not greater than their carrying value, including Goodwill. However, based on this qualitative assessment, the Company determined that the carrying value of the Seller’s Choice reporting unit was more likely than not greater than its carrying value, including Goodwill. Based on completion of the annual impairment test, the Company recorded an impairment charge of $1,035,795 for goodwill. The following table sets forth a summary of the changes in goodwill for the years ended December 31, 2020 and 2021.
Investments Marketable securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and are reported at fair value, with unrealized gains and losses recognized in earnings. Debt securities not classified as held-to-maturity or as trading are classified as available-for-sale, and are carried at fair market value, with the unrealized gains and losses, net of tax, included in the determination of comprehensive income and reported in stockholders’ equity. The Company accounts for its investments in available-for-sale debt securities, in accordance with sub-topic 320-10 of the FASB ASC (“Sub-Topic 320-10”). Accrued interest on these securities is included in fair value and amortized cost. Pursuant to Paragraph 320-10-35, investments in debt securities that are classified as available for sale shall be measured subsequently at fair value in the statement of financial position. Unrealized holding gains and losses for available-for-sale securities (including those classified as current assets) shall be excluded from earnings and reported in other comprehensive income until realized. The Company follows FASB ASC 320-10-35 to assess whether an investment in debt securities is impaired in each reporting period. An investment in debt securities is impaired if the fair value of the investment is less than its amortized cost. If the Company intends to sell the debt security (that is, it has decided to sell the security), an other-than-temporary impairment shall be considered to have occurred. If the Company more likely than not will be required to sell the security before recovery of its amortized cost basis or it otherwise does not expect to recover the entire amortized cost basis of the security, an other-than-temporary impairment shall be considered to have occurred. The Company considers the expected cash flows from the investment based on reasonable and supportable forecasts as well as several other factors to estimate whether a credit loss exists. If the Company intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss, the other-than-temporary impairment shall be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. The following table sets forth a summary of the changes in marketable securities - available-for-sale debt securities that are measured at fair value on a recurring basis:
We invest in debt securities. Our investments in debt securities are subject to interest rate risk. To minimize the exposure due to an adverse shift in interest rates, we invest in securities with maturities of two years or less and maintain a weighted average maturity of one year or less. As of December 31, 2021, all of our investments had maturities between one and three years. The marketable debt security investments are evaluated for impairment if events or circumstances arise that indicate that the carrying amount of such assets may not be recoverable. During the years ended December 31, 2021 and 2020, the Company recognized a $62,733 and $50,000 respectively from the impairment of the debt security. The following table sets forth a summary of the changes in equity investments, at cost that are measured at fair value on a non-recurring basis:
The Company has elected to measure its equity securities without a readily determinable fair value at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. An election to measure an equity security in accordance with this paragraph shall be made for each investment separately. The Company performed a qualitative assessment considering impairment indicators to evaluate whether these investments were impaired. Impairment indicators that the Company considered included the following: a) a significant deterioration in the earnings performance, credit rating, asset quality or business prospects of the investee; b) a significant adverse change in the regulatory, economic or technology environment of the investee; c) a significant adverse change in the general market condition of either the geographical area or the industry in which the investee operates; d) a bona fide offer to purchase or an offer by the investee to sell the investment; e) factors that raise significant concerns about the investee’s ability to continue as a going concern. During the year ended December 31, 2021 the Company recognized a $102,096 impairment of the equity security. Equity Method Investments Investments in unconsolidated entities over which we have significant influence are accounted for under the equity method of accounting. Under the equity method of accounting, the Company does not consolidate the investment’s financial statements within its consolidated financial statements. Equity method investments are initially recorded at cost, then our proportional share of the underlying net income or loss is recorded as equity in net loss from equity method investments in our statement of operations, with a corresponding increase or decrease to the carrying value of the investment. Distributions received from the investee reduce our carrying value of the investment and are recorded in the consolidated statements of cash flows using the cumulative earnings approach. These investments are evaluated for impairment if events or circumstances arise that indicate that the carrying amount of such assets may not be recoverable. There were indicators of impairment related to our equity method investments for the year ended December 31, 2021. During the year ended December 31, 2021, the Company recorded an impairment charge of $487,365 for investments. Commitments and Contingencies The Company follows subtopic 450-20 of the FASB 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 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 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 Derivative Liability
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 The Company utilizes a Monte Carlo simulation model for the make whole feature and a binomial option model for convertible notes that have an option to convert at a variable number of shares to compute the fair value of the derivative and to mark to market the fair value of the derivative at each balance sheet date. The inputs utilized in the application of the Monte Carlo model included a starting stock price, an expected term of each debenture remaining from the valuation date to maturity, an estimated volatility, drift, and a risk-free rate. The inputs utilized in the application of the Binomial model included a stock price on valuation date, an expected term of each debenture remaining from the valuation date to maturity, an estimated volatility, and a risk-free rate. The Company records the change in the fair value of the derivative as other income or expense in the consolidated statements of operations. Shipping and Handling Costs The Company classifies freight billed to customers as sales revenue and the related freight costs as cost or revenue. Revenue Recognition Under Topic 606, revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. We determine revenue recognition through the following steps:
Revenue disaggregated by revenue source for the years ended December 31,
The Company utilizes the output method to measures the results achieved and value transferred to a customer over time. Timing of revenue recognition for the years ended December 31, 2021 and 2020 consists of the following:
Agency Revenue Managed Services The Company provides Studio/Agency Service offerings to business-to-business (B2B) and business-to-consumer (B2C) product and service brands which encompasses a full range of digital marketing and e-commerce solutions. The Company’s services include the setup and ongoing management of clients’ websites, Amazon and Shopify storefronts and listings, social media pages, search engine marketing, and other various tools and sales channels utilized by e-commerce sellers for sales and growth optimization. Contracts are broken into three categories: Partners, Monthly Services, and Projects. Contract amounts for Partner and Monthly Services clients range from approximately $500-$7,500 per month while Project amounts vary depending on the scope of work. Partner and Monthly clients are billed monthly for the work completed within that month. Partner Clients may or may not have an additional billing component referred to as Sales Performance Fee, which is a fee based upon a previously agreed upon percentage point of the client’s total sales for the month. Some Partners may also have projects within their contracts that get billed and recognized as agreed upon project milestones are achieved. Revenue is recognized over time as service obligations and milestones in the contract are met. Branded Content Branded content represents the revenue recognized from the Company’s obligation to create and publish branded articles and/or branded challenges for clients on the Vocal platform and promote said stories, tracking engagement for the client. Below are the significant components of a typical agreement pertaining to branded content revenue:
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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 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:
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 for payments made for earnings through reads, by establishing the lifetime a subscriber has had a Vocal account, determining the percentage of that lifetime that the subscriber has been a paying customer, and applying that percentage to payments for earnings through reads in the relevant reporting period. Affiliate Sales Revenue Affiliate sales represents the commission the Company receives when a purchase is made through affiliate links placed within content hosted on the Vocal platform. Affiliate revenue is earned on a “click through” basis, upon referring visitors, via said links, to an affiliate’s site and having them complete a specific outcome, most commonly a product purchase. The Company uses multiple affiliate platforms, such as Skimlinks, Amazon, and Tune, to form and maintain thousands of vendor relationships. Each vendor establishes their own commission percentage, which typically range from 2-20%. The revenue is recognized upon receipt as reliable estimates could not be made. E-Commerce Revenue
. The Company Deferred Revenue Deferred revenue consists of billings and payments from clients in advance of revenue recognition. The Company has two types of deferred revenue, subscription revenue whereas the revenue is recognized over the subscription period and contract liabilities where the performance obligation was not satisfied. The Company will recognize the deferred revenue over the next year. As of December 31, Accounts Receivable and Allowances Accounts receivable are recorded and carried when the Company 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 December 31, 2021 and 2020, the Company has no valuation allowance. Stock-Based Compensation The Company recognizes compensation expense for all equity–based payments granted in accordance with 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 The fair value of an option award is estimated on the date of grant using the Black–Scholes option valuation model. The Black–Scholes option valuation model requires the development of assumptions that are inputs into the model. These assumptions are the value of the underlying share, the expected stock volatility, the risk–free interest rate, the expected life of the option, the dividend yield on the underlying stock and the expected forfeiture rate. Expected volatility is 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. Income Taxes Income taxes are provided in accordance with ASC No. 740, “Accounting for Income Taxes”. A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss carryforwards. Deferred tax expense (benefit) results from the net change during the period of deferred tax assets and liabilities. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary. During the year ended December 31, Loss Per Share Basic net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net loss per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. In periods when losses are reported, which is the case for the years ended December 31, The Company had the following common stock equivalents at December 31,
Reclassifications
Certain prior year amounts in the consolidated financial statements and the notes thereto have been reclassified where necessary to conform to the current Recently Adopted Accounting Guidance In
Recent Accounting Guidance Not Yet Adopted In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments (“ASU-2016-13”). ASU 2016-13 affects loans, debt securities, trade receivables, and any other financial assets that have the contractual right to receive cash. The ASU requires an entity to recognize expected credit losses rather than incurred losses for financial assets. ASU 2016-13 is effective for the fiscal year beginning after December 15, 2022, including interim periods within that fiscal year. The Company is currently evaluating the impact of the In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity’s own equity, and also improves and amends the related EPS guidance for both Subtopics. The ASU will be effective for annual reporting periods after December 15, 2021, and interim periods within those annual periods and early adoption is permitted. The Company is currently evaluating the impact of the new In 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 do 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 In
Management does not believe that any recently issued, but not yet effective accounting pronouncements, when adopted, will have a material effect on the accompanying consolidated financial statements. Note 3 – Going Concern The Company’s 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 consolidated financial statements, as of December 31, 2021, the Company had an accumulated deficit 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 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 –
Note 5 – Property and Equipment Property and equipment stated at cost, less accumulated depreciation and amortization, consisted of the following:
Depreciation expense was $49,254 and $31,094 for the year ended December 31, 2021 and 2020, respectively. Note 6 – Equity investments, at cost The Company has elected to measure its equity securities without a readily determinable fair value at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. An election to measure an equity security in accordance with this paragraph shall be made for each investment separately. The Company performed a qualitative assessment considering impairment indicators to evaluate whether these investments were impaired. Impairment indicators that the Company considered included the following: a) a significant deterioration in the earnings performance, credit rating, asset quality or business prospects of the investee; b) a significant adverse change in the regulatory, economic or technology environment of the investee; c) a significant adverse change in the general market condition of either the geographical area or the industry in which the investee operates; d) a bona fide offer to purchase or an offer by the investee to sell the investment; e) factors that raise significant concerns about the investee’s ability to continue as a going concern.
On October 2, 2020, the Company converted $102,096 of its marketable debt security into 119,355 shares of preferred stock or a 1.3% equity investment in a private company. During the year ended December 31, On October 23, 2020, the Company entered into an equity interest purchase agreement whereas the Company purchased 3.8% ownership of
On February 17, 2021, the Company entered into a membership interest purchase agreement whereas the Company purchased another 3.3% ownership of a private On May 21, 2021, the Company entered into
Note During the year ended December 31, 50.41%. During the year ended December 31, Note 8 – Notes Payable Notes payable as of
Seller’s Choice Note On September 11, 2019, the Company entered into Seller’s Choice Purchase Agreement with Home Revolution
During the year ended December 31, On March 3, 2022, the Company settled the Seller’s Choice Note for a cash payment of $799,000. The First March 2020 Loan Agreement On March 23, 2020, the Company entered into a loan agreement (the “First March 2020 Loan Agreement”) with an individual (the “First March 2020 Lender”) whereby the First March 2020 Lender issued the Company a promissory note of $11,000 (the “First March 2020 Note”). Pursuant to the First March 2020 Loan Agreement, the First March 2020 Note has an effective interest rate of 25%. The maturity date of the First March 2020 Note was September 23, 2020 (the “First March 2020 Maturity Date”), at which time all outstanding principal, accrued and unpaid interest and other amounts due under the First March 2020 Note were due. During the year ended December 31, 2020, the Company repaid The Second March 2020 Loan Agreement On March 26, 2020, the Company entered into a loan agreement (the “Second March 2020 Loan Agreement”) with an individual (the “Second March 2020 Lender”), whereby the Second March 2020 Lender issued the Company a promissory note of $17,000 (the “Second March 2020 Note”). Pursuant to the Second March 2020 Loan Agreement, the Second March 2020 Note has an effective interest rate of 19%. The maturity date of the Second March 2020 Note was September 17, 2020 (the “Second March 2020 Maturity Date”), at which time all outstanding principal, accrued and unpaid interest and other amounts due under the Second March 2020 Note were due. During the year ended December 31, 2020, the Company repaid $17,000 in principal and $1,398 in interest. 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 year ended December 31, 2021, the Company accrued interest of $1,637. During the year ended December 31, 2021, the Company repaid $83,855 in principal. The Company is in the process of returning the funds received from the Loan. When the applications for PPP first opened up, there was limited available funding and much confusion surrounding the application process. The Company initially submitted its application for the May 2020 PPP Loan in early April but received no response in the aftermath of submitting the application. After consulting multiple advisors, the Company made the decision to apply elsewhere, due to the rampant media coverage of institutions running out of funding and the Company’s need for the capital and belief that if 2 separate loans were approved, the remaining application could simply be withdrawn. Therefore, in late April, the company proceeded with applying for the April 2020 PPP Loan. After some conflicting communications regarding acceptance, the Company attempted to contact the lender to clarify but got no response. After continued attempts to follow up with both lenders, the Company received approval for the May 2020 PPP Loan and funding for the April 2020 PPP Loan on the same day, followed the next day by the funding of the May 2020 PPP Loan. The Company immediately separated the funds for the April 2020 PPP Loan into a separate reserved bank account with the intention of returning the funds. However, after several attempts to contact the lender with no response, the Company was faced with difficulty raising funds in the early-Covid economy and made the decision to utilize the funds for operations and pursue an installment repayment plan when they were able to reach the lender. As of the date of this filing, the Company has begun making repayments on the loan, absent a formal installment agreement due to difficulties reaching the lender. As each company is only permitted one loan under the CARES Act, there is a possibility the loan may be called by the SBA and the Company would have to repay the loan in full at such time. The May 2020 PPP Loan Agreement On May 4, 2020, Jerrick Ventures, LLC (“Jerrick Ventures”), the Company’s wholly-owned subsidiary, was granted a loan from PNC Bank, N.A. with a principal amount of $412,500, pursuant to the Paycheck Protection Program (the “PPP”). The Loan, which was in the form of a Note dated May 4, 2020, matures on May 4, 2022, and bears interest at a fixed rate of 1.00% per annum, payable monthly commencing on November 4, 2020. The Note may be prepaid by Jerrick Ventures at any time prior to maturity without payment of any premium. Funds from the Loan may only be used to retain workers and maintain payroll or make mortgage payments, lease payments and utility payments. Jerrick Ventures intends to use the entire Loan amount for qualifying expenses. Under the terms of the PPP, certain amounts of the Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act. During the year ended December 31, 2021, the Company accrued interest of $396. During the year ended December 31, 2021, the Company repaid $136,597 in principal and was forgiven $275,903 of principal and $3,119 of accrued interest. The June 2020 Loan Agreement On June 30, 2020, the Company entered into a loan agreement (the “June 2020 Loan Agreement”) with a banking institution (the “June 2020 Lender”), whereby the June 2020 Lender issued the Company a promissory note of A$510,649 Australian dollar (“AUD”) or $351,692 United States Dollar (the “June 2020 Note”). Pursuant to the June 2020 Loan Agreement, the June 2020 Note has an effective interest rate of 15%. The maturity date of the June 2020 Note was July 31, 2020 (the “June 2020 Maturity Date”) at which time all outstanding principal, accrued and unpaid interest and other amounts due under the June 2020 Note were due in AUD currency. This loan was secured by the Australian research & development credit. During the year ended December 31, 2020 the Company repaid A$510,649 in principal and A$14,814 in interest. The October 2020 Loan Agreement On October 6, 2020, the Company entered into a secured loan agreement (the “October 2020 Loan Agreement”) with a lender (the “October 2020 Lender”), whereby the October 2020 Lender issued the Company a secured promissory note of $74,300 AUD or $54,412 United States Dollars (the “October 2020 Note”). Pursuant to the October 2020 Loan Agreement, the October 2020 Note has an effective interest rate of 14%. The maturity date of the October 2020 Note is September 30, 2021 (the “October 2020 Maturity Date”) at which time all outstanding principal, accrued and unpaid interest and other amounts due under the October 2020 Loan Agreement are due. The loan is secured by the Australian research & development credit. During the year ended December 31, 2021, the Company accrued $4,850 AUD in interest. During the year ended December 31, 2021, the Company’s repaid $111,683 in principal and $6,408 in interest
The November 2020 Loan Agreement On November 24, 2020, the Company entered into a loan agreement (the “November 2020 Loan Agreement”) with a lender (the “November 2020 Lender”) whereby the November 2020 Lender issued the Company a promissory note of $34,000 (the “November 2020 Note”). Pursuant to the November 2020 Loan Agreement, the November 2020 Note During the year ended December 31, 2020, the Company repaid $10,284 in principal. During the year ended December 31, 2021, the Company repaid $23,716 in principal and $4,736 of accrued interest. The February 2021 Loan Agreement On February 24, 2021, the Company entered into a secured loan agreement (the “February 2021 Loan Agreement”) with a lender (the “February 2021 Lender”), whereby the February 2021 Lender issued the Company a secured promissory note of $111,683 AUD or $81,789 United States Dollars (the “February 2021 Note”). Pursuant to the February 2021 Loan Agreement, the February 2021 Note has an effective interest rate of 14%. The maturity date of the February 2021 Note is July 31, 2021 (the “February 2021 Maturity Date”) at which time all outstanding principal, accrued and unpaid interest and other amounts due under the February 2021 Loan Agreement are due. The loan is secured by the Australian research & development credit. During the year ended December 31, 2021, the Company accrued $9,339 AUD in interest. The April 2021 Loan Agreement On April 9, 2021, the Company entered into a loan agreement (the “April 2021 Loan Agreement”) with a lender (the “April 2021 Lender”) whereby the April 2021 Lender issued the Company a promissory note of $128,110 (the “April 2021 Note”). Pursuant to the April 2021 Loan Agreement, the April 2021 Note has an effective interest rate of 11%. The maturity date of the April 2021 Note is October 8, 2022 (the “April 2021 Maturity Date”), at which time all outstanding principal, accrued and unpaid interest and other amounts due under the April 2021 Note are due. During the year ended December 31, 2021, the Company repaid $92,140 in principal and converted $35,970 into the July 2021 Loan Agreement. As part of the conversion the Company recorded $8,341 as extinguishment expense. The July 2021 Loan Agreement On July 2, 2021, the Company entered into a loan agreement (the “July 2021 Loan Agreement”) with a lender (the “July 2021 Lender”) whereby the July 2021 Lender issued the Company a promissory note of $137,625 (the “July 2021 Note”). Pursuant to the July 2021 Loan Agreement, the July 2021 Note has an effective interest rate of 10%. The maturity date of the July 2021 Note is December 31, 2022 (the “July 2021 Maturity Date”), at which time all outstanding principal, accrued and unpaid interest and other amounts due under the July 2021 Note are due. During the year ended December 31, 2021, the Company repaid $113,606 in principal and converted $24,019 into the Second December 2021 Loan. As part of the conversion the Company recorded $7,109 as extinguishment expense. 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 year ended December 31, 2021, the Company repaid $6,320 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 year ended December 31, 2021, the Company accrued $2,857 AUD in interest. Note 9 – Convertible Convertible notes payable as of December 31,
The February 2018 Convertible Note Offering
During the three months ended March 31, 2018, the Company conducted multiple closings of a private placement offering to accredited investors (the “February 2018 Convertible Note Offering”) of units of the Company’s securities by entering into subscription agreements with “accredited investors” (the “February 2018 Investors”) for aggregate gross proceeds of $725,000. In addition, $250,000 of the Company’s short-term debt along with accrued but unpaid interest of $40,675 was exchanged for convertible debt in the February 2018 Offering. These conversions resulted in the issuance of
The February 2018 Convertible Note Offering consisted of a maximum of $750,000 of units of the Company’s securities (each, a “February 2018 Unit” and collectively, the “February 2018 Units”), with each February 2018 Unit consisting of (a) a 15% Convertible Secured Promissory Note (each a “February 2018 Convertible Note” and together the “February 2018 Convertible Notes”), convertible into shares of the Company’s common stock, par value $.001 per share (“February 2018 Conversion Shares”) at a conversion price of The February 2018 Note Conversion Price and the February 2018 Offering Warrant Exercise Price are subject to adjustment for issuances of the Company’s common stock or any equity linked instruments or securities convertible into the Company’s common stock at a purchase price of less than the prevailing Conversion Price or Exercise Price. Such adjustment shall result in the Conversion Price and Exercise Price being reduced to such lower purchase price, subject to carve-outs as described therein.
The conversion feature of the February 2018 Convertible Note Offering provides for an effective conversion price that is below market value on the date of issuance. Such feature is normally characterized as a beneficial conversion feature (“BCF”). When the Company records a BCF the relative fair value of the BCF is recorded as a debt discount against the face amount of the respective debt instrument. The Company recorded a BCF and related debt discount of $37,350, the discount is being accreted over the life of the first Debenture to accretion of debt discount and issuance cost.
The Company recorded a $316,875 debt discount relating to
In connection with the February 2018 Convertible Note Offering, the Company retained a placement agent (the “Placement Agent”), to carry out the Offering on a “best-efforts” basis. For services in its capacity as Placement Agent, the Company has paid the Placement Agent a cash fee of $94,250 and issued to the Placement Agent shares of the Company’s common stock equal to ten percent (10%) of the Conversion Shares underlying the February 2018 Convertible Notes or
During the year ended December 31, 2018, the Company converted $940,675 of principal and $86,544 of unpaid interest into the August 2018 Equity
During the year ended December 31, 2019 the
During the year ended December 31, 2020 the Company repaid $75,000 in principal and $781 in interest, and the February 2018 Convertible Notes are no longer outstanding. The March 2018 Convertible Note Offering
During the three months ended March 31, 2018, the Company conducted multiple closings of a private placement offering to accredited investors (the “March 2018 Convertible Note Offering”) of units of the Company’s securities by entering into subscription agreements with “accredited investors” (the “March 2018 Investors”) for aggregate gross proceeds of $770,000. In addition, $50,000 of the Company’s short-term debt, $767 accrued but unpaid interest and $140,600 of the Company’s vendor liabilities was exchanged for convertible debt within the March 2018 Convertible Note Offering. These conversions resulted in the issuance of
The March 2018 Convertible Note Offering consisted of a maximum of $900,000, with an over-allotment option of an additional $300,000 of units of the Company’s securities (each, a “March 2018 Unit” and collectively, the “March 2018 Units”), with each March 2018 Unit consisting of (a) a 14% Convertible Secured Promissory Note (each a “March 2018 Note” and together the “March 2018 Notes”), convertible into shares of the Company’s common stock, par value $.001 per share (“Conversion Shares”) at a conversion price of
The Conversion Price of the March 2018 Note and the Exercise Price of the Warrants are subject to adjustment for issuances of the Company’s common stock or any equity linked instruments or securities convertible into the Company’s common stock at a purchase price of less than the prevailing Conversion Price or Exercise Price. Such adjustment shall result in the Conversion Price and Exercise Price being reduced to such lower purchase price, subject to carve-outs as described therein.
The Company recorded a $254,788 debt discount relating to
During the year ended December 31, 2018, the Company converted $886,367 of principal and $51,293 of unpaid interest pursuant to the August 2018 Equity
During the year ended December 31, 2020, the Company converted $50,000 of principal and $17,949 of unpaid interest into the September 2020 Equity Raise. During the year ended December 31, 2020, the Company repaid $25,000 in principal and $9,364 in interest. The February 2019 Convertible Note Offering
During the The February 2019 Convertible Note Offering consisted of (a) a 10% Convertible Promissory Note (each a “February 2019 Note” and together, the “February 2019 Notes”), convertible into shares of the Company’s common stock, par value $.001 per share (“Conversion Shares”) at the lesser of (i) a fixed conversion price equal to
The February 2019 Notes mature on the first (1st) anniversary of their issuance dates. In the event that the Offering’s Purchasers do not choose to convert the Notes into the Common Stock on or prior to the Maturity Dates, the principal and interest evidenced by the Note shall be mandatorily converted upon the earlier of (i) the listing of the Common Stock onto a national securities exchange, or (ii) upon a Qualified Offering.
The Conversion Price of the February 2019 Note and the Exercise Price of the Warrants are subject to adjustment for issuances of the Company’s common stock or any equity linked instruments or securities convertible into the Company’s common stock at a purchase price of less than the prevailing Conversion Price or Exercise Price. Such adjustment shall result in the Conversion Price and Exercise Price being reduced to such lower purchase price, subject to carve-outs as described therein.
The Company recorded a $222,632 debt discount relating to
During the year ended December 31,
During the year ended December 31,
The November 2019 Convertible Note Offering
During the year ended December 31, 2019, the Company conducted an offering to accredited investors (the “November 2019 Convertible Note Offering”) of units of the Company’s securities by entering into subscription agreements with “accredited investors” (the “November 2019 Investors”) for aggregate gross proceeds of $479,500. In addition, the Company converted $318,678 in Accounts Payable into this offering.
The November 2019 Convertible Note Offering consisted of (a) a 10% Convertible Promissory Note (each a “November 2019 Note” and together, the “November 2019 Notes”), convertible into shares of the Company’s common stock, par value $.001 per share (“Conversion Shares”) at a fixed conversion price equal to
The November 2019 Notes mature six months after the anniversary of their issuance dates. At any time on or after the
The Company recorded a $84,377 debt discount relating to an original issue discount equal to $79,933 and a beneficial conversion feature of $4,444. The debt discount is being accreted over the life of the note to accretion of debt discount and issuance cost.
During the year ended December 31, 2020, the Company converted $559,433 of principal and $77,785 of unpaid interest into the September 2020 Equity Raise. The January 2020 Convertible Note Offering During the three months ended March 31, 2020, the Company conducted an offering to accredited investors (the “January 2020 Convertible Note Offering”) of units of the Company’s securities by entering into subscription agreements with “accredited investors” (the “January 2020 Investors”) for aggregate gross proceeds of $87,473. The January 2020 Convertible Note Offering consisted of (a) a 12% Convertible Promissory Note (each a “January 2020 Note” and together, the “January 2020 Notes”), convertible into shares of the Company’s common stock, par value $.001 per share (“Conversion Shares”) at the lesser of (i) a fixed conversion price equal to $13.50 per share or (ii) the price provided to investors in connection with (a) any private placement offerings or one or more registered public offerings by the Company under the Securities Act, pursuant to which the Company receives monies in the amount greater than $1,500,000 in exchange for securities of the Company, or (b) any private placement offerings or one or more registered public offerings by the Company under the Securities Act in connection with its listing onto a national securities exchange (a “Qualified Offering”). The January 2020 Notes mature on the first (6th) month anniversary of their issuance dates. If an event of default occurs and is not cured within 30 days of the Company receiving notice, the notes will be convertible at 80% multiplied by the lowest VWAP of the common stock during the five (5) consecutive trading day period immediately preceding the date of the respective conversion, and a default interest rate of 24% will become effective. The Conversion Price of the January 2020 Note are subject to adjustment for issuances of the Company’s common stock or any equity linked instruments or securities convertible into the Company’s common stock at a purchase price of less than the prevailing Conversion Price or Exercise Price. Such adjustment shall result in the Conversion Price being reduced to such lower purchase price, subject to carve-outs as described therein. The Company recorded a $12,473 debt discount relating to original issue discount associated with these notes. The debt discount is being accreted over the life of the note to accretion of debt discount and issuance cost. During the year ended December 31, 2020, the Company converted $87,473 of principal and $8,275 of unpaid interest into the September 2020 Equity Raise. The First February 2020 Convertible Loan Agreement On February 4, 2020, the Company entered into a loan agreement (the “First February 2020 Loan Agreement”) with an individual (the “First February 2020 Lender”), whereby the First February 2020 Lender issued the Company a promissory note of $85,000 (the “First February 2020 Note”). Pursuant to the First February 2020 Loan Agreement, the First February 2020 Note has interest of ten percent (10%). The First February 2020 Note are convertible into shares of the Company’s common stock, par value $.001 per share (“Conversion Shares”) at the lesser of (i) a fixed conversion price equal to $12.00 per share or (ii) the price provided to investors in connection with (a) any private placement offerings or one or more registered public offerings by the Company under the Securities Act, pursuant to which the Company receives monies in the amount greater than $1,500,000 in exchange for securities of the Company, or (b) any private placement offerings or one or more registered public offerings by the Company under the Securities Act in connection with its listing onto a national securities exchange (a “Qualified Offering”). The First February 2020 Notes mature on the first (6th) month anniversary of their issuance dates. In the event that the Offering’s Purchasers do not choose to convert the Notes into the Common Stock on or prior to the Maturity Dates and the Notes have not been repaid or an event of default occurs as defined in the Notes, the notes will be convertible at the lesser of the fixed conversion price or 65% multiplied by the lowest trade of the common stock during the twenty (20) consecutive trading day period immediately preceding the date of the respective conversion and a default interest rate of 15% will be applied. The Conversion Price of the First February 2020 Note are subject to adjustment for issuances of the Company’s common stock or any equity linked instruments or securities convertible into the Company’s common stock at a purchase price of less than the prevailing Conversion Price or Exercise Price. Such adjustment shall result in the Conversion Price being reduced to such lower purchase price, subject to carve-outs as described therein. The Company recorded a $8,000 debt discount relating to original issue discount associated with these notes. The debt discount is being accreted over the life of the note to accretion of debt discount and issuance cost. During the year ended December 31, 2020, the Company repaid $158,065 in principal and $0 in interest. The Second February 2020 Convertible Loan Agreement On February 11, 2020, the Company entered into a loan agreement (the “Second February 2020 Loan Agreement”) with an individual (the “Second February 2020 Lender”), whereby the Second February 2020 Lender issued the Company a promissory note of $200,000 (the “Second February 2020 Note”). Pursuant to the Second February 2020 Loan Agreement, the Second February 2020 Note has interest of twelve percent (12%). As additional consideration for entering in the Second February 2020 convertible Loan Agreement, the Company issued a five-year warrant to purchase 6,666 shares of the Company’s common stock at a purchase price of $15.00 per share. The Second February 2020 Note is convertible into shares of the Company’s common stock, par value $.001 per share (“Conversion Shares”) at the lesser of (i) a fixed conversion price equal to $13.50 per share or (ii) the price provided to investors in connection with (a) any private placement offerings or one or more registered public offerings by the Company under the Securities Act, pursuant to which the Company receives monies in the amount greater than $1,500,000 in exchange for securities of the Company, or (b) any private placement offerings or one or more registered public offerings by the Company under the Securities Act in connection with its listing onto a national securities exchange (a “Qualified Offering”). The Second February 2020 Note matures on the first (12th) month anniversary of its issuance date. In the event that the Offering’s Purchasers do not choose to convert the Notes into the Common Stock on or prior to the Maturity Date and the Note is unpaid, the note will be convertible at the lesser of the fixed conversion price or 75% multiplied by the lowest trade of the common stock during the twenty (20) consecutive trading day period immediately preceding the date of the respective conversion. The Conversion Price of the First February 2020 Note is subject to adjustment for issuances of the Company’s common stock or any equity linked instruments or securities convertible into the Company’s common stock at a purchase price of less than the prevailing Conversion Price or Exercise Price. Such adjustment shall result in the Conversion Price being reduced to such lower purchase price, subject to carve-outs as described therein. The Company recorded a $33,340 debt discount relating to original issue discount associated with this note. The debt discount is being accreted over the life of the note to accretion of debt discount and issuance cost. During the year ended December 31, 2020, the Company converted $125,000 of principal and $0 of unpaid interest into the September 2020 Equity Raise. The Company recorded a Loss on extinguishment of debt of $136,115. During the year ended December 31, 2020, the Company repaid $175,000 in principal and $0 in interest. The Third February 2020 Convertible Loan Agreement On February 25, 2020, the Company entered into a loan agreement (the “Third February 2020 Loan Agreement”) with an individual (the “Third February 2020 Lender”), whereby the Third February 2020 Lender issued the Company a promissory note of $1,500,000 (the “Third February 2020 Note”). The Company received proceeds of $864,950 and converted notes payable of $385,000 in exchange for the note (see Note 5). Pursuant to the Third February 2020 Loan Agreement, the Second February 2020 Note has interest of twelve percent (12%). The Third February 2020 Note is convertible into shares of the Company’s common stock, par value $.001 per share (“Conversion Shares”) at the lesser of (i) a fixed conversion price equal to $4.50 per share or (ii) the price provided to investors in connection with (a) any private placement offerings or one or more registered public offerings by the Company under the Securities Act, pursuant to which the Company receives monies in the amount greater than $1,500,000 in exchange for securities of the Company, or (b) any private placement offerings or one or more registered public offerings by the Company under the Securities Act in connection with its listing onto a national securities exchange (a “Qualified Offering”). The Third February 2020 Note matures on the first (12th) month anniversary of their issuance dates. In the event that the Offering’s Purchasers do not choose to convert the Notes into the Common Stock on or prior to the Maturity Dates and the note is unpaid, the notes will be convertible at the lower of the fixed conversion price or 75% multiplied by the lowest trade of the common stock during the twenty (20) consecutive trading day period immediately preceding the date of the respective conversion. The Conversion Price of the Third February 2020 Note are subject to adjustment for issuances of the Company’s common stock or any equity linked instruments or securities convertible into the Company’s common stock at a purchase price of less than the prevailing Conversion Price or Exercise Price. Such adjustment shall result in the Conversion Price being reduced to such lower purchase price, subject to carve-outs as described therein. In accordance with ASC 470-50, since the present value of the cash flows under the new debt instrument was at least ten percent different from the present value of the remaining cash flows under the terms of the original debt instrument, the Company accounted for the note exchange as described above as a debt extinguishment. The Company recorded a loss on debt extinguishment of $535,041. This represents the fair value of the warrants issued $445,705 and a debt premium of $89,336. The note has an effective interest rate of 24%. The Company recorded a debt discount of $160,714. This is made up of an original issue discount of $250,050 less a debt premium of $89,336. During the year ended December 31, 2020, the Company converted $1,500,000 of principal and $100,603 of unpaid interest into the September 2020 Equity Raise. The April 2020 Convertible Note Offering During April of 2020, the Company conducted multiple closings of a private placement offering to accredited investors (the “April 2020 Convertible Note Offering”) of units of the Company’s securities by entering into subscription agreements with “accredited investors” (the “April 2020 Investors”) for aggregate gross proceeds of $350,010. The April 2020 Convertible Note Offering accrues interest at a rate of twelve percent per annum (12%). The April 2020 Convertible Note Offering mature on the six (6th) month anniversary of their issuance dates. The April 2020 Note is convertible into shares of the Company’s common stock, par value $.001 per share (“Conversion Shares”) at the lesser of (i) a fixed conversion price equal to $13.50 per share after the maturity date or (ii) any private placement offerings or one or more registered public offerings by the Company under the Securities Act in connection with its listing onto a national securities exchange (a “Qualified Offering”). The Company recorded a $50,010 debt discount relating to original issue discount associated with these notes. The debt discount is being accreted over the life of the note to accretion of debt discount and issuance cost. During the year ended December 31, 2020, the Company converted $350,010 of principal and $16,916 of unpaid interest into the September 2020 Equity Raise. The June 2020 Convertible Loan Agreement On June 19, 2020, the Company entered into a loan agreement (the “June 2020Loan Agreement”) with an individual (the “June 2020 Lender”), whereby the June 2020 Lender issued the Company a promissory note of $550,000 (the “June 2020 Note”). Pursuant to the June 2020 Loan Agreement, the June 2020 Note has interest of twelve percent (12%). As additional consideration for entering in the June 2020 convertible Loan Agreement, the Company issued a five-year warrant to purchase 49,603 shares of the Company’s common stock at a purchase price of $11.55 per share. The June 2020 Note matures on the first (12th) month anniversary of its issuance date. Upon default the June 2020 Note is convertible into shares of the Company’s common stock, par value $.001 per share (“Conversion Shares”) equal to the closing bid price of the Company’s common stock on the trading day immediately preceding the date of the respective conversion. The Company recorded a $67,500 debt discount relating to original issue discount associated with this note. The Company recorded a $274,578 debt discount relating to 49,603 warrants and 5,424 shares issued to investors based on the relative fair value of each equity instrument on the dates of issuance. The debt discount is being accreted over the life of the note to accretion of debt discount and issuance cost. During the year ended December 31, 2020, the lender converted $59,200 of principal into the Second July 2020 Convertible Loan Agreement During the year ended December 31, 2020, the Company repaid $490,800 in principal and $16,944 in interest. The First July 2020 Convertible Loan Agreement On July 01, 2020, the Company entered into a loan agreement (the “First July 2020 Loan Agreement”) with an individual (the “First July 2020 Lender”), whereby the First July 2020 Lender issued the Company a promissory note of $68,000 (the “First July 2020 Note”). Pursuant to the First July 2020 Loan Agreement, the First July 2020 Note has interest of ten percent (10%). The First July 2020 Note matures on June 29, 2021. Upon default or 180 days after issuance the First July 2020 Note is convertible into shares of the Company’s common stock, par value $.001 per share (“Conversion Shares”) equal to 61% multiplied by the lowest trade of the common stock during the twenty (15) consecutive trading day period immediately preceding the date of the respective conversion. During the year ended December 31, 2021, the First July 2020 Note became convertible. Due to the fact that these convertible notes have an option to convert at a variable amount, they are subject to derivative liability treatment. The Company has applied ASC 815, due to the potential for settlement in a variable quantity of shares. The conversion feature has been measured at fair value using a Binomial model at the conversion date and the period end. The conversion feature of First July 2020 Note gave rise to a derivative liability of $112,743. The Company recorded $68,000 as a debt discount and $44,743 was recorded to derivative expense. The debt discount is charged to accretion of debt discount over the remaining term of the convertible note. During the year ended December 31, 2021, the Company converted $68,000 in principal and $3,400 in interest into 35,469 shares of the Company’s common stock. The Second July 2020 Convertible Loan Agreement On July 17, 2020, the Company entered into a loan agreement (the “Second July 2020 Loan Agreement”) with an individual (the “Second July 2020 Lender”), whereby the Second July 2020 Lender issued the Company a promissory note of $250,000 (the “Second July 2020 Note”). Pursuant to the Second July 2020 Loan Agreement, the Second July 2020 Note has interest of twelve percent (12%). The Second July 2020 Note matures on July 17, 2021. Upon default the Second July 2020 Note is convertible into shares of the Company’s common stock, par value $.001 per share (“Conversion Shares”) equal to the closing bid price of the Company’s common stock on the trading day immediately preceding the date of the respective conversion. The Company recorded a $46,750 debt discount relating to original issue discount associated with this note. The Company recorded a $71,329 debt discount relating to 6,667 warrants issued to investors based on the relative fair value of each equity instrument on the dates of issuance. The debt discount is being accreted over the life of the note to accretion of debt discount and issuance cost. During the year ended December 31, 2020, the Company repaid $250,000 in principal and $0 in interest. The July 2020 Convertible Note Offering From July 2020 to September 2020, the Company conducted multiple closings of a private placement offering to accredited investors (the “July 2020 Convertible Note Offering”) of units of the Company’s securities by entering into subscription agreements with “accredited investors” (the “July 2020 Investors”) for aggregate gross proceeds of $390,000. The July 2020 Convertible Note Offering accrues interest at a rate of twelve percent per annum (12%). The July 2020 Convertible Note Offering mature on the six (6th) month anniversary of their issuance dates. The July 2020 Note Offering is convertible into shares of the Company’s common stock, par value $.001 per share (“Conversion Shares”) at the lesser of (i) a fixed conversion price equal to $12.75 per share after the maturity date or (ii) any private placement offerings or one or more registered public offerings by the Company under the Securities Act in connection with its listing onto a national securities exchange (a “Qualified Offering”). Upon default the July 2020 Convertible Note Offering is convertible into shares of the Company’s common stock, par value $.001 per share (“Conversion Shares”) equal to 61% multiplied by the lowest trade of the common stock during the twenty (15) consecutive trading day period immediately preceding the date of the respective conversion. The conversion feature of the July 2020 Convertible Note Offering provides for an effective conversion price that is below market value on the date of issuance. Such feature is normally characterized as a beneficial conversion feature. When the Company records a BCF the relative fair value of the BCF is recorded as a debt discount against the face amount of the respective debt instrument. The Company recorded a BCF and related debt discount of $38,215, the discount is being accreted over the life of the Debenture to accretion of debt discount and issuance cost. The Company recorded a $158,078 debt discount relating to 30,589 July 2020 Convertible Note Offering 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. During the year ended December 31, 2020, the Company converted $390,000 of principal and $3,436 of unpaid interest into the September 2020 Equity Raise. The August 2020 Convertible Loan Agreement On August 17, 2020, the Company entered into a loan agreement (the “August 2020 Loan Agreement”) with an individual (the “August 2020 Lender”), whereby the August 2020 Lender issued the Company a promissory note of $68,000 (the “August 2020 Note”). Pursuant to the August 2020 Loan Agreement, the August 2020 Note has interest of twelve percent (12%). The August 2020 Note matures on August 17, 2021. Upon default or 180 days after issuance the August 2020 Convertible Note is convertible into shares of the Company’s common stock, par value $.001 per share (“Conversion Shares”) equal to 61% multiplied by the lowest trade of the common stock during the twenty (15) consecutive trading day period immediately preceding the date of the respective conversion. The Company recorded a $3,000 debt discount relating to original issue discount associated with this note. The debt discount is being accreted over the life of the note to accretion of debt discount and issuance cost.t During the year ended December 31, 2021, the August 2020 Note became convertible. Due to the fact that these convertible notes have an option to convert at a variable amount, they are subject to derivative liability treatment. The Company has applied ASC 815, due to the potential for settlement in a variable quantity of shares. The conversion feature has been measured at fair value using a Binomial model at the conversion date and the period end. The conversion feature of August 2020 Note gave rise to a derivative liability of $120,759. The Company recorded $65,000 was recorded as a debt discount and $55,759 was recorded to derivative expense. The debt discount is charged to accretion of debt discount over the remaining term of the convertible note. During the year ended December 31, 2021, the Company converted $68,000 in principal and $3,400 in interest into 29,859 shares of the Company’s common stock. The September 2020 Convertible Loan Agreement On September 23, 2020, the Company entered into a loan agreement (the “September 2020 Loan Agreement”) with an individual (the “September 2020 Lender”), whereby the September 2020 Lender issued the Company a promissory note of $385,000 (the “September 2020 Note”). Pursuant to the September 2020 Loan Agreement, the September 2020 Note has interest of twelve percent (12%). The September 2020 Note matures on September 23, 2021. Upon default or 180 days after issuance the Second July 2020 Note is convertible into shares of the Company’s common stock, par value $.001 per share equal to the closing bid price of the Company’s common stock on the trading day immediately preceding the date of the respective conversion. The Company recorded a $68,255 debt discount relating to original issue discount associated with this note. The Company recorded a $146,393 debt discount relating to 85,555 warrants issued to investors based on the relative fair value of each equity instrument on the dates of issuance. The debt discount is being accreted over the life of the note to accretion of debt discount and issuance cost. During the year ended December 31, 2021, the Company repaid $341,880 in principal and $46,200 in interest. The October 2020 Convertible Loan Agreement On October 2, 2020, the Company entered into a loan agreement (the “October 2020 Loan Agreement”) with an individual (the “October 2020 Lender”), whereby the October 2020 Lender issued the Company a promissory note of $169,400 (the “October 2020 Note”). Pursuant to the October 2020 Loan Agreement, the October 2020 Note has interest of six percent (6%). The October 2020 Note matures on the first (12th) month anniversary of its issuance date. Upon default or 180 days after issuance the October 2020 Note is convertible into shares of the Company’s common stock, par value $0.001 per share (“Conversion Shares”) equal to 75% of average the lowest three trading prices of the Company’s common stock on the fifteen-trading day immediately preceding the date of the respective conversion. The Company recorded a $19,400 debt discount relating to original issue discount associated with this note. The debt discount is being accreted over the life of the note to accretion of debt discount and issuance cost. During the year ended December 31, 2021, the Second July 2020 Note became convertible. Due to the fact that these convertible notes have an option to convert at a variable amount, they are subject to derivative liability treatment. The Company has applied ASC 815, due to the potential for settlement in a variable quantity of shares. The conversion feature has been measured at fair value using a Binomial model at the conversion date and the period end. The conversion feature of Second July 2020 Note gave rise to a derivative liability of $74,860. The Company recorded this as a debt discount. The debt discount is charged to accretion of debt discount over the remaining term of the convertible note. During the year ended December 31, 2021, the Company converted $169,400 in principal and $4,620 in interest into 55,631 shares of the Company’s common stock. The First December 2020 convertible Loan Agreement On December 9, 2020, the Company entered into a loan agreement (the “First December 2020 Loan Agreement”) with an individual (the “First December 2020 Lender”), whereby the First December 2020 Lender issued the Company a promissory note of $600,000 (the “First December 2020 Note”). Pursuant to the First December 2020 Loan Agreement, the First December 2020 Note has interest of twelve percent (12%). As additional consideration for entering in the First December 2020 convertible Loan Agreement, the Company issued 45,000 shares of the Company’s common stock. The First December 2020 Note matures on the first (12th) month anniversary of its issuance date. Upon default the First December 2020 Note is convertible into shares of the Company’s common stock, par value $.001 per share (“Conversion Shares”) equal to the closing bid price of the Company’s common stock on the trading day immediately preceding the date of the respective conversion. The Company recorded a $110,300 debt discount relating to original issue discount associated with this note. The Company recorded a $113,481 debt discount relating to 45,000 shares issued to investors based on the relative fair value of each equity instrument on the dates of issuance. The debt discount is being accreted over the life of the note to accretion of debt discount and issuance cost. During the year ended December 31, 2021 the Company repaid $600,000 in principal and $4,340 in interest. The Second December 2020 Convertible Loan Agreement On December 30, 2020, the Company entered into a loan agreement (the “Second December 2020 Loan Agreement”) with an individual (the “Second December 2020 Lender”), whereby the Second December 2020 Lender issued the Company a promissory note of $169,400 (the “Second December 2020 Note”). Pursuant to the Second December 2020 Loan Agreement, the Second December 2020 Note has interest of six percent (6%). The Second December 2020 Note matures on the first (12th) month anniversary of its issuance date. Upon default the Second December 2020 Note is convertible into shares of the Company’s common stock, par value $0.001 per share (“Conversion Shares”) equal to 75% of average the lowest three trading prices of the Company’s common stock on the fifteen-trading day immediately preceding the date of the respective conversion. The Company recorded a $18,900 debt discount relating to original issue discount associated with this note. The debt discount is being accreted over the life of the note to accretion of debt discount and issuance cost. During the year ended December 31, 2021, the Second December 2020 Note became convertible. Due to the fact that these convertible notes have an option to convert at a variable amount, they are subject to derivative liability treatment. The Company has applied ASC 815, due to the potential for settlement in a variable quantity of shares. The conversion feature has been measured at fair value using a Binomial model at the conversion date and the period end. The conversion feature of Second December 2020 Note gave rise to a derivative liability of $108,880. The Company recorded this as a debt discount. The debt discount is charged to accretion of debt discount over the remaining term of the convertible note. During the year ended December 31, 2021, the Company converted $168,900 in principal and $4,605 in interest into 74,706 shares of the Company’s common stock. The May 2021 Convertible Note Offering On May 14, 2021, the Company conducted multiple closings of a private placement offering to accredited investors (the “May 2021 Convertible Note Offering”) of units of the Company’s securities by entering into subscription agreements with “accredited investors” (the “May 2021 Investors”) for aggregate gross proceeds of $3,690,491. The May 2021 convertible notes are convertible into shares of the Company’s common stock, par value $.001 per share at a conversion price of $5.00 per share. As additional consideration for entering in the May 2021 Convertible Note Offering, the Company issued 1,090,908 warrants of the Company’s common stock. The May 2021 Convertible Note matures on November 14, 2022. The Company recorded a $1,601,452 debt discount relating to 1,090,908 warrants issued to investors based on the relative fair value of each equity instrument on the dates of issuance. The debt discount is being accreted over the life of these notes to accretion of debt discount and issuance cost. The Company recorded a $666,669 debt discount relating to an original issue discount and $539,509 of debt issuance costs related to fees paid to vendors relating to the offering. The debt discount and debt issuance costs are being accreted over the life of the note to accretion of debt discount and issuance cost. During the year ended December 31, 2021, the Company converted $4,666,669 in principal into 933,334 shares of the Company’s common stock. The July 2021 Convertible Loan Agreement On July 6, 2021, the Company entered into a loan agreement (the “July 2021 Loan Agreement”) with an individual (the “July 2021 Lender”), whereby the July 2021 Lender issued the Company a promissory note of $168,850 (the “July 2021 Note”). Pursuant to the July 2021 Loan Agreement, the July 2021 Note has interest of six percent (6%). The July 2021 Note matures on the first (12th) month anniversary of its issuance date. Upon default or 180 days after issuance the July 2021 Note is convertible into shares of the Company’s common stock, par value $0.001 per share (“Conversion Shares”) equal to 75% of average the lowest three trading prices of the Company’s common stock on the fifteen-trading day immediately preceding the date of the respective conversion. The Company recorded a $15,850 debt discount relating to an original issue discount and $3,000 of debt issuance costs related to fees paid to vendors relating to the offering. The debt discount and debt issuance costs are being accreted over the life of the note to accretion of debt discount and issuance cost. During the year ended December 31, 2021, the Company accrued $4,941 in interest. Note
Note receivable
October 2019 Cacher Loan Agreement
On October 28, 2019, the Company entered into a loan agreement with Cacher Studios LLC (the “October 2019 Cacher Loan Agreement”) whereby Cacher Studios issued the Company a promissory note in the principal amount of $11,450 (the “October 2019 Cacher Note”). The October 2019 Cacher Note has a maturity date of October 28, 2020. Repayment is due from Cacher Studios LLC’s revenues, with 100% of net revenues due to the Company until $2,500 in principal has been repaid, and 50% of net revenues due to the Company thereafter. Cacher Studios LLC is owned and operated by Alexandra Frommer, daughter of Jeremy Frommer, the Company’s CEO.
such assets may not be recoverable. During the year ended December 31,
The March 2018 Convertible Note Offering
During the year ended December 31, 2018, the Company conducted multiple closings of a private placement offering to accredited investors (the “March 2018 Convertible Note Offering”) of units of the Company’s securities by entering into subscription agreements with “accredited investors” (the “Investors”) for aggregate gross proceeds of $239,400.
The March 2018 Convertible Note Offering consisted of a maximum of $900,000, with an over-allotment option of an additional $300,000, of units of the Company’s securities (each, a “March 2018 Unit” and collectively, the “March 2018 Units”), with each March 2018 Unit consisting of (a) a 14% Convertible Secured Promissory Note (each a “March 2018 Note” and together the “March 2018 Notes”), convertible into shares of the Company’s common stock, par value $.001 per share (“Conversion Shares”) at a conversion price of
The Conversion Price of the Note and the Exercise Price of the Warrants are subject to adjustment for issuances of the Company’s common stock or any equity linked instruments or securities convertible into the Company’s common stock at a purchase price of less than the prevailing Conversion Price or Exercise Price. Such adjustment shall result in the Conversion Price and Exercise Price being reduced to such lower purchase price, subject to carve-outs as described therein.
The Company recorded a $84,854 debt discount relating to
During the year ended December 31, 2018, the Company converted $239,000 of principal and $15,401 of unpaid interest into the August 2018 Equity During the year ended December 31, 2020 the lender forgave $400 of principal and $70 of unpaid interest. This was recorded as a gain on settlement of debt on the Consolidated Statements of Comprehensive Income (Loss).
The February 2019 Convertible Note Offering
During the The February 2019 Convertible Note Offering consisted of (a) a 10% Convertible Promissory Note (each a “February 2019 Note” and together, the “February 2019 Notes”), convertible into shares of the Company’s common stock, par value $.001 per share (“Conversion Shares”) at the lesser of (i) a fixed conversion price equal to
The February 2019 Notes mature on the first (1st) anniversary of their issuance dates. In the event that the Offering’s Purchasers do not choose to convert the Notes into the Common Stock on or prior to the Maturity Dates, the principal and interest evidenced by the Note shall be mandatorily converted upon the earlier of (i) the listing of the Common Stock onto a national securities exchange, or (ii) upon a Qualified Offering.
The Company recorded a $2,465 debt discount relating to
During the year ended December 31, 2019, $20,000
The July 2020 Convertible Note Offering From July 2020 to September 2020, the Company conducted multiple closings of a private placement offering to accredited investors (the “July 2020 Convertible Note Offering”) of units of the Company’s securities by entering into subscription agreements with “accredited investors” (the “July 2020 Investors”) for aggregate gross proceeds of $50,000. The July 2020 Convertible Note Offering accrues interest at a rate of twelve percent per annum (12%). The July 2020 Convertible Note Offering mature on the six (6th) month anniversary of their issuance dates. The July 2020 Note Offering is convertible into shares of the Company’s common stock, par value $.001 per share (“Conversion Shares”) at the lesser of (i) a fixed conversion price equal to $12.75 per share after the maturity date or (ii) any private placement offerings or one or more registered public offerings by the Company under the Securities Act in connection with its listing onto a national securities exchange (a “Qualified Offering”). Upon default the July 2020 Convertible Note Offering is convertible into shares of the Company’s common stock, par value $.001 per share (“Conversion Shares”) equal to 61% multiplied by the lowest trade of the common stock during the twenty (15) consecutive trading day period immediately preceding the date of the respective conversion. The conversion feature of the July 2020 Convertible Note Offering provides for an effective conversion price that is below market value on the date of issuance. Such feature is normally characterized as a beneficial conversion feature. When the Company records a BCF the relative fair value of the BCF is recorded as a debt discount against the face amount of the respective debt instrument. The Company recorded a BCF and related debt discount of $9,812, the discount is being accreted over the life of the Debenture to accretion of debt discount and issuance cost. The Company recorded a $21,577 debt discount relating to 3,922 July 2020 Convertible Note Offering 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. During the year ended December 31, 2020, the Company converted $50,000 of principal and $630 of unpaid interest into the September 2020 Equity Raise. Notes payable Notes payable – related party as of December 31,
The June 2018 Frommer Loan Agreement
On June 29, 2018, the Company entered into a loan agreement (the “June 2018 Frommer Loan Agreement”) with Jeremy Frommer, an officer and director of the Company, whereby the Company issued Frommer a promissory note in the principal amount of $10,000 (the “June 2018 Frommer Note”). As additional consideration for entering in the June 2018 Frommer Note Loan Agreement, the Company issued Frommer a four-year warrant to purchase
During the year ended December 31,
The On July 17, 2018, the Company entered into a loan agreement (the “Second July 2018 Schiller Loan Agreement”) with Schiller, a member of the Board, whereby the Company issued Schiller a promissory note in the principal aggregate amount of $25,000 (the “Second July 2018 Schiller Note”). As additional consideration for entering in the Second July 2018 Schiller Loan Agreement, the Company issued Schiller a four-year warrant to purchase
During the year ended December 31, 2019 $4,137 in principal was converted into the February 2019 Convertible Note Offering.
During the year ended December 31,
The June 2019 Loan Agreement
On June 3, 2019, the Company entered into a loan agreement (the “June 2019 Loan Agreement”), pursuant to which the Company was to be indebted in the amount of $2,400,000, of which $1,200,000 was funded by September 30, 2019 and $1,200,000 was exchanged from the May 2016 Rosen Loan Agreement dated May 26, 2016 in favor of Rosen for a joint and several interest in the Term Loan pursuant to the Debt Exchange Agreement. The June 2019 Loan Agreement, the June 2019 Loan bears interest at a rate of 12.5% per annum, compounded annually and payable on the maturity date of December 3, 2019 (the “June 2019 Maturity Date”) at which time all outstanding principal, accrued and unpaid interest and other amounts due under the June 2019. In connection with the conversion of the May 2016 Rosen Loan Agreement the Company recorded a debt discount of $92,752. The debt discount is being accreted over the life of the note to accretion of debt discount and issuance cost.
On July 29, 2019, the Company entered into the First Amendment Agreement to the June 2019 Loan Agreement pursuant to which the parties agreed to amend the June 2019 Loan Agreement and the June 2019 Security Agreement so as to (i) increase the principal aggregate amount of the June 2019 Loan to $2,500,000, and (ii) amend the provisions regarding the ranking of interest of such loan.
On August 12, 2019, the Company entered into the Second Amendment Agreement to the June 2019 Loan Agreement pursuant to which the parties agreed to further amend the June 2019 Loan Agreement and the June 2019 Security Agreement so as to (i) increase the principal aggregate amount of the June 2019 Loan to $3,000,000, and (ii) amend the provisions regarding the ranking of interest of such loan.
On September 16, 2019, the Company entered into the Third Amendment Agreement to the June 2019 Loan Agreement pursuant to which the parties agreed to further amend the June 2019 Loan Agreement and the June 2019 Security Agreement so as to (i) increase the principal amount of the June 2019 Loan to $4,000,000; and (ii) amend the provisions therein with regard to the ranking of security interests.
On October 10, 2019 the Company and investors entered into the Fourth Amendment Agreement to the June 2019 Loan Agreement, whereby the parties thereto agreed to (i) increase the principal amount of the June 2019 Loan to $4,825,000; and (ii) amend the interest, conversion terms, and other covenants of the note.
On February 27, 2020, the Company entered into a fifth amendment agreement to the June 2019 Loan Agreement, whereby the parties agreed to amend Section 2.6 of the June 2019 Loan Agreement and provide for: (i) an additional 10% of shares to be issued at the time of conversion in the event that the price per share (or unit, as applicable) of securities issued in a Qualified Public Offering (as such term is defined in the Fifth Amendment) is below
During year ended December 31, 2020, the Company converted $4,325,000 of principal and $752,346 of unpaid interest into the September 2020 Equity Raise. During the year ended December 31, 2020 the Company repaid $500,000 in principal and $0 in interest. The December 2019 Gravitas Loan Agreement
On December 23, 2019, the Company entered into a loan agreement (the “December 2019 Gravitas Loan Agreement”), whereby the Company issued Gravitas a promissory note in the principal amount of $300,000 (the “December 2019 Gravitas Note”). Pursuant to the December 2019 Gravitas Loan Agreement, the December 2019 Gravitas Note has a flat interest payment of $20,000.
During the
The First January 2020 Loan Agreement On January 3, 2020, the Company entered into a loan agreement (the “First January 2020 Loan Agreement”) with an individual (the “First January 2020 Lender”) whereby the First January 2020 Lender issued the Company a promissory note of $250,000 (the “First January 2020 Note”). Pursuant to the First January 2020 Loan Agreement, the First January 2020 Note has an effective interest rate of 6%. As additional consideration for entering in the First January 2020 Loan Agreement, the Company issued the First January 2020 Lender 1,333 shares of the Company’s common stock. The maturity date of the First January 2020 Note was January 15, 2020 (the “First January 2020 Maturity Date”) at which time all outstanding principal, accrued and unpaid interest and other amounts due under the First January 2020 Note were due. The Company recorded a $16,000 debt discount relating to the 1,333 shares issued to investors based on the relative fair value of each equity instrument on the dates of issuance. The debt discount is being accreted over the life of these notes to accretion of debt discount and issuance cost. During the year ended December 31, 2020, the Company converted $250,000 in principal to the Third February 2020 Note (as defined in Note 8). The Second January 2020 Loan Agreement On January 14, 2020, the Company entered into a loan agreement (the “Second January 2020 Loan Agreement”) with an individual (the “Second January 2020 Lender”), whereby the Second January 2020 Lender issued the Company a promissory note of $10,000 (the “Second January 2020 Note”). Pursuant to the Second January 2020 Loan Agreement, the Second January 2020 Note has an effective interest rate of 5%. The maturity date of the Second January 2020 Note was January 24, 2020 (the “Second January 2020 Maturity Date”), at which time all outstanding principal, accrued and unpaid interest and other amounts due under the Second January 2020 Note were due. As additional consideration for entering in the Second January Loan Agreement, the Company issued a five-year warrant to purchase 50 shares of the Company’s common stock at a purchase price of $18.00 per share. The Company recorded a $580 debt discount relating to 50 warrants issued to investors based on the relative fair value of each equity instrument on the dates of issuance. The debt discount is being accreted over the life of the note to accretion of debt discount and issuance cost. During the year ended December 31, 2020, the Company repaid $10,000 in principal and $500 in interest. The Third January 2020 Loan Agreement On January 22, 2020, the Company entered into a loan agreement (the “Third January 2020 Loan Agreement”) with an individual (the “Third January 2020 Lender”), whereby the Third January 2020 Lender issued the Company a promissory note of $15,000 (the “Third January 2020 Note”). Pursuant to the Third January 2020 Loan Agreement, the Third January 2020 Note has an effective interest rate of 10%. The maturity date of the Third January 2020 Note was January 29, 2020 (the “Third January 2020 Maturity Date”), at which time all outstanding principal, accrued and unpaid interest and other amounts due under the Third January 2020 Note were due. As additional consideration for entering in the Third January Loan Agreement, the Company issued a five-year warrant to purchase 75 shares of the Company’s common stock at a purchase price of $18.00 per share. The Company recorded a $892 debt discount relating to 75 warrants issued to the Third January 2020 Lender based on the relative fair value of each equity instrument on the dates of issuance. The debt discount is being accreted over the life of the note to accretion of debt discount and issuance cost. During the year ended December 31, 2020, the Company repaid $15,000 in principal and $1,500 in interest. The Fourth January 2020 Loan Agreement On January 23, 2020, the Company entered into a loan agreement (the “Fourth January 2020 Loan Agreement”) with an individual (the “Fourth January 2020 Lender”) whereby the Fourth January 2020 Lender issued the Company a promissory note of $135,000 (the “Fourth January 2020 Note”). Pursuant to the Fourth January 2020 Loan Agreement, the Fourth January 2020 Note has an effective interest rate of 7%. As additional consideration for entering in the First January 2020 Loan Agreement, the Company issued the Fourth January 2020 Lender 750 shares of the Company’s common stock. The maturity date of the Fourth January 2020 Note was February 23, 2020 (the “Fourth January 2020 Maturity Date”) at which time all outstanding principal, accrued and unpaid interest and other amounts due under the Fourth January 2020 Note were due. During the year ended December 31, 2020, the Company converted $135,000 in principal to the Second February 2020 Note (as defined below). The January 2020 Rosen Loan Agreement
On January 14, 2020, the Company entered into a loan agreement (the “January 2020 Rosen Loan Agreement”), whereby the Company issued a promissory note in the principal amount of $150,000 (the “January 2020 Rosen Note”). Pursuant to the January 2020 Rosen Loan Agreement, the January 2020 Rosen Note accrues interest at a fixed amount of $2,500 for the duration of the note.
During the
The February Banner 2020 Loan Agreement
On February 15, 2020, the Company entered into a loan agreement (the “February 2020 Banner Loan Agreement”), whereby the Company issued a promissory note in the principal amount of $9,900 (the “February 2020 Note”) for expenses paid on behalf of the Company by an employee. Pursuant to the February 2020 Loan Agreement, the February 2020 Note bears interest at a rate of $495. As additional consideration for entering in the February 2020 Loan Agreement, the Company issued a five-year warrant to purchase
During the
The February 2020 Frommer Loan Agreement
On February 18, 2020, the Company entered into a loan agreement (the “February 2020 Frommer Loan Agreement”) with Jeremy Frommer, an officer of the Company, whereby the Company issued Frommer a promissory note in the principal amount of $2,989 (the “February 2020 Frommer Note”). As additional consideration for entering in the June 2018 Frommer Note Loan Agreement, the Company issued Frommer a five-year warrant to purchase
During the
On During the year ended December 31, The July 2020 Loan Agreement On July 30, 2020, the Company entered into a loan agreement (the “July 2020 Loan Agreement”) with an individual (the “July 2020 Lender”), whereby the July 2020 Lender issued the Company a promissory note of $5,000 (the “July 2020 Note”). Pursuant to the July 2020 Loan Agreement, the July 2020 Note has an effective interest rate of 5%. The maturity date of the July 2020 Note was August 06, 2020 (the “July 2020 Maturity Date”), at which time all outstanding principal, accrued and unpaid interest and other amounts due under the July 2020 Note were due. As additional consideration for entering in the July 2020 Loan Agreement, the Company issued a five-year warrant to purchase 25 shares of the Company’s common stock at a purchase price of $18.00 per share. The Company recorded a $316 debt discount relating to 25 warrants issued to investors based on the relative fair value of each equity instrument on the dates of issuance. The debt discount is being accreted over the life of the note to accretion of debt discount and issuance cost. During the year ended December 31, 2020, the Company repaid $5,000 in principal and $250 in interest. The September 2020 Goldberg Loan Agreement On September 15, 2020, the Company entered into a loan agreement (the “September 2020 Goldberg Loan Agreement”) with Goldberg whereby the Company issued a promissory note of $16,705 (the “September 2020 Goldberg Note”). Pursuant to the September 2020 Goldberg Loan Agreement, the September 2020 Goldberg Note has an interest rate of 7%. The maturity date of the September 2020 Goldberg Note is September 15, 2022 (the “September 2020 Goldberg Maturity Date”), at which time all outstanding principal, accrued and unpaid interest and other amounts due under note are due. The September 2020 Goldberg Loan is secured by the tangible and intangible property of the Company. Since the September 2020 Goldberg Note has a make-whole provision if the shares of the Company’s common stock issued to the lender in accordance with the Lender’s Exchange Agreement (see note 10) have a value equal to or less than $6,463,363 determined by using the lowest VWAP of the last 30 days prior to September 14, 2021. The principal amount of the September 2020 Goldberg Note shall increase by 200% of the difference between the initial consideration and the September 14, 2021, value. The Company has applied ASC 815, due to the potential for settlement in a variable quantity of shares. The make-whole feature gave rise to a derivative liability that has been marked to market during the year ended December 31, 2021, and the change in derivative liability is recorded on Consolidated Statements of Comprehensive Loss. See note 10. On September 15, 2021, the make-whole provision was triggered, causing an increase in principal of the September 2020 Goldberg Note by $939,022. During the year ended December 31, 2021, the Company accrued interest of $3,576. During the year ended December 31, 2021, the Company entered into a settlement agreement whereas the Company agreed to pay $200,000 in cash and $150,000 in shares of Common Stock. The September 2020 Rosen Loan Agreement On September 15, 2020, the Company entered into a loan agreement (the “September 2020 Rosen Loan Agreement”) with Rosen whereby the Company issued a promissory note of $3,295 (the “September 2020 Rosen Note”). Pursuant to the September 2020 Rosen Loan Agreement, the September 2020 Rosen Note has an interest rate of 7%. The maturity date of the September 2020 Rosen Note is September 15, 2022 (the “September 2020 Rosen Maturity Date”), at which time all outstanding principal, accrued and unpaid interest and other amounts due under the note are due. The September 2020 Rosen Loan is secured by the tangible and intangible property of the Company. Since the September 2020 Rosen Note has a make-whole provision if the shares of the Company’s common stock issued to the lender in accordance with the Lender’s Exchange Agreement (see note 10) have a value equal to or less than $1,274,553 determined by using the lowest VWAP of the last 30 days prior to September 14, 2021. The principal amount of the September 2020 Rosen Note shall increase by 200% of the difference the initial consideration and the September 14, 2021 value. The Company has applied ASC 815, due to the potential for settlement in a variable quantity of shares. The make-whole feature of gave rise to a derivative that has been marked to market during the year ended December 31, 2021, and the change in derivative liability is recorded on Consolidated Statements of Comprehensive Loss. See note 10. On September 15, 2021 the make-whole provision was triggered, causing an increase in principal of the September 2020 Rosen Note by $185,279. During the year ended December 31, 2021, the Company accrued interest of $1,610. During the year ended December 31, 2021, the Company repaid $188,574 in principal and $1,677 in interest. Demand loan During the year ended December 31, 2020 the Company repaid $75,000 of principal.
On December 17, 2019, Standish made non-interest bearing loans of $150,000 to the Company in the form of cash. The loan is due on demand and unsecured.
During the
On March 27, 2020, a lender made non-interest bearing loans of $100,000 to the Company in the form of cash. The loan is due on demand and unsecured.
During the On April 9, 2020, a lender made non-interest bearing loans of $50,000 to the Company in the form of cash. The loan is due on demand and unsecured. During the year ended December 31, 2020, the Company converted $50,000 of principal into the September 2020 Equity Raise. On April 21, 2020, a lender made non-interest bearing loans of $100,000 to the Company in the form of cash. The loan is due on demand and unsecured. During the year ended December 31, 2020, the Company converted $100,000 of principal and $6,707 of unpaid interest into the September 2020 Equity Raise. On July 6, 2020, a lender made non-interest bearing loans of $100,000 to the Company in the form of cash. The loan is due on demand and unsecured. During the year ended December 31, the Company converted $100,000 of principal and $6,707 of unpaid interest into the September 2020 Equity Raise. On August 10, 2020, a lender made non-interest bearing loans of $40,000 to the Company in the form of cash. The loan is due on demand and unsecured. During the year ended December 31, 2020 the Company repaid $40,000 of principal. On September 9, 2020, a lender made non-interest bearing loans of $50,000 to the Company in the form of cash. The loan is due on demand and unsecured. During the year ended December 31, 2020 the Company repaid $50,000 of principal. Officer compensation During the year ended December 31, 2021 and 2020, the Company paid
Revenue During the year ended December 31, 2021 the Company received revenue of $80,000 from Dune for branded content services prior to consolidation but after recognition as an equity method investee. Note The Company has identified derivative instruments arising from a make-whole feature in the Company’s notes payable during the year ended December 31, 2021. For the terms of the make-whole features see the September 2020 Rosen Loan Agreement and the September 2020 Goldberg Loan Agreement in Note 10. The Company has also identified derivative instruments arising from convertible notes that have an option to convert at a variable number of shares in the Company’s convertible notes payable during the year ended December 31, 2021. For the terms of the conversion features see Note 10. The Company had no derivative assets or liabilities measured at fair value on a recurring basis as of December 31, 2021. The Company utilizes a Monte Carlo simulation model for the make whole feature and a binomial option model for convertible notes that have an option to convert at a variable number of shares to compute the fair value of the derivative and to mark to market the fair value of the derivative at each balance sheet date. The inputs utilized in the application of the Monte Carlo model included a starting stock price, an expected term of each debenture remaining from the valuation date to maturity, an estimated volatility, drift, and a risk-free rate. The inputs utilized in the application of the Binomial model included a stock price on valuation date, an expected term of each debenture remaining from the valuation date to maturity, an estimated volatility, and a risk-free rate. The Company records the change in the fair value of the derivative as other income or expense in the consolidated statements of operations. Risk-free interest rate: The Company uses the risk-free interest rate of a U.S. Treasury Note adjusted to be on a continuous return basis to align with the Monte Carlo simulation model and binomial model. Dividend yield: The Company uses a 0% expected dividend yield as the Company has not paid dividends to date and does not anticipate declaring dividends in the near future. Volatility: The Company calculates the expected volatility based on the company’s historical stock prices with a look back period commensurate with the period to maturity. Expected term: The Company’s remaining term is based on the remaining contractual maturity of the convertible notes. The following are the changes in the derivative liabilities during the year ended December 31, 2021 and 2020.
Note 12 – Stockholders’
Shares Authorized
On July 13, 2020, the Company filed the Second Amended and Restated Articles of Incorporation with the Secretary of State of the State of Nevada, which authorize the issuance of 100,000,000 shares of common stock, and 20,000,000 shares of preferred stock. On August 17, 2020, following board of director’s approval, the Company filed a Certificate of Change to its Articles of Incorporation (the “Amendment”), with the Secretary of State of the State of Nevada to effectuate a one-for-twenty (1:3) reverse stock split (the “Reverse Stock Split”) of its common stock, par value $0.001 per share, without any change to its par value. The Amendment became effective on August 17, 2020. No fractional shares were issued in connection with the Reverse Stock Split as all fractional shares were “rounded up” to the next whole share. As a result, all share information in the accompanying consolidated financial statements has been adjusted as if the reverse stock split happened on the earliest date presented.
Series E Convertible Preferred Stock On December 29, 2020, the Company entered into securities purchase agreements with thirty-three accredited investors whereby the Investors have agreed to purchase from the Company an aggregate of 7,778 shares of the Company’s Series E Convertible Preferred Stock, par value $0.001 per share and 2,831,715 warrants to purchase shares of the Company’s common stock, par value $0.001 per share. The Series E Preferred Stock is convertible into a total of 1,887,810 shares of Common Stock. The combined purchase price of one Conversion Share and one and a half warrant was $4.12. The aggregate purchase price for the Series E Preferred Stock and warrants was $7,777,777. The Company has recorded $817,353 to stock issuance costs, which are part of Additional Paid-in Capital. The warrants are exercisable for a term of five-years from the date of issuance, at an exercise price of $4.50 per share. The warrants provide for cashless exercise to the extent that there is no registration statement available for the underlying shares of Common Stock. The placement agent for the transaction and received cash compensation equal to 10% of the aggregate purchase price and warrants to purchase 471,953 shares of the Company’s common stock, at an exercise price of $5.15 per share (the “PA Warrants”). The PA Warrants are exercisable for a term of five-years from the date of issuance. During the year ended December 31, 2021, the Company received the $40,000 of the subscription receivable for the Series E Convertible Preferred Stock. The Company has recorded $4,225 to stock issuance costs, which are part of Additional Paid-in Capital. During the year ended December 31, 2021, investors converted 7,278 shares of the Company’s Series E Convertible Preferred Stock into 1,766,449 shares of the Company’s common stock. Common Stock On January 30, 2020, the Company issued
On January 6, 2020, the Company issued
On March 5, 2020, the Company issued
On March 13, 2020 the Company entered into an exchange agreement with a warrant holder. The company agreed to exchange
On March 19, 2020, the Company issued
On June 18, 2020, the Company issued 50,000 shares of its restricted common stock to consultants in exchange for services at a fair value of $525,000. On June 29, 2020 the Company entered into an exchange agreement with a warrant holder. The company agreed to exchange 5,833 warrants for 2,239 shares of the company common stock and $10,000. On July 3, 2020, the Company issued 15,000 shares of its restricted common stock to consultants in exchange for services at a fair value of $204,300. On July 17, 2020 the Company issued 6,667 shares of its restricted common stock to the Second February 2020 Lender in connection with the Second July 2020 convertible Loan Agreement. On August 15, 2020, the Company issued 6,167 shares of its restricted common stock to consultants in exchange for services at a fair value of $50,693. On August 21, 2020, the Company issued 20,000 shares of its restricted common stock to consultants in exchange for services at a fair value of $180,000. On August 31, 2020, the Company issued 1,866 shares of its restricted common stock to consultants in exchange for services at a fair value of $15,842. On September 11, 2020 the Second February 2020 Lender converted $125,000 of the outstanding principal into 34,722 shares of the Company’s common stock. On September 11, 2020 the February 2019 Convertible Note Lender converted $70,542 of the outstanding principal and $112,888 of the outstanding interest into 64,124 shares of the Company’s common stock.
On September 15, 2020, the Company exchanged $7,325,000 of principal and $967,518 of accrued but unpaid interest of the Company’s debt obligations for $500,000 cash, 2,744,288 shares of Common Stock, and 331,456 warrants (the “Lender’s Exchange Agreement”). The Company also issued the lenders notes totaling $20,000. See note 9 for the September 2020 Goldberg Loan and the September 2020 Rosen Loan. The warrants have an exercise price equal to $4.50 per share, expiring five years from the date of issuance. Since the terms of the original debt were exchanged this was accounted for under extinguishment accounting. The Company determined this debt exchange was a debt extinguishment and the Company recognized a loss on debt extinguishment of $4,915,327, including the derivative liability value. September 2020 Equity Raise Effective September 15, 2020, the Company consummated an underwritten public offering (the “September 2020 Equity Raise”) of 1,725,000 units of securities (the “Units”), with each Unit consisting of (i) one share of common stock, and (ii) one warrant to purchase one share of common stock (the “Warrants”). The September 2020 Equity Raise was conducted pursuant to an Underwriting Agreement, dated September 10, 2020, by and between the Company and The Benchmark Company, LLC, acting as the representative (the “Representative”) of the several underwriters named therein (the “Underwriting Agreement”). In connection with the September 2020 Equity Raise, the Company granted the underwriters a 45-day option to purchase up to 258,750 shares of common stock and/or 258,750 Warrants to purchase common stock to cover over-allotments, if any. The public offering price per Unit was $4.50. The shares of common stock and Warrants were issued separately and were immediately separable upon issuance. Each Warrant represents the right to purchase one share of common stock at an exercise price of $4.50 per share, expiring 5 years from the date of issuance. The gross proceeds to the Company from the September 2020 Equity Raise, before deducting underwriting discounts and commissions and other estimated offering expenses, and excluding the exercise of any Warrants, was approximately $7,762,500. In connection with the September 2020 Equity Raise, the Company converted $3,183,667 of principal and accrued but unpaid interest of the Company’s debt obligations into 768,204 shares of Common Stock and $570,416 warrants. See Notes 7, 8, and 9. The warrants have an exercise price equal to $4.50 per share, expiring five years from the date of issuance. A down-round event was triggered in connection with the September 2020 Equity Raise, resulting in a contingent BCF that had a value of $3,051,810. As these notes were fully converted in the September 2020 Equity Raise, the discount was expensed to accretion of debt discount and issuance cost on the Consolidated Statements of Comprehensive Loss. On September 30, 2020, the Company issued 7,979 shares of its restricted common stock to consultants in exchange for services at a fair value of $21,304. On December 14, 2020, the Company issued 10,417 shares of its restricted common stock to consultants in exchange for services at a fair value of $38,647. On December 21, 2020, the Company issued 8,371 shares of its restricted common stock to employees in exchange for services at a fair value of $31,323. During the year ended December 31, 2020 the Company cancelled 50,650 shares of treasury stock. On January 14, 2021, the Company issued 30,000 shares of its restricted common stock to consultants in exchange for services at a fair value of $133,200. On January 20, 2021, the Company issued 40,000 shares of its restricted common stock to consultants in exchange for a year of services at a fair value of $192,000. On May 24, 2021, the Company amended the contract and issued and additional 10,000 shares of its restricted common stock. these shares had a fair value of $34,500. The shares issued to the consultant were recorded as common stock issued for prepaid services and will be expensed over the life of the consulting contract to share based payments. During the year ended December 31, 2021, the Company recorded $99,908 to stock-based compensation expense related to these shares. On February 1, 2021, the Company issued 50,000 shares of its restricted common stock to consultants in exchange for services at a fair value of $196,000. On February 3, 2021, the Company issued 1,929 shares of its restricted common stock to consultants in exchange for services at a fair value of $8,198. On February 8, 2021, the Company entered into a consulting agreement whereas the Company issued a total of 2,092 shares of common stock in exchange for services at a fair value of $7,502. On February 18, 2021, the Company issued 10,000 shares of its restricted common stock to consultants in exchange for services at a fair value of $48,000. On February 18, 2021, the Company issued 10,417 shares of its restricted common stock to consultants in exchange for services at a fair value of $50,002. On February 26, 2021, the Company issued 291 shares of its restricted common stock to consultants in exchange for services at a fair value of $1,499. On March 17, 2021, the Company issued 9,624 shares of its restricted common stock to consultants in exchange for services at a fair value of $49,371. On March 28, 2021, the Company issued 31,782 shares of its restricted common stock to settle outstanding vendor liabilities of $125,000. On March 31, 2021, the Company issued 13,113 shares of its restricted common stock to settle outstanding vendor liabilities of $43,667. In connection with this transaction the Company also recorded a loss on settlement of vendor liabilities of $12,719. On April 10, 2021, the Company issued 16,275 shares of its restricted common stock to consultants in exchange for services at a fair value of $69,332. On April 21, 2021, the Company entered into a consulting agreement whereas the Company issued a total of 1,048 shares of common stock in exchange for services at a fair value of $3,587. On June 17, 2021, the Company entered into an underwriting agreement with The Benchmark Company LLC, pursuant to which we agreed to sell to the Underwriter in a firm commitment underwritten public offering an aggregate of 750,000 shares of the Company’s common stock, at a public offering price of $3.40 per share. The Company also granted the Underwriter a 30-day option to purchase up to an additional 112,500 shares of Common Stock to cover over-allotments, if any. The Offering closed on June 21, 2021. The net proceeds to the Company from the equity raise was $2,213,500. As part of the underwriting agreement the Company issued 46,667 warrants of the Company’s common stock to Benchmark. The warrants have an exercise price $5.40 and a term of five years. On July 9, 2021, the Representative exercised the over-allotment option to purchase an additional 954,568 shares of Common Stock. On July 20, 2021, the Company issued 2,154 shares of its restricted common stock to consultants in exchange for services at a fair value of $8,570. On July 15, 2021, the Company issued 715 shares of its restricted common stock to consultants in exchange for services at a fair value of $2,500. On August 15, 2021, the Company issued 820 shares of its restricted common stock to consultants in exchange for services at a fair value of $2,500. On August 26, 2021, the Company issued 348 shares of its restricted common stock to consultants in exchange for services at a fair value of $999. On September 15, 2021, the Company issued 793 shares of its restricted common stock to consultants in exchange for services at a fair value of $2,500. On October 25, 2021, the Company entered into a securities purchase agreement with institutional investors resulting in the raise of $3,407,250 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 850,000 shares of the Company’s common stock, par value $0.001 per share, at a purchase price of $4.50 per Share. On November 5, 2021, the Company issued 25,000 shares of its restricted common stock to consultants in exchange for services at a fair value of $85,750. On November 15, 2021, the Company issued 13,392 shares of its restricted common stock to consultants in exchange for services at a fair value of $41,917. On November 29, 2021, the Company issued 250,000 shares of its restricted common stock to settle outstanding vendor liabilities of $576,783. In connection with this transaction the Company also recorded a loss on settlement of vendor liabilities of $33,217. On November 29, 2021, the Company issued 101,097 shares of its restricted common stock to consultants in exchange for services at a fair value of $246,676. On December 3, 2021, the Company issued 194 shares of its restricted common stock to consultants in exchange for services at a fair value of $429. On December 14, 2021, the Company issued 211 shares of its restricted common stock to consultants in exchange for services at a fair value of $452. Stock Options The Company applied fair value accounting for all share-based payments awards. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model. The assumptions used for options granted during the years December 31, 2021 and 2020, are as follows:
The following is a summary of the Company’s stock option activity:
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 Consolidated Balance Sheet. On May 7, 2020, the board of directors approved the Jerrick Media Holdings, Inc. 2020 Omnibus Equity Incentive Plan (the “Plan”). Only employees, non-employee directors and consultants are eligible for awards under the Plan. The Plan provides for awards in the form of options (incentive stock options or nonstatutory stock options) restricted stock grants, and restricted stock unit grants. Up to 2,500,000 shares of common stock may be issued under the Plan and the option exercise price of stock options granted under the Plan shall not be less than 100% of the Fair Market Value (as defined in the Plan) (110% for 10% shareholders in the case of ISOs) of a share of common stock on the date of the grant. The option exercise price may be payable in cash, surrender of stock, cashless exercise or net exercise. Each grant awarded under the Plan shall be evidenced by a grant agreement and may or may not be subject to vesting. The Plan is subject to the approval of the Company’s stockholders within one year of the date of adoption by the Board of Directors. On July 8, 2020, the Company’s stockholders approved the Plan, which terminates on May 7, 2030. The Board of Directors may amend or terminate the Plan at any time and for any reason. An amendment of the Plan shall be subject to the approval of the Company’s stockholders only to the extent required by applicable laws, regulations or rules. On May 13, 2020 the Company entered into an exchange agreement with eight option holders. The company agreed to exchange 152,992 options previously issued under the 2015 Incentive Stock and Award Plan for 229,491 shares of the Company common stock. In connection with this agreement the Company recorded incremental compensation on the exchange of options to stock of $1,117,031. Stock-based compensation for stock options has been recorded in the consolidated statements of operations and totaled $7,616,195 and $4,092,013, for the year ended December 31, 2021 and 2020, respectively. As of December 31, 2021, there was $3,197,018 of total unrecognized compensation expense related to unvested employee options granted under the Company’s share-based compensation plans that is expected to be recognized over a weighted average period of approximately 1.23 year. Warrants The Company applied fair value accounting for all share-based payments awards. The fair value of each warrant granted is estimated on the date of grant using the Black-Scholes option-pricing model.
The assumptions used for warrants granted during the
Warrant Activities
The following is a summary of the Company’s warrant activity:
On October 6, 2020, the underwriters for the September 2020 Equity Raise partially exercised the over-allotment option and on October 8, 2020, purchased an additional 258,750 warrants, generating gross proceeds, before deducting underwriting discounts and commissions, of $2,588. During the
During the
During the
During the year ended December 31, 2020, some of the Company’s warrants had a down-round provision triggered that resulted in a lower exercise price. A deemed dividend of $18,421 was recorded to the Statements of Comprehensive Loss. During the Year ended December 31, 2021, the Company issued 2,250,691 shares of common stock to a certain warrant holder upon the exercise of 2,414,218 warrants. The Company received $9,487,223 in connection with the exercise of the warrant. During the year ended December 31, 2021, a total of 486,516 warrants were issued in connection with the Series E Convertible Preferred Stock raise. During the year ended December 31, 2021, a total of 1,137,575 warrants were issued with convertible notes (See Note 9 above). The warrants have a grant date fair value of $3,258,955 using a Black-Scholes option-pricing model and the above assumptions. During the year ended December 31, 2021, some of the Company’s warrants had a down-round provision triggered that also resulted in an additional 127,801 warrants to be issued. A deemed dividend of $410,750 was recorded to the Statements of Comprehensive Loss. During the year ended December 31, 2021, the Company issued 80,000 warrants in connection with the underwriting agreement. Stock-based compensation for stock warrants of 129,375 has been recorded in the Consolidated Statements of Comprehensive Loss and totaled $480,863, for the year ended December 31, 2021. Share-based awards, restricted stock award (“RSAs”) On February 4, 2021, the Board resolved that, the Company shall pay each member of the Board, for each calendar quarter during which such member continues to serve on the Board, compensation as a group amounts to $62,500 per quarter. The shares vest one year after issuance. A summary of the activity related to RSUs for the year ended December 31, 2021 is presented below:
Stock-based compensation for RSA’s has been recorded in the consolidated statements of operations and totaled $391,035 for the year ended December 31, 2021. Note
In addition, the CARES Act raises the corporate charitable deduction limit to 25% of taxable income and makes qualified improvement property generally eligible for 15-year cost-recovery and 100% bonus depreciation. The enactment of the CARES Act did not result in any material adjustments to our income tax provision for the
On March 26, 2020 and April 30, 2020, the Company received 2 separate loans pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the CARES Act. When the applications for PPP first opened up, there was limited available funding and much confusion surrounding the application process. The Company initially submitted its application for the May 2020 PPP Loan in early April but received no response in the aftermath of submitting the application. After consulting multiple advisors, the Company made the decision to apply elsewhere, due to the rampant media coverage of institutions running out of funding and the Company’s need for the capital and belief that if 2 separate loans were approved, the remaining application could simply be withdrawn. Therefore, in late April, the company proceeded with applying for the April 2020 PPP Loan. After some conflicting communications regarding acceptance, the Company attempted to contact the lender to clarify but got no response. After continued attempts to follow up with both lenders, the Company received approval for the May 2020 PPP Loan and funding for the April 2020 PPP Loan on the same day, followed the next day by the funding of the May 2020 PPP Loan. The Company immediately separated the funds for the April 2020 PPP Loan into a separate reserved bank account with the intention of returning the funds. However, after several attempts to contact the lender with no response, the Company was faced with difficulty raising funds in the early-Covid economy and made the decision to utilize the funds for operations and pursue an installment repayment plan when they were able to reach the lender. As of the date of this filing, the Company has begun making repayments on the loan, absent a formal installment agreement due to difficulties reaching the lender. The Company intends to complete repayment before the end of 2021. As each company is only permitted one loan under the CARES Act, there is a possibility the loan may be called by the SBA and the Company would have to repay the loan in full at such time. As of December 31, 2021, the May 2020 PPP Loan is no longer outstanding, as during the year ended December 31, 2021, the Company repaid $136,597 in principal and was forgiven $275,903 of principal and $3,119 of accrued interest. As of December 31, 2021 there was $198,655 in principal outstanding on the April 2020 PPP Loan. Litigation On or about June 25, 2020, Home Revolution, LLC (“Home Revolution”) filed a lawsuit in the United States District Court for the District of New Jersey, Home Revolution, LLC, et al. 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. Monster and Anonymize, Inc. (“Monster”) filed a lawsuit in the United States District Court for the Western District of Washington at Seattle, Robert W. Monster, et al. v. Creatd, Inc., et al. (Western District of Washington at Seattle 2:21-CV-1177). The Complaint alleges, among other things, that action for Declaratory Judgment under 28 U.S.C. § 2201 that Monster’s registration and use of the internet domain name VOCL.COM (the “Domain Name”) does not violate Creatd’s rights under the Anticybersquatting Consumer Protection Act (“ACPA”), 15 U.S.C. § 1125(d), or otherwise under the Lanham Act, 15 U.S.C. § 1051 et seq. Creatd claims trademark rights and certain other rights with respect to the term and the domain name VOCL.COM. Monster seeks a determination by the Court 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. Lease Agreements
On May 5, 2018, the Company signed a 5-year lease for approximately 2,300 square feet of office space at 2050 Center Avenue Suite 640, Fort Lee, New Jersey 07024. Commencement date of the lease is June 1, 2018.
On April 1, 2019, the Company signed a 4-year lease for approximately 796 square feet of office space at 2050 Center Avenue Suite 660, Fort Lee, New Jersey 07024. Commencement date of the lease is April 1, 2019.
On July 28, 2021, the Company signed a 3-year lease for approximately 1,364 square feet of office space at 1674 Meridian Avenue, Miami Beach, Florida 33139. The
On February 16, 2022, the company entered into a termination agreement whereas CRTD agrees to pay $115,000 and forfeit the security deposit of $16,836. The lease was terminated as of February 28, 2022 and was determined that the lease agreement was abandoned under ASC 842- 20 -35 -10. The Company updated useful life of the ROU asset and marked the ROU asset and lease liability its single lease cost of $18,451.
Supplemental cash flow and other information related to leases was as follows:
Total Rent expense for the year ended December 31, 2021 and 2020 was $216,845 and $107,737, respectively. Note 14 – Acquisition Plant Camp LLC On June 1, 2021, the Company, entered into a Membership Interest Purchase Agreement (the “MIPA”) with Angela Hein (“Hein”) and Heidi Brown (“Brown”, and together with Hein, the “Sellers”), pursuant to which the Purchaser acquired 490,863 common units (the “Membership Interests”) of Plant Camp LLC, a Delaware limited liability company (“Plant Camp”) from the Sellers, resulting in the Purchaser owning 33% of the issued and outstanding equity of Plant Camp. The Membership Interests were purchased for $175,000. On June 4, 2021, the Company, entered into a MIPA with Sellers, pursuant to which the Purchaser acquired 841,005 common units of Plant Camp from the Sellers, resulting in the Purchaser owning a total of 89% of the issued and outstanding equity of Plant Camp. The additional Membership Interests were purchased for $300,000. The acquisition was accounted for as a step acquisition however there was no change in value of the Company’s existing equity interest. The Company utilized the fair value of the consideration to determine the fair value of the existing equity interest based on the total merger consideration offered. The following sets forth the components of the purchase price:
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.
The goodwill represents the assembled workforce, acquired capabilities, and future economic benefits resulting from the acquisition. The following presents the unaudited pro-forma combined results of operations of the Company with Plant Camp as if the entities were combined on January 1, 2020.
WHE Agency, Inc. On July 20, 2021, the Company entered into a Stock Purchase Agreement to purchase 44% ownership and 55% of voting power of the issued and outstanding shares of WHE Agency, Inc., (“WHE”). The aggregate closing consideration was $1,038,271, which consists of a combination of $144,750 in cash and $893,521 in the form of 224,503 shares of the Company’s restricted common stock at a price of $3.98 per share. Based on the purchase price of $1,038,271 for 44% ownership, the fair value of the non-controlling interest was estimated to be $1,190,000 based on the consideration from the Company. WHE is a talent management and public relations agency dedicated to the representation and management of family- and lifestyle-focused influencers and digital creators. The following sets forth the components of the purchase price:
The excess purchase price amounts were recorded to goodwill and is 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.
The goodwill represents the assembled workforce, acquired capabilities, and future economic benefits resulting from the acquisition. The following presents the unaudited pro-forma combined results of operations of the Company with WHE as if the entities were combined on January 1, 2020.
Dune Inc. Prior to October 3, 2021, the Company invested $732,297 into Dune See note 6 & 7. Using step acquisition accounting, the Company decreased the value of its existing equity interest to its fair value based on its purchase price on October 3, 2021, resulting in the recognition of an impairment in investment of $424,632, which was included in within our consolidated statements of operations. The Company utilized the fair value of the consideration to determine the fair value of the existing equity interest based on the total merger consideration offered and the Company’s stock price at acquisition. On October 3, 2021, we, through Creatd Partners, LLC (“Buyer”), entered into a Stock Purchase Agreement (the “Dune Agreement”) with Standard Holdings, Inc. (“SHI”) and Mark De Luca (“De Luca”) (SHI and De Luca, collectively the “Dune Sellers”), and Stephanie Roy Dufault, whereby Buyer purchased a majority stake in Dune, Inc., a Delaware corporation (“Dune”). Pursuant to the Dune Agreement, which closed on October 4, 2021, Buyer acquired a total of 3,905,634 shares of the common stock of Dune (the “Purchased Shares”). The Company issued 163,344 restricted shares of the Company’s common stock to the Dune Sellers. In addition, pursuant to the Dune Agreement, $50,000 worth of the Company’s common stock issuable to the Dune Sellers on a pro rata basis, priced in accordance with the terms and conditions set forth in the Dune Agreement (the “Indemnification Escrow Amount”), shall be held in escrow and reserved in each Dune Seller’s name by the Company’s transfer agent until such time as release is authorized under the Agreement. The following sets forth the components of the purchase price:
Due to the limited amount of time since the acquisition date, the assets and liabilities of Dune Inc. were recorded based primarily on their acquisition date carrying values. Management believes the estimated fair value of these accounts on the acquisition date approximates their carrying value as reflected in the table above due to the short-term nature of these instruments. The remaining assets and liabilities primarily consisted of goodwill, customer relationships, know how, and tradenames. We will adjust the remaining assets and liabilities to fair value as valuations are completed and we obtain information necessary to complete the analyses, but no later than one year from the acquisition data. 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.
The goodwill represents the assembled workforce, acquired capabilities, and future economic benefits resulting from the acquisition. The following presents the unaudited pro-forma combined results of operations of the Company with Dune as if the entities were combined on January 1, 2020.
Note 15 – 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.
The following tables present certain financial information related to our reportable segments and Corporate:
During the year ended December 31, 2021, Creatd Partners acquired assets from the Purchase of WHE. See note 14 for a list of assets acquired. During the year ended December 31, 2021, Creatd Ventures acquired assets from the Purchase of Dune and Plant Camp. See note 14 for a list of assets acquired. Note 16 –Income Taxes Components of deferred tax assets are as follows:
A reconciliation of the federal statutory income tax rate and the effective income tax rate as a percentage of income before income taxes is as follows:
The following is a reconciliation of the beginning and ending amount of the unrecognized tax benefit for the
Based on the available objective evidence, management believes it is more likely than not that the net deferred tax assets of the Company will not be fully realizable for the years ended December 31, 2021 and 2020. Accordingly, management had applied a full valuation allowance against net deferred tax assets as of December 31, 2021 and 2020. As of December 31, 2021, the Company had approximately $54 million of federal net operating loss carryforwards available to reduce future taxable income which will begin to expire in 2034 for both federal and state purposes. On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making significant changes to the Internal Revenue Code of 1986, as amended (the “Code”). The Act reduces the federal corporate income tax rate from 35% to 21% effective for tax years beginning after December 31, 2017. ASC 470 requires the Company to remeasure the existing net deferred tax asset in the period of enactment. The Act also provides for immediate expensing of 100% or the costs of qualified property that is incurred and placed in service during the period from September 27, 2017 to December 31, 2022. Beginning January 1, 2023, the immediate expensing provision is phased down by 20% per year until it is completely phased out as of January 1, 2027. Additionally, effective January 1, 2018, the Act imposes possible limitations on the deductibility of interest expense. As a result of the provisions of the Act, the Company’s deduction for interest expense could be limited in future years. The effects of other provisions of the Act are not expected to have a material impact on the Company’s financial statements. On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to provide guidance on accounting for the tax effects of the Act. SAB 118 provides a measurement period that begins in the reporting period that includes the Act’s enactment date and ends when an entity has obtained, prepared and analyzed the information that was needed in order to complete the accounting requirements under ASC 720. However, in no circumstance should the measurement period extend beyond one year from the enactment date. In accordance with SAB 118, a company must reflect in its financial statements the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. SAB 118 provides that to the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete, but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. The Company does not reflect a deferred tax asset in its financial statements but includes that calculation and valuation in its footnotes. We are still analyzing the impact of certain provisions of the Act and refining our calculations. The Company will disclose any change in the estimates as it refines the accounting for the impact of the Act. Federal and state tax laws impose limitations on the utilization of net operating losses and credit carryforwards in the event of an ownership change for tax purposes, as defined in Section 382 of the Internal Revenue Code. Accordingly, the Company’s ability to utilize these carryforwards may be limited as a result of an ownership change which may have already happened or may happen in the future. Such an ownership change could result in a limitation in the use of the net operating losses in future years and possibly a reduction of the net operating losses available. Note
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. Management Restructuring On February 17, 2022, the Board of the Company approved the restructuring of the Company’s senior management team to eliminate the Co-Chief Executive Officer role, appointing Jeremy Frommer as Executive Chairman and Founder, and appointing Laurie Weisberg as Chief Executive Officer (the “Second Restructuring”). Prior to the Second Restructuring, Mr. Frommer and Ms. Weisberg served as the Company’s co-Chief Executive Officers and Ms. Weisberg served as the Company’s Chief Operating Officer. The Second Restructuring does not impact the role or functions of the Company’s Chief Financial Officer, Chelsea Pullano, or the role or functions of the Company’s President and Chief Operating Officer, Justin Maury. Securities Purchase Agreement On March Nasdaq Notice of Delisting On March 1, 2022, the Company received a letter (the “Letter”) from the staff of The Nasdaq Capital Market (the “Exchange”) notifying the Company that the Exchange has determined to delist the Company’s common stock from the Exchange based on the Company’s Market Value of Listed Securities for the 30-consecutive day period between January 15, 2022 and February 25, 2022 falling short of the requirements under Listing Rule 5550(b)(2) (the “Rule”). Although a 180-day period is typically allowed for an issuer to regain compliance, the Company is not eligible to use such compliance period, as the Exchange had instituted a Panel Monitor through March 9, 2022. The Company
The Company intends to present to the Panel evidence that the Company has regained compliance with the Rule; however, there can be no assurance that the Panel will grant the Company’s request for continued listing. The Letter has no immediate impact on the listing of the Company’s common stock or warrants, which will continue to be listed and traded on the Exchange, subject to the Company’s compliance with other continued listing requirements. The Company’s receipt of the Letter does not affect the Company’s business, operations or reporting requirements with the Securities and Exchange Commission. Registered Direct Offering On
Acquisition of Denver Bodega, LLC d/b/a Basis On Settlement of Home Revolution Litigation 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 Note Conversions Subsequent to December 31, 2021, a total of $168,850 in Promissory Note Subsequent to December 31, 2021, the Company entered into one promissory note agreement with net proceeds of $300,000 and one promissory note agreement with net proceeds of AUD$224,540. Consultant Shares Subsequent to December 31, 2021, the Company issued Employment Agreements On April 5, 2022, upon the 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.
Subscription Rights to Purchase Up to 20,000,000 Units at a Subscription Price of $ Per Unit and Up to 20,000,000 Shares of Common Stock Issuable upon the Exercise of Series A Warrants included in the Units
PROSPECTUS
August 25, 2022
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
The following table sets forth the expenses payable by us in connection with the offering of securities described in this registration statement. All
Item 14. Indemnification of Directors and
Each of our Second Amended and Restated Articles of Incorporation and our Amended and Restated Bylaws provide for indemnification of our directors and officers. Our Amended and Restated Bylaws provide that we will indemnify any person who was or is a party or threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative (other than an action by or in the right of the corporation) by reason of the fact that such person is or was a director or officer of the corporation, against expenses (including attorney’s fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Company, and with respect to any criminal action or proceeding, had no reasonable cause to believe such person’s conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent will not, without more, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interest of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. The Company may by action of its Board of Directors, grant rights to indemnification and advancement of expenses to employees and agents of the Company with the same scope and effects as the indemnification provisions for officers and directors.
Subsequent to June 30, 2022, the Company issued 55,000 shares of Common Stock to consultants.
On
Consolidated Financial Statement Schedules.
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Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto.
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this
POWER OF ATTORNEY: KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature appears below constitutes and appoints Laurie Weisberg, his true and lawful attorneys-in-fact and agents with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to sign any registration statement for the same offering covered by the Registration Statement that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act, and all post-effective amendments thereto, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his, her or their substitute or substitutes, may lawfully do or cause to be done or by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates
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0001357671 crtd:May2021LoanMember 2021-12-31 |