| ● | 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, which 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.
Affiliate sales:
Vocal generates revenue through affiliate marketing relationships, which pays the Company a percentage of purchases made on our platform. Affiliate relationships 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. Jerrick, or ‘Creatd,’ has an exclusive license to leverage the stories housed on Vocal, reimagining them for films, episodic shows, games, graphic novels, collectibles, books, and more.
Growth Strategy:
Continued growth is likely to be achieved by focusing on the following key areas:
| ● | Creator Growth: Vocal brings new creators, their audience, and brands to its platform through organic growth, performance marketing, and brand-building campaigns that drive awareness. As the Vocal team continues to collect first-party behavioral data, we are able to further refine an ideal user profile and hone a specific targeting strategy to effectively scale the platform’s creator base. Our product roadmap includes new features that will work to incentivize creators to help us expand the Vocal network organically; upcoming features include creator referrals and gated content, which will enable creators to utilize Vocal’s microtransaction capabilities to charge recurring fees for exclusive content, similar to the model used by companies like Patreon and Cameo). With these new features, creators will have further opportunities to get discovered and earn on Vocal, which works to the benefit of the entire platform. |
| ● | Brand Partnerships: Continued investment in new product offerings for brand storytelling on Vocal with the goal of increasing the value to brands in the form of analytics, audience engagement,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. |
| ● | Affiliate sales: Vocal generates revenue through affiliate marketing relationships, which pays the Company a percentage of purchases made on our platform. Affiliate relationships include Amazon, Skimlinks, Tune, and conversion data for their products and services. Themore. This represents a unique opportunity in the post-pandemic environment where brands need expansive distribution pipelines such as Vocal for Brands in-house content studio is constantly evolving in order to elevate brand relationships, both qualitatively and quantitatively.reach broader audiences. |
| ● | Licensing and Transmedia Opportunities: In collaboration with other productionE-commerce: Our e-commerce strategy involves revitalizing archival imagery and media companies, as well as withcontent in dormant legacy portfolios. Our curation and data capabilities have helped us create scalable and definable value for our expanding user base, we lookinternal collection of media assets through financing, trademarking, licensing, and production opportunities. Creatd has an exclusive license to leverage the stories housed on Vocal, reimagining them for content that can be leveraged for adaptation to film, television, digital shorts,films, episodic shows, games, graphic novels, collectibles, books, and comic series. We believe that Vocal’s ever-expanding community of creators and influencers affords us with the unique opportunity to cultivate these relationships. This initiative is referred to by the Company as Recreatd. more. |
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. | ● | White Label Opportunities: White-labeling Vocal’s underlying platform architecture can be utilized for application in a range of industries, including use by sports franchises, trade companies, education organizations, companies in the financial sector, and others. An example of a white label installation of Vocal currently on our drawing board is a platform called Give. The idea behind Give is to borrow Vocal’s topic-specific community structure and adapt it for the non-profit sector. The Give platform would function as a network of vetted, verified organizations for which creators can raise awareness, funding or discussions using Vocal’s existing features like storytelling tools, community engagement, and microtransactions. Give will provide charities with the tools and resources to capture attention and donations in what is a saturated non-profit space. |
![](https://capedge.com/proxy/S-1A/0001213900-20-023163/img_008.jpg) Corporate History and Information
44We 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 475,000 shares of our common stock, par value $0.001 per share (“Common Stock”). Additionally, we assumed 33,415 shares of Jerrick’s Series A Convertible Preferred Stock (the “Jerrick Series A Preferred”) and 8,064 shares of Series B Convertible Preferred Stock (the “Jerrick Series B Preferred”). Upon closing of the Merger on February 5, 2016, the Company changed its business plan to our current plan.
| ● | Vocal Global: Vocal Global is Creatd’s new market expansion strategy for applying Vocal’s technology to international platform opportunities. While the U.S., U.K., and Canada represent the vast majority of our audience, we believe there will be significant demand for our product in overseas markets–including Asia, the Middle East, and South America–particularly for foreign language installations of the product, an initiative which Creatd refers to as “Content Without Borders.” These projects will be executed through Abacus, our Australia-based subsidiary that will focus on ideating our global opportunities and Content Without Borders strategy. The unique cost structure and geographical advantage of Abacus, which has a close relationship with our development partners, Thinkmill, is crucial in enabling generating rapid responses to the growing need for secure, moderated social platforms for the international user base. The Australian government provides an incentive credit for technology based R&D that further fuels the development of platforms for bespoke foreign language installations and other white label opportunities. |
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 13,030 shares of our common stock held by Mr. Campbell. In addition, Mr. Campbell assumed all of our debts, obligations and liabilities, including any existing prior to the Merger, pursuant to the terms and conditions of the Spin-Off Agreement. | ● | Acquisitions: Our acquisition of Seller’s Choice in September 2019 successfully expanded our brand product offering and client network. Future acquisition targets include creator platforms, content communities, data science companies, and digital marketing agencies. |
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”). | ● | Created Partners: Created Partners invests in early stage startups who are passionate about solving problems with technology. The Company leverages the Vocal technology and resources, housed under the ‘Vocal Ventures’ umbrella, to help DTC businesses thrive. Most of these partnerships take shape as some combination of sweat equity for the contribution of non-monetary resources and nominal capital investment. |
On February 28, 2016, we changed our name to Jerrick Media Holdings, Inc. to better reflect our new business strategy. Currently,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 has begun exploring long-term partnershipsacquired 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 following Creatd Partners: Secretary of State of the State of Nevada for the purpose of increasing our authorized shares of Common Stock to 100,000,000. | o | Plant Camp, whose mission is to give kid-friendly categories a nutritious makeover, and turn childhood classics like mac and cheese into complete, wholesome, veggie-packed healthy meals— without your kids realizing a thing. Plant Camp is currently in development with our award winning agency partner Brains on Fire and is projected to launch Q3 2020. The company has previously completed a seed financing from industry veterans. |
| o | Magic Fitness is an iOS and Android application that is changing the way fitness is done. With Magic, users pair up with certified fitness trainers for live, 1x1 personal training sessions conducted via video-call. There are no generic routines or pre-recorded workout videos; instead, Magic users enjoy a personalized virtual session, and the expertise of experienced trainers there to guide, correct and motivate them, and only them. |
| o | Profound, who is a potential Creatd Partner, is disrupting the sports drink category by focusing on a long-neglected audience within sports–women. Profound’s line of functional, stylish, and sustainably packaged sports beverages are healthy, hydrating, and specifically formulated to fit the needs of women and support women’s fitness and active lifestyle. Profound is currently in development and is projected to launch Q4 2020. The company has previously completed a seed financing from industry veterans.
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| o | Comhear is on a mission is to harness the power of audio technology to make content experiences more intelligent. Their patented audio technology leverages data to create customized sound fields that suit the listener’s physical environment and personal preference, fostering dynamic and adaptive content experiences for the consumer. |
45On 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 June 30, 2022, we had 45 full-time employees and 17 part-time employees. None of our employees are subject to a collective bargaining agreement, and we believe our relationship with our employees to be good. We 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 our 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 approximately 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 lease term was 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 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. Corporate Information We were originally incorporated under the lawsThe 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 the State of Nevadathis prospectus, and you should not rely 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 28,500,000 shares of our 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 781,818 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.
Employees
As of August 18, 2020, we had 23 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.
Description of Property
Our corporate headquarters consists of a total of 3,000 square feet and is located at 2050 Center Ave, Suite 640 and Suite 660, Fort Lee, NJ 07024. The current lease term is 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.
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 orinformation in making the aggregate, a material adverse effect on our business, financial condition or operating results.
On June 25, 2020, Home Revolution, LLC (“Home Revolution”) filed a lawsuit indecision whether to purchase the United States District Court for the District of New Jersey (the “Court”), entitled Home Revolution, LLC, et al v. Jerrick Media Holdings, Inc. et al, Case No. 2:20-cv-07775-JMV-MF (the “Action”). The complaint for the lawsuit alleges, among other things, that the Company 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.securities.
The Company continues to believe that the Action lacks merit and has moved to dismiss the Action. In the event this Action is not summarily dismissed, Jerrick intends to vigorously challenge it. At this time, the Company is unable to estimate potential damage exposure, if any, related to the litigation.
In addition to the existing claim for damages contained in the Complaint, on July 29, 2020, Home Revolution moved, by order to show cause, for preliminary injunctive relief. On August 13, 2020, the Court denied Home Revolution’s request for a preliminary injunction.
46
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 | Jeremy FrommerLaurie Weisberg | | 5153 | | Chief Executive Officer, Director | Mark StandishJeremy Frommer | | 5853 | | Executive Chairman of the Board of Directors | Leonard SchillerJoanna Bloor | | 7852 | | Director | Laurie WeisbergBrad Justus | | 5161 | | Director | Mark PattersonLorraine Hendrickson | | 6856 | | Director | Justin Maury | | 3133 | | Chief Operating Officer & President | Chelsea Pullano | | 2931 | | 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. Mark StandishJoanna Bloor – ChairmanDirector
Ms. Bloor, age 52, Founder and CEO of the BoardThe Amplify Lab, combines over 7 years of Directors Mr. Standish was elected to our board of directorsexperience in July 2020 and serves as its Chairman. He has servedTechnology senior management following a 15-year career as a Senior PartnerExecutive 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 HHM Capital since January 2017. Additionally,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 has served as a memberhad been involved in 3 companies in the technology and gaming industry, holding positions including Vice President of the Board of Directors for LightPoint Financial Technology LLC since January 2017.Marketing and Brand Experience, Chief Marketing Officer, Chief Executive Officer, and Senior Vice President. From February 2015 to December 2016, he served as Managing PartnerChief 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 Information OfficersMarketing Officer at ClearStreet, Inc., a fintech startup company. From 2006 through 2007, Mr. Justus was the Senior Vice President for Deimos Asset Management LLC. In 1995Art.com, an online art marketplace. From 2004 to 2005, he joinedwas 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 Royal Bankcreator-driven global launch of Canada and served as Co-Chief Executive Officerthe blockbuster game VALORANT in 2020. Mr. Justus holds a Bachelor of RBC Capital MarketsArts cum laude in Political Science from 2008 to 2014. He studied banking and finance at Croydon College in England in 1983.Amherst College. We believe Mr. Standish is qualifiedJustus will be a strong addition to serve as a memberCreatd’s board of our boarddirectors because of his extensive financial industryexperience leading branding, marketing, and leadership experience.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.
Leonard SchillerLorraine Hendrickson – Director
Mr. Schiller isLorraine Hendrickson, age 56, combines over 20 years of experience in the Chairmaninvestment banking industry, having held numerous senior management and executive positions including Chief Administration Officer, Vice President of our boardBusiness 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 directors. He is PresidentDeloitte UK, the leading London-based international consulting firm. She was subsequently recruited by a client 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 hasfrom 2015-2018, served as the PresidentProgram Director of The Dearborn Group,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 residential property management and real estate company with properties locatedBachelor of Science 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.
Laurie Weisberg – Director
Ms. Weisberg was elected to our board of directors in July 2020. 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.Finance from Rider University. We believe Ms. Weisberg is qualified to serve on our board of directors due toHendrickson will add considerable value, including through her extensive global salescomprehensive and brand marketing expertise as well as her leadership experience working within the technology space.
Mark Patterson – Director
Mr. Patterson was elected to our board of directors in July 2020. Mr. Patterson, a private equity and hedge fund businessman, co-founded MatlinPatterson Global Advisors, a leading private equity firm in the distressed investing space in 2002. Early in his career, Patterson worked in leveraged finance at Credit Suisse, Scully Brothers & Foss, Salomon Brothers, and Bankers Trust. During his tenure as chairman and chief executive of MatlinPatterson’s asset management division, Mr. Patterson expanded the firm’s portfolio beyond distressed debt, implementing other investment strategies such as credit trading, securitized credit, and senior credit. Mark Patterson currently holds the position of Non-Executive Chairman of MatlinPatterson Asset Management. Mr. Patterson received degrees in Law and Economics from Stellenbosch University in South Africa and an M.B.A. from New York University’s Stern School of Business. We believe Mr. Patterson is qualified to serve on our board of directors due to his extensive experience in financial markets,diverse investment management experience, deep knowledge of governance and his corporate governanceregulatory frameworks, and broad experience on various boards.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. 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 averseadverse 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 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, Mark Standish, Laurie Weisberg,Joanna Bloor, Brad Justus and Mark PattersonLorraine 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.
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: | ● | appointing;Appointing; approving the compensation of; overseeing the work of; and assessing the independence, qualifications, and performance of the independent auditor; |
| ● | reviewingReviewing the internal audit function, including its independence, plans, and budget; |
| ● | approving,Approving, in advance, audit and any permissible non-audit services performed by our independent auditor; |
| ● | reviewingReviewing our internal controls with the independent auditor, the internal auditor, and management; |
| ● | reviewingReviewing the adequacy of our accounting and financial controls as reported by the independent auditor, the internal auditor, and management; |
| ● | overseeingOverseeing our financial compliance system; and |
| ● | overseeingOverseeing our major risk exposures regarding the Company’s accounting and financial reporting policies, the activities of our internal audit function, and information technology. |
The board 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. Effective upon the completion of this offering theThe board of directors will adopthas 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 is financially literate, and that Mr. StandishMs. Hendrickson meets the qualifications of an Audit Committee financial expert. The Audit Committee will consistconsists of Ms. Bloor, Mr. Standish, Mr. Schiller,Justus and Ms. Weisberg, and Mr. Patterson. Mr. Standish will chairHendrickson. 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: | ● | reviewingReviewing and making recommendations to the Board with respect to the compensation of our officers and directors, including the CEO; |
| ● | overseeingOverseeing and administering the Company’s executive compensation plans, including equity-based awards; |
| ● | negotiatingNegotiating and overseeing employment agreements with officers and directors; and |
| ● | overseeingOverseeing how the Company’s compensation policies and practices may affect the Company’s risk management practices and/or risk-taking incentives. |
Effective upon the completion of this offering, theThe board of directors will adopthas adopted a written charter setting forth the authority and responsibilities of the Compensation Committee.
The Compensation Committee will consistconsists of Ms. Bloor, Mr. Standish, Mr. Schiller,Justus and Ms. Weisberg, and Mr. Patterson. Mr. Patterson will serveHendrickson. 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 after the consummation of the offering, the composition of the Compensation Committee will meetmeets 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: | ● | reviewingReviewing and assessing the development of the executive officers and considering and making recommendations to the Board regarding promotion and succession issues; |
| ● | evaluating | | ● | Evaluating and reporting to the Board on the performance and effectiveness of the directors, committees and the Board as a whole; |
| ● | working | | ● | 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 | | ● | Annually presenting to the Board a list of individuals recommended to be nominated for election to the Board; |
| ● | reviewing, | | ● | Reviewing, evaluating, and recommending changes to the Company’s Corporate Governance Principles and Committee Charters; |
| ● | recommending | | ● | Recommending to the Board individuals to be elected to fill vacancies and newly created directorships; |
| ● | overseeing | | ● | Overseeing the Company’s compliance program, including the Code of Conduct; and |
| ● | overseeing | | ● | 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. |
Effective upon completion of this offering., theThe board of directors will adopthas adopted a written charter setting forth the authority and responsibilities of the Corporate Governance/Nominating Committee.
The Nominating and Corporate Governance Committee will consistconsists of Ms. Bloor, Mr. Standish,Justus and Ms. Hendrickson. Mr. Schiller, Ms. Weisberg, and Mr. Patterson. Ms. Weisberg will serveJustus serves as chairman.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.
51Delinquent Section 16(A) Reports.
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 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | $ | 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) | The $24,925 includes payment to Ms. Weisberg for health insurance. |
(2) | The $7,875 includes payment to Ms. Weisberg for health insurance. | | (1) | (3) | The $104,667$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. |
| (2) | (8) | The $9,708 includes payment to Mr. Schwartz for health insurance. |
| (3) | The $96,463$86,686 includes payment to Mr. Frommer for living expenses, health insurance and a vehicle allowance. |
| (4) | (9) | The $8,094 includes paymentOn May 13, 2020, the Company exchanged 167,955 stock options for 251,933 shares of Common Stock. $403,604 is attributable to Mr. Maurythis 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 health insurance.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 August 18, 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. 52
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) | | | 66,666 | | | | - | | | | 66,666 | | | $ | 22.5 | | | May 22, 2022 | | | - | | | $ | - | | | | - | | | | - | | Rick Schwartz (1) | | | 66,666 | | | | - | | | | 66,666 | | | $ | 22.5 | | | May 22, 2022 | | | - | | | $ | - | | | | - | | | | - | | Justin Maury (2) | | | 55,985 | | | | - | | | | 55,985 | | | $ | 29.7 | | | 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) | (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 and Rick Schwartzwith Laurie Weisberg. | | | (2) | Effective September 28, 2020, to August 13, 2021, Laurie Weisberg was appointed as our President.Chief Operating Officer. Starting August 13, 2021, Laurie Weisberg Co-Chief Executive Officer with Jeremy Frommer. | |
| (2) | (3) | OnEffective January 31, 2019, Rick Schwartz resigned from his position as President. The Board of Directors appointedto August 13, 2021, Justin Maury was appointed as Presidentour President. Starting August 13, 2021, Justin Maury was appointed Chief Operating Officer in addition to President. | | | (4) | Effective June 29, 2020, Chelsea Pullano was appointed Chief Financial Officer. | | | (5) | 121,000 options expire on the same date.October 28, 2026, 200,000 options expire on February 19, 2027, 200,000 options expire on February 19, 2028. | | | (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) | (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) | Mr. TaffinMark Patterson resigned from ourthe board of directors effective July 31, 2021. | | | (3) | Laurie Weisberg was appointed the Company’s Chief Operating Officer on October 23, 2019.September 28, 2020. | | | (4) | Mark Standish, Leonard Schiller, and LaBrena Martin resigned from the board of directors subsequent to December 31, 2021. |
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, we expect that the shares to be sold in this offering will be freely tradable without restriction under the Securities Act unless purchased by our “affiliates,” as that term is defined in Rule 144 under the Securities Act; these restricted securities may be sold in the public market only if registered or 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:
| (a) | 1% of the number of shares of the Company’s capital stock then outstanding; or |
| (b) | the average weekly trading volume of the Company’s common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to that sale. |
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 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 nine-month “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 nine months 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 nine-month 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 nine-month lock-up period may be extended are described in more detail under “Underwriting.”
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:
| ● | banks, insurance companies or other financial institutions, regulated investment companies or real estate investment trusts; |
| ● | persons subject to the alternative minimum tax or Medicare contribution tax on net investment income; |
| ● | tax-exempt organizations or governmental organizations; |
| ● | controlled foreign corporations, passive foreign investment companies and corporations that accumulate earnings to avoid U.S. federal income tax; |
| ● | brokers or dealers in securities or currencies; |
| ● | traders in securities that elect to use a mark-to-market method of accounting for their securities holdings; |
| ● | persons that own, or are deemed to own, more than five percent of the Company’s capital stock (except to the extent specifically set forth below); |
| ● | U.S. expatriates and certain former citizens or long-term residents of the United States; |
| ● | partnerships or entities classified as partnerships for U.S. federal income tax purposes or other pass-through entities (and investors therein); |
| ● | persons who hold the Company’s common stock as a position in a hedging transaction, “straddle,” “conversion transaction” or other risk reduction transaction or integrated investment; |
| ● | persons who hold or receive the Company’s common stock pursuant to the exercise of any employee stock option or otherwise as compensation; |
| ● | persons who do not hold the Company’s common stock as a capital asset within the meaning of Section 1221 of the Internal Revenue Code; or |
| ● | persons deemed to sell the Company’s common stock under the constructive sale provisions of the Internal Revenue Code. |
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.
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:
| ● | an individual citizen or resident of the United States (for U.S. federal income tax purposes); |
| ● | a corporation or other entity taxable as a corporation created or organized in the United States or under the laws of the United States, any state thereof, or the District of Columbia, or other entity treated as such for U.S. federal income tax purposes; |
| ● | an estate whose income is subject to U.S. federal income tax regardless of its source; or |
| ● | a trust (x) whose administration is subject to the primary supervision of a U.S. court and which has one or more “U.S. persons” (within the meaning of Section 7701(a)(30) of the Internal Revenue Code) who have the authority to control all substantial decisions of the trust or (y) which has made a valid election to be treated as a U.S. person. |
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.
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 gain is effectively connected with your conduct of a U.S. trade or business (and, if required by an applicable income tax treaty, the gain is attributable to a permanent establishment maintained by you in the United States); |
| ● | you are a non-resident alien individual who is present in the United States for a period or periods aggregating 183 days or more during the taxable year in which the sale or disposition occurs and certain other conditions are met; or |
| ● | the Company’s common stock constitutes a United States real property interest by reason of its status as a “United States real property holding corporation,” or USRPHC, for U.S. federal income tax purposes at any time within the shorter of (i) the five-year period preceding your disposition of the Company’s common stock, or (ii) your holding period for its common stock. |
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.
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 August 18, 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 3,319,937 shares of common stock issued and outstanding as of August 18, 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 August 18, 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 3,319,937 shares of common stock outstanding at August 18, 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 August 18, 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 | | | 392,868 | (2) | | | 11.52 | % | Justin Maury | | | 163,707 | (3) | | | 4.83 | % | Chelsea Pullano | | | 57,818 | (6) | | | 1.71 | % | Leonard Schiller | | | 79,506 | (4) | | | 2.39 | % | Mark Standish | | | 156,000 | (7) | | | 4.62 | % | Mark Patterson | | | 21,830 | (8) | | | * | % | Laurie Weisberg | | | -- | | | | -- | % | All current directors and officers as a group | | | 871,729 | | | | 25.07 | % | | | | | | | | | | 5% or Greater Stockholders | | | | | | | | | Chris Gordon | | | 257,572 | | | | 7.76 | % | Arthur Rosen | | | 445,816 | (5) | | | 13.39 | % |
| (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 303,631 shares of common stock, 89,187 shares of common stock underlying stock options, and 50 shares of common stock underlying warrants. |
| (3) | Includes 95,374 shares of common stock and 68,333 shares of common stock underlying stock options. |
| (4) | Includes 76,098 shares of common stock and 3,408 shares of common stock underlying warrants. |
| (5) | Solely based on the Company’s review of filings made on a Schedule 13G on February 14, 2020 with the SEC. Includes (i) 391,570 shares of Common Stock held directly by Mr. Rosen, (ii) 44,247 shares of Common Stock held by Pearl Digital Opportunities Fund LLC (“Pearl”), of which Mr. Rosen is the Managing Member, (iii) warrants to acquire 3,333 shares of the Company’s common stock, and (iv) warrants to acquire 6,666 shares of the Company’s common stock held Mr. Rosen’s minor children. |
| (6) | Includes 7,818 shares of common stock and 50,000 shares of common stock underlying stock options. |
| (7) | Includes 102,800 shares of common stock, 13,200 shares of common stock underlying warrants, and 40,000 shares of common stock underlying convertible notes. |
| (8) | Includes 19,630 shares of common stock underlying convertible notes and 2,200 shares of common stock underlying warrants. |
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 12. 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 12.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 16649 shares of the Company’s common stock at a purchase price of $12.00$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. 59
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 250 shares of the Company’s common stock at a purchase price of $12.00 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 166 shares of the Company’s common stock at a purchase price of $12.00 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 5,000 shares of the Company’s common stock at a purchase price of $12.00 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 500 shares of the Company’s common stock at a purchase price of $12.00 per share. Pursuant to the June 2018 Frommer Loan Agreement, the June 2018 Frommer Note bears interest at a rate of 6% per annum and payable on the maturity date of August 17, 2018 (the “June 2018 Frommer Maturity Date”) at which time all outstanding principal, accrued and unpaid interest are due under the June 2018 Frommer 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 680 warrants to purchase common stock of the Company at an exercise price of $18.00. 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.
The First July 2018 Schiller Loan Agreement
On July 3, 2018, 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 1,250 shares of the Company’s common stock at a purchase price of $12.00 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 2,383 warrants to purchase common stock of the Company at an exercise price of $18.00. 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 1,250 shares of the Company’s common stock at a purchase price of $12.00 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 1,698 warrants to Mr. Schiller to purchase common stock of the Company at an exercise price of $18.00. 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 458 warrants to purchase common stock of the Company at an exercise price of $18.00. 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 Rosen Loan Agreement”) with Rosen, whereby the Company issued Mr. Rosen a promissory note of $50,000 (the “Second July 2018 Rosen Note”) resulting from the conversion of a demand note (as described below). As additional consideration for entering into the Second July 2018 Rosen Loan Agreement, the Company issued Mr. Rosen a four-year warrant to purchase 2,500 shares of the Company’s common stock at a purchase price of $12.00 per share. Pursuant to the Second July 2018 Rosen Loan Agreement, the Second July 2018 Rosen 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 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 3,399 warrants to purchase common stock of the Company at an exercise price of $18.00. 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.
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 2018 Rosen Note Loan Agreement, the Company issued Mr. Rosen a four-year warrant to purchase 416 shares of the Company’s common stock at a purchase price of $18.00 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, 2018 (the “November 2018 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 1,250 shares of the Company’s common stock at a purchase price of $18.00 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 833 shares of the Company’s common stock at a purchase price of $18.00 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.
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 5,000 shares of the Company’s common stock at a purchase price of $18.00 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 11,731 shares of common stock of the Company at an exercise price of $18.00. 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 1,666 shares of the Company’s common stock at a purchase price of $18.00 per share. Pursuant to the February 2019 Rosen2020 Frommer Loan Agreement, the February 2019 Rosen Note bears interest at a rate of 10% per annum andnote is payable on the maturity date of February 28, 20192020 (the “February 2019 Rosen2020 Frommer 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, 20192020 the Company repaid $50,000$2,989 in principal and $3,208$160 in interest and the loan is no longer outstanding.interest. The June 2019September 2020 Goldberg Loan Agreement On June 3, 2019,September 15, 2020, the Company entered into a loan agreement (the “June 2019“September 2020 Goldberg Loan Agreement”) with Mr. Rosen, pursuant to whichGoldberg 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 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 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 extinguishment of debt. During the year ended December 31, 2020 the Company accrued interest of $347.
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 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 20162020 Rosen Loan Agreement, dated May 26, 2016 in favor ofthe September 2020 Rosen for a joint and severalNote has an 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 the7%. The maturity date of December 3, 2019the September 2020 Rosen Note is September 15, 2022 (the “June 2019“September 2020 Rosen 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 75 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 $18.00 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 333 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 $18.00 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 50 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 $18.00 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
As 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 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. |
Terms of this Offering We are issuing, at no charge, non-transferable subscription rights entitling holders of common stock as of the record date and holders of the Preferred Shares, Eligible Warrants and/or Eligible Options, whom we refer to as 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 sold 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 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. 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 shares of common stock issued upon the exercise of subscription rights are expected to be 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 Available for Over-Subscription Privileges 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 enter into an underwriting agreement with The Benchmark Company as representative fordetermine the underwriters in this offering. Each underwriter named below has severally agreed to purchase from us,over-subscription allocation based on a firm commitment basis,the formula described above and will notify rights holders of the number of Units, consistingunits 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. 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. 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 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 subscription period, and thereby postpone the expiration date, not to exceed 45 days from the initial 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, 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.
Determination of the Subscription Price The $ subscription price was set by management and approved by our board of directors considering. In approving the subscription price, our board considered, among other things, the following 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 Units The shares of our common stock and Series A warrants set forth oppositecomprising the units will be issued separately upon the exercise of subscription rights, and the units will not trade as a separate security. Rights holders may not recombine shares of common stock and Series A warrants to receive a unit. Subscription Agent Continental Stock Transfer & Trust, the subscription agent, will receive for its nameadministrative, processing, invoicing and other services a fee 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 the subscription 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 the public offering price, less the underwriting discount set forthor prior to 5:00 p.m. (Eastern time) on the cover pageexpiration date of this prospectus.offering or by the close of business on the second business day after the expiration date of the offering following timely receipt of a notice of guaranteed delivery. See “Payment for Securities” below. In this prospectus, close of business means 5:00 p.m. (Eastern time) on the relevant date.
UnderwriterSubscription Certificate Delivery Method | | Address/Number | By Notice of
Units 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 notify us of your intent to exercise the subscription rights. | The Benchmark Company, LLC | | | | | Brookline Capital Markets, a division of Arcadia Securities, LLCBy Mail: | | Continental Stock Transfer & Trust Attn: Corporate Actions 1 State Street, 30th Floor New York, NY 10004 | | | | TotalBy Hand or Overnight Courier: | | | 833,333 | Continental Stock Transfer & Trust Attn: Corporate Actions 1 State Street, 30th Floor New York, NY 10004 |
The underwriters are committedDelivery to purchase allan address other than one of the Units offeredaddresses listed above may not constitute valid delivery and, accordingly, may be rejected by us other than those coveredus.
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 option to purchase additional securities described below, if they purchase any such securities. The obligations of the underwriters may be terminated upon the occurrence of certain events specified in the underwriting agreement. Furthermore, pursuant to the underwriting agreement, the underwriters’ obligations are subject 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 offers to the public and to reject orders in whole or in part.
Over-allotment Option
The Company has granted the underwriters an over-allotment option. This option, which is exercisable for up to 45 days after theexpiration date of this prospectus, permits the underwritersoffering. 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 purchaseguarantee delivery of payment and delivery of a maximumproperly completed and duly executed subscription certificate pursuant to a notice of 125,000 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 coveredguaranteed delivery by the option at the public offering price per share that appearsclose of business on the cover page ofsecond 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 prospectus, less the underwriting discount. If this option is exercised in full, the total offering price to the public willservice. Completed subscription certificates and related payments must be $8,625,000 and the total net proceeds, before expenses, to us will be $7,870,625.
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 exercisereceived by the underwriters of their over-allotment option.
| | Per
Share | | | Total
Without
Over-
Allotment
Option | | | Total
With
Over
Allotment
Option | | Public offering price | | $ | | | | $ | | | | $ | | | Underwriting discount (7.5%) | | $ | | | | $ | | | | $ | | | Proceeds, before expenses, to us | | $ | | | | $ | | | | $ | | |
The underwriters proposesubscription agent prior to offer5:00 p.m. (Eastern time) on or before 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 termsexpiration date (unless payment is effected by means of a supplement to this prospectus. notice of guaranteed delivery as described below under “Payment for Securities”) at the offices of the subscription agent at the address set forth above.
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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 The CompanyRecord 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 nominee will paycomplete the out-of-pocket accountable expensessubscription certificate on behalf of the underwriters in connectionrecord 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 for 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 this offering. The underwriting agreement, however, provides that in the event the offering is terminated, any advance expense deposits paidrespect to the underwriters will be returnedsubscription rights. If the beneficial owner so instructs, the nominee should complete the subscription certificate and submit it to the extent that offering expenses are not actually incurred in accordancesubscription agent with FINRA Rule 5110(f)(2)(C).the proper payment as described under “Payment for Securities” below. The Company has agreedGuaranteed Delivery Procedures
If you wish 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 of the underwriter shall not exceed $100,000 in the aggregate, including the fees 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 underwritersexercise subscription rights, but you do not intendhave sufficient time to confirm sales ofdeliver the securities offered herebyrights certificate evidencing your subscription rights to any accounts over which they have discretionary authority.
Lock-Up Agreements
Pursuant to certain “lock-up” agreements, the Company, its executive officers, directors and holders of the Company’s common stock and securities exercisable for or convertible into its common stock outstanding immediately upon the closing of this offering, have agreed, subject to certain exceptions, not 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, in whole or in part, 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 consent 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 paragraph will be automatically extended if: (1) during the last 17 days of the restricted period, the Company issues an earnings release or announce material news or a material event; or (2)subscription agent prior to the expiration of the lock-up period,rights offering, you may exercise your subscription rights by the Company announces that it will release earnings results duringfollowing guaranteed delivery procedures:
deliver to 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 continuesubscription agent prior to apply until the expiration of the 18-day period beginning onrights offering the subscription payment for each share you elected to purchase pursuant to the exercise of subscription rights in the manner set forth below under “Payment for Securities;” deliver to the subscription agent prior to the expiration of the rights 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 earnings release, unlesssame form provided with the underwriters waive this extension in writing; provided, however, that this lock-up period extension shall not apply“Instructions for Use of Non-Transferable Subscription Rights Certificates,” which will be distributed to you with your rights certificate. Your Notice of Guaranteed Delivery must include a signature guarantee from an eligible institution acceptable to the extentsubscription agent. A form of that FINRA has amended or repealed NASD Rule 2711(f)(4), or has otherwise provided written interpretive guidance regarding such rule, in each case, soguarantee is included with the Notice of Guaranteed Delivery. In your Notice of Guaranteed Delivery, you must provide: | ● | 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 eliminate the prohibitionvalidity, form, eligibility (including times of receipt and matters pertaining to beneficial ownership) and the acceptance 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 broker, dealer, or memberall subscriptions not properly submitted or the acceptance of a national securities association from publishingwhich would, in the opinion 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 distributingnot in proper form or if the acceptance thereof or the issuance of units thereto could be deemed unlawful. We reserve the right to waive any research report,deficiency or irregularity with respect to the securities of an emerging growth company (as definedany 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 the JOBS Act) priorour sole discretion. We will not be under any duty to or after the expirationgive notification of any agreement betweendefect or irregularity in connection with the broker, dealer,submission of subscription certificates 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.incur any liability for failure to give such notification. 65
Underwriter WarrantsNo Revocation or Change
The Company has agreedOnce you submit the subscription certificate or have instructed your nominee of your subscription request, you are not allowed to issuerevoke 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 the underwriters warrantsbe unfavorable. You should not exercise your subscription rights unless you are certain that you wish to purchase up tounits at the subscription price.
Transferability
Subscription Rights. The subscription rights are evidenced by a totalsubscription 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 7.5%common stock included in units will be separately transferable following their issuance. All of the shares of common stock soldissued in this offering (excludingare 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 17Ad-15 under the Exchange Act to send a notice of guaranteed delivery or otherwise guaranteeing delivery of (a) payment of the full subscription price for the units subscribed for 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. 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 units is received by 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 U.S. dollars by money order or check or bank draft drawn on a bank or branch located in the United States and 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 irregularity, or permit a defect or irregularity to be corrected within such time as we may determine, or reject the purported exercise of any right. 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. The subscription agent will not be under any duty to give notification of any defect or irregularity in connection with the submission 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 sold throughare 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 Series 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 over-allotment option). The warrants are exercisableprice at $9.90 per share (110%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 publicSeries 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, price) commencing on a date which is six (6) months from the effective datesee “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 under this prospectus supplement(assuming that it is fully subscribed and expiring on a date which is no more than five (5) years fromthat the effective date ofSeries A warrants issued in the offering are exercised in compliance with FINRA Rule 5110(f)(2)(G)full), we would have approximately 60,361,758 shares of common stock outstanding, representing an increase in outstanding shares of approximately 196%. The warrants have been deemed compensation by FINRA and are therefore subjectIf 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 6-month lock-up pursuantsmaller proportional interest in our company compared to Rule 5110(g)(1) of FINRA. The underwriters (or their permitted assignees under the Rule) will not sell, transfer, assign, pledge, or hypothecate these warrants or 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 disposition of the warrants or the underlying securities for a period of 12 months from effectiveness. The warrants may be exercised asyour interest prior to all, or a lesserthis offering. The number of shares of common stock and will provide for cashless exercise and will contain provisions for one demand registrationoutstanding listed in each case above assumes that (a) all of the sale of the underlyingother shares of common stock issued and unlimited “piggyback” registrationoutstanding 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 bothby shareholders should generally not be taxable for a periodU.S. federal income tax purposes. You should seek specific tax advice from your tax advisor in light of no greater than five (5) yearsyour particular circumstances and as to the applicability and effect of any other 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 other expenses incurred in connection with the exercise of your subscription rights. Other Matters We are not making this offering in any state or other jurisdiction in which it 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 effective datesubscription rights. We may delay the commencement of this offering in those states or other jurisdictions, or change the terms of the offering, in compliancewhole or in part, in order to comply with FINRA Rule 5110(f)(2)(G)(iv). The Company will bear all fees and expenses attendant to registering 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 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.
DESCRIPTION OF SECURITIES We 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 holders 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 onupon conversion or exercise of the warrants other than underwriting commissions incurred and payable by the holders. The exercise price and number of shares issuable upon exercisePreferred Shares, Eligible Warrants, Eligible Options, and/or Eligible Convertible Notes you held as of the warrants may be adjustedrecord 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 certain circumstances including in the eventfull and other limitations. Each unit will consist of one share of common stock and a stock dividend, extraordinary cash dividend or the Company’s recapitalization, reorganization, merger or consolidation. However, theSeries A warrant exercise price or underlying shares will not be adjusted for issuances of sharesexercisable 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 price below the warrant exercise price. Electronic Offer, Sale and Distribution of Shares
A prospectus in electronic format may be made available 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 distributionsunit, but 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.issued separately.
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.
| ● | Stabilizing transactions permit bids to purchase shares so long as the stabilizing bids do not exceed a specified maximum and are engaged in for the purpose of preventing or retarding a decline in the market price of the shares while the offering is in progress. |
| ● | Over-allotment transactions involve sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase. This creates a syndicate short position which may be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares that they may purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than the number of shares in the over-allotment option. The underwriters may close out any short position by exercising their over-allotment option and/or purchasing shares in the open market. |
| ● | Syndicate covering transactions involve purchases of shares in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared with the price at which they may purchase shares through exercise of the over- allotment option. If the underwriters sell more shares than could be covered by exercise of the over-allotment option and, therefore, have a naked short position, the position can be closed out only by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that after pricing there could be downward pressure on the price of the shares in the open market that could adversely affect investors who purchase in the offering. |
| ● | Penalty bids permits the underwriters to reclaim a selling concession from a syndicate member when the shares originally sold by that syndicate member are purchased in stabilizing or syndicate covering transactions to cover syndicate short positions. |
These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of the Company’s shares of common stock or preventing or retarding a decline in the market price of its shares of common stock. As a result, the price of the Company’s common stock or warrants in the open market may be higher than it would otherwise be in the absence of these transactions. Neither the Company nor the underwriters make any representation or prediction as to the effect that the transactions described above may have on the price of the Company’s common stock. These transactions may be effected on the Nasdaq Capital Market, in the over-the-counter market or otherwise and, if commenced, may be discontinued at any time.
Passive Market Making
In connection with this offering, the underwriters may engage in passive market making transactions in the Company’s common stock on The Nasdaq Capital Market in accordance with Rule 103 of Regulation M under the Exchange Act, during a period before the commencement of offers or sales of the shares and extending through 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, in the future provide various investment banking, commercial banking and other financial services for the Company and its affiliates for which they have received, and may 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 than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published 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 sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.
DESCRIPTION OF SECURITIES
Authorized and Outstanding Capital Stock
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 which are filed as exhibits to the registration statementBylaws. Description of which this prospectus forms a part.Common Stock The Company is authorized to issue 120,000,000 shares of capital stock, par value $0.001 per share, of which 100,000,000 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 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. As of August 18, 2020, the Company had outstanding 3,319,937 shares of common stock held by 274 shareholders of record.
Units Offered Hereby
We are offering 833,333 Units at an assumed price of $9.00 per Unit, the last reported sale price for our common stock as reported on the OTCQB on August 18, 2020. 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 $9.00 per share. The actual public offering price per Unit will be determined between us and the underwriters at the time of pricing and may be at a discount to the current market price. Therefore, the assumed public offering price used throughout this prospectus may not be indicative of the final offering price.
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 $9.00 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.
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. | ● | Impairing dividend rights of the Company’s common stock; |
The Series A warrants will be issued pursuant to a warrant agreement by and between us and Pacific Stock Transfer, the warrant agent. | ● | Diluting the voting power of the Company’s common stock; |
Applicable Anti-Takeover Law | ● | Impairing the liquidation rights of the Company’s common stock;Set forth below is a summary of provisions in our Articles of Incorporation and |
| ● | Delaying or preventing a change of control without further action by the Company’s stockholders. |
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. Common Stock Purchase WarrantsNo Cumulative Voting
AsOur Articles of August 18, 2020Incorporation and the Company had outstanding warrants to purchase 341,685 sharesBylaws do not provide holders of itsour common stock outstanding with various exercise prices and expiration dates, held by 66 warrant holders.
Common Stock Purchase Options
Ascumulative voting rights in the election of August 18, 2020directors. The absence of cumulative voting could have the Company had stock options to purchase 542,695 shareseffect of its common stock outstanding, allpreventing stockholders holding a minority of which were exercisable, with various exercise prices and expiration dates, held by 22 option holders.
Listing
Ourour 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 currently quotednot discussed. This discussion is based on The OTCQB Venture Market, operated by OTC Markets Group, under the temporary symbolU.S. Internal Revenue Code of “JMDAD,” previously “JMDA.”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 appliednot 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 list ourthat discussed below regarding the tax consequences of the receipt of subscription rights acquired through this offering by persons holding shares of common stock, on the Nasdaq Capital Market upon our satisfactionexercise (or expiration) of the exchange’s initial listing criteria. Upon approval to list oursubscription 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 warrants onmeaning of Section 1221 of the Nasdaq Capital Market, we will change our nameCode (generally, property held for investment). This discussion does not address all U.S. federal income tax consequences relevant to “Creatd, Inc.” and we anticipate thata 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 underlyingacquired upon exercise of subscription rights or shares of common stock acquired upon exercise of the Units (onceSeries 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
Definition of a U.S. Holder For purposes of this discussion, a “U.S. holder” is any beneficial owner of subscription rights, shares of common stock and Series A warrants have begunacquired 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 trade separately),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 complex 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 following discussion is based upon the treatment of the subscription right issuance as a non-taxable distribution with respect to a 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 listed onallocated a zero tax basis for U.S. federal income tax purposes, unless the Nasdaq Capital Market under the symbols “CRTD” and “CRTDW”, respectively. No assurance can be given that our application will be approved. If ourU.S. holder elects to allocate its tax basis in its existing shares of common stock between its existing shares of common stock and the warrants are not approved for listing on the Nasdaq Capital Market, we will not consummate this offering. Exclusive Forum
Each of our Second Amended Articles of Incorporation and our Amended and Restated Bylaws provide that unless the Company consentssubscription rights in writingproportion 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 rightrelative fair market values 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. 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.
Additionally, each 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 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.
Indemnification of Directors and Officers
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.
Disclosure of Commission Position on Indemnification for Securities Act Liabilities
Insofar as indemnification for liabilities under the Securities Act may be permitted to officers, directors or persons controlling the Company pursuant to 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.
2015 Incentive Stock and Award Plan
On February 5, 2016, the Company assumed the Jerrick Ventures, Inc. 2015 Incentive Stock and Award Plan (the “2015 Plan”), and all awards thereunder, which provides for the issuance of up to 900,000 shares of the Company’s common stock. As described below, no further awards shall be issued pursuant to the 2015 Plan as a result of the approval by our stockholders of the Company’s 2020 Equity Incentive Plan. As a result of the reverse stock split effectuated on August 17, 2020, the number authorizedexisting shares of common stock issuable underand the 2015 Plan was adjusted to 300,000.
The purposesubscription rights determined on the date of receipt of the 2015 Plan issubscription rights. If a U.S. holder chooses to provide additional incentive to those officers, employees, consultants and non-employee directors of the Company andallocate tax basis between its parents, subsidiaries and affiliates whose contributions are essential to the growth and success of the Company’s business.
Eligible recipients of option awards are employees, officers, consultants, attorneys, advisors or directors (including non-employee directors) of the Company or of any parent, subsidiary or affiliate of the Company. Upon recommendation from the Compensation Committee, the board has the authority to grant to any eligible recipient any options, restricted stock or other awards valued in whole or in part by reference to, or otherwise based on, the Company’s Common Stock; provided, however, that Incentive Options may only be granted to employees of the Company or its subsidiaries.
The provisions of each option granted need not be the same with respect to each option recipient. Option recipients have entered into award agreements with the Company, in such form as the Compensation Committee of the board of directors (or the full board of directors) has determined.
The 2015 Plan is administered by the Compensation Committee consisting of two or more independent, non-employee and outside directors. In the absence of such a committee, the board of directors administers the 2015 Plan.
Each stock option under the 2015 Plan contains the following material terms:
(i) the purchase price of each shareexisting shares of common stock and the subscription rights, the U.S. holder must make this election on a statement included with respect to Incentive Options shall be determined byits timely filed tax return (including extensions) for the Compensation Committee attaxable year in which the time of grant, shall not be less than 100%U.S. holder receives the subscription rights. Such an election is irrevocable. If the fair market value of the Fair Market Value (defined as the closing price on the final trading day immediately prior to the grant on the principal exchangesubscription rights a U.S. holder receives is 15% or quotation system on which the common stock is listed or quoted, as applicable)more of the common stockfair market value of the Company, provided that if the recipient of the stock option owns more than ten percent (10%) of the total combined voting power of the Company, the exercise price shall be at least 110% of the Fair Market Value;
(ii) The purchase price of each share of common stock purchasable under a Nonqualified Option shall be at least 100% of the Fair Market Value of such sharetheir existing shares of common stock on the date the Nonqualified Option is granted, unlessU.S. holder receives the Compensation Committee,subscription rights, however, then the U.S. holder must allocate its tax basis in its soleexisting shares of common stock between those shares and absolute discretion, determinesthe subscription rights the U.S. holder receives in proportion to set the purchase price of such Nonqualified Option below Fair Market Value.
(iii) the term of each stock option shall be fixed by the Compensation Committee, provided that such stock option shall not be exercisable more than five (5) years aftertheir fair market values determined on the date suchthe U.S. holder receives the subscription rights. The holding period of subscription rights received will include a holder’s holding period in shares of common stock option is granted, and provided further that with respect to an Incentive Option, ifwhich the recipient owns more than ten percent (10%)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 total combined voting powerreceipt of the Company,subscription right, no longer holds the Incentive Option shall not be exercisable more than five (5) years aftercommon stock with respect to which the subscription right was distributed.
The fair market value of the subscription rights on the date such Incentive Optionthat the subscription rights are distributed is granted; (iv) subjectuncertain, and we have not obtained, and do not intend to acceleration in the event of a Change of Controlobtain, an appraisal of the Company (as further described infair market value of the 2015 Plan),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 stock options vest shallsubscription rights may be designated byexercised and the Compensation Committeefact 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 absencesubscription right plus the subscription price should be allocated between the new shares of anycommon stock option vesting periods designated byand the Compensation Committeewarrants 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 tax 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 grant, shall vest and become exercisable in equal amounts on each fiscal quarterthe receipt or exercise of the Company throughsubscription right, the four (4) year anniversary ofU.S. holder no longer holds the date on which thecommon stock option was granted; (v) no stock option is transferable and each is exercisable only by the recipient of such option except in the event of the death of the recipient; and
(vi) with respect to Incentive Options,which the aggregate Fair Market Valuesubscription 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 acquired upon exercise of the subscription right. If a U.S. holder exercises a subscription right received in this offering after disposing of shares of common stock with respect to which the subscription right is received, the U.S. holder should consult its tax advisor.
Expiration of Subscription 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 the 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.
Sale 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 the 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 were to pay a taxable dividend to our shareholders and, in accordance with the anti-dilution provisions of the Series A warrants, if any, 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 U.S. holder of the Series A warrants to the extent of our earnings and profits, notwithstanding the fact that such 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), 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 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 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 exercisable 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), such 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 profits, 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 or 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 a reduction 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 subject 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 applicable 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 first time duringtaxable 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 calendar year shall not exceed $100,000.applicable income tax treaty.
Sale or Other Disposition of Common Stock or Series A warrants Each awardSubject 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 Restricted Stockthe 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 such 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 will not become one in the future. Non-U.S. holders should consult their tax advisors regarding potentially applicable income tax treaties that may provide for different rules.
Information Reporting and Backup Withholding Subject to the 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 distributions (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 agreement to the tax authorities of the country in which the non-U.S. holder resides or is established. Information reporting and backup 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 required information is timely furnished to the IRS.
Additional Withholding Tax on Payments Made to Foreign Accounts Withholding taxes may be imposed under the Foreign 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 imposed 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 following material terms: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. (i) no rightsUnder the applicable Treasury Regulations and administrative guidance, withholding under FATCA generally applies to an awardpayments of Restricted Stock are granteddividends (including deemed dividends), and will apply to payments of gross proceeds from the intended recipientsale or other disposition of Restricted Stock unless and untilSeries warrants or common stock on or after January 1, 2019. Because we may not know the grant of Restricted Stockextent to which a distribution is accepted within the period prescribed by the Compensation Committee;
(ii) No certificates evidencing shares of Restricted Stock shall be delivered until such shares are free of any restrictions specified by the Compensation Committeea dividend for U.S. federal income tax purposes at the time it is made, for purposes of grant;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 Restricted Stock havecommon stock at 5:00 p.m. (Eastern time) on the rights of a stockholder ofrecord date or held the CompanyPreferred Shares, Eligible Warrants, Eligible Options, and/or Eligible Convertible Notes as of the daterecord 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 grant of the Restricted Stock, subject to vesting with respect to dividends and certain other non-transferability and forfeiture restrictions described below; (iv)underlying shares of Restricted Stock are forfeitable untilcommon stock.
Some of our officers, employees and directors may solicit responses from holders of subscription rights. None of our officers, directors or employees will be compensated in connection with these actions by the termspayment of commissions or other remuneration based either directly or indirectly on the Restricted Stock grantsubscriptions, but will be reimbursed for reasonable expenses. We have been satisfied oragreed to pay the recipient’s employmentsubscription agent and the information agent customary fees plus certain expenses in connection with the Company is terminated; andoffering. Except as described in this section, we are not paying any commissions, underwriting fees or discounts in connection with this offering. (v)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 Restricted Stockinformation on our websites is not transferable until the date on which the Compensation Committee has specified such restrictions have lapsed. 2020 Equity Incentive Plan
The following is a summarypart of the material features of our 2020 Equity Incentive Plan (the “2020 Plan”). This summary is qualified in its entirety by the full text of the 2020 Plan, a copy of which is filed as an exhibit tothis prospectus or the registration statement of which this prospectus forms a part.
Authorized Shares. A total of 7,500,000 shares of our common stock were originally reserved for issuance pursuant to the 2020 Plan. Our board of directors adopted the 2020 Plan on May 7, 2020part, has not been approved or endorsed by us, and our stockholders approved the 2020 Plan on July 8, 2020 (the “Effective Date”). Following the Effective Date, no further awards mayshould not be issued under our 2015 Plan, but all awards under the 2015 Plan that are outstanding as of the Effective Date will continue to be governedrelied upon by the terms, conditions and procedures set forth in the 2015 Plan and any applicable award agreement. As a result of the reverse stock split effectuated on August 17, 2020, the number authorized shares of common stock issuable under the 2020 Plan was adjusted to 2,500,000.investors.
Types of Awards. 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. Items described above in the Section called “Shares Available” are incorporated herein by reference.
Administration. The 2020 Plan will be administered by our board of directors, or if our board of directors does not administer the 2020 Plan, a committee or subcommittee of our board of directors that complies with the applicable requirements of Section 16 of the Exchange Act and any other applicable legal or stock exchange listing requirements (each of our board of directors or such committee or subcommittee, the “plan administrator”). The plan administrator may interpret the 2020 Plan and may prescribe, amend and rescind rules and make all other determinations necessary or desirable for the administration of the 2020 Plan, provided that, subject to the equitable adjustment provisions described below, the plan administrator will not have the authority to reprice or cancel and re-grant any award at a lower exercise, base or purchase price or cancel any award with an exercise, base or purchase price in exchange for cash, property or other awards without first obtaining the approval of our stockholders.
72Price Stabilization
We have not authorized any person to engage in any form of price stabilization in connection with this offering.
The 2020 Plan permits the plan administrator to select the eligible recipients who will receive awards, to determine the terms and conditions of those awards, including but not limited to the exercise price or other purchase price of an award, the number of shares of common stock or cash or other property subject to an award, the term of an award and the vesting schedule applicable to an award, and to amend the terms and conditions of outstanding awards.
Restricted Stock and Restricted Stock Units. Restricted stock and RSUs may be granted under the 2020 Plan. The plan administrator will determine the purchase price, vesting schedule and performance goals, if any, and any other conditions that apply to a grant of restricted stock and RSUs. If the restrictions, performance goals or other conditions determined by the plan administrator are not satisfied, the restricted stock and RSUs will be forfeited. Subject to the provisions of the 2020 Plan and the applicable award agreement, the plan administrator has the sole discretion to provide for the lapse of restrictions in instalments.
Unless the applicable award agreement provides otherwise, participants with restricted stock will generally have all of the rights of a stockholder; provided that dividends will only be paid if and when the underlying restricted stock vests. RSUs will not be entitled to dividends prior to vesting, but may be entitled to receive dividend equivalents if the award agreement provides for them. The rights of participants granted restricted stock or RSUs upon the termination of employment or service to us will be set forth in the award agreement.
Options. Incentive stock options and non-statutory stock options may be granted under the 2020 Plan. An “incentive stock option” means an option intended to qualify for tax treatment applicable to incentive stock options under Section 422 of the Internal Revenue Code. A “non-statutory stock option” is an option that is not subject to statutory requirements and limitations required for certain tax advantages that are allowed under specific provisions of the Internal Revenue Code. A non-statutory stock option under the 2020 Plan is referred to for federal income tax purposes as a “non-qualified” stock option. Each option granted under the Plan will be designated as a non-qualified stock option or an incentive stock option. At the discretion of the administrator, incentive stock options may be granted only to our employees, employees of our “parent corporation” (as such term is defined in Section 424(e) of the Code) or employees of our subsidiaries.
The exercise period of an option may not exceed ten years from the date of grant and the exercise price may not be less than 100% of the fair market value of a share of common stock on the date the option is granted (110% of fair market value in the case of incentive stock options granted to ten percent stockholders). The exercise price for shares of common stock subject to an option may be paid in cash, or as determined by the administrator in its sole discretion, (i) through any cashless exercise procedure approved by the administrator (including the withholding of shares of common stock otherwise issuable upon exercise), (ii) by tendering unrestricted shares of common stock owned by the participant, (iii) with any other form of consideration approved by the administrator and permitted by applicable law or (iv) by any combination of these methods. The option holder will have no rights to dividends or distributions or other rights of a stockholder with respect to the shares of Common Stock subject to an option until the option holder has given written notice of exercise and paid the exercise price and applicable withholding taxes.
In the event of an participant’s termination of employment or service, the participant may exercise his or her option (to the extent vested as of such date of termination) for such period of time as specified in his or her option agreement.
Stock Appreciation Rights. SARs may be granted either alone (a “free-standing SAR”) or in conjunction with all or part of any option granted under the 2020 Plan (a “tandem SAR”). A free-standing SAR will entitle its holder to receive, at the time of exercise, an amount per share up to the excess of the fair market value (at the date of exercise) of a share of common stock over the base price of the free-standing SAR (which shall be no less than 100% of the fair market value of the related shares of common stock on the date of grant) multiplied by the number of shares in respect of which the SAR is being exercised. A tandem SAR will entitle its holder to receive, at the time of exercise of the SAR and surrender of the applicable portion of the related option, an amount per share up to the excess of the fair market value (at the date of exercise) of a share of common stock over the exercise price of the related option multiplied by the number of shares in respect of which the SAR is being exercised. The exercise period of a free-standing SAR may not exceed ten years from the date of grant. The exercise period of a tandem SAR will also expire upon the expiration of its related option.
The holder of a SAR will have no rights to dividends or any other rights of a stockholder with respect to the shares of Common Stock subject to the SAR until the holder has given written notice of exercise and paid the exercise price and applicable withholding taxes.
LEGAL MATTERS In the event of an participant’s termination of employment or service, the holder of a SAR may exercise his or her SAR (to the extent vested as of such date of termination) for such period of time as specified in his or her SAR agreement.
Other Stock-Based Awards. The administrator may grant other stock-based awards under the 2020 Plan, valued in whole or in part by reference to, or otherwise based on, shares of common stock. The administrator will determine the terms and conditions of these awards, including the number of shares of common stock to be granted pursuant to each award, the manner in which the award will be settled, and the conditions to the vesting and payment of the award (including the achievement of performance goals). The rights of participants granted other stock-based awards upon the termination of employment or service to us will be set forth in the applicable award agreement. In the event that a bonus is granted in the form of shares of common stock, the shares of common stock constituting such bonus shall, as determined by the administrator, be evidenced in uncertificated form or by a book entry record or a certificate issued in the name of the participant to whom such grant was made and delivered to such participant as soon as practicable after the date on which such bonus is payable. Any dividend or dividend equivalent award issued hereunder shall be subject to the same restrictions, conditions and risks of forfeiture as apply to the underlying award.
Equitable Adjustment and Treatment of Outstanding Awards Upon a Change in Control
Equitable Adjustments. In the event of a merger, consolidation, reclassification, recapitalization, spin-off, spin-out, repurchase, reorganization, special or extraordinary dividend or other extraordinary distribution (whether in the form of common shares, cash or other property), combination, exchange of shares, or other change in corporate structure affecting our common stock, an equitable substitution or proportionate adjustment shall be made in (i) the aggregate number and kind of securities reserved for issuance under the 2020 Plan, (ii) the kind and number of securities subject to, and the exercise price of, any outstanding options and SARs granted under the 2020 Plan, (iii) the kind, number and purchase price of shares of common stock, or the amount of cash or amount or type of property, subject to outstanding restricted stock, RSUs and other stock-based awards granted under the 2020 Plan and (iv) the terms and conditions of any outstanding awards (including any applicable performance targets). Equitable substitutions or adjustments other than those listed above may also be made as determined by the plan administrator. In addition, the plan administrator may terminate all outstanding awards for the payment of cash or in-kind consideration having an aggregate fair market value equal to the excess of the fair market value of the shares of common stock, cash or other property covered by such awards over the aggregate exercise price, if any, of such awards, but if the exercise price of any outstanding award is equal to or greater than the fair market value of the shares of common stock, cash or other property covered by such award, the plan administrator may cancel the award without the payment of any consideration to the participant. With respect to awards subject to foreign laws, adjustments will be made in compliance with applicable requirements. Except to the extent determined by the plan administrator, adjustments to incentive stock options will be made only to the extent not constituting a “modification” within the meaning of Section 424(h)(3) of the Code.
Change in Control. The 2020 Plan provides that, unless otherwise determined by the plan administrator and evidenced in an award agreement, if a “change in control” (as defined below) occurs and a participant is employed by us or any of our affiliates immediately prior to the consummation of the change in control, then the plan administrator, in its sole and absolute discretion, may (i) provide that any unvested or unexercisable portion of an award carrying a right to exercise will become fully vested and exercisable; and (ii) cause the restrictions, deferral limitations, payment conditions and forfeiture conditions applicable to any award granted under the 2020 Plan to lapse, and the awards will be deemed fully vested and any performance conditions imposed with respect to such awards will be deemed to be fully achieved at target performance levels. The administrator shall have discretion in connection with such change in control to provide that all outstanding and unexercised options and SARs shall expire upon the consummation of such change in control.
For purposes of the 2020 Plan, a “change in control” means, in summary, the first to occur of the following events: (i) a person or entity becomes the beneficial owner of more than 50% of our voting power; (ii) an unapproved change in the majority membership of our board of directors; (iii) a merger or consolidation of us or any of our subsidiaries, other than (A) a merger or consolidation that results in our voting securities continuing to represent 50% or more of the combined voting power of the surviving entity or its parent and our board of directors immediately prior to the merger or consolidation continuing to represent at least a majority of the board of directors of the surviving entity or its parent or (B) a merger or consolidation effected to implement a recapitalization in which no person is or becomes the beneficial owner of our voting securities representing more than 50% of our combined voting power; or (iv) stockholder approval of a plan of our complete liquidation or dissolution or the consummation of an agreement for the sale or disposition of substantially all of our assets, other than (A) a sale or disposition to an entity, more than 50% of the combined voting power of which is owned by our stockholders in substantially the same proportions as their ownership of us immediately prior to such sale or (B) a sale or disposition to an entity controlled by our board of directors. However, a change in control will not be deemed to have occurred as a result of any transaction or series of integrated transactions following which our stockholders, immediately prior thereto, hold immediately afterward the same proportionate equity interests in the entity that owns all or substantially all of our assets.
Tax Withholding
Each participant will be required to make arrangements satisfactory to the plan administrator regarding payment of up to the maximum statutory tax rates in the participant’s applicable jurisdiction with respect to any award granted under the 2020 Plan, as determined by us. We have the right, to the extent permitted by applicable law, to deduct any such taxes from any payment of any kind otherwise due to the participant. With the approval of the plan administrator, the participant may satisfy the foregoing requirement by either electing to have us withhold from delivery of shares of common stock, cash or other property, as applicable, or by delivering already owned unrestricted shares of common stock, in each case, having a value not exceeding the applicable taxes to be withheld and applied to the tax obligations. We may also use any other method of obtaining the necessary payment or proceeds, as permitted by applicable law, to satisfy our withholding obligation with respect to any award.
Amendment and Termination of the 2020 Plan
The 2020 Plan provides our board of directors with authority to amend, alter or terminate the 2020 Plan, but no such action impair the rights of any participant with respect to outstanding awards without the participant’s consent. The plan administrator may amend an award, prospectively or retroactively, but no such amendment may materially impair the rights of any participant without the participant’s consent. Stockholder approval of any such action will be obtained if required to comply with applicable law. The 2020 Plan will terminate on the tenth anniversary of the Effective Date (although awards granted before that time will remain outstanding in accordance with their terms).
Clawback. If we are required to prepare a financial restatement due to the material non-compliance with any financial reporting requirement, then the plan administrator may require any Section 16 officer to repay or forfeit to us that part of the cash or equity incentive compensation received by that Section 16 officer during the preceding three years that the plan administrator determines was in excess of the amount that such Section 16 officer would have received had such cash or equity incentive compensation been calculated based on the financial results reported in the restated financial statement. The plan administrator may take into account any factors it deems reasonable in determining whether to seek recoupment of previously paid cash or equity incentive compensation and how much of such compensation to recoup from each Section 16 officer (which need not be the same amount or proportion for each Section 16 officer). The amount and form of the incentive compensation to be recouped shall be determined by the administrator in its sole and absolute discretion.
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.
INDEX TO FINANCIAL STATEMENTSCreatd, Inc.
June 30, 2022 Index to the Condensed Consolidated Financial Statements Jerrick Media Holdings, Inc.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Jerrick Media Holdings,Creatd, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Jerrick Media Holdings, Inc. (the Company) as of December 31, 2019 and 2018, and the related statements of comprehensive income (loss), changes in stockholders’ equity (deficit), and cash flows for each of the years in the two-year period 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, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the two-year period 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.
![](https://capedge.com/proxy/S-1A/0001213900-20-023163/img_010.jpg)
We have served as the Company’s auditor since 2018.
Somerset, New Jersey
March 30, 2020
![](https://capedge.com/proxy/S-1A/0001213900-20-023163/img_011.jpg)
Jerrick Media Holdings, Inc.
Condensed 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: 100,000,000 shares authorized; 3,059,645 issued and 3,006,362 outstanding as of December 31, 2019 and 2,158,446 issued and 2,149,224 outstanding as of December 31, 2018 (1) | | | 3,059 | | | | 2,158 | | Additional paid in capital | | | 36,391,819 | | | | 34,14,644 | | Accumulated deficit | | | (44,580,437 | ) | | | (36,545,065 | ) | Accumulated other comprehensive income | | | (5,995 | ) | | | - | | Less: Treasury stock, 53,283 and 9,222 shares, respectively | | | (367,174 | ) | | | (52,341 | ) | | | | (8,564,848 | ) | | | (2,494,921 | ) | | | | | | | | | | Total Liabilities and Stockholders’ Deficit | | $ | 2,572,046 | | | $ | 208,925 | |
| | 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 | |
(1) The shares have been retroactively restated to reflect the 1-for-3 reverse stock split effectuated on August 17, 2020, of the Company’s issued and outstanding shares of common stock (see Note 12).
The accompanying notes are an integral part of these condensed consolidated financial statements. F-3
Creatd, Inc. Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)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.
| | 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 | | $ | (2.93 | ) | | $ | (12.47 | ) | | | | | | | | | | Weighted average number of common shares outstanding (1) | | | 2,741,136 | | | | 1,139,497 | |
(1) The shares have been retroactively restated to reflect
Creatd, Inc. Condensed Consolidated Statement of Changes in Stockholders’ Equity (Deficit) For the 1-for-3 reverse stock split effectuated on August 17, 2020, of the Company’s issued and outstanding shares of common stock (see Note 12).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.
Jerrick Media Holdings,
Creatd, Inc. Condensed Consolidated Statement of Changes in Stockholders’ Equity (Deficit) For the YearsSix Months Ended December 31, 2019 and 2018June 30, 2022 (Unaudited) | | Series A Preferred Stock | | | Series B Preferred Stock | | | Common Stock (1) | | | 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 | | | | 658,678 | | | $ | 659 | | | | (9,222 | ) | | $ | (19,007 | ) | | $ | 14,426,148 | | | $ | (21,775,107 | ) | | $ | - | | | $ | (7,367,307 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Common stock issued to settle vendor liabilities | | | - | | | | - | | | | - | | | | - | | | | 313 | | | | - | | | | - | | | | - | | | | 3,375 | | | | - | | | | - | | | | 3,375 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock based compensation | | | - | | | | - | | | | - | | | | - | | | | 27,283 | | | | 27 | | | | - | | | | - | | | | 547,278 | | | | - | | | | - | | | | 547,305 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Issuance of common stock and warrants in exchange for Series A and accrued dividend | | | (31,581 | ) | | | (31 | ) | | | - | | | | - | | | | 370,829 | | | | 371 | | | | - | | | | - | | | | 2,199,752 | | | | - | | | | - | | | | 2,200,092 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Issuance of common stock and warrants in exchange for series B and accrued dividend | | | - | | | | - | | | | (8,063 | ) | | | (8 | ) | | | 76,947 | | | | 77 | | | | - | | | | - | | | | 469,107 | | | | - | | | | - | | | | 469,176 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash received for common stock and warrants | | | - | | | | - | | | | - | | | | - | | | | 185,831 | | | | 186 | | | | - | | | | - | | | | 2,787,276 | | | | - | | | | - | | | | 2,787,462 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Common stock and warrants issued upon conversion of notes payable | | | - | | | | - | | | | - | | | | - | | | | 752,149 | | | | 752 | | | | - | | | | - | | | | 11,940,011 | | | | - | | | | - | | | | 11,940,763 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock issuance cost | | | - | | | | - | | | | - | | | | - | | | | 70,000 | | | | 70 | | | | - | | | | - | | | | (161,473 | ) | | | - | | | | - | | | | (161,403 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock warrants issued with note payable | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1,660,986 | | | | - | | | | - | | | | 1,660,986 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Issuance of common stock for prepaid services | | | - | | | | - | | | | - | | | | - | | | | 10,167 | | | | 10 | | | | - | | | | - | | | | 116,290 | | | | - | | | | - | | | | 116,300 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Common stock issued with note payable | | | - | | | | - | | | | - | | | | - | | | | 6,250 | | | | 6 | | | | - | | | | - | | | | 77,481 | | | | - | | | | - | | | | 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 | | | - | | | | - | | | | - | | | | - | | | | 2,158,447 | | | | 2,158 | | | | (9,222 | ) | | | (52,341 | ) | | | 34,104,644 | | | | (36,545,065 | ) | | | - | | | | (2,490,604 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock based compensation | | | - | | | | - | | | | - | | | | - | | | | 41,742 | | | | 43 | | | | - | | | | - | | | | 437,063 | | | | - | | | | - | | | | 437,106 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash received for common stock and warrants | | | - | | | | - | | | | - | | | | - | | | | 43,322 | | | | 43 | | | | - | | | | - | | | | 649,786 | | | | - | | | | - | | | | 649,829 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Tender offering | | | - | | | | - | | | | - | | | | - | | | | 700,058 | | | | 700 | | | | - | | | | - | | | | (700 | ) | | | - | | | | - | | | | - | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock issuance cost | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (178,146 | ) | | | - | | | | - | | | | (178,146 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock warrants issued with note payable | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 427,692 | | | | - | | | | - | | | | 427,692 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Purchase of treasury stock and warrants | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (44,061 | ) | | | (314,833 | ) | | | (271,658 | ) | | | - | | | | - | | | | (586,491 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Shares issued for acquisition | | | - | | | | - | | | | - | | | | - | | | | 111,111 | | | | 111 | | | | - | | | | - | | | | 1,166,558 | | | | - | | | | - | | | | 1,166,669 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | BCF issued with note payable | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 4,444 | | | | - | | | | - | | | | 4,444 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Shares issued to settle vendor payable | | | - | | | | - | | | | - | | | | - | | | | 4,966 | | | | 5 | | | | - | | | | - | | | | 52,135 | | | | - | | | | - | | | | 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 | | | - | | | $ | - | | | | - | | | $ | - | | | | 3,059,646 | | | $ | 3,060 | | | | (53,283 | ) | | $ | (367,174 | ) | | $ | 36,391,818 | | | $ | (44,580,437 | ) | | $ | (5,995 | ) | | $ | (8,558,728 | ) |
| | 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 | ) |
(1) The shares have been retroactively restated to reflect the 1-for-3 reverse stock split effectuated on August 17, 2020, of the Company’s issued and outstanding shares of common stock (see Note 12).
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 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 | | | $ | - | |
| | 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. F-6
Creatd, Inc. December 31, 2019 and 2018June 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 “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. 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 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. 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 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:
(i) | Assumption as a going concern: Management assumes that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. | | | (ii) | Fair value of long-lived assets: Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives. The Company considers the following to be some examples of important indicators that may trigger an impairment review: (i) significant under-performance or losses of assets relative to expected historical or projected future operating results; (ii) significant changes in the manner or use of assets or in the Company’s overall strategy with respect to the manner or use of the acquired assets or changes in the Company’s overall business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; (v) a significant decline in the Company’s stock price for a sustained period of time; and (vi) regulatory changes. The Company evaluates acquired assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events. | | | (iii) | Valuation allowance for deferred tax assets: Management assumes that the realization of the Company’s net deferred tax assets resulting from its net operating loss (“NOL”) carry–forwards for Federal income tax purposes that may be offset against future taxable income was not considered more likely than not and accordingly, the potential tax benefits of the net loss carry-forwards are offset by a full valuation allowance. Management made this assumption based on (a) the Company has incurred recurring losses, (b) general economic conditions, and (c) its ability to raise additional funds to support its daily operations by way of a public or private offering, among other factors. |
(iv) | Estimates and assumptions used in valuation of equity instruments: Management estimates expected term of share options and similar instruments, expected volatility of the Company’s common shares and the method used to estimate it, expected annual rate of quarterly dividends, and risk-free rate(s) to value share options and similar instruments. | | | (v) | Operating lease Estimates and assumptions: These assets and liabilities are recognized based on the present value of future payments over the lease term at the commencement date. We estimate the incremental borrowing rate for each lease based on an evaluation of our credit ratings and the prevailing market rates for collateralized debt in a similar economic environment with similar payment terms and maturity dates commensurate with the terms of the lease. |
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 December 31, 2019,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%100 | % | Abacus Tech Pty Ltd | | Australia | | | 100%100 | % | Seller’s Choice, LLC | | New Jersey | | | 100%100 | % | Jerrick Global,Creatd Studios, LLC | | Delaware | | | 100%100 | % | Jerrick Investment AdvisorsGive, LLC | | Delaware | | | 100%100 | % | JerrickCreatd Partners LLC | | Delaware | | | 100%100 | % | Denver Bodega, LLC | | Colorado | | | 100 | % | Maven TechDune Inc. | | Delaware | | | 50 | % | Plant Camp LLC | | Delaware | | | 100%89 | % | Sci-Fi.com, LLC | | Delaware | | | 100 | % | OG Collection LLC | | Delaware | | | 100%100 | % | OG Gallery, Inc. | | Delaware | | | 100 | % | VMENA LLC | | Delaware | | | 100%100 | % | Vocal For Brands, LLC | | Delaware | | | 100%100 | % | Vocal Ventures LLC | | Delaware | | | 100%100 | % | What to Buy, LLC | | Delaware | | | 100%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 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 (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:Level 1 | Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. | | | Level 2 | Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. | | | Level 3 | Pricing inputs that are generally observable inputs and not corroborated by market data.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) |
FinancialThe Company’s Level 1 assets/liabilities include cash, accounts receivable, marketable trading securities, accounts payable, marketable trading securities, prepaid and other current assets, are consideredline 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 3 when2 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 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 themodels. Unobservable inputs used to measurein the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that ismodels are significant to the fair value measurementvalues of the instrument.assets and liabilities.
The carrying amountfollowing tables provides a summary of the Company’s financialrelevant assets and liabilities, such as cash, prepaid expenses, accounts payable and accrued liabilities. Transactions involving related parties cannot be presumed to be carried outthat are measured at fair value 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.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 minimizes itsprovides credit in the normal course of business. The Company maintains allowances for credit losses on factors surrounding the 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.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 fixture | fixtures | | 5 | |
Upon sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the condensed consolidated statements of operations. Long-lived Assets Including Goodwill and Other Acquired IntangiblesIntangible Assets
We evaluate the recoverability of property and equipment, and acquired finite-lived intangible assets 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. We have notDuring the three and six months ended June 30, 2022, the Company recorded any significantan impairment charges during the years presented.charge of $7,531 for intangible assets. 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. 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 Accounting Standards CodificationASC 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 shareholders’stockholders’ equity in accumulated other comprehensive income. Gains and losses from foreign currency transactions, which are included in SG&A,operating expenses, have not been significant in any period presented.
Revenue RecognitionDerivative Liability
On January 1, 2018, we adoptedThe 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 Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedesCodification. The result of this accounting treatment is that the revenue recognition requirementsfair 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 (ASC) Topic 605, Revenue Recognition (Topic 605), using(“Section 815-40-15”) to determine whether an instrument (or an embedded feature) is indexed to the modified retrospective transition method appliedCompany’s own stock. Section 815-40-15 provides that an entity should use a two-step approach 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 adjustedevaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument’s contingent exercise 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.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;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. |
F-11
Revenue disaggregated by revenue source for the yearsthree and six months ended December 31, 2019June 30, 2022 and 20182021 consists of the following: | | Year Ended December 31, | | | | 2019 | | | 2018 | | Branded content | | $ | 107,115 | | | $ | 60,485 | | Managed Services | | | 283,332 | | | | - | | Creator Subscriptions | | | 31,997 | | | | - | | Affiliate sales | | | 15,300 | | | | 11,553 | | Other revenue | | | 15,042 | | | | 8,860 | | | | $ | 453,006 | | | $ | 80,898 | |
| | 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. TheIn the case of branded articles, the performance obligation is satisfied when the Company successfully publishes the articles on its platform and meets any required promotional milestones as per the contract. In the case of branded challenges, the performance obligation is satisfied when the Company successfully closes the challenge and winners have been announced. The Company utilizes the completed contract method when revenue is recognized over time as the services are performed.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 $5,000$10,000 to $45,000$110,000, with branded challenges ranging from $10,000 to $25,000 and branded articles ranging from $2,500 to $7,500 per article. |
| ● | The | | ● | Branded articles are created and published, and challenges are completed, within three months of the signed agreement, or as previously negotiated with the clientclient. |
| ● | TheBranded articles and challenges are promoted per the contract and engagement reports are provided to the clientclient. |
| ● | The client pays 50% at signing and 50% upon completion |
| ● | Most contracts include provisions for clients to acquire content rights at the end of the campaign for a flat feefee. |
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. Subscription
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. Vocal+ subscribers receive access to value-added features such as increased rate of CPM cost per mille (thousand) (“CPM”) monetization, a decreased minimum withdrawal threshold, a discount on platform processing fees, member badges for their profiles, 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.E-Commerce Revenue
Managed ServicesThe 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.
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 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.Deferred Revenue
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 December 31, 2019 and 2018,June 30, 2022, the Company had deferred revenue of $50,691 and $9,005, respectively.$262,583. Accounts Receivable and Allowances
Accounts receivable are recorded and carried when the Company uploadshas performed the articleswork in accordance with managed services, project, partner, consulting and reachesbranded content agreements. For example, we bill a managed service client monthly when we have updated their Amazon store, modified SEO or completed the required number of views onother services listed in the platform.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 yearsix months ended December 31, 2019June 30, 2022, the Company recorded $33,503$53,166, as reservea bad debt expense. During six months ended June 30, 2022, the Company wrote off $81,925 of allowance for doubtful accounts. As of December 31, 2019 and 2018June 30, 2022, the Company has an allowance for doubtful accounts of $33,503 and $0 respectively.$239,313 Stock-Based CompensationInventory
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 ASCAccounting Standards Codification (“ASC”) 718 “Compensation“Compensation – Stock Compensation”. Under fair value recognition provisions, the Company recognizes equity–based compensation net of an estimated forfeiture rate and recognizes compensation cost only for those shares expected to vest over the requisite service period of the award. The company has a relatively low forfeiture rate of stock based compensation and forfeitures are recognized as they occur. Restricted stock awards are granted at the discretion of the Company. These awards are restricted as to the transfer of ownership and generally vest over the requisite service periods, 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. periods. The fair value of an option award is estimated on the date of grant using the Black–Scholes option valuation model. The Black–Scholes option valuation model requires the development of assumptions that are inputs into the model. These assumptions are the value of the underlying share, the expected stock volatility, the risk–free interest rate, the expected life of the option, the dividend yield on the underlying stock and the expected forfeiture rate. Expected volatility is benchmarked against similar companies in a similar industryvolatility is derived from the Company’s historical data over the expected option life and other appropriate factors. Risk–free interest rates are calculated based on continuously compounded risk–free rates for the appropriate term. The dividend yield is assumed to be zero as the Company has never paid or declared any cash dividends on its Common stock and does not intend to pay dividends on its Common stock in the foreseeable future. The expected forfeiture rate is estimated based on management’s best estimate. Forfeitures are recognized as they occur. Determining the appropriate fair value model and calculating the fair value of equity–based payment awards requires the input of the subjective assumptions described above. The assumptions used in calculating the fair value of equity–based payment awards represent management’s best estimates, which involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and the Company uses different assumptions, our equity–based compensation could be materially different in the future. In addition,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 Companyfair value of the underlying stock on the award date and is requiredamortized 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 expected forfeiture rate and recognize expense only for those shares expected to vest. Iffair value of stock options, while the market price of 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. 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 oncommon stock at the date of enactment. grant is used for restricted stock units. Compensation expense is reduced for actual forfeitures as they occur.
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, 2019, we recognized a $292,383 benefit for research and development tax credits in other income on the Statements of Comprehensive Income (Loss). The tax credits were claimed on our previous Australian tax returns and were based upon a research and development costs paid to an Australian company. Unrecognized tax benefits associated with these tax credits total $68,000.
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 yearsthree and six months ended December 31, 2019June 30, 2022 and 20182021 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 December 31, 2019June 30, 2022 and 2018:2021: | | December 31, | | | | 2019 | | | 2018 | | Options | | | 303,833 | | | | 294,166 | | Warrants | | | 247,407 | | | | 1,847,651 | | Convertible notes - related party | | | 1,812 | | | | 963 | | Convertible notes | | | 241,583 | | | | 13,996 | | Totals | | | 794,635 | | | | 2,156,776 | |
| | 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 yearyear’s presentation. These reclassifications did not affect the prior periodperiod’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 FebruaryMay 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 2016-02, “LeasesNo. 2016-13, Financial Instruments – Credit Losses (Topic 842)326), Measurement of Credit Losses on Financial Instruments (“ASU-2016-13”).” Under ASU 2016-02, lessees will, among2016-13 affects loans, debt securities, trade receivables, and any other things, require lesseesfinancial 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 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 representsfinal ASU delaying 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 requirementsdate of ASU 2016-022016-13 for small reporting companies to any short-term leases (as defined by related accounting guidance). We expect to account for leaseinterim 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, 2019,2022. 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 thosethat fiscal years. Early adoption of the update is permitted.year. The Company is currently evaluating the impact of the new standard.guidance on its condensed consolidated financial statements. In January 2017,July 2021, the Financial Accounting Standards Board (“FASB”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”) issued Accounting Standards Update (“ASU”) No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifyingas an operating lease on the Test for Goodwill Impairment, which eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2commencement date of the current goodwill impairment test) to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value (i.e., measure the charge based on the current Step 1). We do not believe the new guidance, whichlease if specified criteria are met. ASU 2021-05 is effective for the fiscal yearsyear beginning after December 15, 2019, will have a2022, including interim periods within that fiscal year. The Company expects that there would be no material impact on ourthe Company’s condensed consolidated financial statemenstatements upon the adoption of this ASU. In January 2017,October 2021, the FinancialFASB issued ASU No. 2021-08, Business Combinations — Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-04, Intangibles-Goodwillfor Contract Assets and OtherContract Liabilities from Contracts with Customers (Topic 350): Simplifying805), Which aims to improve the Testaccounting for Goodwill Impairment, which eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of the current goodwill impairment test) to measureacquired revenue contracts with customers in a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value (i.e., measure the charge based on the current Step 1). We do not believe the new guidance, whichbusiness combination by addressing diversity in recognition and payment terms that effect subsequent revenue recognition. ASU 2021-08 is effective for the fiscal yearsyear beginning after December 15, 2019, will have a2022, including interim periods within that fiscal year. The Company expects that there would be no material impact on ourthe Company’s condensed consolidated financial statements.statements upon the adoption of this ASU. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement - Disclosure Framework (Topic 820). The updated guidance improves the disclosure requirements for fair value measurements. We do not believe the updated guidance, which is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019, will have a material impact on our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other - Internal Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. This guidance requires companies to apply the internal-use software guidance in Accounting Standards Codification (“ASC”) 350-40 to implementation costs incurred in a hosting arrangement that is a service contract to determine whether to capitalize certain implementation costs or expense them as incurred. We do not believe the new guidance, which is effective for fiscal years beginning after December 15, 2019, will have a material impact on our consolidated financial statements.
Management does not believe that any recently issued, but not yet effective accounting pronouncements, when adopted, will have a material effect on the accompanying condensed consolidated financial statements.
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 at December 31, 2019,of $124 million, a net loss of $8.0$15.6 million and net cash used in operating activities of $5.9$10.6 million for the reporting period then ended. The Company is also in default on debentures as of the date of this filing. These factors raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial statements. On January 30, 2020, the World Health Organization declared the COVID-19 novel coronavirus outbreak a “Public Health Emergency of International Concern” and on March 10, 2020, declared it to be a pandemic. Actions taken around the world to help mitigate the spread of the coronavirus include restrictions on travel, and quarantines in certain areas, and forced closures for certain types of public places and businesses. The COVID-19 coronavirus and actions taken to mitigate it have had and are expected to continue to have an adverse impact on the economies and financial markets of many countries, including the geographical area in which the Company operates. While it is unknown how long these conditions will last and what the complete financial impact will be to the Company, capital raising efforts and our operations may be negatively affected. The Company is attempting to further implement its business plan and generate sufficient revenues; however, its cash position may not be sufficient to support its daily operations. While the Company believes in the viability of its strategy to further implement its business plan and generate sufficient revenues and in its ability to raise additional funds by way of a public or private offering of its debt or equity securities, there can be no assurance that it will be able to do so on reasonable terms, or at all. The ability of the Company to continue as a going concern is dependent upon its ability to further implement its business plan and generate sufficient revenues and its ability to raise additional funds by way of a public or private offering. The condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. Note 4 – Acquisition of Seller’s Choice On September 11, 2019, the Company entered into a Membership Interest Purchase Agreement (the “Seller’s Choice Purchase Agreement”) by and between the Company and Home Revolution, LLC, a Delaware limited liability company (the “Seller”). Pursuant to the Seller’s Choice Purchase Agreement, subject to the terms and conditions set forth therein, at the closing of the transactions contemplated by the Seller’s Choice Purchase Agreement (the “Seller’s Choice Closing”), the Company acquired 100% of the membership interests of Seller’s Choice. As a result of the transactions contemplated by the Seller’s Choice Purchase Agreement, Seller’s Choice became a wholly owned subsidiary of the Company (collectively, the “Seller’s Choice Acquisition”).
At the Seller’s Choice Closing, the aggregate consideration (the “Consideration”) paid to the Seller was as follows: (i) $340,000, in cash; (ii) 111,111 shares of the Company’s common stock; and (iii) a secured promissory note in the principal amount of $660,000 (the “Seller’s Choice Note”). In connection with the Seller’s Choice Note, the Company, Seller, and Seller’s Choice entered into a Security Agreement whereby the Seller’s Choice Note is secured by the assets of Seller’s Choice.
Following the closing of the transaction, Seller’s Choice’s financial statements as of the Closing were consolidated with the Consolidated Financial Statements of the Company. These amounts are provisional and may be adjusted during the measurement period.Inventory
F-15Inventory 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 | |
Following the closing of the merger transaction the Company’s investment in Seller’s Choice consisted of the following:
| | Shares | | | Amount | | Consideration paid prior to Closing: | | | | | | | Cash paid | | | | | | $ | 40,000 | | Total consideration paid | | | - | | | $ | 40,000 | | Consideration paid at Closing: | | | | | | | | | Cash paid | | | | | | $ | 300,000 | | Common stock issued at closing (1) | | | 111,111 | | | $ | 1,166,669 | | Note payable due March 11, 2020 | | | | | | | 660,000 | | Total consideration to be paid | | | | | | $ | 2,126,669 | | | | | | | | | | | Total consideration | | | | | | $ | 2,166,669 | |
(1) | The common stock issued at the closing of the Seller’s Choice Acquisition had a closing price of $10.50 per share on the date of the transaction. |
The following presents the unaudited pro-forma combined results of operations of the Company with Seller’s Choice as if the entities were combined on January 1, 2018.
| | Year Ended | | | | December 31, 2018 | | Revenues, net | | $ | 705,537 | | Net loss attributable to common shareholders | | $ | (14,250,859 | ) | Net loss per share | | $ | (3.80 | ) | Weighted average number of shares outstanding | | | 3,751,825 | |
| | Year Ended | | | | December 31, 2019 | | Revenues, net | | $ | 1,121,521 | | Net loss attributable to common shareholders | | $ | (8,176,763 | ) | Net loss per share | | $ | (0.97 | ) | Weighted average number of shares outstanding | | | 8,455,095 | |
The unaudited pro-forma results of operations are presented for information purposes only. The unaudited pro-forma results of operations are not intended to present actual results that would have been attained had the acquisition been completed as of January 1, 2018 or to project potential operating results as of any future date or for any future periods.
The Company consolidated Seller’s Choice as of the closing date of the Seller’s Choice Acquisition, and the results of operations of the Company include that of Seller’s Choice.
Note 5 – Property and Equipment Property and equipment stated at cost, less accumulated depreciation and amortization, consisted of the following: | | December 31, 2019 | | | December 31, 2018 | | Computer Equipment | | $ | 239,940 | | | $ | 223,574 | | Furniture and Fixtures | | | 86,888 | | | | 61,803 | | Leasehold Improvements | | | - | | | | 25,446 | | | | | 326,828 | | | | 310,823 | | Less: Accumulated Depreciation | | | (284,465 | ) | | | (268,380 | ) | | | $ | 42,363 | | | $ | 42,443 | |
| | 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 | |
During the year ended December 31, 2019 the Company reclassified leasehold improvements to right of use asset in accordance with the adoption of ASU 2016-02. See Note 10.
Depreciation expense was $19,053$24,405 and $42,218$20,094 for the yearsix months ended December 31, 2019June 30, 2022 and 2018,2021, respectively. Note 6 – Notes Payable Notes payable as of June 30, 2022 and December 31, 2019 and 20182021 is as follows: | | Outstanding Principal as of | | | | | | | | Warrants granted | | | | December 31, 2019 | | | December 31, 2018 | | | Interest Rate | | | Maturity Date | | Quantity | | | Exercise Price | | July 2018 Loan Agreement | | | - | | | | 50,000 | | | | 6 | % | | August 2018 | | | 5,000 | | | $ | 12.00 | | Seller’s Choice Note | | | 660,000 | | | | - | | | | 9.5 | % | | September 2020 | | | - | | | | - | | | | | 660,000 | | | | 50,000 | | | | | | | | | | | | | | | | Less: Debt Discount | | | - | | | | - | | | | | | | | | | | | | | | | Less: Debt Issuance Costs | | | - | | | | (74 | ) | | | | | | | | | | | | | | | | | $ | 660,000 | | | $ | 49,926 | | | | | | | | | | | | | | | |
| | 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 | | | | | | | |
The February 2017 OfferingSeller’s Choice Note
From February 24, 2017 through March 17, 2017, the Company conducted multiple closings of a private placement offering (the “February 2017 Offering”) of the Company’s securities by entering into subscription agreements (the “Subscription Agreements”) with accredited investors (the “Accredited Investors”) for aggregate gross proceeds of $916,585 for which the Accredited Investors received $975,511 in principal value of secured promissory notes with an original issue discount of six percent (6%) (the “February 2017 Offering Notes”) and warrants to purchase the Company’s common stock (the “February 2017 Offering Warrants”).
The February 2017 Offering Notes are convertible into shares of the Company’s common stock at the time of Company’s next round of financing (the “Subsequent Offering”) at a price equal to eighty-five percent (85%) of the price per share offered in the Subsequent Offering (the “Conversion Price”). The February 2017 Offering Warrants have a five-year term. Investors received the February 2017 Offering Warrants in the following amounts: (i) Investors purchasing $150,000 or more of the Offering received a February 2017 Offering Warrant equal to one hundred thirty percent (130%) of the dollar amount invested in the Offering; (ii) investors purchasing at least $100,000 but less than $150,000 of the February 2017 Offering received a February 2017 Offering Warrant equal to one hundred percent (100%) of the dollar amount invested in the Offering; and (iii) investors purchasing less than $100,000 of the Offering received to a February 2017 Offering Warrant equal to seventy percent (70%) of the dollar amount invested in the Offering. The February 2017 Offering Warrants entitle the holder to purchase shares of the Company’s common stock at $12.00 per share (the “Exercise Price”).
The Conversion Price and the Exercise Price are subject to adjustments for issuances of (i) the Company’s common stock, (ii) any equity linked instruments or (iii) securities convertible into the Company’s common stock, at a purchase price of less than the prevailing Conversion Price or Exercise Price. Such adjustments shall result in the Conversion Price or Exercise Price being reduced to such lower purchase price, as described in the February 2017 Offering Notes and the February 2017 Offering Warrants.
Pursuant to the Subscription Agreements, the February 2017 Offering Notes matured on September 1, 2017 (the “February 2017 Offering Maturity Date”). Prior to the February 2017 Offering Maturity Date, investors representing $575,511 in principal value converted their February 2017 Offering Notes into two year, 15% secured convertible promissory notes offered by the Company (the “August 2017 Convertible Note Offering”). The remaining investors representing an aggregate $400,000 in principal of the February 2017 Offering Notes agreed to forbear their right to declare an event of default until December 15, 2017 during which time they retain the right to convert their principal and any accrued but unpaid interest into the August 2017 Convertible Note Offering. In consideration of the forbearance for which the investors will receive a warrant to purchase up to fifteen percent (15%) of the shares of common stock underlying the warrant acquired with the purchase of the February 2017 Offering Notes at a purchase price of $12.00 per share, and the interest on their note would be increased to eighteen percent (18%) from September 1, 2017 through December 15, 2017 or the conversion date, whichever is sooner.
During the year ended December 31, 2018, the Company entered into three forbearance agreement whereby the Company issued the remaining investors of The February 2017 Offering five-year warrants to purchase 8,333 shares of the Company’s common stock at a purchase price of $12.00 per share. These warrants had a fair value of $70,219 which was recorded to loss on extinguishment of debt. The new maturity date of the February 2017 Loan Agreements were from July to September of 2018.
During the year ended December 31, 2018 the Company has repaid $131,606 of principal and $45,931 of unpaid interest. In addition, during the year ended December 31, 2018, the Company converted $268,394 of principal and $21,620 of unpaid interest into 24,081 shares of common stock. Upon conversion of the notes, the Company also issued 12,040 warrants with a grant date fair value of $104,124 which is recorded in Other income (expense) on the accompanying consolidated Statements of Comprehensive Loss.
The June 2017 Loan Agreement
On June 12, 2017, the Company entered into a loan agreement (the “June 2017 Loan Agreement”) with an individual (the “June 2017 Lender”) whereby the June 2017 Lender issued the Company a promissory note of $50,000 (the “June 2017 Note”). Pursuant to the June 2017 Loan Agreement, the June 2017 Note bears interest at a rate of 10% per annum. As additional consideration for entering in the June 2017 Loan Agreement, the Company issued the June 2017 Lender a five-year warrant to purchase 583 shares of the Company’s common stock with an exercise price of $12.00 per share. The maturity date of the June 2017 Note was September 1, 2017 (the “June 2017 Maturity Date”) at which time all outstanding principal, accrued and unpaid interest and other amounts due under the June 2017 Note were due.
During the year ended December 31, 2018 the Company repaid $50,000 principal and the debtor forgave the interest of $4,424, which was recorded as a gain on forgiveness of debt on the accompanying consolidated Statements of Comprehensive Loss.
The First November 2017 Loan Agreement
On November 28, 2017, the Company entered into a loan agreement (the “First November 2017 Loan Agreement”) with an individual (the “First November 2017 Lender”), the First November 2017 Lender issued the Company a promissory note of $100,000 (the “First November 2017 Note”). Pursuant to the First November 2017 Loan Agreement, the First November 2017 Note has interest of fifteen percent (15%), (i) five percent (5%) (i.e. $5,000) shall be payable in cash or convertible into shares of the Company’s restricted common stock at a rate of $12.00 per share, at the option of the Lender, at the Maturity Date; (ii) ten percent (10%) (i.e. $10,000) shall be paid in the form of the Company’s restricted common stock at a rate of $12.00 per share (equivalent to 833 shares of the Company’s common stock ). The maturity date of the First November 2017 Note was January 12, 2018 (the “First November 2017 Maturity Date”). On January 12, 2018, the First November 2017 Note and accrued but unpaid interest was converted into the Company’s August 2017 Convertible Note Offering.
The Second November 2017 Loan Agreement
On November 29, 2017, the Company entered into a loan agreement (the “Second November 2017 Loan Agreement”) with an individual (the “Second November 2017 Lender”), the Second November 2017 Lender issued the Company a promissory note of $50,000 (the “Second November 2017 Note”). Pursuant to the Second November 2017 Loan Agreement, the Second November 2017 Note has interest of fifteen percent (15%), (i) five percent (5%) (i.e. $2,500) shall be payable in cash or convertible into shares of the Company’s restricted common stock at a rate of $12.00 per share, at the option of the Lender, at the Maturity Date; (ii) ten percent (10%) (i.e. $5,000) shall be paid in the form of the Company’s restricted common stock at a rate of $12.00 per share (equivalent to 416 shares of the Company’s common stock ). The maturity date of the Second November 2017 Note was January 13, 2018 (the “Second November 2017 Maturity Date”). On January 12, 2018, the Second November 2017 Note and accrued but unpaid interest was converted into the Company’s August 2017 Convertible Note Offering.
The Third November 2017 Loan Agreement
On November 29, 2017, the Company entered into a loan agreement (the “Third November 2017 Loan Agreement”) with an individual (the “Third November 2017 Lender”), the Third November 2017 Lender issued the Company a promissory note of $100,000 (the “Third November 2017 Note”). Pursuant to the Third November 2017 Loan Agreement, the Third November 2017 Note has interest of fifteen percent (15%), (i) five percent (5%) (i.e. $5,000) shall be payable in cash or convertible into shares of the Company’s restricted common stock at a rate of $12.00 per share, at the option of the Lender, at the Maturity Date; (ii) ten percent (10%) (i.e. $10,000) shall be paid in the form of the Company’s restricted common stock at a rate of $12.00 per share (equivalent to 833 shares of the Company’s common stock). The maturity date of the Third November 2017 Note was January 13, 2018 (the “Third November 2017 Maturity Date”) at which time all outstanding principal, accrued and unpaid interest and other amounts due under the Third November 2017 Note are due. On January 12, 2018, the Third November 2017 Note and accrued but unpaid interest was converted into the Company’s August 2017 Convertible Note Offering.
On March 14, 2018, the Company entered into a loan agreement (the “March 2018 Loan Agreement”) with an individual (the “March 2018 Lender”), the March 2018 Lender issued the Company a promissory note of $50,000 (the “March 2018 Note”). Pursuant to the March 2018 Loan Agreement, the March 2018 Note bears interest at a rate of 12% per annum. As additional consideration for entering in the March 2018 Loan Agreement, the Company issued the March 2018 Lender a five-year warrant to purchase 1,666 shares of the Company’s common stock with an exercise price of $12.00 per share. The maturity date of the March 2018 Note was March 29, 2018 (the “March 2018 Maturity Date”) at which time all outstanding principal, accrued and unpaid interest and other amounts due under the March 2018 Note were due. On March 29, 2018, the March 2018 Note and accrued but unpaid interest was exchanged for a convertible note under the Company’s March 2018 Convertible Note Offering.
The May 2018 Offering
During the months of May and June 2018, the Company conducted multiple closings with accredited investors (the “May 2018 Offering”) of units of the Company’s securities by entering into subscription agreements with “accredited investors” (the “May 2018 Investors”) for aggregate gross proceeds of $608,500.
The May 2018 Offering consisted of a maximum of $1,200,000 of units of the Company’s securities (each, a “May 2018 Unit” and collectively, the “May 2018 Units”), with each May 2018 Unit consisting of (i) a 13% promissory note (each, a “May 2018 Offering Note” and, together, the “May 2018 Offering Notes”), and (ii) a four-year warrant (“May 2018 Offering Warrant”) to purchase the number of shares of the Company’s common stock equal to three times the principal amount in dollars invested by such investor in each May 2018 Offering Note (the “May 2018 Warrant Shares”) at an exercise price of $12.00 per share (the “May Offering Warrant Exercise Price”), subject to adjustment upon the terms thereof. The May 2018 Offering Notes mature on the nine-month anniversary of their issuance dates.
The Company recorded a $215,032 debt discount relating to 30,425 May 2018 Offering 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 August 2018, the Company converted all outstanding principal unpaid interest into the August 2018 equity raise.
The May Offering Warrant Exercise Price of the May 2018 Offering 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 May 2018 Offering Warrant Exercise Price. Such adjustment shall result in the May 2018 Offering Warrant Exercise Price being reduced to such lower purchase price, subject to carve-outs as described therein.
During the nine months ended December 31, 2018, the Company converted $608,500 of principal and $723,780 of unpaid interest into the August 2018 equity raise (as defined below).
July 2018 Loan Agreements
In July 2018, the Company received gross proceeds of $100,000 from the issuance of notes payable. As additional consideration for entering into the debentures, the Company issued the investor a 4-year warrant to purchase 5,000 shares of the Company’s common stock at a purchase price of $12.00 per share. The Company recorded a $34,569 debt discount relating to these warrants issued to these 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 this note to accretion of debt discount and issuance cost.
On November 8, 2018 the Company executed upon agreements that extended the maturity dates of these loans to March 7, 2019. As part of the extension agreements, the Company issued 3,401 warrants to purchase common stock of the Company at an exercise price of $18.00.
During the year ended December 31, 2019 the Company has repaid $50,000 of principal and $1,700 of unpaid interest.
August 2018 Loan Agreements
On August 30, 2018, the Company received gross proceeds of $33,333 from the issuance of a note payable. As additional consideration for entering into the debenture, the Company issued the investor a 4-year warrant to purchase 555 shares of the Company’s common stock at a purchase price of $12.00 per share. The Company recorded a $4,178 debt discount relating to these warrants issued to this investor based on the relative fair value of each equity instrument on the dates of issuance. The debt discount was fully accreted during the nine months ended December 31, 2018. On September 7, 2018 the Company has repaid $33,333 in principal.
Seller’s Choice Note
On September 11, 2019, the Company entered into Seller’s Choice Purchase Agreement with Home Revolution LLC, (see Note 4).LLC. As a part of the consideration provided pursuant to the Seller’s Choice Acquisition, the Company issued the Seller’s Choice Note to the Seller in the principal amount of $660,000. The Seller’s Choice Note bears interest at a rate of 9.5% per annum and is payable on March 11, 2020 (the “Seller’s Choice Maturity Date”) at which time all outstanding principal, accrued and unpaid interest and other amounts become due. Upon maturity the Company utilized an automatic extension up to 6 months. This resulted in a 5% increase in the interest rate every month the Seller’s Choice Note is outstanding. During the year ended As of December 31, 20192021, the Company repaid $0was in principal and $16,198 in interestdefault on the Seller’s Choice Note.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 NoteNotes Payable Convertible notes payable as of December 31, 2019 and 2018June 30, 2022, is as follows: | | Outstanding Principal as of | | | | | | | | | | | Warrants granted | | | | December 31, 2019 | | | December 31, 2018 | | | Interest Rate | | | Conversion Price | | | Maturity Date | | Quantity | | | Exercise Price | | The February 2018 Convertible Note Offering | | | 75,000 | | | | 75,000 | | | | 15 | % | | | 12.00 | (*) | | January – February 2020 | | | 84,639 | | | | 12.00 | | The March 2018 Convertible Note Offering | | | 75,000 | | | | 75,000 | | | | 14 | % | | | 12.00 | (*) | | March – April 2020 | | | 80,114 | | | | 12.00 | | The February 2019 Convertible Note Offering | | | 2,311,703 | | | | - | | | | 10 | % | | | 15.00 | (*) | | February – March 2020 | | | 44,396 | | | | 18.00 | | The November 2019 Convertible Note Offering | | | 559,433 | | | | - | | | | 12 | % | | | 13.50 | | | May – June 2020 | | | - | | | | - | | | | | 3,021,136 | | | | 150,000 | | | | | | | | | | | | | | | | | | | | Less: Debt Discount | | | (124,096 | ) | | | (17,280 | ) | | | | | | | | | | | | | | | | | | | Less: Debt Issuance Costs | | | (614 | ) | | | (9,239 | ) | | | | | | | | | | | | | | | | | | | | | | 2,896,425 | | | | 123,481 | | | | | | | | | | | | | | | | | | | | Less: Current Debt | | | (2,896,425 | ) | | | - | | | | | | | | | | | | | | | | | | | | Total Long-Term Debt | | $ | - | | | $ | 123,481 | | | | | | | | | | | | | | | | | | | |
| | 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 November 2016July 2021 Convertible Note OfferingLoan Agreement During the months of November and December 2016,On July 6, 2021, the Company issued convertible notes to third party lenders totaling $400,000entered into a loan agreement (the “November 2016 Convertible Note Offering”“July 2021 Loan Agreement”). These notes accrued interest at a rate of 10% per annum and matured with interest and principal both due between November 1, 2017 through December 29, 2017. The notes and accrued interest are convertible at a conversion price as defined therein. In addition, in connection with these notesan individual (the “July 2021 Lender”), whereby the July 2021 Lender issued the Company issued five-year warrantsa promissory note of $168,850 (the “July 2021 Note”). Pursuant to purchase an aggregatethe July 2021 Loan Agreement, the July 2021 Note has interest of 6,666 sharessix percent (6%). The July 2021 Note matures on the first (12th) month anniversary of Company common stock at a purchase price of $18.00 per share. These investors converted $375,000 of principal and $30,719 of interest into the August 2017 Convertible Note Offering.its issuance date.
DuringUpon default or 180 days after issuance the year December 2018, the Company converted $25,000 of principal and $4,417 of unpaid interestJuly 2021 Note is convertible into the August 2018 Equity Raise (as defined below).
The June 2017 Convertible Note Offering
During the month of June 2017, the Company issued convertible notes to third party lenders totaling $71,500. These notes accrued interest at 12% per annum and matured with interest and principal both due on September 1, 2017. These notes and accrued interest may be converted into a subsequent offering at a 15% discount to the offering price are convertible at a conversion price as defined therein. In addition, the Company issued warrants to purchase 1,126 shares of Company common stock. These warrants entitle the holders to purchase 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 purchase pricevariable 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 $12.00shares. 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 for(“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 period$37,163 debt discount relating to an original issue discount. The debt discount is being accreted over the life of five years from the issue date. Asnote to accretion of December 31, 2017,debt discount and issuance cost. During the six months ended June 30, 2022, the Company was currentlyrepaid $112,275 in default on $71,500 in principal due on these notes. principal. The May 2022 Convertible Loan Agreement On February 8, 2018,May 20, 2022, the Company paid these notes and is no longer in default.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 August 2017Company 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 From August through NovemberDuring May of 2017,2022, the Company conducted multiple closings of a private placement offering to accredited investors (the “August 2017“May 2022 Convertible Note Offering”) of units of the Company’s securities by entering into subscription agreements with “accredited investors” (the “August 2017“May 2022 Investors”) for aggregate gross proceeds of $1,585,000. In addition, $1,217,177 of the Company’s short-term debt along with accrued but unpaid interest of $40,146 was converted into the August 2017 Convertible Note Offering. These conversions resulted in the issuance of 113,190 warrants with a fair value of $583,681 and an original issue discount of $101,561. These were recorded as a loss on extinguishment of debt.
$4,000,000. The August 2017 Convertible Note Offering consisted of a maximum of $6,000,000 of units of the Company’s securities (each, a “August 2017 Unit” and collectively, the “August 2017 Units”), with each August 2017 Unit consisting of (a) a 15% Convertible Secured Promissory Note (each a “August 2017 Offering Note”, and together the “August 2017 Offering Notes”),May 2022 convertible notes are convertible into shares of the Company’s common stock, (“August 2017 Offering Conversion Shares”)par value $.001 per share at a conversion price of $12.00$2.00 per share (the “August 2017share. As additional consideration for entering in the May 2022 Convertible Note Conversion Price”), and (b) a five-year warrant (each a “August 2017 Offering, Warrant and together the “August 2017 Offering Warrants”) to purchase common stock equal to one hundred percent (100%) of the shares into which the August 2017 Offering Notes can be converted into (“August 2017 Offering Warrant Shares”) at an exercise price of $12.00 per share (“August 2017 Offering Warrant Exercise Price”). The August 2017 Offering Notes mature on the second (2nd) anniversary of their issuance dates. The August 2017 Note Conversion Price and the August 2017 Offering Warrant Exercise Price are subject to adjustment for issuancesCompany issued 4,000,000 warrants 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 August 2017stock. The May 2022 Convertible Note Conversion Price or August 2017 Offering Warrant Exercise Price. Such adjustment shall result in the August 2017 Note Conversion Price and August 2017 Offering Warrant Exercise Price being reduced to such lower purchase price, subject to carve-outs as described therein.matures on November 30, 2022.
The Company recorded a $472,675$1,895,391 debt discount relating to 132,083 August 2017 Offering Warrants4,000,000 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 the notethese notes to accretion of debt discount and issuance cost. In connection withThe 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 August 2017 Convertible Note Offering, the Company paid a placement agent a cash fee of $90,508 to for services rendered in connection therewith on a “best-efforts” basis, which was recorded asoffering. The debt discount and debt issuance cost and iscosts 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 converted $2,830,764granted 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 $409,287$139,000 of unpaidaccrued 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
![](https://capedge.com/proxy/S-1/0001213900-22-051200/fin_001.jpg) | 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 Creatd, Inc. and Subsidiaries Opinion on the Financial Statements We have audited the accompanying balance sheets of Creatd, Inc. and Subsidiaries (the Company) as of December 31, 2021 and 2020, and the related statements of income, comprehensive income, stockholders’ equity, and cash flows for years then ended, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America. 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
![](https://capedge.com/proxy/S-1/0001213900-22-051200/fin_001.jpg) | | 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.
![](https://capedge.com/proxy/S-1/0001213900-22-051200/fin_001.jpg) | | 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 April 6, 2022
Creatd, Inc. Consolidated Balance Sheets | | 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.
Creatd, Inc. Consolidated Statements of Comprehensive 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 | |
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, 2021 and 2020
| | 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 | |
The accompanying notes are an integral part of these consolidated financial statements.
Creatd, Inc. 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 | | | $ | - | |
The accompanying notes are an integral part of these consolidated financial statements.
Creatd, Inc. December 31, 2021 Notes to the 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.
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.
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.
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, 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 | | | 100 | % | Seller’s Choice, LLC | | New Jersey | | | 100 | % | Recreatd, LLC | | Delaware | | | 100 | % | Give, LLC | | Delaware | | | 100 | % | Creatd Partners LLC | | Delaware | | | 100 | % | Dune Inc. | | Delaware | | | 50 | % | Plant Camp LLC | | Delaware | | | 89 | % | Sci-Fi Shop, LLC | | Delaware | | | 100 | % | OG Collection LLC | | 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. 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 fair value measurement disclosures are grouped into three levels based on valuation factors:
| ● | Level 1 – quoted prices in active markets for identical investments |
| ● | Level 2 – other significant observable inputs (including quoted prices for similar investments and market corroborated inputs) |
| ● | Level 3 – significant unobservable inputs (including our own assumptions in determining the fair value of investments) |
The Company’s Level 1 assets/liabilities include cash, accounts receivable, marketable trading securities, accounts payable, prepaid and other current assets, line of credit and due to related parties. Management believes the estimated fair value of these accounts at December 31, 2021 approximate their carrying value as reflected in the balance sheets due to the short-term nature of these instruments or the use of market interest rates for debt instruments.
The Company’s Level 2 assets/liabilities include certain of the Company’s notes payable and capital lease obligations. Their carrying value approximates their fair values based upon a comparison of the interest rate and terms of such debt given the level of risk to the rates and terms of similar debt currently available to the Company in the marketplace.
The Company’s Level 3 assets/liabilities include goodwill, intangible assets, marketable debt securities, equity investments at cost, and derivative liabilities. 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 and liabilities that are measured at fair value on recurring basis:
Fair Value Measurements as of December 31, 2020
| | Total | | | Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) | | | Quoted Prices for Similar Assets or Liabilities in Active Markets (Level 2) | | | Significant Unobservable Inputs (Level 3) | | Assets: | | | | | | | | | | | | | | | | | Marketable securities - debt securities | | $ | 62,733 | | | $ | - | | | $ | - | | | $ | 62,733 | | Total assets | | $ | 62,733 | | | $ | - | | | $ | - | | | $ | 62,733 | | | | | | | | | | | | | | | | | | | Liabilities: | | | | | | | | | | | | | | | | | Derivative liabilities | | $ | 42,231 | | | $ | - | | | $ | - | | | $ | 42,231 | | Total Liabilities | | | 42,231 | | | $ | - | | | $ | - | | | $ | 42,231 | |
Fair Value Measurements as of December 31, 2021
| | Total | | | Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) | | | Quoted Prices for Similar Assets or Liabilities in Active Markets (Level 2) | | | Significant Unobservable Inputs (Level 3) | | Assets: | | | | | | | | | | | | | | | | | Marketable securities - debt securities | | $ | - | | | $ | - | | | $ | - | | | $ | - | | Total assets | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | | | | | | | | | | | | | | | | | Liabilities: | | | | | | | | | | | | | | | | | Derivative liabilities | | $ | - | | | $ | - | | | $ | - | | | $ | - | | Total Liabilities | | | - | | | $ | - | | | $ | - | | | $ | - | |
The following table shows the valuation methodology and unobservable inputs for Level 3 assets and liabilities measured at fair value on recurring basis as of December 31, 2021 and 2020:
| | Fair Value As of December 31, 2021 | | | Fair Value As of December 31, 2020 | | | Valuation Methodology | | Unobservable Inputs | Marketable securities - debt securities | | $ | - | | | $ | 62,733 | | | Discounted cash flow analysis | | Expected cash flows from the investment | | | | | | | | | | | | | | Derivative liabilities | | $ | - | | | $ | 42,231 | | | Monte Carlo simulations and Binomial model | | Risk free rate Expected volatility; Drift rate |
The following tables provides a summary of the relevant assets that are measured at fair value on non-recurring basis:
Fair Value Measurements as of December 31, 2021
| | Total | | | Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) | | | Quoted Prices for Similar Assets or Liabilities in Active Markets (Level 2) | | | Significant Unobservable Inputs (Level 3) | | Assets: | | | | | | | | | | | | | Equity investments, at cost | | $ | 50,000 | | | $ | - | | | $ | - | | | $ | 50,000 | | Total assets | | $ | 50,000 | | | $ | - | | | $ | - | | | $ | 50,000 | |
Fair Value Measurements as of December 31, 2020
| | Total | | | Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) | | | Quoted Prices for Similar Assets or Liabilities in Active Markets (Level 2) | | | Significant Unobservable Inputs (Level 3) | | Assets: | | | | | | | | | | | | | Equity investments, at cost | | $ | 217,096 | | | $ | - | | | $ | - | | | $ | 217,096 | | | | | | | | | | | | | | | | | | | Total assets | | $ | 217,096 | | | $ | - | | | $ | - | | | $ | 217,096 | |
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:
| | Fair Value As of December 31, 2021 | | | Fair Value As of December 31, 2020 | | | Valuation Methodology | | Unobservable Inputs | Equity investments, at cost | | $ | - | | | $ | 217,096 | | | Qualitative assessment per ASC 321-10-35 | | Qualitative factors |
The Company recognizes impairment on loans or notes receivable (that do not meet the definition of a debt security) when it is probable that it will be unable to collect all amounts due according to the contractual terms, and the amount of loss can be estimated. The loss is estimated based on the present value of expected cash flows.
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 has never experienced any losses related to these balances. As of December 31, 2021 and 2020, cash amounts in excess of $250,000 were not fully insured. The uninsured cash balance as of December 31, 2021 and 2020, was approximately $2.7 million and $7.7 million, respectively. 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 $675,024 that are considered to be reasonably possible that operations located outside an entity’s home country will be disrupted in the near term.
Property and Equipment
Property and equipment are recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation is computed by the straight-line method (after taking into account their respective estimated residual values) over the estimated useful lives of the respective assets as follows:
| | Estimated Useful Life (Years) | | | | Computer equipment and software | | 3 | Furniture and fixtures | | 5 |
Upon sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the consolidated statements of operations.
Long-lived Assets Including Goodwill and Other Acquired Intangible Assets
We evaluate the recoverability of property and equipment and acquired finite-lived intangible assets 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. During the year ended December 31, 2021 and 2020, the Company recorded an impairment charge of $688,127.00 and $0, respectively 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 7.26 years.
Scheduled amortization over the next five years are as follows: |
Twelve months ending December 31, | | | | | 2022 | | $ | 493,660 | | 2023 | | | 407,848 | | 2024 | | | 347,936 | | 2025 | | | 231,624 | | 2026 | | | 219,749 | | Thereafter | | | 732,024 | | Total | | $ | 2,432,841 | |
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.
| | For the years ended December 31, 2021 and 2020 | | | | Total | | As of January 1, 2020 and 2021 | | $ | 1,035,795 | | Goodwill acquired in a business combination | | | 1,374,835 | | Impairment of goodwill | | | (1,035,795 | ) | As of December 31, 2021 | | | 1,374,835 | |
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:
| | For the years ended December 31, 2021 and 2020 | | | | Total | | As of January 1, 2020 | | | - | | Purchase of marketable securities | | $ | 210,000 | | Interest due at maturity | | | 4,829 | | Other than temporary impairment | | | (50,000 | ) | Conversion of marketable securities | | | (102,096 | ) | As of December 31, 2020 | | | 62,733 | | Purchase of marketable securities | | | - | | Interest due at maturity | | | - | | Other than temporary impairment | | | (62,733 | ) | Conversion of marketable securities | | | - | | December 31, 2021 | | $ | - | |
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:
| | For the years ended December 31, 2021 and 2020 | | | | Total | | As of January 1, 2020 | | $ | - | | Purchase of equity investments | | | 115,000 | | Conversion of marketable securities | | | 102,096 | | As of December 31, 2020 | | | 217,096 | | Purchase of equity investments | | | 150,000 | | Other than temporary impairment | | | (102,096 | ) | Conversion to equity method investments | | | (215,000 | ) | As of December 31, 2021 | | $ | 50,000 | |
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 ASC 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 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 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 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 consolidated statement of operations as other income or expense. Upon conversion, exercise or cancellation of a derivative instrument, the instrument is marked to fair value at the date of conversion, exercise or cancellation and then the related fair value is reclassified to equity.
In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.
The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to liability at the fair value of the instrument on the reclassification date. Derivative instrument liabilities will be classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument is expected within 12 months of the balance sheet date.
The Company adopted Section 815-40-15 of the FASB Accounting Standards Codification (“Section 815-40-15”) to determine whether an instrument (or an embedded feature) is indexed to the Company’s own stock. Section 815-40-15 provides that an entity should use a two-step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument’s contingent exercise and settlement provisions. The Company changed its method of accounting for the debt and warrants through the early adoption of ASU 2017-11 during the three months ended December 31, 2017, on a retrospective basis.
The Company utilizes a Monte Carlo simulation model for the make whole feature and a binomial option model for convertible notes that have an option to convert at a variable number of shares to compute the fair value of the derivative and to mark to market the fair value of the derivative at each balance sheet date. The inputs utilized in the application of the Monte Carlo model included a starting stock price, an expected term of each debenture remaining from the valuation date to maturity, an estimated volatility, drift, and a risk-free rate. The inputs utilized in the application of the Binomial model included a stock price on valuation date, an expected term of each debenture remaining from the valuation date to maturity, an estimated volatility, and a risk-free rate. The Company records the change in the fair value of the derivative as other income or expense in the consolidated statements of operations.
Shipping and Handling Costs
The Company classifies freight billed to customers as sales revenue and the related freight costs as cost or revenue.
Revenue Recognition
Under Topic 606, revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
We determine revenue recognition through the following steps:
| ● | identification of the contract, or contracts, with a customer; |
| ● | identification of the performance obligations in the contract; |
| ● | determination of the transaction price. The transaction price for any given subscriber could decrease based on any payments made to that subscriber. A subscriber may be eligible for payment through one or more of the monetization features offered to Vocal creators, including earnings through reads (on a cost per mile basis) and cash prizes offered to Challenge winners; |
| ● | allocation of the transaction price to the performance obligations in the contract; and |
| ● | recognition of revenue when, or as, we satisfy a performance obligation. |
Revenue disaggregated by revenue source for the years ended December 31, 2021 and 2020 consists of the following:
| | Years Ended | | | | December 31, | | | | 2021 | | | 2020 | | Agency (Managed Services, Branded Content, & Talent Management Services) | | $ | 2,256,546 | | | $ | 1,100,199 | | Platform (Creator Subscriptions) | | | 1,926,135 | | | | 70,623 | | Ecommerce (Tangible products) | | | 90,433 | | | | - | | Affiliate Sales | | | 26,453 | | | | 33,748 | | Other Revenue | | | 150 | | | | 8,300 | | | | $ | 4,299,717 | | | $ | 1,212,870 | |
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:
| | Years Ended | | | | December 31, | | | | 2021 | | | 2020 | | Products and services transferred over time | | $ | 4,182,681 | | | $ | 1,100,199 | | Products and services transferred at a point in time | | | 117,036 | | | | 112,671 | | | | $ | 4,299,717 | | | $ | 1,212,870 | |
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 two majority-owned e-commerce companies, Camp (previously Plant Camp) and Dune Glow Remedy (“Dune”). The Company generates revenue through the sale of Camp and Dune’s consumer products through its e-commerce distribution channels. The Company satisfies its performance obligation upon shipment of product to its customers and recognizes shipping and handling costs as a fulfillment cost. Customers have 30 days from receipt of an item to return unopened, unused items. The Company runs discounts from time to time to promote sales, improve market penetration, and increase customer retention.
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, 2021, and 2020, the Company had deferred revenue of $234,159 and $88,637, respectively.
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 years ended December 31, 2021 and 2020, the Company recorded $110,805 and $53,692, respectively as a bad debt expense. As of December 31, 2021 and 2020, the Company has an allowance for doubtful accounts of $186,147 and $80,509, respectively.
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 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 August 2018 Equity Raise (asmodel. 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 below)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.
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, 2021 and 2020, we recognized a $275,213 and $507,242 respectively, benefit for research and development tax credits in other income on the Statements of Comprehensive Income (Loss). The tax credits were claimed on our previous Australian tax returns and were based upon a research and development costs paid to an Australian company.
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, 2021 and 2020 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, 2021 and 2020:
| | December 31, | | | | 2021 | | | 2020 | | Options | | | 2,902,619 | | | | 541,021 | | Warrants | | | 5,658,830 | | | | 3,228,235 | | Totals | | | 8,561,449 | | | | 3,769,256 | |
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’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 consolidated statements of operations and comprehensive loss in order to present a gross profit line, the presentation of which is consistent with our peers. Under the new presentation, we began allocating payroll and related expenses, professional services and creator payouts. Prior periods have been revised to reflect this change in presentation.
Recently Adopted Accounting Guidance
In December 2019, the FASB issued authoritative guidance intended to simplify the accounting for income taxes (ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”). This guidance eliminates certain exceptions to the general approach to the income tax accounting model and adds new guidance to reduce the complexity in accounting for income taxes. This guidance is effective for annual periods after December 15, 2020, including interim periods within those annual periods. The updated guidance, which became effective for fiscal years beginning after December 15, 2020, did not have a material impact on the Company’s consolidated financial statements.
Recent Accounting Guidance Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments (“ASU-2016-13”). ASU 2016-13 affects loans, debt securities, trade receivables, and any other financial assets that have the contractual right to receive cash. The ASU requires an entity to recognize expected credit losses rather than incurred losses for financial assets. ASU 2016-13 is effective for the fiscal year beginning after December 15, 2022, including interim periods within that fiscal year. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity’s own equity, and also improves and amends the related EPS guidance for both Subtopics. The ASU will 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 guidance on its consolidated financial statements.
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 amendments provide measurement, recognition, and disclosure guidance for an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange. This guidance is effective for annual periods after December 15, 2021, including interim periods within those annual periods. The Company is currently evaluating the impact of the new guidance on its 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 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 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 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 of $109.6 million, a net loss of $37.3 million and net cash used in operating activities of $21.1 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 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 December 31, 2021:
| | December 31, 2021 | | Packaging | | $ | 2,907 | | Finished goods | | | 103,496 | | | | $ | 106,403 | |
Note 5 – Property and Equipment
Property and equipment stated at cost, less accumulated depreciation and amortization, consisted of the following:
| | December 31, 2021 | | | December 31, 2020 | | Computer Equipment | | $ | 353,880 | | | $ | 284,928 | | Furniture and Fixtures | | | 102,416 | | | | 86,888 | | Leasehold Improvements | | | 11,457 | | | | - | | | | | 467,753 | | | | 371,816 | | Less: Accumulated Depreciation | | | (364,814 | ) | | | (315,558 | ) | | | $ | 102,939 | | | $ | 56,258 | |
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, 2021, the Company recorded a full impairment on this investment.
On October 23, 2020, the Company entered into an equity interest purchase agreement whereas the Company purchased 3.8% ownership of a private company for $115,000. During the year ended December 31, 2021, the Company acquired additional equity interests that resulted in the Company achieving significant influence over this investee, therefore the investments were reclassified as an equity method investment (see Note 7).
On February 17, 2021, the Company entered into a membership interest purchase agreement whereas the Company purchased another 3.3% ownership of a private company for $100,000. During the year ended December 31, 2021, the Company acquired additional equity interests that resulted in the Company achieving significant influence over this investee, therefore the investments were reclassified as an equity method investment (see Note 7).
On May 21, 2021, the Company entered into a common stock purchase agreement whereas the Company purchased 10.0% ownership of a private company for $50,000.
Note 7 – Equity Method Investments
During the year ended December 31, 2018 the Company has repaid $114,000 of principal2021, we invested $410,000 in cash into Dune, Inc., and $18,410 of unpaid interest. The First December 2017 Note
On December 27, 2017, the Company issued a convertible notereceived equity interest for services valued at $123,710 that were recorded to a third-party lender totaling $100,000 (the “First December 2017 Note”). The First December 2017 Note accrues interest at 15% per annum and matures with interest and principal both due on December 27, 2019. In addition, the Company issued a warrant to purchase 8,333 shares of Company common stock. The warrant entitles the holder to purchase the Company’s common stock at a purchase price of $12.00 per share for a period of five years from the issue date. The Company recorded a $35,525 debt discount relating to the warrants issued to the investor basedother income on the relative fair valueStatement of eachOperations. Our investment in Dune, Inc., was accounted for under the equity instrumentmethod until the 29% purchased on the dates of issuance. The debt discount is being accreted over the life of the note The First December 2017 Note and accrued interest is convertible at a conversion price of $12.00 per share, subjectOctober 3, 2021 that increased our ownership to adjustment. The First December 2017 Note is secured by a second priority lien on the assets of the Company.
50.41%. During the year ended December 31, 2018,2021, we recorded $16,413 of losses from this investment as equity in net loss from equity method investment and an impairment in investment of $424,632 related to the remeasurement of previously held interest as of October 3, 2021. These amounts are recorded within our consolidated statements of operations. As of December 31, 2021, our Equity method investment total $0.
Note 8 – Notes Payable
Notes payable as of December 31, 2021 and 2020 is as follows: | | Outstanding Principal as of | | | | | | | | | December 31, 2021 | | | December 31, 2020 | | | Interest Rate | | | Maturity Date | Seller’s Choice Note | | $ | 660,000 | | | $ | 660,000 | | | | 30 | % | | September 2020 | The May 2020 PPP Loan Agreement | | | - | | | | 412,500 | | | | 1 | % | | April 2022 | The April 2020 PPP Loan Agreement | | | 198,577 | | | | 282,432 | | | | 1 | % | | May 2022 | The October 2020 Loan Agreement | | | - | | | | 55,928 | | | | 14 | % | | July 2021 | The November 2020 Loan Agreement | | | - | | | | 23,716 | | | | 14 | % | | May 2021 | The February 2021 Loan Agreement | | | - | | | | - | | | | 14 | % | | July 2021 | The July 2021 Loan Agreement | | | - | | | | - | | | | 10 | % | | October 2022 | The First December 2021 Loan Agreement | | | 185,655 | | | | - | | | | 10 | % | | June 2023 | The Second December 2021 Loan Agreement | | | 313,979 | | | | - | | | | 14 | % | | June 2022 | | | | 1,358,211 | | | | 1,434,576 | | | | | | | | Less: Debt Discount | | | (15,547 | ) | | | - | | | | | | | | Less: Debt Issuance Costs | | | - | | | | - | | | | | | | | | | | 1,342,664 | | | | 1,434,576 | | | | | | | | Less: Current Debt | | | (1,278,672 | ) | | | (1,221,539 | ) | | | | | | | Total Long-Term Debt | | $ | 63,992 | | | $ | 213,037 | | | | | | | |
Seller’s Choice Note
On September 11, 2019, the Company converted $100,000entered into Seller’s Choice Purchase Agreement with Home Revolution LLC. As a part of the consideration provided pursuant to the Seller’s Choice Acquisition, the Company issued the Seller’s Choice Note to the Seller in the principal amount of $660,000. The Seller’s Choice Note bears interest at a rate of 9.5% per annum and is payable on March 11, 2020 (the “Seller’s Choice Maturity Date”) at which time all outstanding principal, accrued and unpaid interest and other amounts become due. Upon maturity the Company utilized an automatic extension up to 6 months. This resulted in a 5% increase in the interest rate every month the Seller’s Choice Note is outstanding. As of December 31, 2021, the Company is in default on the Seller’s Choice note.
During the year ended December 31, 2021, the Company accrued interest of $198,000.
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 $11,000 in principal and $2,695 in interest.
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 $10,292$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 from our R&D tax credit receivable. 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 has an effective interest rate of 14%. The maturity date of the November 2020 Note is May 25, 2021 (the “November 2020 Maturity Date”), at which time all outstanding principal, accrued and unpaid interest and other amounts due under the November 2020 Note are due.
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 August 2018 Equity Raise (as defined below).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 Notes Payable
Convertible notes payable as of December 31, 2021, and 2020, is as follows:
| | Outstanding Principal as of | | | | | | | | | | | | | Warrants granted | | | | December 31, 2021 | | | December 31, 2020 | | | Interest Rate | | | Conversion Price | | | | | Maturity Date | | Quantity | | | Exercise Price | | The September 2020 convertible Loan Agreement | | $ | - | | | $ | 341,880 | | | | 12 | % | | | - | | (*) | | | September-21 | | | 85,555 | | | | 5 | | The First December 2020 convertible Loan Agreement | | | - | | | | 600,000 | | | | 12 | % | | | - | | (*) | | | December-21 | | | - | | | | - | | The October 2020 convertible Loan Agreement | | | - | | | | 169,400 | | | | 6 | % | | | - | | (*) | | | October-21 | | | - | | | | - | | The Second December 2020 convertible Loan Agreement | | | - | | | | 169,400 | | | | 6 | % | | | - | | (*) | | | December-21 | | | - | | | | - | | The May 2021 Loan | | | - | | | | - | | | | - | % | | | 5.00 | | (*) | | | November-22 | | | 1,090,908 | | | | 4.50 | | The July 2021 Loan | | | 168,850 | | | | - | | | | 6 | % | | | - | | (*) | | | July - 22 | | | | | | | | | | | | 168,850 | | | | 1,280,680 | | | | | | | | | | | | | | | | | | | | | | Less: Debt Discount | | | (8,120 | ) | | | (309,637 | ) | | | | | | | | | | | | | | | | | | | | | Less: Debt Issuance Costs | | | (1,537 | ) | | | (73,527 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | 897,516 | | | | | | | | | | | | | | | | | | | | | | Less: Current Debt | | | (159,193 | ) | | | (897,516 | ) | | | | | | | | | | | | | | | | | | | | | Total Long-Term Debt | | $ | - | | | $ | - | | | | | | | | | | | | | | | | | | | | | |
(*) | As subject to adjustment as further outlined in the notes |
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 72,66924,223 warrants with a fair value of $181,139. These were recorded as a loss on extinguishment of debt. 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 $12.00 per share (the “February 2018 Note Conversion Price”), and (b) a five-year warrant (each a “February 2018 Offering Warrant and together the “February 2018 Offering Warrants”) to purchase common stock equal to one hundred percent (100%) of the shares into which the February 2018 Convertible Notes can be converted into (“February 2018 Warrant Shares”) at an exercise price of $12.00 per share (“February 2018 Warrant Exercise Price”). The February 2018 Offering Notes mature on the second (2nd) anniversary of their issuance dates. The February 2018 Offering Notes are secured by a second priority security interest in the Company’s assets up to $1,000,000. 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 60,416 February 2018 Offering 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. 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 6,041 shares that had a fair value of $74,881, which was recorded as issuance cost and is being accreted over the life of these notes to accretion of debt discount and issuance cost. 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 Raise (as defined in Note 7 below).Raise. During the year ended December 31, 2019 the companyCompany repaid $19,758 in interest. 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 15,947 warrants with a fair value of $84,087. These were recorded as a loss on extinguishment of debt. 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 $12.00 per share (the “Conversion Price”), and (b) a four-year warrant (each a “Warrant and together the “Warrants”) to purchase common stock equal to one hundred percent (100%) of the shares into which the Notes can be converted into (“Warrant Shares”) at an exercise price of $12.00 per share (“Exercise Price”). The March 2018 Notes mature on the second (2nd) anniversary of their issuance dates. 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 80,114 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, 2018, the Company converted $886,367 of principal and $51,293 of unpaid interest pursuant to the August 2018 Equity Raise (as defined below).Raise. 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 nine monthsyear ended September 30,December 31, 2019, the Company conducted an offering to accredited investors (the “February 2019 Convertible Note Offering”) of units of the Company’s securities by entering into subscription agreements with “accredited investors” (the “February 2019 Investors”) for aggregate gross proceeds of $1,993,025. 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 $15.00 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 between February 21, 2019 and the date on which the Company’s consummates a listing onto a national securities exchange, 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”), and (b) a four-year stock purchase warrant (each a “Warrant and together the “Warrants”) to purchase a quantity of shares of the Company’s common stock up to thirty-three percent (33%) of the number of shares of common stock into which the underlying Notes may be converted, at an exercise price of $18.00 per share (“Exercise Price”). During the nine monthsyear ended September 30,December 31, 2019 a total of 44,396 Warrants were issued in conjunction with The February 2019 Convertible Note Offering. 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 44,396 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. As of the date of this filing, certain notes in this offering with maturity dates prior to March 20, 2020 have not been repaid, but the Company is in negotiations with the holders about an extension agreement.
The July 2019 Tal Loan Agreement
On July 26, 2019, the Company entered into a loan agreement (the “July 2019 Tal Loan Agreement”) with Robert Tal, whereby the Company issued Tal a promissory note in the principal amount of $12,000 (the “July 2019 Tal Note”). Pursuant to the July 2019 Tal Loan Agreement, the July 2019 Tal Note bears interest at a rate of $600 per month. As additional consideration for entering in the July 2019 Tal Loan Agreement, the Company issued Tal a five-year warrant to purchase 60 shares of the Company’s common stock at a purchase price of $18.00 per share.
During the year ended December 31, 20192020, the Company repaid $12,000 inconverted $1,963,567 of principal and $600 in$416,786 of unpaid interest andinto the loan is no longer outstanding. September 2020 Equity Raise. The August 2019 Tal Loan Agreement
On August 6, 2019, the Company entered into a loan agreement (the “August 2019 Tal Loan Agreement”), whereby the Company issued Tal a promissory note in the principal amount of $12,000 (the “August 2019 Tal Note”). Pursuant to the August 2019 Tal Loan Agreement, the August 2019 Tal Note bears interest at a rate of $600 per month. As additional consideration for entering in the August 2019 Tal Loan Agreement, the Company issued Tal a five-year warrant to purchase 60 shares of the Company’s common stock at a purchase price of $18.00 per share.
During the year ended December 31, 20192020, the Company repaid $12,000$348,136 in principal and $600$0 in interest and the loan is no longer outstanding. The First September 2019 Tal Loan Agreement
On September 4, 2019, the Company entered into a loan agreement (the “First September 2019 Tal Loan Agreement”), whereby the Company issued Tal a promissory note in the principal amount of $15,000 (the “First September 2019 Tal Note”). Pursuant to the First September 2019 Tal Loan Agreement, the First September 2019 Tal Note bears interest at a rate of $750 per month. As additional consideration for entering in the First September 2019 Tal Loan Agreement, the Company issued Tal a five-year warrant to purchase 75 shares of the Company’s common stock at a purchase price of $18.00 per share.
During the year ended December 31, 2019 the Company repaid $15,000 in principal and $750 in interest and the loan is no longer outstanding.
The Second September 2019 Tal Loan Agreement
On September 26, 2019, the Company entered into a loan agreement (the “Second September 2019 Tal Loan Agreement”), whereby the Company issued Tal a promissory note in the principal amount of $12,500 (the “Second September 2019 Tal Note”). Pursuant to the Second September 2019 Tal Loan Agreement, the Second September 2019 Tal Note bears interest at a rate of $625 per month. As additional consideration for entering in the First September 2019 Tal Loan Agreement, the Company issued Tal a five-year warrant to purchase 62 shares of the Company’s common stock at a purchase price of $18.00 per share.
During the year ended December 31, 2019 the Company repaid $12,500 in principal and $1,250 in interest and the loan is no longer outstanding. interest.
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 $13.50 per share. The November 2019 Notes mature six months after the anniversary of their issuance dates. At any time on or after the Maturity Date,maturity date, at the election of the Offering’s Purchaser, this Note may convert into Common Stock equal to the quotient obtained by dividing the outstanding principal and unpaid accrued interest of this Note on the date of such conversion by $13.50. 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 810 – Related Party 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. Convertible notes
Convertible notes payable – related party as This investment is evaluated for impairment if events or circumstances arise that indicate that the carrying amount of December 31, 2019 and 2018 is as follows:
| | Outstanding Principal as of | | | | | | | | Warrants granted | | | | December 31, 2019 | | | December 31, 2018 | | | Interest Rate | | | Maturity Date | | Quantity | | | Exercise Price | | The March 2018 Convertible Note Offering | | | 400 | | | | 400 | | | | 14 | % | | April 2020 | | | 19,950 | | | | 12.00 | | The February 2019 Convertible Note Offering | | | 20,000 | | | | - | | | | 10 | % | | May 2020 | | | 440 | | | | 18.00 | | | | | 20,400 | | | | 400 | | | | | | | | | | | | | | | | Less: Debt Discount | | | (13 | ) | | | (72 | ) | | | | | | | | | | | | | | | Less: Debt Issuance Costs | | | - | | | | - | | | | | | | | | | | | | | | | | | | 20,387 | | | | 328 | | | | | | | | | | | | | | | | Less: Current Debt | | | (20,387 | ) | | | - | | | | | | | | | | | | | | | | Total Long-Term Debt | | $ | - | | | $ | 328 | | | | | | | | | | | | | | | |
The August 2017 Convertible Note Offering
such assets may not be recoverable. During the year ended December 31, 2017,2020 the Company conducted multiple closingsrecorded an impairment of a private placement offering to accredited investors (the “The August 2017 Convertible Offering”) of units of the Company’s securities by entering into subscription agreements with “accredited investors” (the “August 2017 Investors”) for aggregate gross proceeds of $505,000. In addition, $645,000 of the Company’s short-term debt along with accrued but unpaid interest of $206,026 was converted into the August 2017 Convertible Offering. These conversions resulted in the issuance of 75,918 warrants with a fair value of $440,157 and the increase of principal of $60,000. These resulted in a loss on extinguishment of debt of $500,157. The Company offered, through a placement agent, $6,000,000 of units of its securities (each, an “August 2017 Unit” and collectively, the “August 2017 Units”), with each August 2017 Unit consisting of (a) a 15% Convertible Secured Promissory Note (each a “August 2017 Note” and together the “August 2017 Notes”), convertible into shares of the Company’s common stock, par value $.001 per share (“Conversion Shares”) at a conversion price of $12.00 per share (the “Conversion Price”), and (b) a five-year warrant (each a “Warrant and together the “Warrants”) to purchase common stock equal to one hundred percent (100%) of the shares into which the Notes can be converted into (“Warrant Shares”) at an exercise price of $12.00 per share (“Exercise Price”). The August 2017 Notes mature on the second (2nd) anniversary of their issuance dates.
The Conversion Price of the August 2017 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 $160,700 debt discount relating to 42,083 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.$11,450.
During the year ended December 31, 2018, the Company converted $1,416,026 of principal and $202,362 of unpaid interest pursuant to the August 2018 Equity Raise (as defined below).
The Second December 2017 NoteConvertible notes
On December 21, 2017, the Company issued a convertible note to a third-party lender totaling $100,000 (the “Second December 2017 Note”). The Second December 2017 Note accrues interest at 15% per annum and matures with interest and principal both due on December 27, 2019. In addition, the Company issued a warrant to purchase 8,333 shares of Company common stock. The warrant entitles the holder to purchase the Company’s common stock at a purchase price of $12.00 per share for a period of five years from the issue date. The Company recorded a $36,722 debt discount relating to the warrants issued to the investor 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 The Second December 2017 Note and accrued interest is convertible at a conversion price of $12.00 per share, subject to adjustment. The Second December 2017 Note is secured as a second priority lien on the assets of the Company.
During the year ended December 31, 2018, the Company converted $100,000 of principal and $10,542 of unpaid interest pursuant to the August 2018 Equity Raise (as defined below) and the note is no longer outstanding.
The February 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 “February 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 $25,000.
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 Note” and together the “February 2018 Notes”), convertible into shares of the Company’s common stock, par value $.001 per share (“Conversion Shares”) at a conversion price of $12.00 per share (the “Conversion Price”), and (b) a five-year warrant (each a “Warrant and together the “Warrants”) to purchase common stock equal to one hundred percent (100%) of the shares into which the February 2018 Notes can be converted into (“Warrant Shares”) at an exercise price of $12.00 per share (“Exercise Price”). The February 2018 Notes mature on the second (2nd) anniversary of their issuance dates. The February 2018 Notes are secured by a second priority security interest in the Company’s assets up to $1,000,000.
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 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 $1,063, the discount is being accreted over the life of the first Debenture to accretion of debt discount and issuance cost.
The Company recorded a $11,054 debt discount relating to 2,083 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.
In connection with the Offering, the Company retained Network 1 Financial Securities, Inc. (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 $3,250 and issued to the Placement Agent shares of the Company’s common stock equal to ten percent (10%) of the Conversion Shares underlying the Notes or 208 shares that had a fair value of $2,606, which was recorded as issuance cost and is being accreted over the life of these notes to accretion of debt discount and issuance cost.
During the year ended December 31, 2018, the Company converted $25,000 of principal and $2,219 of unpaid interest pursuant to the August 2018 Equity Raise (as defined below).
The Second February 2018 Note
On February 8, 2018, the Company issued a convertible note to a third-party lender totaling $40,750 (the “Second February 2018 Note”). The Second February 2018 Note accrues interest at 18% per annum and matures with interest and principal both due on December 31, 2018. In addition, the Company issued a warrant to purchase 1,358 shares of Company common stock. The warrant entitles the holder to purchase the Company’s common stock at a purchase price of $12.00 per share for a period of five years from the issue date. The Company recorded a $7,963 debt discount relating to the warrants issued to the investor based on the relative fair value of each equity instrument on the dates of issuance and an original issue discount of $5,298. The debt discount is being accreted over the life of the note The Second February 2018 Note and accrued interest is convertible at a conversion price of $12.00 per share, subject to adjustment. The Second February 2018 Note is secured as a second priority lien on the assets of the Company.
During the year ended December 31, 2018, the Company has repaid $5,298 in principal. In addition, the Company converted $35,452 of principal and $4,116 of unpaid interest into the August 2018 Equity Raise (as defined below).
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 $12.00 per share (the “Conversion Price”), and (b) a four-year warrant (each a “Warrant and together the “Warrants”) to purchase common stock equal to one hundred percent (100%) of the shares into which the Notes can be converted into (“Warrant Shares”) at an exercise price of $12.00 per share (“Exercise Price”). The Notes mature on the second (2nd) anniversary of their issuance dates.
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 19,950 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. 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 Raise (as defined below)Raise. 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 Nine monthsyear ended September 30,December 31, 2019, the Company conducted an offering to accredited investors (the “February 2019 Convertible Note Offering”) of units of the Company’s securities by entering into subscription agreements with “accredited investors” (the “February 2019 Investors”) for aggregate gross proceeds of $1,993,025.$20,000. 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 $15.00 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 between February 21, 2019 and the date on which the Company’s consummates a listing onto a national securities exchange, 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”), and (b) a four-year stock purchase warrant (each a “Warrant and together the “Warrants”) to purchase a quantity of shares of the Company’s common stock up to thirty-three percent (33%) of the number of shares of common stock into which the underlying Notes may be converted, at an exercise price of $18.00 per share (“Exercise Price”). During the nine monthsyear ended September 30,December 31, 2019 a total of 440 Warrants were issued in conjunction with The February 2019 Convertible Note Offering. 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 440 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, 2019, $20,000 inof principal was converted from a promissory note into this Offering.offering. During the year ended December 31, 2020, the Company converted $20,000 of principal and $3,065 of unpaid interest into the September 2020 Equity Raise. Notes payableThe 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, 20192021 and 20182020 is as follows: | | Outstanding Principal as of | | | | | | | | Warrants granted | | | | December 31, 2019 | | | December 31, 2018 | | | Interest Rate | | | Maturity Date | | Quantity | | | Exercise Price | | The May 2016 Rosen Loan Agreement | | $ | - | | | $ | 1,000,000 | | | | 13 | % | | November 26, 2017 | | | 16,666 | | | $ | 24.00 | | The June 2018 Frommer Loan Agreement | | | 10,000 | | | | 10,000 | | | | 6 | % | | August 17, 2018 | | | 500 | | | | 12.00 | | The July 2018 Rosen Loan Agreement | | | - | | | | 56,695 | | | | 6 | % | | August 17, 2018 | | | 500 | | | | 12.00 | | The July 2018 Schiller Loan Agreements | | | 20,863 | | | | 40,000 | | | | 6 | % | | August 17, 2018 | | | 2,500 | | | | 12.00 | | The December 2018 Gravitas Loan Agreement | | | - | | | | 50,000 | | | | 6 | % | | January 22, 2019 | | | 833 | | | | 18.00 | | The December 2018 Rosen Loan Agreement | | | - | | | | 75,000 | | | | 6 | % | | January 26, 2019 | | | 1,250 | | | | 18.00 | | The January 2019 Rosen Loan Agreement | | | - | | | | - | | | | 10 | % | | February 15, 2019 | | | 5,000 | | | | 18.00 | | The February 2019 Gravitas Loan Agreement | | | - | | | | - | | | | 5 | % | | February 28, 2019 | | | 125 | | | | 18.00 | | The February 2019 Rosen Loan Agreement | | | - | | | | - | | | | 10 | % | | February 28, 2019 | | | 1,666 | | | | 18.00 | | The June 2019 Loan Agreement | | | 4,825,000 | | | | - | | | | 12.5 | % | | December 3, 2019 | | | - | | | | - | | The July 2019 Gravitas Loan Agreement | | | - | | | | - | | | | 5 | % | | September 1, 2019 | | | 333 | | | | 18.00 | | The September 2019 Schiller Loan Agreement | | | - | | | | - | | | | 4.5 | % | | October 9, 2019 | | | 333 | | | | 18.00 | | The September 2019 Tal Loan Agreement | | | - | | | | - | | | | 5 | % | | October 7, 2019 | | | 62 | | | | 18.00 | | The December 2019 Gravitas Loan Agreement | | | 300,000 | | | | - | | | | 6.7 | % | | March 1, 2020 | | | - | | | | - | | | | | 5,155,863 | | | | 1,231,695 | | | | | | | | | | | | | | | | Less: Debt Discount | | | - | | | | (8,125 | ) | | | | | | | | | | | | | | | Less: Debt Issuance Costs | | | (26,521 | ) | | | - | | | | | | | | | | | | | | | | | | | 5,129,342 | | | | 1,223,073 | | | | | | | | | | | | | | | | Less: Current Debt | | | (5,129,342 | ) | | | (1,223,073 | ) | | | | | | | | | | | | | | | | | $ | - | | | $ | - | | | | | | | | | | | | | | | |
| | Outstanding Principal as of | | | | | | | | Warrants granted | | | | December 31, 2021 | | | December 31, 2020 | | | Interest Rate | | | Maturity Date | | Quantity | | | Exercise Price | | The September 2020 Goldberg Loan Agreement | | | - | | | | 16,705 | | | | 7 | % | | September 2022 | | | - | | | | - | | The September 2020 Rosen Loan Agreement | | | - | | | | 3,295 | | | | 7 | % | | September 2022 | | | - | | | | - | | | | | - | | | | 20,000 | | | | | | | | | | | | | | | | Less: Debt Discount | | | - | | | | (17,068 | ) | | | | | | | | | | | | | | | | | | - | | | | 2,932 | | | | | | | | | | | | | | | | Less: Current Debt | | | - | | | | (2,932 | ) | | | | | | | | | | | | | | | | | $ | - | | | $ | - | | | | | | | | | | | | | | | |
The May 2016 Rosen Loan Agreement
On May 26, 2016, the Company entered into a loan agreement (the “May 2016 Rosen Loan Agreement”) with Arthur Rosen, an individual (“Rosen”), pursuant to which on May 26, 2016 (the “Closing Date”), Rosen provided the Company a secured term loan in the principal amount of $1,000,000 (the “May 2016 Rosen Loan”). In connection with the May 2016 Rosen Loan Agreement, on May 26, 2016, the Company and Rosen entered into a security agreement (the “Rosen Security Agreement”), pursuant to which the Company granted to Rosen a senior security interest in substantially all of the Company’s assets as security for repayment of the May 2016 Rosen Loan. Pursuant to the May 2016 Rosen Loan Agreement, the May 2016 Rosen Loan bears interest at a rate of 12.5% per annum, compounded annually and payable on the maturity date of May 26, 2017 (the “May 2016 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. The Company entered into an amendment to the May 2016 Rosen Loan extending the May 2016 Rosen Maturity Date to November 26, 2017. As additional consideration for entering in the May 2016 Rosen Loan Agreement, the Company issued Rosen a five-year warrant to purchase 16,666 shares of the Company’s common stock at a purchase price of $24.00 per share (the “May 2016 Rosen Warrant”). The May 2016 Rosen Warrant contains anti-dilution provisions as further described therein. On September 7, 2017 (the “Conversion Date”), Rosen converted all accrued but unpaid interest on the May 2016 Rosen Loan from May 26, 2016 through September 6, 2017 in the amount of $124,306 (the “May 2016 Rosen Loan Interest”) into the Company’s August Convertible Note Offering, after which May 2016 Rosen Loan Interest was deemed paid in full through the Conversion Date. On March 29, 2019, the Company entered into an agreement with Mr. Rosen to further extend the maturity date of this loan to May 15, 2019. On June 3, 2019, this loan was converted into The June 2019 Loan Agreement (as defined below).
The September 2017 Rosen Loan Agreement
On September 8, 2017, the Company entered into a loan agreement (the “September 2017 Rosen Loan Agreement”) with Rosen, whereby the Company issued Rosen a promissory note in the principal amount of $224,000 (the “September 2017 Rosen Note”). The September 2017 Rosen Note is secured by an officer of the Company. As additional consideration for entering in the September 2017 Rosen Note Loan Agreement, the Company issued Rosen a five-year warrant to purchase 416 shares of the Company’s common stock at a purchase price of $12.00 per share. On November 13, 2017, in consideration for extending the September 2017 Rosen Note, Rosen was issued a warrant to purchase 1,666 shares of the Company’s common stock exercisable within five (5) years and with an exercise price of $12.00 per share.
On February 20, 2018, the Company entered into a forbearance agreement whereby the Company issued Rosen a five-year warrant to purchase 7,466 shares of the Company’s common stock at a purchase price of $12.00 per share. These warrants had a fair value of $65,378 which was recorded to Loss on extinguishment of debt. The new maturity date of the September 2017 Rosen Loan Agreement is September 8, 2018.
During the year December 31, 2018, the Company converted $224,000 of principal and $20,496 of unpaid interest pursuant to the August 2018 Equity Raise (as defined below) and the loan is no longer outstanding.
The November 2017 Schiller Loan Agreement
On November 20, 2017, the Company entered into a loan agreement (the “November 2017 Schiller Loan Agreement”) with Mr. Len Schiller (“Schiller”), a member of the Company’s Board of Directors, whereby the Company issued Schiller a promissory note in the principal amount of $25,000 (the “November 2017 Schiller Note”). Pursuant to the November 2017 Schiller Loan Agreement, the November 2017 Schiller Note bears interest at a rate of 15% per annum. During the year ended December 31, 2018 the Company repaid $25,000 in principal and $637 in interest and the loan is no longer outstanding.
The January 2018 Rosen Loan Agreement
On January 16, 2018, the Company entered into a loan agreement (the “January 2018 Rosen Loan Agreement”) with Rosen, whereby the Company issued Rosen a promissory note in the principal amount of $60,000 (the “January 2018 Rosen Note”). The January 2018 Rosen Note is secured by Jeremy Frommer, whereas upon default Mr. Frommer would owe his own personal default shares of the Company’s common stock to Rosen equal to the amount of principal outstanding divided by 12.00. Pursuant to the January 2018 Rosen Loan Agreement, the January 2018 Rosen Note bears interest at a rate of 6% per annum and was payable on the maturity date 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 became due. During the year ended December 31, 2018, the Company repaid $60,000 in principal and $200 in interest and the loan is no longer outstanding.
The January 2018 Gordon Loan Agreement
On January 16, 2018, the Company entered into a loan agreement (the “January 2018 Gordon Loan Agreement”) with Mr. Christopher Gordon (“Gordon”), whereby the Company issued Gordon a promissory note in the principal amount of $40,000 (the “January 2018 Gordon Note”). The January 2018 Gordon Note is secured by Jeremy Frommer, whereas upon default Mr. Frommer would owe his own personal default shares of the Company’s common stock to Gordon equal to the amount of principal outstanding divided by 12.00. Pursuant to the January 2018 Gordon Loan Agreement, the January 2018 Gordon 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 became 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 Rosen, whereby the Company issued Rosen a promissory note in the principal amount of $10,000 (the “First March 2018 Rosen Note”). As additional consideration for entering in the First March 2018 Rosen Note Loan Agreement, the Company issued Rosen a five-year warrant to purchase 166 shares of the Company’s common stock at a purchase price of $12.00 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 year ended December 31, 2018, the Company repaid $10,000 in principal and $260 in interest and the loan is no longer outstanding.
The Second March 2018 Rosen Loan Agreement
On March 9, 2018, the Company entered into a loan agreement (the “Second March 2018 Rosen Loan Agreement”) with Rosen, whereby the Company issued 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 Rosen a five-year warrant to purchase 250 shares of the Company’s common stock at a purchase price of $12.00 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 year 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 Rosen, whereby the Company issued 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 Rosen a five-year warrant to purchase 166 shares of the Company’s common stock at a purchase price of $12.00 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 year 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 Schiller, a member of the Board, whereby the Company issued 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 Schiller a four-year warrant to purchase 5,000 shares of the Company’s common stock at a purchase price of $12.00 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”).
During the year ended December 31, 2018, the Company converted $100,000 of principal and $4,369 of unpaid interest pursuant to 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 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 500 shares of the Company’s common stock at a purchase price of $12.00 per share. Pursuant to the June 2018 Frommer Loan Agreement, the June 2018 Frommer Note bears interest at a rate of 6% per annum and payable on the maturity date of August 17, 2018 (the “June 2018 Frommer Maturity Date”). On November 8, 2018, the Company executed upon an agreement that extended the maturity date of the June 2018 Frommer Agreement to March 7, 2019. As part of the extension agreement, the Company issued Frommer an additional 681 warrants to purchase common stock of the Company at an exercise price of $18.00. These warrants had a fair value of $4,645 which was recorded to loss on extinguishment of debt. On February 18, 2019 the Company executed upon an agreement that further extended the maturity date of the June 2018 Frommer Agreement to March 7,30, 2019. As part of the extension agreement, the Company issued Frommer an additional 692 warrants to purchase common stock of the Company at an exercise price of $18.00. On March 29, 2019, the Company entered into an agreement with Mr. Frommer that further extended the maturity date of this loan to May 15, 2019. On June 29, 2019 the Company entered into an agreement with Mr. Frommer that further extended the maturity date of this loan to December 15, 2019. On December 15, 2019 the Company entered into an agreement with Mr. Frommer that further extended the maturity date to May 15, 2020. F-31
The First July 2018 Schiller Loan Agreement
On July 3, 2018, the Company entered into a loan agreement (the “First 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 $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 1,250 shares of the Company’s common stock at a purchase price of $12.00 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. 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 Schiller warrants to purchase 2,383 shares of common stock of the Company at an exercise price of $18.00. On February 18, 2019 the Company executed upon an agreement that further extended the maturity date of the First July 2018 Schiller Loan Agreement to March 7, 2019. As part of the extension agreement, the Company issued Schiller an additional 1,068 warrants to purchase common stock of the Company at an exercise price of $18.00. On March 29, 2019 the Company entered into an agreement with Mr. Schiller that extended the maturity date of this loan to May 15, 2019.
During the year ended December 31, 2019 $15,000 in2020, the Company converted $10,000 of principal and $863$2,748 of unpaid interest was converted into the February 2019 Convertible Note OfferingSeptember 2020 Equity Raise and the loanJune 2018 Frommer 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 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 1,250 shares of the Company’s common stock at a purchase price of $12.00 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. 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 Schiller warrants to purchase 1,698 shares of common stock of the Company at an exercise price of $18.00. On February 18, 2019 the Company executed upon an agreement that further extended the maturity date of the Second July 2018 Schiller Loan Agreement to March 7, 2019. As part of the extension agreement, the Company issued Schiller an additional 1,726 warrants to purchase common stock of the Company at an exercise price of $18.00. On March 29, 2019 the Company entered into an agreement with Mr. Schiller that further extended the maturity date of this loan to May 15, 2019. On December 15, 2019 the Company entered into an agreement that further extended the maturity date of this loan to May 15, 2020. During the year ended December 31, 2019 $4,137 in principal was converted into the February 2019 Convertible Note 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 Rosen, an officer of the Company, whereby the Company issued Rosen a promissory note in the principal aggregate amount 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. 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 Rosen warrants to purchase 459 shares of common stock of the Company at an exercise price of $18.00. On February 18, 2019 the Company executed upon an agreement that further extended the maturity date of the First July 2018 Rosen Loan Agreement to March 7, 2019. As part of the extension agreement, the Company issued Rosen an additional 3,456 warrants to purchase common stock of the Company at an exercise price of $18.00. On March 29, 2019 the Company entered into an agreement with Mr. Rosen that further 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 $1,123 of 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 Rosen Loan Agreement”) with Rosen, whereby the Company issued Rosen a promissory note in the principal aggregate amount of $50,000 (the “Second July 2018 Rosen Note”) resulting from the conversion of a demand note (as described below). As additional consideration for entering into the Second July 2018 Rosen Loan Agreement, the Company issued Rosen a four-year warrant to purchase 2,500 shares of the Company’s common stock at a purchase price of $18.00 per share. Pursuant to the Second July 2018 Rosen Loan Agreement, the Second July 2018 Rosen Note bears interest at a rate of 6% per annum and payable on the maturity date of August 17, 2018. 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 Rosen warrants to purchase 3,399 shares of common stock of the Company at an exercise price of $18.00. On February 18, 2019 the Company executed upon an agreement that further extended the maturity date of the Second July 2018 Rosen Loan Agreement to March 7, 2019. As part of the extension agreement, the Company issued Rosen an additional 690 warrants to purchase common stock of the Company at an exercise price of $18.00. On March 29, 2019 the Company entered into an agreement with Mr. Rosen that further 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 $2,900 of unpaid interest and the loan is no longer outstanding.
The November 2018 Rosen Loan Agreement
On November 29, 2018, the Company entered into a loan agreement (the “November 2018 Rosen Loan Agreement”) with Rosen, whereby the Company issued Rosen a promissory note in the principal amount of $25,000 (the “November 2018 Rosen Note”). As additional consideration for entering in the November 2018 Rosen Note Loan Agreement, the Company issued Rosen a four-year warrant to purchase 416 shares of the Company’s common stock at a purchase price of $18.00 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, 2018 (the “November 2018 Rosen Maturity Date”).
During the year ended December 31, 2018,2020 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 Rosen, whereby the Company issued 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 Rosen a four-year warrant to purchase 1,250 shares of the Company’s common stock at a purchase price of $18.00 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, 2019 (the “December 2018 Rosen Maturity Date”). On February 18, 2019 the Company executed upon an agreement that further extended the maturity date of the December 2018 Rosen Loan Agreement to March 7, 2019. As part of the extension agreement, the Company issued Rosen an additional 11,731 warrants to purchase common stock of the Company at an exercise price of $18.00. 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 $75,000$20,863 in principal and $3,463 of unpaid interest was converted into the June 2019 Loan Agreement and the loan is no longer outstanding.
$3,216 in interest.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 833 shares of the Company’s common stock at a purchase price of $18.00 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, 2019 (the “December 2018 Gravitas Capital Maturity Date”).
During the year ended December 31, 2019 the Company repaid $50,000 in principal and $250 in interest and the loan is no longer outstanding.
The January 2019 Rosen Loan Agreement
On January 30, 2019, the Company entered into a loan agreement (the “January 2019 Rosen Loan Agreement”) with Rosen, whereby the Company issued 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 Rosen a four-year warrant to purchase 5,000 shares of the Company’s common stock at a purchase price of $18.00 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 Rosen warrants to purchase 11,731 shares of common stock of the Company at an exercise price of $18.00. 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 $175,000 in principal and $15,073 in interest was converted into the June 2019 Loan Agreement and the loan is no longer outstanding.
The February 2019 Gravitas Capital Loan Agreement
On February 6, 2019, the Company entered into a loan agreement (the “February 2019 Gravitas Capital Loan Agreement”) with Gravitas Capital, whereby the Company issued Gravitas Capital a promissory note in the principal amount of $75,000 (the “February 2019 Gravitas Capital Note”). As additional consideration for entering in the February 2019 Gravitas Capital Note Loan Agreement, the Company issued Gravitas Capital a four-year warrant to purchase 125 shares of the Company’s common stock at a purchase price of $6.00 per share. Pursuant to the February 2019 Gravitas Capital Loan Agreement, the February 2019 Gravitas Capital Note bears interest at a rate of 5% per annum and payable on the maturity date of February 28, 2019 (the “February 2019 Gravitas Capital Maturity Date”).
During the year ended December 31, 2019 the Company repaid $75,000 in principal and $3,500 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 Rosen, whereby the Company issued 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 Rosen a four-year warrant to purchase 1,666 shares of the Company’s common stock at a purchase price of $18.00 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, $50,000 in principal and $3,208 in interest was converted into the June 2019 Loan Agreement and the loan is no longer outstanding.
The March 2019 Gravitas Capital Loan Agreement
On March 11, 2019, the Company entered into a loan agreement (the “March 2019 Gravitas Capital Loan Agreement”) with Gravitas Capital, whereby the Company issued Gravitas Capital a promissory note in the principal amount of $80,000 (the “March 2019 Gravitas Capital Note”). As additional consideration for entering in the March 2019 Gravitas Capital Note Loan Agreement, the Company issued Gravitas Capital a four-year warrant to purchase 125 shares of the Company’s common stock at a purchase price of $18.00 per share. Pursuant to the March 2019 Gravitas Capital Loan Agreement, the March 2019 Gravitas Capital Note bears interest at a rate of 6% per annum and payable on the maturity date of April 11, 2019 (the “March 2019 Gravitas Capital Maturity Date”). On April 12, 2019 the Company executed upon an agreement that further extended the maturity date of the March 2019 Gravitas Capital Loan Agreement to May 15, 2019. As part of the extension agreement, the Company issued Gravitas Capital an additional 166 warrants to purchase common stock of the Company at an exercise price of $18.00.
During the year ended December 31, 2019 the company repaid $80,000 of principal and $10,000 of unpaid interest and the loan is no longer outstanding.
The May 2019 Loan Agreement
On May 31, 2019, the Company entered into a loan agreement (the “May 2019 Loan Agreement”), whereby the Company issued a promissory note in the principal amount of $10,000 (the “May 2019 Note”). Pursuant to the May 2019 Loan Agreement, the May 2019 Note bears interest at a rate of $500 per month. As additional consideration for entering in the May 2019 Loan Agreement, the Company issued a four-year warrant to purchase 50 shares of the Company’s common stock at a purchase price of $12.00 per share.
During the year ended December 31, 2019 the Company repaid $10,000 in principal and $500 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”), 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. If not paid by the maturity date, interest increases to 14.5%. 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 $15.00; and (ii) provide for the acceleration of all outstanding interest due on the Loan upon the consummation of a Qualified Public Offering.
As of December 31, 2019 this loan had not been repaid and the Company began accruing interest at 14.5% as of the Maturity Date.
The July 2019 Gravitas Capital Loan Agreement
On July 16, 2019, the Company entered into a loan agreement (the “July 2019 Gravitas Capital Loan Agreement”) with Gravitas Capital, whereby the Company issued Gravitas Capital a promissory note in the principal amount of $100,000 (the “July 2019 Gravitas Capital Note”). As additional consideration for entering in the July 2019 Gravitas Capital Note Loan Agreement, the Company issued Gravitas Capital a five-year warrant to purchase 333 shares of the Company’s common stock at a purchase price of $18.00 per share. Pursuant to the July 2019 Gravitas Capital Loan Agreement, the July 2019 Gravitas Capital Note bears interest at a rate of 5% per annum and payable on the maturity date of September 1, 2019 (the “July 2019 Gravitas Capital Maturity Date”). On September 19, 2018 the Company executed upon an agreement that extended the maturity date of this loan to November 1, 2019. As part of the extension agreement, the Company issued Gravitas Capital warrants to purchase 333 shares of common stock of the Company at an exercise price of $18.00 per share.
During the year ended December 31, 2019 the Company repaid $100,000 in principal $15,000 in interest and extended the maturity date of the loan.
The August 2019 Schiller Loan Agreement
On August 6, 2019, the Company entered into a loan agreement (the “August 2019 Schiller Loan Agreement”), whereby the Company issued a promissory note 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 75 shares of the Company’s common stock at a purchase price of $18.00 per share.
During the year ended December 31, 2019 the Company repaid $15,000 in principal and $750 in interest and the loan is no longer outstanding.
The September 2019 Schiller Loan Agreement
On September 26, 2019, the Company entered into a loan agreement (the “September 2019 Schiller Loan Agreement”), whereby the Company issued Schiller a promissory note in the principal amount of $50,000 (the “September 2019 Schiller Note”). Pursuant to the September 2019 Schiller Loan Agreement, the September 2019 Schiller Note bears interest at a rate 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 333 shares of the Company’s common stock at a purchase price of $18.00 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 Jeremy Frommer, whereby the Company issued 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 has a flat interest rate of $500. As additional consideration for entering in the October 2019 Frommer Loan Agreement, the Company issued Frommer a five-year warrant to purchase 50 shares of the Company’s common stock at a purchase price of $18.00 per share.
During the year ended December 31, 2019 the Company repaid $10,000 in principal and $225 in interest and the loan is no longer outstanding.
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. As of the date of this filing, the note has not been repaid, but the Company is in negotiations with the holder about an extension agreement.
Demand loan
On June 6, 2018, Rosen made non-interest bearing loans of $50,000 to the Company in the form of cash. The loan is due on demand and unsecured. On July 12, 2018, this note was converted into The Second July 2018 Rosen Loan Agreements.
On March 29, 2019, Mark Standish made non-interest bearing loans of $300,000 to the Company in the form of cash. The loan is due on demand and is unsecured. In April 2019 the company papered this note as part of the February 2019 Convertible Note Offering.
On June 13, 2019, Standish 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 the company repaid $25,000 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.
Officer compensation
During the years ended December 31, 2019 and 2018 the Company paid $122,470 and $109,407, respectively for living expenses for officers of the Company.
Note 9 – Stockholders’ Deficit
Shares Authorized
The Company is authorized to issue up to one hundred 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 “blank check” preferred stock, par value $0.001 per share. The designations, rights, and preferences of such preferred stock are to be determined by the Company’s board of directors.
Reverse Stock Split
On July 25, 2019, following board of directors approval, the Company filed a Certificate of Change to its Articles of Incorporation (the “Amendment”), with the Secretary of State of the State of Nevada to effectuate a one-for-twenty (1:20) 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 July 30, 2019. The number of common stock authorized was proportionately reduced pursuant to 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 have been retroactively restated to give effect to the reverse splits.
Preferred Stock
As of December 31, 2019, and 2018 there were no preferred stock issued or outstanding.
Series A Cumulative Convertible Preferred Stock
On February 13, 2015, 100,000 shares of preferred stock were designated as Series A Cumulative Convertible Preferred Stock (“Series A”). Each share of Series A shall have a stated value equal to $100 (as adjusted for any stock dividends, combinations or splits with respect to such shares) (the “Series A Stated Value”).
The holders of the Series A shall be entitled to receive preferential dividends at the rate of 6% per share per annum on the Series A Stated Value, but before any dividend or other distribution will be paid or declared and set apart for payment on any shares of any Junior Stock, as defined. Such dividends shall compound annually and be fully cumulative, and shall accumulate from the date of original issuance of the Series A and shall be payable quarterly, in arrears, commencing on the first day of the calendar quarter following the date on which the Series A is issued. Upon the occurrence of an Event of Default (as defined below) and while such Event of Default is outstanding, such dividend rate shall be increased to 15% per annum on the Series A Stated Value. At the Company’s option, such dividend payments may be made in (i) cash (ii) additional shares of Series A valued at the Series A Stated Value thereof, in an amount equal to 150% of the cash dividend otherwise payable or (iii) a combination of cash and additional shares of Series A, provided there is not an existing current Event of Default on the date on which a dividend payment is payable, in which event the Holder entitled to receive such dividend may elect to receive such dividends in cash or additional shares of Series A Preferred.
The dividends on the Series A shall be cumulative whether or not declared so that, if at any time full cumulative dividends at the rate aforesaid on all shares of the Series A then outstanding from the date from and after which dividends thereon are cumulative to the end of the annual dividend period next preceding such time shall not have been paid or declared and set apart for payment, or if the full dividend on all such outstanding Series A for the then current dividend period shall not have been paid or declared and set apart for payment, the amount of the deficiency shall be paid or declared and set apart for payment before any sum shall be set apart for or applied by the Corporation or a subsidiary of the Corporation to the purchase, redemption or other acquisition of the Series A or any shares of any other class of stock ranking on a parity with the Series A and before any dividend or other distribution shall be paid or declared and set apart for payment on any Junior Stock and before any sum shall be set aside for or applied to the purchase, redemption or other acquisition of any Junior Stock.
Holder of Series A shall have the right at any time after the issuance, to convert such shares, accrued but unpaid declared dividends on the Series A and any other sum owed by the Corporation arising from the Series A into fully paid and non-assessable shares of Common Stock (the “Conversion Shares”) of the Corporation determined in accordance with the applicable conversion price (the “Conversion Price”).
The number of Conversion Shares issuable upon conversion shall equal (i) the sum of (A) the Series A Stated Value being converted and/or (B) at the Holder’s election, accrued and unpaid dividends or any other component of the Conversion Amount, divided by (ii) the Conversion Price. The Conversion Price of the Series A shall be $15.00, subject to adjustment.
During the year ended December 31, 2016 the conversion price was adjusted to $9.84
The Corporation and the Holder may not convert that amount of the Conversion Amount on a Conversion Date in amounts that would result in the Holder having a beneficial ownership of Common Stock which would be in excess of the sum of (i) the number of shares of Common Stock beneficially owned by the Holder and its Affiliates on such Conversion Date, and (ii) the number of Conversion Shares issuable upon the conversion of the Conversion Amount with respect to which the determination of this provision is being made on such Conversion Date, which would result in the aggregate beneficial ownership by the Holder and its Affiliates of more than 4.99% of the outstanding shares of Common Stock of the Corporation. For the purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the 1934 Act and Regulation 13d-3 thereunder. Subject to the foregoing, the Holder shall not be limited to successive exercises which would result in the aggregate issuance of more than 4.99%. The Holder may allocate which of the equity of the Corporation deemed beneficially owned by the Holder shall be included in the 4.99% amount described above and which shall be allocated to the excess above 4.99%. The Holder may waive the conversion limitation described in this Section in whole or in part, upon and effective after sixty-one (61) days’ prior written notice to the Corporation.
The holders of our Series A do vote together with the holders of our Common Stock on an as converted basis on each matter submitted to a vote of holders of Common Stock. The number of votes that may be cast by a holder of Series A shall be equal to the number of shares of Common Stock issuable upon conversion of such Holder’s Series A on the record date for determining those stockholders entitled to vote on the matter. In addition, the affirmative vote of the holders of a majority of our outstanding Series A is required to for the following actions:
(a) amending the Corporation’s articles of incorporation or by-laws if such amendment would adversely affect the Series A
(b) purchasing any of the Corporation’s securities other than required redemptions of Series A and repurchase under restricted stock and option agreements authorizing the Corporation’s employees;
(c) effecting a Liquidation Event;
(d) declaring or paying any dividends other than in respect of the Series A; and
(e) issuing any additional securities having rights senior to or on parity with the Series A.
During the years ended December 31, 2018, the Company accrued $0 for liquidating damages on the Series A and $0 on the warrants associated with the Series A.
During the year ended December 31, 2018 the Company converted the remaining Series A into the August 2018 Equity Raise. See below.
Series B Cumulative Convertible Preferred Stock
On December 21, 2015, 20,000 shares of preferred stock were designated as Series B Cumulative Convertible Preferred Stock (“Series B”). Each share of Series B shall have a stated value equal to $100.00 (as adjusted for any stock dividends, combinations or splits with respect to such shares) (the “Series B Stated Value”).
The holders of outstanding shares of Series B shall be entitled to receive preferential dividends at the rate of 6% per share per annum on the Series B Stated Value, but before any dividend or other distribution will be paid or declared and set apart for payment on any shares of any Junior Stock as defined. Such dividends shall compound annually and be fully cumulative and shall accumulate from the date of original issuance of the Series B, and shall be payable quarterly, in arrears, commencing on the first day of the calendar quarter following the date on which the Series B is issued. Upon the occurrence of an Event of Default as defined below and while such Event of Default is outstanding, such dividend rate shall be increased to 15% per annum on the Series B Stated Value. At the Corporation’s option, such dividend payments may be made in (i) cash (ii) additional shares of Series B valued at the Series B Stated Value thereof, in an amount equal to 100% of the cash dividend otherwise payable or (iii) a combination of cash and additional shares of Series B, provided there is not an existing current Event of Default on the date on which a dividend payment is payable, in which event the Holder entitled to receive such dividend may elect to receive such dividends in cash or additional shares of Series B Preferred.
The dividends on the Series B shall be cumulative whether or not declared so that, if at any time full cumulative dividends at the rate aforesaid on all shares of the Series B then outstanding from the date from and after which dividends thereon are cumulative to the end of the annual dividend period next preceding such time shall not have been paid or declared and set apart for payment, or if the full dividend on all such outstanding Series B for the then current dividend period shall not have been paid or declared and set apart for payment, the amount of the deficiency shall be paid or declared and set apart for payment before any sum shall be set apart for or applied by the Corporation or a subsidiary of the Corporation to the purchase, redemption or other acquisition of the Series B or any shares of any other class of stock ranking on a parity with the Series B and before any dividend or other distribution shall be paid or declared and set apart for payment on any Junior Stock and before any sum shall be set aside for or applied to the purchase, redemption or other acquisition of any Junior Stock.
Holders of shares of Series B shall have the right at any time commencing after the issuance to convert such shares, accrued but unpaid declared dividends on the Series B into fully paid and non-assessable shares of Common Stock (the “Conversion Shares”) of the Corporation determined in accordance with the applicable conversion price (the “Conversion Price”). All declared or accrued but unpaid dividends may be converted at the election of the Holder together with or independent of the conversion of the Series B Stated Value of the Series B.
The number of Conversion Shares issuable upon conversion of the Conversion Amount shall equal (i) the sum of (A) the Series B Stated Value being converted and/or (B) at the Holder’s election, accrued and unpaid dividends or any other component of the Conversion Amount, divided by (ii) the Conversion Price. The Conversion Price of the Series B shall be $18.00, subject to adjustment.
During the year ended December 31, 2016 the conversion price was adjusted to $11.82.
The Corporation and the Holder may not convert that amount of the Conversion Amount on a Conversion Date in amounts that would result in the Holder having a beneficial ownership of Common Stock which would be in excess of the sum of (i) the number of shares of Common Stock beneficially owned by the Holder and its Affiliates on such Conversion Date, and (ii) the number of Conversion Shares issuable upon the conversion of the Conversion Amount with respect to which the determination of this proviso is being made on such Conversion Date, which would result in the aggregate beneficial ownership by the Holder and its Affiliates of more than 4.99% of the outstanding shares of Common Stock of the Corporation. For the purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the 1934 Act and Regulation 13d-3 thereunder. Subject to the foregoing, the Holder shall not be limited to successive exercises which would result in the aggregate issuance of more than 4.99%. The Holder may allocate which of the equity of the Corporation deemed beneficially owned by the Holder shall be included in the 4.99% amount described above and which shall be allocated to the excess above 4.99%. The Holder may waive the conversion limitation described in this Section in whole or in part, upon and effective after sixty-one (61) days’ prior written notice to the Corporation.
The holders of our Series B do vote together with the holders of our Common Stock on an as converted basis on each matter submitted to a vote of holders of Common Stock. The number of votes that may be cast by a holder of Series B shall be equal to the number of shares of Common Stock issuable upon conversion of such Holder’s Series B on the record date for determining those stockholders entitled to vote on the matter. In addition, the affirmative vote of the holders of a majority of our outstanding Series B is required to for the following actions:
(a) amending the Corporation’s articles of incorporation or by-laws if such amendment would adversely affect the Series B
(b) purchasing any of the Corporation’s securities other than required redemptions of Series B and repurchase under restricted stock and option agreements authorizing the Corporation’s employees;
(c) effecting a Liquidation Event;
(d) declaring or paying any dividends other than in respect of the Company’s Series A or Series B; and
(e) issuing any additional securities having rights senior to the Series B.
During the years ended December 31, 2018, the Company accrued $0 for liquidating damages on the Series B and $0 on the warrants associated with the Series B.
During the year ended December 31, 2018 the Company converted the remaining Series B into the August 2018 Equity Raise. See below.
Common Stock
On January 31, 2018, the Company issued 6,250 shares of its restricted common stock to settle outstanding vendor liabilities of $3,750. In connection with this transaction the Company also recorded a gain on settlement of vendor liabilities of $375.
During the year ended December 31, 2018, the Company issued 10,166 shares of its restricted common stock to consultants in exchange for services at a fair value of $116,300. 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 year ended December 31, 2018 the Company recorded $72,835 to share based payments.
On January 4, 2019, the Company issued 33,333 shares of its restricted common stock to consultants in exchange for services at a fair value of $240,000.
On January 3, 2019, the Company issued 8,333 shares of its restricted common stock to consultants in exchange for services at a fair value of $70,050.
August 2018 Equity Raise
Effective August 31, 2018 (the “Effective Date”), the Company consummated the initial closing (the “Initial Closing”) of a private placement offering of its securities of up to $5,000,000 (the “August 2018 Equity Raise”). In connection with the August 2018 Equity Raise, the Company entered into definitive securities purchase agreements (the “Purchase Agreements”) for aggregate gross proceeds of $649,829 and $2,787,462 during the years ended December 31, 2019 and 2018 respectively. Pursuant to the Purchase Agreement, the Purchasers purchased an aggregate of 43,322 and 185,830 shares of common stock at $15.00 per share and received warrants to purchase 43,322 and 185,830 shares of common stock at an exercise price of $18.00 per share (the “Purchaser Warrants”, collectively, the “Securities”).
The Purchaser Warrants are exercisable for a term of five years from the Initial Exercise Date (as defined in the Purchaser Warrants).
In connection with the August 2018 Equity Raise, the Company will issue 36,666 shares of Common Stock, will pay fees of $161,406 and will grant warrants to purchase 2,333 shares of common stock at an exercise price of $18.00 per share for services rendered as the Company’s placement agent in the Private Offering. The Company has recorded $334,985 to stock issuance costs, which are part of Additional Paid-in Capital.
Letter Agreements for the Conversion of Debt and Preferred Stock
In connection with the August 2018 Equity Raise, the Company entered into those certain letter agreements (the “Debt Conversion Agreements”) with certain holders of its debt securities (the “Debt Holders”), for the conversion of an aggregate amount of $7,997,939 of principal and $1,028,890 of accrued but unpaid interest of the Company’s debt obligations into 752,149 shares of Common Stock at a conversion price equal to $12.00 per share. Additionally, as inducement to enter into the Debt Conversion Agreement, the Debt Holders were issued warrants to purchase 376,075 shares of Common Stock at an exercise price equal to $18.00 per share, expiring five years from the date of issuance (the “Incentive Debt Warrants”). The Company recorded a Loss on extinguishment of debt of $2,913,934 in connection with of the debt conversions. See Notes 7, 8 and 9.
Concurrently with its entrance in the Debt Conversion Agreements, the Company entered into those letter agreements (the “Preferred Stock Conversion Agreements”) with certain holders (the “Preferred Holders”) of its Series A Cumulative Convertible Preferred Stock and Series B Cumulative Convertible Preferred Stock (the “collectively, the Preferred Stock”) whereby the Preferred Holders converted 38,512 shares of the Preferred Stock into an aggregate of 447,776 shares of Common Stock at conversion prices equal to $11.82 per share for Series A and $9.84 per share for Series B. As in an inducement to enter into the Preferred Stock Conversion Agreements, the Preferred Holders were issued warrants to purchase 223,888 shares of Common Stock at an exercise price equal to $18.00 per share, expiring five years from the date of issuance (the “Incentive Preferred Warrants”, and together with the Incentive Debt Warrants, the “Incentive Warrants”). The Company recorded an inducement of $2,016,634 in connection with of the Preferred conversions and is recorded as an adjustment to net loss attributable to common shareholders, on the statements of operations.
Tender offers
| | Warrants subject to tender | | | Common shares issuable | | | Warrants tendered | | | Shares issued | | Tender offer 1 | | | 1,030,549 | | | | 343,513 | | | | 848,860 | | | | 282,951 | | Tender offer 2 | | | 895,914 | | | | 445,457 | | | | 834,202 | | | | 417,106 | | Total | | | 1,926,463 | | | | 788,970 | | | | 1,683,062 | | | | 700,057 | |
Tender 1
In February 2019 the Company offered to its holders of certain outstanding warrants (the “Tender 1 Warrants”), each with an exercise price of $12.00, by agreeing to receive five hundred fifty five (555) Shares in exchange for every one thousand, six hundred, sixty seven (1,667) Warrants tendered by the holders of Warrants (the “Exchange Ratio”). The Exchange Ratio was selected by the Company in order to provide the holders of the Warrants with an incentive to exchange the Warrants. The Tender closed on April 15, 2019. The Company considered the fair value accounting for all share-based payments awards. The fair value of each warrant tendered is estimated on the tender date using the Black-Scholes option-pricing model. Since the fair of the warrants were in excess of the fair value of common stock the company did not record an inducement expense.
Tender 2
In April 2019 the Company offered to its holders of certain outstanding warrants (the “Tender 2 Warrants”), each with an exercise price of $18.00, by agreeing to receive eight hundred thirty three (833) Shares in exchange for every one thousand, six hundred, sixty seven (1,667) Warrants tendered by the holders of Warrants (the “Exchange Ratio”). The Exchange Ratio was selected by the Company in order to provide the holders of the Warrants with an incentive to exchange the Warrants. The Tender closed on May 17, 2019. The Company considered the fair value accounting for all share-based payments awards. The fair value of each warrant tendered is estimated on the tender date using the Black-Scholes option-pricing model. Since the fair of the warrants were in excess of the fair value of common stock the company did not record an inducement expense.
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 year ended December 31, 2019 and 2018 are as follows:
| | December 31, 2019 | | | December 31, 2018 | | Exercise price | | $ | 13.20-6.60 | | | | 18.00-45 | | Expected dividends | | | 0 | % | | | 0 | % | Expected volatility | | | 102.76 | % | | | 93.64%-116.27 | % | Risk free interest rate | | | 1.61 | % | | | 2.2%-2.56 | | Expected life of option | | | 10 years | | | | 3.6 - 4.3 years | |
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 – December 31, 2017 – outstanding | | | 294,166 | | | $ | 25.20 | | | | 3.27 | | Granted | | | - | | | | - | | | | - | | Exercised | | | - | | | | - | | | | - | | Cancelled/Modified | | | - | | | | - | | | | - | | Balance – December 31, 2018 – outstanding | | | 294,166 | | | | 25.20 | | | | 3.27 | | Balance – December 31, 2018 – exercisable | | | 255,277 | | | | 21.60 | | | | 3.25 | | | | | | | | | | | | | | | Balance – December 31, 2018 – outstanding | | | 294,166 | | | | 25.20 | | | | 3.27 | | Granted | | | 9,666 | | | | 9.66 | | | | 10.01 | | Exercised | | | - | | | | - | | | | - | | Cancelled/Modified | | | - | | | | - | | | | - | | Balance – December 31, 2019 – outstanding | | | 303,833 | | | | 24.48 | | | | 2.51 | | Balance – December 31, 2019 – exercisable | | | 303,833 | | | $ | 24.48 | | | | 2.51 | |
During the year ended December 31, 2019 the Company granted options of 9,666 to consultants. As of the date of this filing the company has not issued these options.
At December 31, 2019, the aggregate intrinsic value of options outstanding and exercisable was $0 and $0, respectively.
Stock-based compensation for stock options has been recorded in the consolidated statements of operations and totaled $14,336 and $446,123, for the year ended December 31, 2018 and 2019, respectively.
The following is a summary of the Company’s stock options granted during the year ended December 31, 2019:
Options | | | Value | | | Purpose for Grant | | 9,666 | | | $ | 3,021 | | | Service Rendered |
The following is a summary of the Company’s stock options granted during the year ended December 31, 2018:
Options | | | Value | | | Purpose for Grant | | 11,666 | | | $ | 56,495 | | | Service Rendered |
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 year ended December 31, 2019 are as follows:
| | December 31, 2019 | | | December 31, 2018 | | Exercise price | | $ | 18.00 | | | $ | 12.00-$18.00 | | Expected dividends | | | 0 | % | | | 0 | % | Expected volatility | | | 78.50% - 116.92 | % | | | 92.14% - 109.54 | % | Risk free interest rate | | | 1.32% - 2.75 | % | | | 1.64% - 3.09 | % | Expected life of warrant | | | 4 – 5 years | | | | 4 – 5 years | |
Warrant Activities
The following is a summary of the Company’s warrant activity:
| | Warrants | | | Weighted Average Exercise Price | | | | | | | | | Outstanding – December 31, 2017 | | | 770,666 | | | $ | 15.00 | | Granted | | | 1,078,713 | | | | 16.20 | | Exercised | | | - | | | | - | | Forfeited/Cancelled | | | - | | | | - | | Outstanding – December 31, 2018 | | | 1,849,380 | | | | 16.20 | | Granted | | | 154,610 | | | | 17.67 | | Exercised | | | - | | | | - | | Forfeited/Cancelled | | | (1,756,584 | ) | | | 15.96 | | Outstanding and Exercisable – December 31, 2019 | | | 247,407 | | | $ | 15.75 | |
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 | | $ | 15.75 | | | | 247,407 | | | | 2.71 | | | | 15.75 | | | | 247,407 | | | | 8.13 | |
During the year ended December 31, 2019, a total of 44,396 warrants were issued with convertible notes (See Note 6 above). The warrants have a grant date fair value of $252,533 using a Black-Scholes option-pricing model and the above assumptions.
During the year ended December 31, 2019, a total of 42,968 warrants were issued with notes payable – related party (See Note 8 above). The warrants have a grant date fair value of $205,509 using a Black-Scholes option-pricing model and the above assumptions.
During the year ended December 31, 2019, a total of 440 warrants were issued with convertible notes payable – related party (See Note 8 above). The warrants have a grant date fair value of $2,465 using a Black-Scholes option-pricing model and the above assumptions.
During the year ended December 31, 2019, a total of 43,322 warrants were issued with the August 2018 Equity Raise (See above). The warrants have a grant date fair value of $334,985 using a Black-Scholes option-pricing model and the above assumptions.
During the year ended December 31, 2019, a total of 14,147 warrants were issued in exchange for services. The warrants have a grant date fair value of $122,777 using a Black-Scholes option-pricing model and the above assumptions.
During the year ended December 31, 2018, a total of 49,381 warrants were issued with promissory notes (See Note 6 above). The warrants have a grant date fair value of $501,268 using a Black-Scholes option-pricing model and the above assumptions.
During the year ended December 31, 2018, a total of 174,683 warrants were issued with convertible notes (See Note 7 above). The warrants have a grant date fair value of $1,284,683 using a Black-Scholes option-pricing model and the above assumptions.
During the year ended December 31, 2018, a total of 42,170 warrants were issued with notes payable – related party (See Note 8 above). The warrants have a grant date fair value of $429,340 using a Black-Scholes option-pricing model and the above assumptions.
During the year ended December 31, 2018, a total of 23,391 warrants were issued with convertible notes payable – related party (See Note 8 above). The warrants have a grant date fair value of $162,834 using a Black-Scholes option-pricing model and the above assumptions.
During the year ended December 31, 2018, a total of 788,127 warrants were issued with the August 2018 Equity Raise (See above). The warrants have a grant date fair value of $6,418,381 using a Black-Scholes option-pricing model and the above assumptions.
Note 10 – Commitments and Contingencies
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. Total amount due under this lease is $411,150.
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. Total amount due under this lease is $108,229
The components of lease expense were as follows:
| | Year Ended December 31, 2019 | | Operating lease cost | | $ | 101,341 | | Short term lease cost | | | (6,434 | ) | Total net lease cost | | $ | 94,907 | |
Supplemental cash flow and other information related to leases was as follows:
| | Year Ended
December 31,
2019 | | Cash paid for amounts included in the measurement of lease liabilities: | | | | | ROU asset obtained in exchange for lease obligation | | | 349,997 | | Operating lease payments | | | 60,764 | | | | | | | Weighted average remaining lease term (in years): | | | 3.5 | | | | | | | Weighted average discount rate: | | | 13 | % |
Total future minimum payments required under the lease as of December 31, 2019 are as follows:
Twelve Months Ending December 31, | | | | 2020 | | $ | 104,922 | | 2021 | | | 108,983 | | 2022 | | | 114,627 | | 2023 | | | 53,094 | | Total | | $ | 381,626 | |
Rent expense for the years ended December 31, 2019 and 2018 was $198,473 and $179,186 respectively.
Note 11 – Income Taxes
Components of deferred tax assets are as follows:
| | December 31, 2019 | | | December 31, 2018 | | Net deferred tax assets – Non-current: | | | | | | | | | Depreciation | | $ | (63,676 | ) | | $ | 14,168 | | Amortization | | | 7,437 | | | | - | | Stock based compensation | | | 659,384 | | | | 533,187 | | Expected income tax benefit from NOL carry-forwards | | | 5,229,445 | | | | 3,413,650 | | Less valuation allowance | | | (5,832,590 | ) | | | (3,961,005 | ) | Deferred tax assets, net of valuation allowance | | $ | - | | | $ | - | |
Income Tax Provision in the Consolidated Statements of Operations
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:
| | For the Year Ended December 31, 2019 | | | For the Year Ended December 31, 2018 | | | | | | | | | Federal statutory income tax rate | | | 21.0 | % | | | 21.0 | % | State tax rate, net of federal benefit | | | 6.5 | % | | | 6.5 | % | | | | | | | | | | Change in valuation allowance on net operating loss carry-forwards | | | (27.5 | )% | | | (27.5 | )% | | | | | | | | | | Effective income tax rate | | | 0.0 | % | | | 0.0 | % |
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 year ended December 31, 2019 and 2018. Accordingly, management had applied a full valuation allowance against net deferred tax assets as of December 31, 2019 and 2018.
As of December 31, 2019, the Company had approximately $21 million of federal net operating loss carryforwards available to reduce future taxable income which will begin to expire in 2033 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 12 – Subsequent Events
Subsequent to December 31, 2019 the company entered into seven promissory note agreements. The Company received proceeds of $584,900. As additional consideration for entering in the promissory note agreements, the investors were granted a total of 249 warrants to purchase the Company’s common stock.
Subsequent to December 31, 2019 the company entered into five convertible promissory note agreements. The Company received proceeds of $770,000. As additional consideration for entering in the convertible promissory note agreements, the investors were granted a total of 48,331 warrants to purchase the Company’s common stock.
On August 17, 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 upon such filing. 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.
Jerrick Media Holdings, Inc.
Condensed Consolidated Balance Sheets
| | June 30, 2020 | | | December 31, 2019 | | | | (Unaudited) | | | | | | | | | | | | Assets | | | | | | | | | | | | | | | | | | Current Assets | | | | | | | | | Cash | | $ | 44,628 | | | $ | 11,637 | | Prepaid expenses | | | - | | | | 4,127 | | Accounts receivable, net | | | 76,462 | | | | 50,849 | | Note receivable – related party | | | 11,450 | | | | 11,450 | | Marketable securities | | | 176,325 | | | | - | | Total Current Assets | | | 308,865 | | | | 78,063 | | | | | | | | | | | Property and equipment, net | | | 34,741 | | | | 42,363 | | | | | | | | | | | Intangible assets | | | 1,024,299 | | | | 1,087,278 | | | | | | | | | | | Goodwill | | | 1,035,795 | | | | 1,035,795 | | | | | | | | | | | Deposits and other assets | | | 48,973 | | | | 16,836 | | | | | | | | | | | Operating lease right of use asset | | | 276,742 | | | | 311,711 | | | | | | | | | | | Total Assets | | $ | 2,729,415 | | | $ | 2,572,046 | | | | | | | | | | | Liabilities and Stockholders’ Deficit | | | | | | | | | | | | | | | | | | Current Liabilities | | | | | | | | | Accounts payable and accrued liabilities | | $ | 2,851,017 | | | $ | 1,763,222 | | Demand loan | | | 325,000 | | | | 225,000 | | Convertible Notes - related party, net of debt discount | | | 20,000 | | | | 20,387 | | Convertible Notes, net of debt discount and issuance costs | | | 5,151,540 | | | | 2,896,425 | | Current portion of operating lease payable | | | 76,833 | | | | 105,763 | | Note payable - related party, net of debt discount | | | 4,990,979 | | | | 5,129,342 | | Note payable, net of debt discount and issuance costs | | | 1,314,634 | | | | 660,000 | | Unrecognized tax benefit | | | 68,000 | | | | 68,000 | | Deferred revenue | | | 55,959 | | | | 50,691 | | Warrant liability | | | - | | | | 10,000 | | | | | | | | | | | Total Current Liabilities | | | 14,853,962 | | | | 10,928,830 | | | | | | | | | | | Non-current Liabilities: | | | | | | | | | Note payable | | | 401,764 | | | | - | | Operating lease payable | | | 197,810 | | | | 201,944 | | | | | | | | | | | Total Non-current Liabilities | | | 599,574 | | | | 201,944 | | | | | | | | | | | Total Liabilities | | | 15,453,536 | | | | 11,130,774 | | | | | | | | | | | Commitments and contingencies | | | | | | | | | | | | | | | | | | Stockholders’ Deficit | | | | | | | | | Series A Preferred stock, $0.001 par value, 0 and 31,581 shares issued and outstanding, respectively | | | - | | | | - | | Series B Preferred stock, $0.001 par value, 0 and 8,063 shares issued and outstanding, respectively | | | - | | | | - | | Series D Preferred stock, $0.001 par value, 0 and 914 shares issued and outstanding, respectively | | | - | | | | - | | Common stock par value $0.001: 100,000,000 shares authorized; 3,327,398 issued and 3,319,937 outstanding as of June 30, 2020 and 3,059,645 issued and 3,006,362 outstanding as of December 31, 2019 | | | 3,327 | | | | 3,059 | | Additional paid in capital | | | 39,075,662 | | | | 36,391,819 | | Accumulated deficit | | | (51,708,425 | ) | | | (44,580,437 | ) | Accumulated other comprehensive income (loss) | | | (34,525 | ) | | | (5,995 | ) | Less: Treasury stock, 7,461 and 53,283 shares, respectively | | | (60,162 | ) | | | (367,174 | ) | | | | (12,730,776 | ) | | | (8,564,848 | ) | | | | | | | | | | Total Liabilities and Stockholders’ Deficit | | $ | 2,729,415 | | | $ | 2,572,046 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Jerrick Media Holdings, Inc.
Condensed Consolidated Statements of Comprehensive Loss (Unaudited)
| | For the Three Months Ended | | | For the Three Months Ended | | | For the Six Months Ended | | | For the Six Months Ended | | | | June 30, 2020 | | | June 30, 2019 | | | June 30, 2020 | | | June 30, 2019 | | | | | | | | | | | | | | | Net revenue | | $ | 322,540 | | | $ | 7,181 | | | $ | 615,682 | | | $ | 41,515 | | | | | | | | | | | | | | | | | | | Gross margin | | | 322,540 | | | | 7,181 | | | | 615,682 | | | | 41,515 | | | | | | | | | | | | | | | | | | | Operating expenses | | | | | | | | | | | | | | | | | Compensation | | | 1,893,178 | | | | 545,037 | | | | 2,266,698 | | | | 1,271,611 | | Consulting fees | | | 902,099 | | | | 191,254 | | | | 1,552,106 | | | | 397,631 | | Research and development | | | 35,705 | | | | 13,559 | | | | 171,275 | | | | 354,898 | | General and administrative | | | 1,026,810 | | | | 659,452 | | | | 1,986,804 | | | | 1,124,490 | | | | | | | | | | | | | | | | | | | Total operating expenses | | | 3,857,792 | | | | 1,409,302 | | | | 5,976,883 | | | | 3,148,630 | | | | | | | | | | | | | | | | | | | Loss from operations | | | (3,535,252 | ) | | | (1,402,121 | ) | | | (5,361,201 | ) | | | (3,107,115 | ) | | | | | | | | | | | | | | | | | | Other income (expenses) | | | | | | | | | | | | | | | | | Other income | | | 14,229 | | | | - | | | | 77,785 | | | | - | | Interest expense | | | (491,206 | ) | | | (110,032 | ) | | | (866,736 | ) | | | (164,601 | ) | Accretion of debt discount and issuance cost | | | (140,274 | ) | | | (69,626 | ) | | | (327,221 | ) | | | (116,990 | ) | Settlement of vendor liabilities | | | - | | | | - | | | | (126,087 | ) | | | - | | Gain on marketable securities | | | 10,042 | | | | - | | | | 10,042 | | | | - | | Loss on extinguishment of debt | | | - | | | | (3,635 | ) | | | (535,040 | ) | | | (81,149 | ) | Gain on settlement of debt | | | 470 | | | | - | | | | 470 | | | | - | | | | | | | | | | | | | | | | | | | Other expenses, net | | | (606,739 | ) | | | (183,293 | ) | | | (1,766,787 | ) | | | (362,740 | ) | | | | | | | | | | | | | | | | | | Loss before income tax provision | | | (4,141,991 | ) | | | (1,585,414 | ) | | | (7,127,988 | ) | | | (3,469,855 | ) | | | | | | | | | | | | | | | | | | Income tax provision | | | - | | | | - | | | | - | | | | - | | | | | | | | | | | | | | | | | | | Net loss | | $ | (4,141,991 | ) | | $ | (1,585,414 | ) | | $ | (7,127,988 | ) | | $ | (3,469,855 | ) | | | | | | | | | | | | | | | | | | Deemed dividend | | | - | | | | - | | | | - | | | | - | | Inducement expense | | | - | | | | (7,628 | ) | | | - | | | | (7,628 | ) | | | | | | | | | | | | | | | | | | Net loss attributable to common shareholders | | | (4,141,991 | ) | | | (1,577,786 | ) | | | (7,127,988 | ) | | | (3,462,227 | ) | | | | | | | | | | | | | | | | | | Other comprehensive income (loss) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Currency translation (loss) | | | (19,291 | ) | | | - | | | | (28,530 | ) | | | - | | | | | | | | | | | | | | | | | | | Comprehensive loss | | $ | (4,161,282 | ) | | $ | (1,577,786 | ) | | $ | (7,156,518 | ) | | $ | (3,462,227 | ) | | | | | | | | | | | | | | | | | | Per-share data | | | | | | | | | | | | | | | | | Basic and diluted loss per share | | $ | (1.30 | ) | | $ | (0.59 | ) | | $ | (2.28 | ) | | $ | (1.41 | ) | | | | | | | | | | | | | | | | | | Weighted average number of common shares outstanding | | | 3,194,321 | | | | 2,690,752 | | | | 3,122,926 | | | | 2,463,188 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Jerrick Media Holdings, Inc.
Consolidated Statement of Changes in Stockholders’ Equity (Deficit)
For the Three Months Ended June 30, 2020 (Unaudited)
| | Series A Preferred Stock | | | Series B Preferred Stock | | | Series D Preferred Stock | | | Common Stock | | | Treasury stock | | | Additional Paid In | | | Accumulated | | | Other Comprehensive | | | Stockholders’ | | | | Shares | | | Amount | | | Shares | | | Amount | | | Shares | | | Amount | | | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | Deficit | | | Income | | | Equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, March 31, 2020 | | | - | | | $ | - | | | | - | | | $ | - | | | | - | | | $ | - | | | | 3,140,894 | | | $ | 3,141 | | | | (53,283 | ) | | $ | (367,174 | ) | | $ | 37,754,638 | | | $ | (47,566,434 | ) | | $ | (15,234 | ) | | $ | (10,191,063 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Shares issued with note payable | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 5,424 | | | | 5 | | | | - | | | | - | | | | 27,292 | | | | - | | | | - | | | | 27,297 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Conversion of warrants to stock | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 2,239 | | | | 7 | | | | - | | | | - | | | | (10,007 | ) | | | - | | | | - | | | | (10,000 | ) | �� | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Conversion of options to stock | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 229,491 | | | | 2 | | | | - | | | | - | | | | 1,405,434 | | | | - | | | | - | | | | 1,405,664 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock warrants issued with note payable | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 247,281 | | | | - | | | | - | | | | 247,281 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cancellation of Treasury stock | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (50,650 | ) | | | (51 | ) | | | 50,650 | | | | 349,030 | | | | (348,979 | ) | | | - | | | | - | | | | - | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Purchase of treasury stock | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (4,828 | ) | | | (42,018 | ) | | | - | | | | - | | | | - | | | | (42,018 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Foreign currency translation adjustments | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (19,291 | ) | | | (19,291 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net loss for the three months ended June 30, 2020 | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (4,141,991 | ) | | | - | | | | (4,141,991 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, June 30, 2020 | | | - | | | $ | - | | | | - | | | $ | - | | | | - | | | $ | - | | | | 3,327,398 | | | $ | 3,327 | | | | (7,461 | ) | | $ | (60,162 | ) | | $ | 39,075,664 | | | $ | (51,708,425 | ) | | $ | (34,525 | ) | | $ | (12,724,121 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Jerrick Media Holdings, Inc.
Consolidated Statement of Changes in Stockholders’ Equity (Deficit)
For the Six Months Ended June 30, 2020 (Unaudited)
| | Series A Preferred Stock | | | Series B Preferred Stock | | | Series D Preferred Stock | | | Common Stock | | | Treasury stock | | | Additional Paid In | | | Accumulated | | | Other Comprehensive | | | Stockholders’ | | | | Shares | | | Amount | | | Shares | | | Amount | | | Shares | | | Amount | | | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | Deficit | | | Income | | | Equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, December 31, 2019 | | | - | | | $ | - | | | | - | | | $ | - | | | | - | | | $ | - | | | | 3,059,646 | | | $ | 3,060 | | | | (53,283 | ) | | $ | (367,174 | ) | | $ | 36,391,818 | | | $ | (44,580,437 | ) | | $ | (5,995 | ) | | $ | (8,558,728 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Shares issued with notes payable | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 8,107 | | | | 8 | | | | - | | | | - | | | | 58,928 | | | | - | | | | - | | | | 58,936 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Shares issued for services | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 50,000 | | | | 50 | | | | - | | | | - | | | | 584,948 | | | | - | | | | - | | | | 584,998 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Shares issued to settle vendor liabilities | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 23,565 | | | | 24 | | | | - | | | | - | | | | 235,611 | | | | - | | | | - | | | | 235,635 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Conversion of warrants to stock | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 7,239 | | | | 7 | | | | - | | | | - | | | | (4,235 | ) | | | - | | | | - | | | | (4,228 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Conversion of options to stock | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 229,491 | | | | 229 | | | | - | | | | - | | | | 1,405,435 | | | | - | | | | - | | | | 1,405,664 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock warrants issued with note payable | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 752,138 | | | | - | | | | - | | | | 752,138 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cancellation of Treasury stock | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (50,650 | ) | | | (51 | ) | | | 50,650 | | | | 349,030 | | | | (348,979 | ) | | | - | | | | - | | | | - | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Purchase of treasury stock | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (4,828 | ) | | | (42,018 | ) | | | - | | | | - | | | | - | | | | (42,018 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Foreign currency translation adjustments | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (28,530 | ) | | | (28,530 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net loss for the six months ended June 30, 2020 | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (7,127,988 | ) | | | - | | | | (7,127,988 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, June 30, 2020 | | | - | | | $ | - | | | | - | | | $ | - | | | | - | | | $ | - | | | | 3,378,698 | | | $ | 3,327 | | | | (7,461 | ) | | $ | (60,162 | ) | | $ | 39,075,664 | | | $ | (51,708,425 | ) | | $ | (34,525 | ) | | $ | (12,724,121 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Jerrick Media Holdings, Inc.
Consolidated Statement of Changes in Stockholders’ Equity (Deficit)
For the Three Months Ended June 30, 2019 (Unaudited)
| | Series A Preferred Stock | | | Series B Preferred Stock | | | Series D Preferred Stock | | | Common Stock | | | Treasury stock | | | Additional Paid In | | | Accumulated | | | Stockholders’ | | | | Shares | | | Amount | | | Shares | | | Amount | | | Shares | | | Amount | | | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | Deficit | | | Equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, March 31, 2019 | | | - | | | $ | - | | | | - | | | $ | - | | | | - | | | $ | - | | | | 2,243,435 | | | $ | 2,243 | | | | (37,222 | ) | | $ | (220,781 | ) | | $ | 34,096,415 | | | $ | (38,429,506 | ) | | $ | (3,551,629 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock based compensation | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 122,776 | | | | - | | | | 122,776 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash received for common stock and warrants | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Tender offering | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 700,058 | | | | 700 | | | | - | | | | - | | | | (700 | ) | | | - | | | | - | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock issuance cost | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (35,000 | ) | | | - | | | | (35,000 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock warrants issued with note payable | | | | | | | | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1,153,353 | | | | - | | | | 1,153,353 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Purchase of treasury stock and warrants | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (12,728 | ) | | | (141,393 | ) | | | (89,034 | ) | | | - | | | | (230,427 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Inducement expense | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 7,626 | | | | 7,626 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net loss for the three months ended June 30, 2019 | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (1,585,414 | ) | | | (1,585,414 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, June 30, 2019 | | | - | | | $ | - | | | | - | | | $ | - | | | | - | | | $ | - | | | | 2,943,492 | | | $ | 2,943 | | | | (49,950 | ) | | $ | (362,174 | ) | | $ | 35,247,810 | | | $ | (40,007,294 | ) | | $ | (5,118,715 | ) |
See accompanying notes to the consolidated financial statements
Jerrick Media Holdings, Inc.
Consolidated Statement of Changes in Stockholders’ Equity (Deficit)
For the Six Months Ended June 30, 2019 (Unaudited)
| | Series A Preferred Stock | | | Series B Preferred Stock | | | Series D Preferred Stock | | | Common Stock | | | Treasury stock | | | Additional Paid In | | | Accumulated | | | Stockholders’ | | | | Shares | | | Amount | | | Shares | | | Amount | | | Shares | | | Amount | | | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | Deficit | | | Equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, December 31, 2018 | | | - | | | $ | - | | | | - | | | $ | - | | | | - | | | $ | - | | | | 2,158,447 | | | $ | 2,158 | | | | (9,222 | ) | | $ | (52,341 | ) | | $ | 34,104,644 | | | $ | (36,545,065 | ) | | $ | (2,490,604 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock based compensation | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 41,667 | | | | 42 | | | | - | | | | - | | | | 434,043 | | | | - | | | | 434,085 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash received for common stock and warrants | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 43,322 | | | | 43 | | | | - | | | | - | | | | 649,786 | | | | - | | | | 649,829 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Tender offering | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 700,057 | | | | 700 | | | | | | | | | | | | (700 | ) | | | - | | | | - | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock issuance cost | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (178,146 | ) | | | - | | | | (178,146 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock warrants issued with note payable | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 328,777 | | | | - | | | | 328,777 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Purchase of treasury stock and warrants | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (40,728 | ) | | | (309,833 | ) | | | (90,594 | ) | | | - | | | | (400,427 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Inducement expense | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 7,626 | | | | 7,626 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net loss for the six months ended June 30, 2019 | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (3,469,855 | ) | | | (3,469,855 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, June 30, 2019 | | | - | | | $ | - | | | | - | | | $ | - | | | | - | | | $ | - | | | | 2,943,493 | | | $ | 2,943 | | | | (49,950 | ) | | $ | (362,174 | ) | | $ | 35,247,810 | | | $ | (40,007,294 | ) | | $ | (5,118,715 | ) |
See accompanying notes to the consolidated financial statements
Jerrick Media Holdings, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
| | For the Six Months Ended | | | For the Six Months Ended | | | | June 30, 2020 | | | June 30, 2019 | | | | | | | | | CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | Net loss | | $ | (7,127,988 | ) | | $ | (3,469,855 | ) | Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | | Depreciation and amortization | | | 76,939 | | | | 5,660 | | Accretion of debt discount and issuance cost | | | 327,221 | | | | 116,991 | | Inducement expense | | | - | | | | 7,626 | | Share-based compensation | | | 1,994,792 | | | | 448,291 | | Bad debt expense | | | 34,737 | | | | - | | Gain on settlement of debt | | | (470 | ) | | | - | | Loss on settlement of vendor liabilities | | | 126,087 | | | | - | | Gain on marketable securities | | | (10,042 | ) | | | - | | Loss on extinguishment of debt | | | 535,040 | | | | 81,149 | | Non-cash lease expense | | | 34,969 | | | | (47,643 | ) | Changes in operating assets and liabilities: | | | | | | | | | Accounts receivable | | | (60,350 | ) | | | 4,000 | | Deposits and other assets | | | (2,137 | ) | | | - | | Deferred revenue | | | 5,268 | | | | 8,828 | | Accounts payable and accrued expenses | | | 1,213,615 | | | | (251,299 | ) | Operating lease liability | | | (33,064 | ) | | | - | | Net Cash Used In Operating Activities | | | (2,885,383 | ) | | | (3,096,252 | ) | | | | | | | | | | CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | Cash paid for property and equipment | | | (6,339 | ) | | | (26,851 | ) | Purchase of marketable securities | | | (166,283 | ) | | | - | | Deposits | | | (30,000 | ) | | | - | | Net Cash Used In Investing Activities | | | (202,622 | ) | | | (26,851 | ) | | | | | | | | | | CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | Cash overdraft | | | - | | | | (33,573 | ) | Net proceeds from issuance of notes | | | 1,349,094 | | | | - | | Repayment of notes | | | (58,226 | ) | | | (50,000 | ) | Proceeds from issuance of demand loan | | | 250,000 | | | | 100,000 | | Proceeds from issuance of convertible note | | | 1,920,460 | | | | 1,993,025 | | Repayment of convertible notes | | | (75,000 | ) | | | (12,508 | ) | Proceeds from issuance of note payable - related party | | | 152,989 | | | | 1,590,000 | | Repayment of note payable - related party | | | (327,773 | ) | | | (275,000 | ) | Proceeds from issuance of common stock and warrants | | | - | | | | 649,829 | | Cash paid for stock issuance costs | | | - | | | | (35,000 | ) | Purchase of treasury stock and warrants | | | (62,018 | ) | | | (407,307 | ) | Net Cash Provided By Financing Activities | | | 3,149,526 | | | | 3,519,466 | | | | | | | | | | | Effect of exchange rate changes on cash | | | (28,530 | ) | | | - | | | | | | | | | | | Net Change in Cash | | | 32,991 | | | | 396,363 | | | | | | | | | | | Cash - Beginning of Year | | | 11,637 | | | | - | | | | | | | | | | | Cash - End of period | | $ | 44,628 | | | $ | 396,363 | | | | | | | | | | | SUPPLEMENTARY CASH FLOW INFORMATION: | | | | | | | | | Cash Paid During the Year for: | | | | | | | | | Income taxes | | $ | - | | | $ | - | | Interest | | $ | 55,859 | | | $ | 18,273 | | | | | | | | | | | SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | | | | | | | | | Settlement of vendor liabilities | | $ | 109,548 | | | $ | - | | Deferred offering costs | | $ | - | | | $ | 143,146 | | Warrants issued with debt | | $ | 752,136 | | | $ | 247,628 | | Shares issued with debt | | $ | 58,935 | | | $ | - | | Issuance of common stock for prepaid services | | $ | 585,000 | | | $ | - | | Cancellation of Treasury stock | | $ | 349,030 | | | $ | - | | Operating Lease liability | | $ | - | | | $ | 288,790 | | Option liability | | $ | - | | | $ | 7,328 | | Conversion of note payable and interest into convertible notes | | $ | 385,000 | | | $ | - | | Conversion of Demand loan into notes payable | | $ | 150,000 | | | $ | - | | Conversion of note payable and interest into convertible notes | | $ | 385,000 | | | $ | - | | Conversion of note payable- related party and interest into convertible notes- related party | | $ | - | | | $ | 20,000 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Jerrick Media Holdings, Inc.
June 30, 2020
Notes to the Condensed Consolidated Financial Statements
Note 1 – Organization and Operations
Jerrick Media Holdings, Inc. (“we,” “us,” the “Company,” or “Jerrick Media” or “Jerrick”) is a technology company focused on the development of digital communities, marketing branded digital content, and e-commerce opportunities. Jerrick’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 Jerrick’s proprietary algorithm dynamics, Vocal enhances the visibility of content and maximizes viewership, providing advertisers access to target markets that most closely match their interests.
The Company was originally incorporated under the laws of the State of Nevada on December 30, 1999 under the name LILM, Inc. The Company changed its name on December 3, 2013 to Great Plains Holdings, Inc. as part of its plan to diversify its business.
On February 5, 2016 (the “Closing Date”), GTPH, GPH Merger Sub, Inc., a Nevada corporation and wholly-owned subsidiary of GTPH (“Merger Sub”), and Jerrick Ventures, Inc., a privately-held Nevada corporation headquartered in New Jersey (“Jerrick”), entered into an Agreement and Plan of Merger (the “Merger”) pursuant to which the Merger Sub was merged with and into Jerrick, with Jerrick surviving as a wholly-owned subsidiary of GTPH (the “Merger”). GTPH acquired, pursuant to the Merger, all of the outstanding capital stock of Jerrick in exchange for issuing Jerrick’s shareholders (the “Jerrick Shareholders”), pro-rata, a total of 475,000 shares of GTPH’s common stock. In connection therewith, GTPH acquired 33,415 shares of Jerrick’s Series A Convertible Preferred Stock (the “Jerrick Series A Preferred”) and 8,064 shares of Series B Convertible Preferred Stock (the “Jerrick Series B Preferred”).
In connection with the Merger, on the Closing Date, GTPH and Kent Campbell entered into a Spin-Off Agreement (the “Spin-Off Agreement”), pursuant to which Mr. Campbell purchased from GTPH (i) all of GTPH’s interest in Ashland Holdings, LLC, a Florida limited liability company, and (ii) all of GTPH’s interest in Lil Marc, Inc., a Utah corporation, in exchange for the cancellation of 39,091 shares of GTPH’s Common Stock held by Mr. Campbell. In addition, Mr. Campbell assumed all debts, obligations and liabilities of GTPH, including any existing prior to the Merger, pursuant to the terms and conditions of the Spin-Off Agreement.
Upon closing of the Merger on February 5, 2016, the Company changed its business plan to that of Jerrick Media.
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 digital e-commerce agency based in New Jersey (see Note 4).
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.
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 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, 2020 or any other interim period or for any other future year. These unaudited condensed 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, 2019, included in the Company’s 2019 Annual Report on Form 10-K filed with the SEC. The balance sheet as of December 31, 2019 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 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:
(i) | Assumption as a going concern: Management assumes that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. | | | (ii) | Fair value of long-lived assets: Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives. The Company considers the following to be some examples of important indicators that may trigger an impairment review: (i) significant under-performance or losses of assets relative to expected historical or projected future operating results; (ii) significant changes in the manner or use of assets or in the Company’s overall strategy with respect to the manner or use of the acquired assets or changes in the Company’s overall business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; (v) a significant decline in the Company’s stock price for a sustained period of time; and (vi) regulatory changes. The Company evaluates acquired assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events. | | | (iii) | Valuation allowance for deferred tax assets: Management assumes that the realization of the Company’s net deferred tax assets resulting from its net operating loss (“NOL”) carry–forwards for Federal income tax purposes that may be offset against future taxable income was not considered more likely than not and accordingly, the potential tax benefits of the net loss carry-forwards are offset by a full valuation allowance. Management made this assumption based on (a) the Company has incurred recurring losses and (b) general economic conditions. |
(iv) | Estimates and assumptions used in valuation of equity instruments: Management estimates expected term of share options and similar instruments, expected volatility of the Company’s common shares and the method used to estimate it, expected annual rate of quarterly dividends, and risk-free rate(s) to value share options and similar instruments. | | | (v) | Operating lease estimates and assumptions: These assets and liabilities are recognized based on the present value of future payments over the lease term at the commencement date. We estimate the incremental borrowing rate for each lease based on an evaluation of our credit ratings and the prevailing market rates for collateralized debt in a similar economic environment with similar payment terms and maturity dates commensurate with the terms of the lease. |
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.
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 June 30, 2020, 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 | % | Jerrick Global, LLC | | Delaware | | | 100 | % | Jerrick Investment Advisors LLC | | Delaware | | | 100 | % | Jerrick Partners LLC | | Delaware | | | 100 | % | Maven Tech LLC | | Delaware | | | 100 | % | OG Collection LLC | | Delaware | | | 100 | % | VMENA LLC | | Delaware | | | 100 | % | Vocal For Brands, LLC | | Delaware | | | 100 | % | Vocal Ventures LLC | | Delaware | | | 100 | % | What to Buy, LLC | | Delaware | | | 100 | % |
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:
Level 1 | Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. | | | Level 2 | Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. | | | Level 3 | Pricing inputs that are generally observable inputs and not corroborated by market data. |
Financial assets or liabilities 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, notes payable, convertible debt, accounts payable and accrued liabilities 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.
The assets or liabilities’ fair value measurement within the fair value hierarchy is based upon the lowest level of any input that is significant to the fair value measurement. The following table provides a summary of the relevant assets and liabilities that are measured at fair value on a recurring basis:
Fair Value Measurements as of
June 30, 2020
| | | | | Quoted Prices | | | Quoted Prices | | | | | | | | | | in Active | | | for Similar | | | | | | | | | | Markets for | | | Assets or | | | | | | | | | | Identical | | | Liabilities in | | | Significant | | | | | | | Assets or | | | Active | | | Unobservable | | | | | | | Liabilities | | | Markets | | | Inputs | | | | Total | | | (Level 1) | | | (Level 2) | | | (Level 3) | | Assets: | | | | | | | | | | | | | Marketable securities - debt securities | | $ | 150,000 | | | $ | - | | | $ | - | | | $ | 150,000 | | Marketable securities - equity securities | | | 26,325 | | | | 26,325 | | | | - | | | | - | | Total assets | | $ | 176,325 | | | $ | 26,325 | | | $ | - | | | $ | 150,000 | |
The Company valued the initial value of debt securities, which are investments in convertible notes receivable, by assessing the separate values of the debt and equity components for similar instruments convertible into private company equity (Level 3). The investment was initially measured at cost, which was determined to approximate fair value due to the lack of marketability of the conversion shares underlying these convertible instruments and the expected recoverability of the note principal. The key assumption affecting the level 3 fair values would be collectability of the notes. The Company monitors for impairment indicators at each balance sheet date.
Marketable debt securities as of June 30, 2020 are as follows:
| | Fair Value Hierarchy | | Cost | | | Unrealized Gains (Loss) | | | Fair Value | | Marketable securities - debt securities | | 3 | | $ | 150,000 | | | $ | - | | | $ | 150,000 | |
The change in net unrealized holding gain (loss) on debt securities available for sale that has been included in Accumulated Other Comprehensive Income as a separate component of Stockholder’s Equity for the six months ended June 30, 2020 and 2019 was $0 and $0, respectively.
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, 2020 are as follows:
| | Fair Value Hierarchy | | Cost | | | Realized Gains (Loss) | | | Fair Value | | Marketable securities - equity securities | | 1 | | $ | 16,283 | | | $ | 10,042 | | | $ | 26,325 | |
The change in net realized and unrealized appreciation on equity trading securities that has been included in other expenses for the six months ended June 30, 2020 and 2019 was $10,042 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.
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:
| | 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 consolidated statements of operations.
Long-lived Assets Including Goodwill and Other Acquired Intangibles Assets
We evaluate the recoverability of property and equipment and acquired finite-lived intangible assets for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. The evaluation is performed at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Recoverability of these assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the assets are expected to generate from the use and eventual disposition. If such review indicates that the carrying amount of property and equipment and intangible assets is not recoverable, the carrying amount of such assets is reduced to fair value. We have not recorded any significant impairment charges during the six months ended June 30, 2020.
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 June 30, 2020, 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.
Investments
The Company accounts for its investments in debt securities, in accordance with sub-topic 320-10 of the FASB Accounting Standards Codification (“Sub-topic 320-10”).
Pursuant to Paragraph 320-10-35-1, investments in debt securities that are classified as available for sale shall be measured subsequently at fair value in the consolidated balance sheets at each balance sheet date. 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 except an available-for-sale security that is designated as being hedged in a fair value hedge, from which all or a portion of the unrealized holding gain and loss of shall be recognized in earnings during the period of the hedge, pursuant to paragraphs 815-25-35-1 through 815-25-35-4.
The Company follows Paragraphs 326-30-35-1 through 326-30-35-4 to assess whether an investment is impaired in each reporting period. An investment in debt security is impaired if the fair value of the investment is less than its amortized cost. Impairment indicators include, but are not limited to the following: a. asset quality, or business prospects of the investee; b. a significant adverse change in the regulatory, economic, or technological environment of the investee; c. a significant adverse change in the general market condition of either the geographic area or the industry in which the investee operates. If the fair value of an investment is less than its amortized cost at the balance sheet date of the reporting period for which impairment is assessed, the impairment is either temporary or other than temporary.
The following table sets forth a summary of the changes in marketable securities that are measured at fair value on a recurring basis:
| | For the three months ended June 30, 2020 | | | For the six months ended June 30, 2020 | | | | Total | | | Total | | January 1, 2020 | | $ | - | | | $ | - | | Purchase of marketable securities | | | 166,283 | | | | 166,283 | | Gain on trading securities | | | 10,042 | | | | 10,042 | | June 30, 2020 | | $ | 176,325 | | | $ | 176,325 | |
We invest in debt and equity securities. Our investments in debt securities are subject to interest rate risk. To minimize the exposure due to an adverse shift in interest rates, we invest in securities with maturities of two years or less and maintain a weighted average maturity of one year or less. As of June 30, 2020, all of our investments had maturities between one and two years.
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 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 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
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; |
| ● | 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 six months ended June 30, 2020 and 2019 consists of the following:
| | Three Months Ended | | | Six Months Ended | | | | June 30, | | | June 30, | | | | 2020 | | | 2019 | | | 2020 | | | 2019 | | Branded content | | $ | 68,728 | | | $ | 2,350 | | | $ | 124,728 | | | $ | 22,421 | | Managed Services | | | 190,106 | | | | - | | | | 382,357 | | | | - | | Creator Subscriptions | | | 54,972 | | | | - | | | | 90,934 | | | | - | | Affiliate sales | | | 8,195 | | | | 2,539 | | | | 16,344 | | | | 5,661 | | Other revenue | | | 539 | | | | 2,292 | | | | 1,319 | | | | 13,433 | | | | $ | 322,540 | | | $ | 7,181 | | | $ | 615,682 | | | $ | 41,515 | |
Branded Content
Branded content represents the revenue recognized from the Company’s obligation to create and publish branded articles for clients on the Vocal platform and promote said stories, tracking engagement for the client. 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. The revenue is recognized over time as the services are performed.
Below are the significant components of a typical agreement pertaining to branded content revenue:
| ● | The Company collects fixed fees ranging from $5,000 to $45,000 |
| ● | The articles are created and published within three months of the signed agreement, or as previously negotiated with the client |
| ● | The articles are promoted per the contract and engagement reports are provided to the client |
| ● | The client pays 50% at signing and 50% upon completion |
| ● | Most contracts include provisions for clients to acquire content rights at the end of the campaign for a flat fee |
Affiliate Sales
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.
Subscription
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. Vocal+ subscribers receive access to value-added features such as increased rate of CPM 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.
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.
Deferred Revenue
Deferred revenue consists of billings and payments from clients in advance of revenue recognition. As of June 30, 2020 and December 31, 2019, the Company had deferred revenue of $55,959 and $50,691, respectively.
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, 2020 the Company recorded $34,737 as a reserve for doubtful accounts. As of June 30, 2020 and December 31, 2019 the Company has an allowance for doubtful accounts of $68,240 and $33,503 respectively.
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 six months ended June 30, 2020 and 2019 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, 2020 and 2019:
| | June 30, | | | | 2020 | | | 2019 | | Options | | | 150,841 | | | | 294,166 | | Warrants | | | 312,080 | | | | 237,712 | | Convertible notes - related party | | | 1,858 | | | | 1,726 | | Convertible notes | | | 520,712 | | | | 183,974 | | Totals | | | 985,491 | | | | 717,580 | |
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 presentation. The company reclassified $105,763 from current portion of operating lease right of use asset to operating lease right of use asset within the December 31, 2019 Balance Sheet. 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
The Company invests in equity and debt securities. The Company’s investments in debt securities are classified at the date of purchase as available-for-sale securities. Debt securities are reported at fair value with unrealized gains and losses, net of the related tax effect, reflected as an accumulated other comprehensive income component of stockholder’s equity until such gains or losses are realized. In accordance with ASU 2016-01, Equity securities are now reported at fair value with unrealized gains and losses, net of the related tax effect, reflected as a gain or loss on the statement of operations.
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 adoption of ASU 2016-16 did not have a material impact on its condensed consolidated financial statements.
In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of the current goodwill impairment test) to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value (i.e., measure the charge based on the current Step 1). The updated guidance, which became effective for fiscal years beginning after December 15, 2019, did not have a material impact on its condensed consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement - Disclosure Framework (Topic 820). The updated guidance improves the disclosure requirements for fair value measurements. The adoption of ASU 2018-13 did not have a material impact on its condensed consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other - Internal Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. This guidance requires companies to apply the internal-use software guidance in Accounting Standards Codification (“ASC”) 350-40 to implementation costs incurred in a hosting arrangement that is a service contract to determine whether to capitalize certain implementation costs or expense them as incurred. The adoption of ASU 2018-15 did not have a material impact on its condensed consolidated financial statements.
Recent Accounting Guidance Not Yet Adopted
In December 2019, the FASB issued authoritative guidance intended to simplify the accounting for income taxes (ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”). This guidance eliminates certain exceptions to the general approach to the income tax accounting model and adds new guidance to reduce the complexity in accounting for income taxes. This guidance is effective for annual periods after December 15, 2020, including interim periods within those annual periods. The Company is currently evaluating the potential impact of this guidance on its consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity’s own equity, and also improves and amends the related EPS guidance for both Subtopics. The ASU will be effective for annual reporting periods after December 15, 2021 and interim periods within those annual periods and early adoption is permitted. We are currently evaluating the impact of the new guidance on our consolidated financial statements.
Management does not believe that any recently issued, but not yet effective accounting pronouncements, when adopted, will have a material effect on the accompanying condensed consolidated financial statements.
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, the Company had an accumulated deficit at June 30, 2020, a net loss of $7.1 million and net cash used in operating activities of $2.9 million for the reporting period then ended. The Company is in default on debentures as of the date of this filing. These factors raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial statements.
On January 30, 2020 the World Health Organization declared the COVID-19 novel coronavirus outbreak a “Public Health Emergency of International Concern” and on March 10, 2020, declared it to be a pandemic. Actions taken around the world to help mitigate the spread of the coronavirus include restrictions on travel, and quarantines in certain areas, and forced closures for certain types of public places and businesses. The COVID-19 coronavirus and actions taken to mitigate it have had and are expected to continue to have an adverse impact on the economies and financial markets of many countries, including the geographical area in which the Company operates. While it is unknown how long these conditions will last and what the complete financial impact will be to the Company, capital raising efforts and our operations may be negatively affected.
The Company is attempting to further implement its business plan and generate sufficient revenues; however, its cash position may not be sufficient to support its daily operations. While the Company believes in the viability of its strategy to further implement its business plan and generate sufficient revenues and in its ability to raise additional funds by way of a public or private offering of its debt or equity securities, there can be no assurance that it will be able to do so on reasonable terms, or at all. The ability of the Company to continue as a going concern is dependent upon its ability to further implement its business plan and generate sufficient revenues and its ability to raise additional funds by way of a public or private offering.
The condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Note 4 – Acquisition of Seller’s Choice
On September 11, 2019, the Company entered into a Membership Interest Purchase Agreement (the “Seller’s Choice Purchase Agreement”) by and between the Company and Home Revolution, LLC, a Delaware limited liability company (the “Seller”). Pursuant to the Seller’s Choice Purchase Agreement, subject to the terms and conditions set forth therein, at the closing of the transactions contemplated by the Seller’s Choice Purchase Agreement (the “Seller’s Choice Closing”), the Company acquired 100% of the membership interests of Seller’s Choice. As a result of the transactions contemplated by the Seller’s Choice Purchase Agreement, Seller’s Choice became a wholly owned subsidiary of the Company (collectively, the “Seller’s Choice Acquisition”).
At the Seller’s Choice Closing, the aggregate consideration (the “Consideration”) paid to the Seller was as follows: (i) $340,000, in cash; (ii) 111,111 shares of the Company’s common stock; and (iii) a secured promissory note in the principal amount of $660,000 (the “Seller’s Choice Note”). In connection with the Seller’s Choice Note, the Company, Seller, and Seller’s Choice entered into a Security Agreement whereby the Seller’s Choice Note is secured by the assets of Seller’s Choice.
Following the closing of the transaction, Seller’s Choice’s financial statements as of the Closing were consolidated with the Condensed consolidated financial statements of the Company. These amounts are provisional and may be adjusted during the measurement period.
Following the closing of the merger transaction the Company’s investment in Seller’s Choice consisted of the following:
| | Shares | | | Amount | | Consideration paid: | | | | | | | Cash paid | | | | | | $ | 340,000 | | Common stock issued at closing (1) | | | 111,111 | | | $ | 1,166,669 | | Note payable | | | | | | | 660,000 | | Total consideration paid | | | | | | $ | 2,166,669 | | | | | | | | | | | Total consideration | | | | | | $ | 2,166,669 | |
(1) | The common stock issued at the closing of the Seller’s Choice Acquisition had a closing price of $10.50 per share on the date of the transaction. |
The following presents the unaudited pro-forma combined results of operations of the Company with Seller’s Choice as if the entities were combined on January 1, 2019.
| | Six Months Ended | | | | June 30, 2019 | | Revenues, net | | $ | 708,205 | | Net loss attributable to common shareholders | | $ | (3,619,885 | ) | Net loss per share | | $ | (1.40 | ) | Weighted average number of shares outstanding | | | 2,574,299 | |
The unaudited pro-forma results of operations are presented for information purposes only. The unaudited pro-forma results of operations are not intended to present actual results that would have been attained had the acquisition been completed as of January 1, 2019 or to project potential operating results as of any future date or for any future periods.
The Company consolidated Seller’s Choice as of the closing date of the Seller’s Choice Acquisition, and the results of operations of the Company since that date include that of Seller’s Choice.
Note 5 – Notes Payable
Notes payable as of June 30, 2020 and December 31, 2019 is as follows:
| | Outstanding Principal as of | | | | | | | | | June 30, 2020 | | | December 31, 2019 | | | Interest Rate | | | Maturity Date | Seller’s Choice Note | | | 660,000 | | | | 660,000 | | | | 9.5 | % | | September 2020 | The First January 2020 Loan Agreement | | | - | | | | - | | | | 6 | % | | January 2020 | The Second January 2020 Loan Agreement | | | - | | | | - | | | | 5 | % | | January 2020 | The Third January 2020 Loan Agreement | | | - | | | | - | | | | 10 | % | | January 2020 | The Fourth January 2020 Loan Agreement | | | - | | | | - | | | | 7 | % | | February 2020 | The February 2020 Loan agreement | | | - | | | | - | | | | 5 | % | | March 2020 | The First March 2020 Loan Agreement | | | 3,300 | | | | - | | | | 25 | % | | September 2020 | The Second March 2020 Loan Agreement | | | 6,474 | | | | - | | | | 19 | % | | September 2021 | The April 2020 PPP Loan Agreement | | | 412,500 | | | | - | | | | 1 | % | | April 2022 | The May 2020 PPP Loan Agreement | | | 282,432 | | | | - | | | | 1 | % | | May 2022 | The June 2020 Loan Agreement | | | 351,692 | | | | - | | | | 15 | % | | July 2020 | | | | 1,716,398 | | | | 660,000 | | | | | | | | Less: Debt Discount | | | - | | | | - | | | | | | | | Less: Debt Issuance Costs | | | - | | | | - | | | | | | | | | | | 1,716,398 | | | | 660,000 | | | | | | | | Less: Current Debt | | | (1,314,634 | ) | | | | | | | | | | | Total Long-Term Debt | | $ | 401,764 | | | $ | | | | | | | | |
Seller’s Choice Note
On September 11, 2019, the Company entered into Seller’s Choice Purchase Agreement with Home Revolution LLC, (see Note 4). 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.
During the six months ended June 30, 2020 the Company accrued interest of $41,300 and paid $21,400 of interest.
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 was issued 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.
During the six months ended June 30, 2020 the Company converted $250,000 in principal to the Third February 2020 convertible Note.
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 six months ended June 30, 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 investors based on the relative fair value of each equity instrument on the dates of issuance. The debt discount is being accreted over the life of the note to accretion of debt discount and issuance cost.
During the six months ended June 30, 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 First January 2020 Lender was issued 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 six months ended June 30, 2020 the Company converted $135,000 in principal to the Second February 2020 convertible Note.
The February 2020 Loan Agreement
On February 25, 2020, the Company entered into a loan agreement (the “February 2020 Loan Agreement”) with an individual (the “February 2020 Lender”) whereby the February 2020 Lender issued the Company a promissory note of $15,000 (the “February 2020 Note”). Pursuant to the February 2020 Loan Agreement, the February 2020 Note has an effective interest rate of 5%. The maturity date of the February 2020 Note was March 3, 2020 (the “February 2020 Maturity Date”) at which time all outstanding principal, accrued and unpaid interest and other amounts due under the February 2020 Note were due. As additional consideration for entering in the February 2020 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 $801 debt discount relating to 75 warrants issued to investors based on the relative fair value of each equity instrument on the dates of issuance. The debt discount is being accreted over the life of the note to accretion of debt discount and issuance cost.
During the six months ended June 30, 2020 the Company repaid $15,000 in principal and $750 in interest.
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 is 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 are due.
During the six months ended June 30, 2020 the Company accrued interest of $2,695.
During the six months ended June 30, 2020 the Company repaid $7,700 in principal.
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 is 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 are due.
During the six months ended June 30, 2020 the Company accrued interest of $1,734.
During the six months ended June 30, 2020 the Company repaid $10,526 in principal.
The April 2020 PPP Loan Agreement
On April 30, 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 $282,432, 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 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.
During the six months ended June 30, 2020 the Company accrued interest of $644.
The Company is in the process of returning the funds received from this loan.
The May 2020 PPP Loan Agreement
On May 4, 2020, the Company was granted a loan from a banking institution with a principal amount of $412,500, pursuant to the Paycheck Protection Program (the “PPP”). The Loan, which was in the form of a Note dated May 4, 2020 matures on May 4, 2022 and bears interest at a fixed rate of 1.00% per annum, payable monthly commencing on November 4, 2020. The Note may be prepaid by Jerrick Ventures at any time prior to maturity without payment of any premium. Funds from the Loan may only be used to retain workers and maintain payroll or make mortgage payments, lease payments and utility payments. Jerrick Ventures intends to use the entire Loan amount for qualifying expenses. Under the terms of the PPP, certain amounts of the Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act.
During the six months ended June 30, 2020 the Company accrued interest of $472.
The June 2020 Loan Agreement
On June 30, 2020, the Company entered into a loan agreement (the “June 2020 Loan Agreement”) with 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 is 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 are due in AUD currency. This loan is secured by the Australian research & development credit.
During the six months ended June 30, 2020 the Company accrued interest of $3,902.
Note 6 – Convertible Note Payable
Convertible notes payable as of June 30, 2020 and December 31, 2019 is as follows:
| | Outstanding Principal as of | | | | | | | | | | | Warrants granted | | | | June 30, 2020 | | | December 31, 2019 | | | Interest Rate | | | Conversion Price | | | Maturity Date | | Quantity | | | Exercise Price | | The February 2018 Convertible Note Offering | | | - | | | | 75,000 | | | | 15 | % | | | 12.00 | (*) | | January – February 2020 | | | 84,639 | | | | 12.00 | | The March 2018 Convertible Note Offering | | | 75,000 | | | | 75,000 | | | | 14 | % | | | 12.00 | (*) | | March – April 2020 | | | 80,114 | | | | 12.00 | | The February 2019 Convertible Note Offering | | | 2,311,703 | | | | 2,311,703 | | | | 10 | % | | | 15.00 | (*) | | February – March 2020 | | | 44,396 | | | | 18.00 | | The November 2019 Convertible Note Offering | | | 559,433 | | | | 559,433 | | | | 12 | % | | | 13.50 | (*) | | May – June 2020 | | | - | | | | - | | The First January 2020 convertible Loan Agreement | | | 87,473 | | | | - | | | | 12 | % | | $ | 13.50 | (*) | | July – August 2020 | | | - | | | | - | | The First February 2020 convertible Loan Agreement | | | 85,000 | | | | - | | | | 10 | % | | $ | 12.00 | (*) | | August 2020 | | | - | | | | - | | The Second February 2020 convertible Loan Agreement | | | 200,000 | | | | - | | | | 12 | % | | $ | 13.50 | (*) | | February 2021 | | | 6,666 | | | | 15.00 | | The Third February 2020 convertible Loan Agreement | | | 1,500,000 | | | | - | | | | 12 | % | | $ | 13.50 | (*) | | February 2021 | | | 41,665 | | | | 15.00 | | The April 2020 Convertible Note Offering | | | 350,010 | | | | - | | | | 12 | % | | $ | 13.50 | (*) | | October 2020 | | | - | | | | - | | The June 2020 Convertible Loan Agreement | | | 550,000 | | | | - | | | | 12 | % | | $ | - | (*) | | June 2021 | | | 49,603 | | | | 11.55 | | | | | 5,718,619 | | | | 3,021,136 | | | | | | | | | | | | | | | | | | | | Less: Debt Discount | | | (528,130 | ) | | | (124,096 | ) | | | | | | | | | | | | | | | | | | | Less: Debt Issuance Costs | | | (38,949 | ) | | | (614 | ) | | | | | | | | | | | | | | | | | | | | | | 5,151,540 | | | | 2,896,425 | | | | | | | | | | | | | | | | | | | | Less: Current Debt | | | (5,151,540 | ) | | | (2,896,425 | ) | | | | | | | | | | | | | | | | | | | Total Long-Term Debt | | $ | - | | | $ | - | | | | | | | | | | | | | | | | | | | |
| (*) | As subject to adjustment as further outlined in the notes |
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 24,223 warrants with a fair value of $181,139. These were recorded as a loss on extinguishment of debt.
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 $12.00 per share (the “February 2018 Note Conversion Price”), and (b) a five-year warrant (each a “February 2018 Offering Warrant and together the “February 2018 Offering Warrants”) to purchase common stock equal to one hundred percent (100%) of the shares into which the February 2018 Convertible Notes can be converted into (“February 2018 Warrant Shares”) at an exercise price of $12.00 per share (“February 2018 Warrant Exercise Price”). The February 2018 Offering Notes mature on the second (2nd) anniversary of their issuance dates. The February 2018 Offering Notes are secured by a second priority security interest in the Company’s assets up to $1,000,000.
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 60,416 February 2018 Offering 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.
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 6,041 shares that had a fair value of $74,881, which was recorded as issuance cost and is being accreted over the life of these notes to accretion of debt discount and issuance cost.
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 Raise.
During the year ended December 31, 2019 the Company repaid $19,758 in interest.
During the six months ended June 30, 2020 the Company repaid $75,000 in principal and $781.25 in interest, and the 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 15,947 warrants with a fair value of $84,087. These were recorded as a loss on extinguishment of debt.
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 $12.00 per share (the “Conversion Price”), and (b) a four-year warrant (each a “Warrant and together the “Warrants”) to purchase common stock equal to one hundred percent (100%) of the shares into which the Notes can be converted into (“Warrant Shares”) at an exercise price of $12.00 per share (“Exercise Price”). The March 2018 Notes mature on the second (2nd) anniversary of their issuance dates.
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 80,114 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, 2018, the Company converted $886,367 of principal and $51,293 of unpaid interest pursuant to the August 2018 Equity Raise.
During the six months ended June 30, 2020 the Company accrued interest of $5,625.
The February 2019 Convertible Note Offering
During the nine months ended September 30, 2019, the Company conducted an offering to accredited investors (the “February 2019 Convertible Note Offering”) of units of the Company’s securities by entering into subscription agreements with “accredited investors” (the “February 2019 Investors”) for aggregate gross proceeds of $1,993,025.
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 $15.00 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 between February 21, 2019 and the date on which the Company’s consummates a listing onto a national securities exchange, 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”), and (b) a four-year stock purchase warrant (each a “Warrant and together the “Warrants”) to purchase a quantity of shares of the Company’s common stock up to thirty-three percent (33%) of the number of shares of common stock into which the underlying Notes may be converted, at an exercise price of $18.00 per share (“Exercise Price”). During the nine months ended September 30, 2019 a total of 44,396 Warrants were issued in conjunction with The February 2019 Convertible Note Offering.
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 44,396 warrants issued to investors based on the relative fair value of each equity instrument on the dates of issuance. The debt discount is being accreted over the life of the note to accretion of debt discount and issuance cost.
During the six months ended June 30, 2020 the Company accrued interest of $140,662.
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 $13.50 per share.
The November 2019 Notes mature six months after the anniversary of their issuance dates. At any time on or after the Maturity Date, at the election of the Offering’s Purchaser, this Note may convert into Common Stock equal to the quotient obtained by dividing the outstanding principal and unpaid accrued interest of this Note on the date of such conversion by $13.50.
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 six months ended June 30, 2020 the company accrued interest of $41,625.
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 six months ended June 30, 2020 the Company accrued interest of $4,762.
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”), 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 six months ended June 30, 2020 the Company accrued interest of $4,108.
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”), 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 six months ended June 30, 2020 the company accrued interest of $11,267.
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”), 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 mature 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 six months ended June 30, 2020 the Company accrued interest of $62,500.
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 six months ended June 30, 2020 the Company accrued interest of $8,050.
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”), 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 six months ended June 30, 2020 the Company accrued interest of $13,317.
Note 7 – Related Party
Convertible notes
Convertible notes payable – related party as of June 30, 2020 and 2019 is as follows:
| | Outstanding Principal as of | | | | | | | | Warrants granted | | | | June 30, 2019 | | | December 31, 2019 | | | Interest Rate | | | Maturity Date | | Quantity | | | Exercise Price | | The March 2018 Convertible Note Offering | | | - | | | | 400 | | | | 14 | % | | April 2020 | | | 19,950 | | | | 12.00 | | The February 2019 Convertible Note Offering | | | 20,000 | | | | 20,000 | | | | 10 | % | | May 2020 | | | 440 | | | | 18.00 | | | | | 20,000 | | | | 20,400 | | | | | | | | | | | | | | | | Less: Debt Discount | | | - | | | | (13 | ) | | | | | | | | | | | | | | | Less: Debt Issuance Costs | | | - | | | | - | | | | | | | | | | | | | | | | | | | 20,000 | | | | 20,387 | | | | | | | | | | | | | | | | Less: Current Debt | | | (20,000 | ) | | | (20,387 | ) | | | | | | | | | | | | | | | Total Long-Term Debt | | $ | - | | | $ | - | | | | | | | | | | | | | | | |
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 $12.00 per share (the “Conversion Price”), and (b) a four-year warrant (each a “Warrant and together the “Warrants”) to purchase common stock equal to one hundred percent (100%) of the shares into which the Notes can be converted into (“Warrant Shares”) at an exercise price of $12.00 per share (“Exercise Price”). The Notes mature on the second (2nd) anniversary of their issuance dates.
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 19,950 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.
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 Raise.
During the six months ended June 30, 2020 the lender forgave $400 of principal and $70 of unpaid interest. This was recorded as a gain on settlement of debt on the Condensed Consolidated Statements of Comprehensive Income (Loss).
The February 2019 Convertible Note Offering
During the Nine months ended September 30, 2019, the Company conducted an offering to accredited investors (the “February 2019 Convertible Note Offering”) of units of the Company’s securities by entering into subscription agreements with “accredited investors” (the “February 2019 Investors”) for aggregate gross proceeds of $20,000.
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 $15.00 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 between February 21, 2019 and the date on which the Company’s consummates a listing onto a national securities exchange, 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”), and (b) a four-year stock purchase warrant (each a “Warrant and together the “Warrants”) to purchase a quantity of shares of the Company’s common stock up to thirty-three percent (33%) of the number of shares of common stock into which the underlying Notes may be converted, at an exercise price of $18.00 per share (“Exercise Price”). During the nine months ended September 30, 2019 a total of 440 Warrants were issued in conjunction with The February 2019 Convertible Note Offering.
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 440 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, 2019, $20,000 in principal was converted from a promissory note into this Offering.
During the six months ended June 30, 2020 the company accrued interest of $1,000.
Notes payable
Notes payable – related party as of June 30, 2020 and December 31, 2019 is as follows:
| | Outstanding Principal as of | | | | | | | | Warrants granted | | | | June 30, 2020 | | | December 31, 2019 | | | Interest Rate | | | Maturity Date | | Quantity | | | Exercise Price | | The June 2018 Frommer Loan Agreement | | | 10,000 | | | | 10,000 | | | | 6 | % | | August 17, 2018 | | | 500 | | | | 12.00 | | The July 2018 Schiller Loan Agreements | | | 20,863 | | | | 20,863 | | | | 6 | % | | August 17, 2018 | | | 2,500 | | | | 12.00 | | The June 2019 Loan Agreement | | | 4,825,000 | | | | 4,825,000 | | | | 12.5 | % | | December 3, 2019 | | | - | | | | - | | The December 2019 Gravitas Loan Agreement | | | 135,116 | | | | 300,000 | | | | 6.7 | % | | March 1, 2020 | | | - | | | | - | | The January 2020 Rosen Loan Agreement | | | - | | | | - | | | | - | | | February 2020 | | | - | | | | - | | The February 2020 Banner Loan Agreement | | | - | | | | - | | | | - | | | February 2020 | | | 49 | | | | 18.00 | | The February 2020 Frommer Loan Agreement | | | - | | | | - | | | | - | | | February 2020 | | | 15 | | | | 18.00 | | | | | 4,990,979 | | | | 5,155,863 | | | | | | | | | | | | | | | | Less: Debt Discount | | | - | | | | - | | | | | | | | | | | | | | | | Less: Debt Issuance Costs | | | - | | | | (26,521 | ) | | | | | | | | | | | | | | | | | | 4,990,979 | | | | 5,129,342 | | | | | | | | | | | | | | | | Less: Current Debt | | | (4,990,979 | ) | | | (5,129,342 | ) | | | | | | | | | | | | | | | | | $ | - | | | $ | - | | | | | | | | | | | | | | | |
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 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 500 shares of the Company’s common stock at a purchase price of 12.00 per share. Pursuant to the June 2018 Frommer Loan Agreement, the June 2018 Frommer Note bears interest at a rate of 6% per annum and payable on the maturity date of August 17, 2018 (the “June 2018 Frommer Maturity Date”). On November 8, 2018 the Company executed upon an agreement that extended the maturity date of the June 2018 Frommer Agreement to March 7, 2019. As part of the extension agreement, the Company issued Frommer an additional 681 warrants to purchase common stock of the Company at an exercise price of $18.00. These warrants had a fair value of $4,645 which was recorded to loss on extinguishment of debt. On February 18, 2019 the Company executed upon an agreement that further extended the maturity date of the June 2018 Frommer Agreement to March 7, 2019. As part of the extension agreement, the Company issued Frommer an additional 692 warrants to purchase common stock of the Company at an exercise price of $18.00. On March 29, 2019 the Company entered into an agreement with Mr. Frommer that further extended the maturity date of this loan to May 15, 2019. On June 29, 2019 the Company entered into an agreement with Mr. Frommer that further extended the maturity date of this loan to December 15, 2019. On December 15, 2019 the Company entered into an agreement with Mr. Frommer that further extended the maturity date to May 15, 2020.
During the six months ended June 30, 2020 the Company accrued interest of $399.
The 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 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 1,250 shares of the Company’s common stock at a purchase price of $12.00 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. 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 Schiller warrants to purchase 1,698 shares of common stock of the Company at an exercise price of $18.00. On February 18, 2019 the Company executed upon an agreement that further extended the maturity date of the Second July 2018 Schiller Loan Agreement to March 7, 2019. As part of the extension agreement, the Company issued Schiller an additional 1,726 warrants to purchase common stock of the Company at an exercise price of $18.00. On March 29, 2019 the Company entered into an agreement with Mr. Schiller that further extended the maturity date of this loan to May 15, 2019. On December 15, 2019 the Company entered into an agreement that further extended the maturity date of this loan to May 15, 2020.
During the six months ended June 30, 2020 the Company accrued interest of $832.
During the year ended December 31, 2019 $4,137 in principal was converted into the February 2019 Convertible Note Offering.
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 $15.00; and (ii) provide for the acceleration of all outstanding interest due on the Loan upon the consummation of a Qualified Public Offering. 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 six monthsyear ended June 30, 2020 the Company accrued interest of $26,966. During the six months ended June 30,December 31, 2020 the Company repaid $164,884$300,000 in principal.principal and $50,000 in accrued interest.
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 six monthsyear ended June 30, 2020 the Company accrued interest of $15,273. During the six months ended June 30,December 31, 2020 the Company repaid $150,000 in principal and $15,273 in interest.
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 49 shares of the Company’s common stock at a purchase price of $18.00 per share. During the six monthsyear ended June 30,December 31, 2020 the Company repaid $9,900 in principal and $495 in interest. 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 15 shares of the Company’s common stock at a purchase price of $18.00 per share. Pursuant to the February 2020 Frommer Loan Agreement, the note is payable on the maturity date of February 28, 2020 (the “February 2020 Frommer Maturity Date”). During the six monthsyear ended June 30,December 31, 2020 the Company repaid $2,989 in principal and $160 in interest.
Demand loanThe February 2020 Loan Agreement
On June 13, 2019, Mark Standish, who was subsequently named ChairmanFebruary 25, 2020, the Company entered into a loan agreement (the “February 2020 Loan Agreement”) with an individual (the “February 2020 Lender”), whereby the February 2020 Lender issued the Company a promissory note of $15,000 (the “February 2020 Note”). Pursuant to the February 2020 Loan Agreement, the February 2020 Note has an effective interest rate of 5%. The maturity date of the Board, made non-interest bearing loans of $100,000 toFebruary 2020 Note was March 3, 2020 (the “February 2020 Maturity Date”), at which time all outstanding principal, accrued and unpaid interest and other amounts due under the February 2020 Note were due. As additional consideration for entering in the February 2020 Loan Agreement, the Company inissued a five-year warrant to purchase 75 shares of the formCompany’s common stock at a purchase price of cash.$18.00 per share. The loanCompany recorded a $801 debt discount relating to 75 warrants issued to investors based on the relative fair value of each equity instrument on the dates of issuance. The debt discount is due on demandbeing accreted over the life of the note to accretion of debt discount and unsecured. issuance cost. During the year ended December 31, 20192020, the companyCompany repaid $25,000$15,000 in principal and $750 in interest. 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 six monthsyear ended June 30,December 31, 2020 the Company repaid $150,000 inof principal. 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 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 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. Officer compensation
During the six monthsyear ended June 30,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 $56,479$138,713 and $57,455, respectively for living expenses for officers of the Company. 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 811 – Derivative Liabilities 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. | | Years Ended December 31, 2021 and 2020 | | | | Level 1 | | | Level 2 | | | Level 3 | | Derivative liabilities as January 1, 2020 | | $ | - | | | $ | - | | | $ | - | | Addition | | | - | | | | - | | | | 3,061,688 | | Changes in fair value | | | - | | | | - | | | | (3,019,457 | ) | Derivative liabilities as January 1, 2021 | | | - | | | | - | | | | 42,231 | | Addition | | | - | | | | - | | | | 417,241 | | Extinguishment | | | - | | | | - | | | | (431,458 | ) | Conversion to Note payable - related party | | | - | | | | - | | | | (1,124,301 | ) | Changes in fair value | | | - | | | | - | | | | 1,096,287 | | Derivative liabilities as December 31, 2021 | | $ | - | | | $ | - | | | $ | - | |
Note 12 – Stockholders’ DeficitEquity Shares Authorized During the period presented,Prior to July 13, 2020, the Company was authorized to issue up to thirty-five million (35,000,000) shares of capital stock, of which fifteen million (15,000,000) shares are designated as common stock, par value $0.001 per share, and twenty million (20,000,000) are designated as “blank check” preferred stock, par value $0.001 per share. The designations, rights, and preferences of such preferred stock are to be determined by the Company’s board of directors.
On July 13, 2020, the Company filed the Second Amended and Restated Articles of Incorporation with the Secretary of State of the State of Nevada, which authorize the issuance of 100,000,000 shares of common stock, and 20,000,000 shares of preferred stock. CommonOn 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.
Preferred Stock 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 50,000 shares of its restricted common stock to consultants in exchange for three months of services at a fair value of $585,000. 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 monthsyear ended June 30,December 31, 2020 the Company recorded $585,000 to share based payments. On January 6, 2020, the Company issued 1,412 shares of its restricted common stock to settle outstanding vendor liabilities of $12,500. In connection with this transaction the Company also recorded a loss on settlement of vendor liabilities of $4,233. On March 5, 2020, the Company issued 2,153 shares of its restricted common stock to settle outstanding vendor liabilities of $25,000. In connection with this transaction, the Company also recorded a gain on settlement of vendor liabilities of $1,098. On March 13, 2020 the Company entered into an exchange agreement with a warrant holder. The company agreed to exchange 5,833 warrants for 5,000 shares of the company common stock. In connection with this agreement the company recorded a loss on conversion of warrants to stock of $5,772$5,772. On March 19, 2020, the Company issued 20,000 shares of its restricted common stock to settle outstanding vendor liabilities of $72,048. In connection with this transaction the Company also recorded a gain on settlement of vendor liabilities of $122,953. 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. Lender’s Exchange Agreement 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 six monthsyear ended June 30,December 31, 2020 the Company cancelled 50,650 shares of treasury stock. Stock Options
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: | | December 31, 2021 | | | December 31, 2020 | | Exercise price | | | $ 2.09 - 4.89 | | | | $ 8.55 | | Expected dividends | | | 0% | | | | 0% | | Expected volatility | | | 169.78 – 242.98% | | | | 229.95% | | Risk free interest rate | | | 0.46 – 1.26% | | | | 0.25% | | Expected life of option | | | 5 - 7 years | | | | 5.67 years | |
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 – December 31, 2019 – outstanding | | | 303,833 | | | | 24.48 | | | | 2.51 | | Granted | | | - | | | | - | | | | - | | Exercised | | | - | | | | - | | | | - | | Cancelled/Modified | | | (152,992 | ) | | | 25.29 | | | | - | | Balance – June 30, 2020 – outstanding and exercisable | | | 150,841 | | | | 23.67 | | | | 2.24 | |
| | Options | | | Weighted Average Exercise Price | | | Weighted Average Remaining Contractual Life (in years) | | Balance – January 1, 2020 – outstanding | | | 303,825 | | | | 24.48 | | | | 2.51 | | Granted | | | 391,853 | | | | 8.55 | | | | 5.67 | | Exercised | | | - | | | | - | | | | - | | Cancelled/Modified | | | (154,657 | ) | | | 25.17 | | | | - | | Balance – December 31, 2020 – outstanding | | | 541,021 | | | | 12.75 | | | | 4.29 | | Balance – December 31, 2020 – exercisable | | | 149,168 | | | | 23.77 | | | | 1.75 | | | | | | | | | | | | | | | Balance – December 31, 2020 – outstanding | | | 541,021 | | | | 12.75 | | | | 3.27 | | Granted | | | 2,425,762 | | | | 5.97 | | | | 5.91 | | Exercised | | | - | | | | - | | | | - | | Forfeited/Cancelled | | | (64,164 | ) | | | 13.06 | | | | - | | Balance – December 31, 2021 – outstanding | | | 2,902,619 | | | | 7.07 | | | | 4.71 | | Balance – December 31, 2021 – exercisable | | | 1,165,191 | | | | 9.01 | | | | 4.12 | |
Option Outstanding | | | Option Exercisable | | Exercise price | | | Number Outstanding | | | Weighted Average Remaining Contractual Life (in years) | | | Weighted Average Exercise Price | | | Number Exercisable | | | Weighted Average Remaining Contractual Life (in years) | | $ | 7.07 | | | | 2,902,619 | | | | 4.71 | | | | 9.01 | | | | 1,165,191 | | | | 4.12 | |
During the year ended December 31, 2018 the Company granted options of 166,66611,667 to consultants.consultants that has a fair value of $57,123. As of the date of this filing the company has not issued these options.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 20,13, 2020 the Company entered into an exchange agreementsagreement with eight option holders. The company agreed to exchange 152,992 options previously issued under the 2015 Incentive Stock and Award Plan for 228,491229,491 shares of the Company common stock. In connection with this agreement the Company recorded stock basedincremental compensation on conversionthe exchange of options to stock of $1,405,664.
Warrants$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 six monthsyear ended June 30, 2020December 31, 2021 are as follows:
| | June 30, 2020 | | | June 30, 2019 | | Exercise price | | $ | 11.55 - 18.00 | | | $ | 12.00 - 18.00 | | Expected dividends | | | 0 | % | | | 0 | % | Expected volatility | | | 234.03% - 237.39 | % | | | 107.59%-114.13 | % | Risk free interest rate | | | 0.33% - 1.63 | % | | | 1.93-2.41 | % | Expected life of warrant | | | 5 years | | | | 4 – 5 years | |
| | December 31, 2021 | | | December 31, 2020 | | Exercise price | | $ | 4.50 – 5.40 | | | $ | 4.50 - 18.00 | | Expected dividends | | | 0 | % | | | 0 | % | Expected volatility | | | 232.10% - 237.14 | % | | | 234.03% - 247 | % | Risk free interest rate | | | 0.82% - 0.89 | % | | | 0.21% - 1.63 | % | Expected life of warrant | | | 5 – 5.5 years | | | | 5 years | |
Warrant Activities The following is a summary of the Company’s warrant activity: | | Warrants | | | Weighted Average Exercise Price | | | Aggregate Intrinsic Value | | | | | | | | | | | | Outstanding and Exercisable – December 31, 2019 | | | 247,407 | | | $ | 15.75 | | | | - | | Granted | | | 98,199 | | | | 13.26 | | | | | | Exercised | | | - | | | | - | | | | | | Forfeited/Cancelled | | | (33,526 | ) | | | 12.39 | | | | | | Outstanding – June 30, 2020 | | | 312,080 | | | | 15.33 | | | | 7,440 | | Exercisable – June 30, 2020 | | | 262,477 | | | | 16.05 | | | | - | |
| | Warrant | | | Weighted Average Exercise Price | | Balance – January 1, 2020 – outstanding | | | 247,403 | | | | 15.75 | | Granted | | | 5,921,071 | | | | 4.70 | | Exercised | | | - | | | | - | | Cancelled/Modified | | | (37,526 | ) | | | 13.31 | | Balance – December 31, 2020 – outstanding | | | 6,130,948 | | | | 4.96 | | Balance – December 31, 2020 – exercisable | | | 3,228,235 | | | | 5.37 | | | | | | | | | | | Balance – December 31, 2020 – outstanding | | | 6,130,948 | | | | 4.96 | | Granted | | | 1,961,267 | | | | 5.60 | | Exercised | | | (2,414,218 | ) | | | 4.55 | | Forfeited/Cancelled | | | (19,167 | ) | | | 24.00 | | Balance – December 31, 2021 – outstanding | | | 5,658,830 | | | | 4.98 | | Balance – December 31, 2021 – exercisable | | | 5,616,330 | | | $ | 4.97 | |
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 | | $ | 15.33 | | | | 312,080 | | | | 3.24 | | | | 16.05 | | | | 262,477 | | | | 8.76 | |
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 | | $ | 4.98 | | | | 5,658,830 | | | | 3.80 | | | | 4.97 | | | | 5,616,330 | | | | 3.79 | |
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 six monthsyear ended June 30,December 31, 2020 a total of 200214,080 warrants were issued with convertible notes payable (See Note 58 above). The warrants have a grant date fair value of $523,802$1,520,449 using a Black-Scholes option-pricing model and the above assumptions. During the six monthsyear ended June 30,December 31, 2020, a total of 97,934289 warrants were issued with convertible notes payable – related party (See Note 69 above). The warrants have a grant date fair value of $1,017,605$3,342 using a Black-Scholes option-pricing model and the above assumptions. During the six monthsyear ended June 30,December 31, 2020, a total of 643,922 warrants were issued with convertible notes payable – related party (See Note 79 above). The warrants have a grant date fair value of $753$37,927 using a Black-Scholes option-pricing model and the above assumptions. 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: Restricted stock units (RSUs) | | Total shares | | | Grant date fair value | | RSAs non-vested at January 1, 2021 | | | - | | | $ | - | | RSAs granted | | | 112,010 | | | $ | 2.71 – 4.32 | | RSAs vested | | | - | | | $ | - | | RSAs forfeited | | | (13,927 | ) | | $ | 3.75 – 4.32 | | RSAs non-vested December 31, 2021 | | | 98,083 | | | $ | 2.71 – 4.32 | |
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 13 – Commitments and Contingencies
The CARES Act lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 (“2017 Tax Act”). Corporate taxpayers may carry back net operating losses (NOLs) originating between 2018 and 2020 for up to five years, which was not previously allowed under the 2017 Tax Act. The CARES Act also eliminates the 80% of taxable income limitations by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018, 2019 or 2020. Taxpayers may generally deduct interest up to the sum of 50% of adjusted taxable income plus business interest income (30% limit under the 2017 Tax Act) for 2019 and 2020. The CARES Act allows taxpayers with alternative minimum tax credits to claim a refund in 2020 for the entire amount of the credits instead of recovering the credits through refunds over a period of years, as originally enacted by the 2017 Tax Act. 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 six monthsyear ended June 30,December 31, 2020. On March 26, 2020 and April 30, 2020, the Company received 2 separate loans pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the CARES Act. When the applications for PPP first opened up, there was limited available funding and much confusion surrounding the application process. The company isCompany initially submitted its application for the May 2020 PPP Loan in early April but received no response in the processaftermath 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 receivedin 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 April 30, 2020.
Litigationthe 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, (the “Court”), entitled Home Revolution, LLC, et alal. v. Jerrick Media Holdings, Inc. et al,al., Case No. 2:20-cv-07775-JMV-MF (the “Action”).20-cv-07775-JMV-MF. The complaint for the lawsuitComplaint alleges, among other things, that the CompanyCreatd, Inc. breached the Membership Interest Purchase Agreement, as modified, and ancillary transaction documents in connection with the acquisition of Seller’s Choice, LLC, from Home Revolution in September 2019. The complaintComplaint additionally alleges violation of the New Jersey Uniform Securities Law, violations of the Exchange Act and Rule 10b-5 thereunder, fraud, equitable accounting, breach of fiduciary duty, conversion and unjust enrichment. 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 Company continuesComplaint 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 believethe 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 ActionACPA, 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 has moved to dismiss the Action. In the event this Action is not summarily dismissed, Jerrick intends towill vigorously challenge it.the action. At this time, the Company iswe are unable to estimate potential damage exposure, if any, related to the litigation. In addition to the existing claim for damages contained in the Complaint, on July 29, 2020, Home Revolution moved, by order to show cause, for preliminary injunctive relief. On August 13, 2020, the Court denied Home Revolution’s request for a preliminary injunction.
Lease Agreements 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. The total amount due under this lease is $411,150. On April 1, 2019, the Company signed a 4-year lease for approximately 796 square feet of office space at 2050 Center Avenue Suite 660, Fort Lee, New Jersey 07024. Commencement date of the lease is April 1, 2019. The total amount due under this lease is $108,229$108,229. 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 components ofoffice space is currently under construction and the Company’s commencement date was April 1, 2022. The total amount due under this lease expense were as follows:is $181,300. | | Six Months Ended June 30, 2020 | | Operating lease cost | | $ | 34,970 | | Short term lease cost | | | 7,950 | | Total net lease cost | | $ | 42,920 | |
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. | | Year Ended December 31, 2021 | | Operating lease cost | | $ | 202,804 | | Short term lease cost | | | 14,041 | | Total net lease cost | | $ | 216,845 | |
Supplemental cash flow and other information related to leases was as follows: | | Six Months
Ended
June 30,
2020 | | Cash paid for amounts included in the measurement of lease liabilities: | | | | Operating lease payments | | | 33,064 | | | | | | | Weighted average remaining lease term (in years): | | | 3.05 | | | | | | | Weighted average discount rate: | | | 13 | % |
| | Year Ended December 31, 2021 | | Cash paid for amounts included in the measurement of lease liabilities: | | | | Operating lease payments | | $ | 100,100 | | Weighted average remaining lease term (in years): | | | 0.17 | | Weighted average discount rate: | | | 0 | % |
Total future minimum payments required under the lease as of December 31, 2021, are $18,451 and will recognized in the first quarter of 2022. 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 30, 20201, 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: Purchase price: | | | | Cash paid to seller | | $ | 300,000 | | Fair value of equity investment purchased on June 1, 2021 | | | 175,000 | | Total purchase price | | | 475,000 | | | | | | | Assets acquired: | | | | | Cash | | | 5,232 | | Accounts Receivable | | | 7,645 | | Inventory | | | 19,970 | | Total assets acquired | | | 32,847 | | | | | | | Liabilities assumed: | | | | | Accounts payable and accrued expenses | | | 5,309 | | Deferred Revenue | | | 671 | | Total liabilities assumed | | | 5,980 | | | | | | | Net assets acquired | | | 26,867 | | | | | | | Non-controlling interest in consolidated subsidiary | | | 56,865 | | | | | | | Excess purchase price | | $ | 504,998 | |
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 | | $ | 7,198 | | Trade Names & Trademarks | | | 100,000 | | Know-How and Intellectual Property | | | 316,500 | | Website | | | 51,300 | | Customer Relationships | | | 30,000 | | | | | | | Excess purchase price | | $ | 504,998 | |
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. | | Year Ended | | | | December 31, | | | | 2021 | | Revenues | | $ | 4,335,593 | | Net loss attributable to common shareholders | | $ | (37,822,820 | ) | Net loss per share | | $ | (2.99 | ) | Weighted average number of shares outstanding | | | 12,652,470 | |
| | Year Ended December 31, 2020 | | Revenues | | $ | 1,213,430 | | Net loss attributable to common shareholders | | $ | (27,476,400 | ) | Net loss per share | | $ | (5.71 | ) | Weighted average number of shares outstanding | | | 4,812,153 | |
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:
Purchase price: | | | | Cash paid to seller | | $ | 144,750 | | Shares granted to seller | | | 893,521 | | Total purchase price | | | 1,038,271 | | | | | | | Assets acquired: | | | | | Cash | | | 26,575 | | Accounts Receivable | | | 446,272 | | Total assets acquired | | | 472,847 | | | | | | | Liabilities assumed: | | | | | Accounts payable and accrued expenses | | | 353,017 | | Total liabilities assumed | | | 353,017 | | | | | | | Net assets acquired | | | 119,830 | | | | | | | Non-controlling interest in consolidated subsidiary | | | 1,190,000 | | | | | | | Excess purchase price | | $ | 2,108,442 | |
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.
Goodwill | | $ | 1,349,697 | | Trade Names & Trademarks | | | 85,945 | | Non-Compete Agreements | | | 45,190 | | Influencers / Customers | | | 627,610 | | | | | | | Excess purchase price | | $ | 2,108,442 | |
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.
| | Year Ended | | | | December 31, | | | | 2021 | | Revenues | | $ | 4,916,777 | | Net loss attributable to common shareholders | | $ | (37,707,250 | ) | Net loss per share | | $ | (2.98 | ) | Weighted average number of shares outstanding | | | 12,652,470 | |
| | Year Ended | | | | December 31, | | | | 2020 | | Revenues | | $ | 1,685,336 | | Net loss attributable to common shareholders | | $ | (27,235,057 | ) | Net loss per share | | $ | (5.66 | ) | Weighted average number of shares outstanding | | | 4,812,153 | |
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: Purchase price: | | | | Shares granted to seller | | $ | 424,698 | | Fair value of equity investment purchased before October 4, 2021 | | | 307,665 | | Total purchase price | | | 732,363 | | | | | | | Assets acquired: | | | | | Cash | | | 186,995 | | Inventory | | | 47,250 | | Total assets acquired | | | 234,246 | | | | | | | Liabilities assumed: | | | | | Accounts payable | | | 40,000 | | Total liabilities assumed | | | 40,000 | | | | | | | Net assets acquired | | | 194,246 | | | | | | | Non-controlling interest in consolidated subsidiary | | | 720,581 | | | | | | | Excess purchase price | | $ | 1,258,698 | |
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. Goodwill | | $ | 17,941 | | Trade Names & Trademarks | | | 249,248 | | Know-How and Intellectual Property | | | 788,870 | | Website | | | 127,864 | | Customer Relationships | | | 74,774 | | | | | | | Excess purchase price | | $ | 1,258,698 | |
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. | | Year Ended | | | | December 31, | | | | 2021 | | Revenues | | $ | 4,299,717 | | Net loss attributable to common shareholders | | $ | (38,265,301 | ) | Net loss per share | | $ | (3.02 | ) | Weighted average number of shares outstanding | | | 12,652,470 | |
| | Year Ended | | | | December 31, | | | | 2020 | | Revenues | | $ | 1,212,870 | | Net loss attributable to common shareholders | | $ | (27,382,216 | ) | Net loss per share | | $ | (5.69 | ) | Weighted average number of shares outstanding | | | 4,812,153 | |
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. 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 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 | |
| | As of December 31, 2020 | | | | Creatd Labs | | | Creatd Partners | | | Corporate | | | Total | | | | | | | | | | | | | | | Accounts receivable, net | | $ | 3,800 | | | $ | 86,555 | | | $ | - | | | $ | 90,355 | | Prepaid expenses and other current assets | | | 19,631 | | | | - | | | | 4,225 | | | | 23,856 | | Intangible assets | | | - | | | | 960,611 | | | | - | | | | 960,611 | | Goodwill | | | - | | | | 1,035,795 | | | | - | | | | 1,035,795 | | All other assets | | | - | | | | - | | | | 8,673,863 | | | | 8,673,863 | | Total Assets | | $ | 23,431 | | | $ | 2,082,961 | | | $ | 8,678,088 | | | $ | 10,784,480 | | | | | | | | | | | | | | | | | | | Accounts payable and accrued liabilities | | $ | 6,221 | | | $ | 83,964 | | | $ | 2,548,503 | | | $ | 2,638,688 | | Note payable, net of debt discount and issuance costs | | | 55,928 | | | | - | | | | 1,165,611 | | | | 1,221,539 | | Deferred revenue | | | - | | | | 88,637 | | | | - | | | | 88,637 | | All other Liabilities | | | - | | | | - | | | | 1,390,420 | | | | 1,390,420 | | Total Liabilities | | $ | 62,149 | | | $ | 172,601 | | | $ | 5,104,534 | | | $ | 5,339,284 | |
| | For the year ended December 31, 2021 | | | | Creatd Labs | | | Creatd Ventures | | | Creatd Partners | | | Corporate | | | Total | | | | | | | | | | | | | | | | | | Net revenue | | $ | 1,926,374 | | | $ | 90,194 | | | $ | 2,283,149 | | | $ | - | | | $ | 4,299,717 | | Cost of revenue | | | 3,186,240 | | | | 148,989 | | | | 1,964,808 | | | | - | | | | 5,300,037 | | Gross margin | | | (1,259,866 | ) | | | (58,940 | ) | | | 318,341 | | | | - | | | | (1,000,320 | ) | | | | | | | | | | | | | | | | | | | | | | Research and development | | | 758,293 | | | | 131 | | | | 225,104 | | | | - | | | | 983,528 | | Marketing | | | 8,182,935 | | | | - | | | | 962,698 | | | | 481,349 | | | | 9,626,982 | | Stock based compensation | | | 1,727,021 | | | | 1,560,546 | | | | 1,884,986 | | | | 4,488,615 | | | | 9,661,168 | | Impairment of goodwill | | | - | | | | - | | | | 1,035,795 | | | | - | | | | 1,035,795 | | General and administrative not including depreciation, amortization, or Impairment | | | 3,918,130 | | | | 1,665,783 | | | | 1,600,212 | | | | 2,791,236 | | | | 9,975,360 | | Depreciation and amortization | | | - | | | | 100,633 | | | | 252,730 | | | | 44,076 | | | | 397,440 | | Impairment of intangibles | | | - | | | | - | | | | 688,127 | | | | - | | | | 688,127 | | | | | | | | | | | | | | | | | | | | | | | Total operating expenses | | $ | 14,586,379 | | | $ | 3,327,093 | | | $ | 6,649,652 | | | $ | 11,803,003 | | | $ | 32,368,400 | | | | | | | | | | | | | | | | | | | | | | | Interest expense | | | (12,706 | ) | | | - | | | | - | | | | (359,400 | ) | | | (372,106 | ) | All other expenses | | | - | | | | - | | | | - | | | | (3,638,327 | ) | | | (3,638,327 | ) | Other expenses, net | | | (12,706 | ) | | | | | | | | | | | (3,997,727 | ) | | | (4,010,433 | ) | | | | | | | | | | | | | | | | | | | | | | Loss before income tax provision and equity in net loss from unconsolidated investments | | $ | (15,858,951 | ) | | $ | (3,385,888 | ) | | $ | (6,331,311 | ) | | $ | (11,803,003 | ) | | $ | (37,379,153 | ) |
| | For the year ended December 31, 2020 | | | | Creatd Labs | | | Creatd Partners | | | Corporate | | | Total | | | | | | | | | | | | | | | Net revenue | | $ | 375,043 | | | $ | 837,827 | | | $ | - | | | $ | 1,212,870 | | Cost of revenue | | | 652,259 | | | | 842,783 | | | | - | | | | 1,495,042 | | Gross margin | | | (277,216 | ) | | | (4,956 | ) | | | - | | | | (282,172 | ) | | | | | | | | | | | | | | | | | | Research and development | | | 227,656 | | | | 29,775 | | | | - | | | | 257,431 | | Marketing | | | 2,426,668 | | | | 285,490 | | | | 142,745 | | | | 2,854,904 | | Stock based compensation | | | 1,226,495 | | | | 1,338,678 | | | | 4,295,990 | | | | 6,861,163 | | General and administrative not including depreciation, amortization, or Impairment | | | 2,301,088 | | | | 939,792 | | | | 2,592,581 | | | | 5,858,454 | | Depreciation and amortization | | | - | | | | 132,768 | | | | 24,993 | | | | 157,761 | | Impairment of intangibles | | | - | | | | - | | | | 11,450 | | | | 11,450 | | Total operating expenses | | $ | 6,181,907 | | | $ | 2,726,504 | | | $ | 7,067,759 | | | $ | 16,001,163 | | | | | | | | | | | | | | | | | | | Interest expense | | | (15,828 | ) | | | - | | | | (356,278 | ) | | | (372,106 | ) | All other expenses | | | - | | | | - | | | | (7,557,342 | ) | | | (7,557,342 | ) | Other expenses, net | | | (15,828 | ) | | | - | | | | (7,913,620 | ) | | | (7,929,448 | ) | | | | | | | | | | | | | | | | | | Loss before income tax provision and equity in net loss from unconsolidated investments | | $ | (6,474,951 | ) | | $ | (2,731,460 | ) | | $ | (14,981,379 | ) | | $ | (24,212,783 | ) |
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: Twelve Months Ending December 31, | | | | 2020 | | $ | 106,927 | | 2021 | | | 111,257 | | 2022 | | | 109,730 | | 2023 | | | 2,081 | | Total | | $ | 329,995 | |
| | December 31, 2021 | | | December 31, 2020 | | Net deferred tax assets – Non-current: | | | | | | | Depreciation | | $ | (70,194 | ) | | $ | (145,749 | ) | Amortization | | | 95,115 | | | | 21,096 | | Stock based compensation | | | 4,369,372 | | | | 1,653,617 | | Expected income tax benefit from NOL carry-forwards | | | 15,073,606 | | | | 8,780,233 | | Less valuation allowance | | | (19,467,900 | ) | | | (10,309,197 | ) | Deferred tax assets, net of valuation allowance | | $ | - | | | $ | - | |
Rent expenseIncome Tax Provision in the Consolidated Statements of Operations
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: | | For the Year Ended December 31, 2021 | | | For the Year Ended December 31, 2020 | | | | | | | | | Federal statutory income tax rate | | | 21.0 | % | | | 21.0 | % | State tax rate, net of federal benefit | | | 7.1 | % | | | 6.5 | % | | | | | | | | | | Change in valuation allowance on net operating loss carry-forwards | | | (28.1 | )% | | | (27.5 | )% | | | | | | | | | | Effective income tax rate | | | 0.0 | % | | | 0.0 | % |
The following is a reconciliation of the beginning and ending amount of the unrecognized tax benefit for the six monthsyears ended June 30, 2020December 31, 2021 and 2019 was $59,168 and $36,671 respectively. 2020: | | 2021 | | | 2020 | | Balance at January 1, | | $ | - | | | $ | 68,000 | | Additions based on tax positions relating to the current year | | | - | | | | - | | Reductions for tax positions of prior years | | | - | | | | (68,000 | ) | | | | | | | | | | Balance at December 31, | | $ | - | | | $ | - | |
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 1017 – Subsequent Events SubsequentBoard of Directors and Management
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 June 30, 2020serve 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 1, 2022, the Company entered into fivesecurities 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. 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 is pursuing an appeal to 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 will be stayed pending the Panel’s decision. 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 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. Acquisition of 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 totaling $278,163. 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 matter has been dismissed. Note Conversions Subsequent to December 31, 2021, a total of $168,850 in principal of convertible notes converted into 109,435 shares of common stock. Promissory Note
Subsequent to December 31, 2021, the Company entered into one promissory note agreementsagreement with net proceeds of $318,000$300,000 and one promissory note agreement with net proceeds of $230,000. The Company also subsequently repaid $5,000 in principal from two of the promissory note agreements.AUD$224,540. Consultant Shares Subsequent to June 30, 2020December 31, 2021, the Company also issued 391,854 five-year stock183,590 shares of Common Stock to consultants. 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 its employees. These options all havevest immediately with a vesting date of 4/1/2021, an exercisestrike price of $8.55.$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”). On July 13, 2020,Pursuant to the Executive Employment Arrangements, the Company filed Second Amended and Restated Articles of Incorporationentered into executive employment agreements with the Secretary of Stateeach of the Staterespective executives as of Nevada.April 5, 2022 (the “Executive Employment Agreements”). The Second AmendedExecutive Employment Agreements contain customary terms, conditions and Restated Articles of Incorporation authorize the issuance of 100,000,000 shares of common stock, and 20,000,000 shares of preferred stock.rights.
The foregoing descriptions of the Executive Employment Agreements do not purport to be complete and are qualified in their entirety by reference to the forms of Amended Executive Employment Agreements, copies of which are filed as Exhibits 10.40, 10.41, 10.42 and 10.43 to this Annual Report on Form 10-K and is incorporated herein by reference.
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 and Up to 20,000,000 Shares of Common Stock Issuable upon the Exercise of Series A Warrants included in the Units Units consisting of:PROSPECTUS
Common StockAugust 25, 2022
Warrants
![](https://capedge.com/proxy/S-1A/0001213900-20-023163/img_012.jpg)
JERRICK MEDIA HOLDINGS, INC.
PROSPECTUS
Book-Running Manager
THE BENCHMARK COMPANY
Co-Manager
BROOKLINE CAPITAL MARKETS
, 2020
PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEMItem 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.Other Expenses of Issuance and Distribution.
The following table sets forth the expenses payable by us in connection with the offering of securities described in this registration statement. All of such expensesamounts shown are estimates, other than the filing fees payable to the Securities and Exchange Commission and to FINRA. | | Amount to be paid | | SEC registration fee | | $ | 2,239 | | FINRA filing fee | | $ | 2,360 | | The Nasdaq Capital Market initial listing fee | | $ | 55,000 | | Accounting fees and expenses | | $ | 30,000 | | Legal fees and expenses | | $ | 250,000 | | Printing and engraving expenses | | $ | 10,000 | | Miscellaneous | | $ | 5,401 | | Total | | $ | 355,000 | |
All amounts are estimated except for the SEC registration fee, the FINRA filing fee,fee. We will bear all expenses shown below.
SEC registration fee | | $ | 5,562 | | FINRA filing fee | | | 4,500 | | Securities exchange listing fee | | | 10,000 | | Subscription agent fees and expenses | | | 30,000 | | Information agent fees and expenses | | | 17,000 | | Printing and engraving expenses | | | 10,000 | | Legal fees and expenses | | | 150,000 | | Accounting fees and expenses | | | 50,000 | | Miscellaneous fees and expenses | | | 0 | | Total | | $ | 277,062 | |
Item 14. Indemnification of Directors and The Nasdaq Capital Market initial listing fee.Officers. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
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. Insofar as indemnification for liabilities under the Securities Act may be permitted to officers, directors or persons controlling the Company pursuant to 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. Item 15. Recent Sales of Unregistered Securities. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.Consultant Shares
2020Subsequent to June 30, 2022, the Company issued 55,000 shares of Common Stock to consultants.
The Second January 2020 Loan Agreement Acquisition of Orbit
On January 14, 2020,August 1, 2022 the Company entered into a loan agreement (the “Second January 2020 Loan Agreement”) with an individual (the “Second January 2020 Lender”)Membership Interest Purchase Agreement whereby the Second January 2020 LenderCompany purchased a majority stake in Orbit Media LLC, a New York limited liability company. Pursuant to the Agreement, Creatd issued the Company a promissory note of $10,000 (the “Second January 2020 Note”). As additional consideration for entering in the Second January Loan Agreement, the Company issued a five-year warrant to purchase 5057,576 shares of the Company’s common stock at a purchase price of $18.00 per share. 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”). 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 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”), the Second February 2020 Lender issued the Company a promissory note of $200,000 (the “Second February 2020 Note”). 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 February 2020 Banner 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”). As additional consideration for entering in the February 2020 Loan Agreement, the Company issued a five-year warrant to purchase 49 shares of the Company’s common stock at a purchase price of $18.00 per share.
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 15 shares of the Company’s common stock at a purchase price of $18.00 per share.
The February 2020 Loan Agreement
On February 25, 2020, the Company entered into a loan agreement (the “February 2020 Loan Agreement”) with an individual (the “February 2020 Lender”) whereby the February 2020 Lender issued the Company a promissory note of $15,000 (the “February 2020 Note”). As additional consideration for entering in the February 2020 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 June 2020 Loan Agreement
On June 19, 2020, the Company entered into a loan agreement (the “June 2020 Loan 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”). As additional consideration for entering in the June 2020 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. In addition, the Company issued 5,424 commitment sharesCommon Stock to the June 2020 Lender.sellers.
The July 2020 Loan Agreement
On July 16, 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 $250,000 (the “July 2020 Note”). As additional consideration for entering in the July 2020 Loan Agreement, the Company issued 6,666 commitment shares to the July 2020 Lender.
Consultant Shares
During the 3 months ended March 31, 2020, the Company issued 53,565 shares to consultants.
The July 2020 Convertible Loan Agreements
Between July 29, 2020 and August 14, 2020, the Company issued convertible promissory notes in the amount of $250,000, convertible into 19,608 shares of common stock. As additional consideration for entering into these notes, the Company issued warrants to issue 19,608 shares of the Company’s common stock at a purchase price of $8.55.
2019
During 2019, we issued the securities below that were not registered under the Securities Act. All of the securities discussed herein were issued in reliance on the exemption under Section 4(a)(2) of the Securities Act.
II-2
March 2019 Gravitas Capital Loan Agreement
On April 12, 2019 the Company executed upon an agreement that further extended the maturity date of the March 2019 Gravitas Capital Loan Agreement to May 15, 2019. As part of the extension agreement, the Company issued Gravitas Capital an additional 166 warrants to purchase common stock of the Company at an exercise price of $18.00.
The Company issued 33,333 shares of Common Stock to individuals in consideration for consulting services.
May 2019 Loan Agreement
On May 31, 2019 the Company entered into a loan agreement (the “May 2019 Loan Agreement”), whereby the Company issued the investor a promissory note in the principal amount of $10,000. As additional consideration for entering in the May 2019 Loan Agreement, the Company issued the investor a five-year warrant to purchase 50 shares of the Company’s common stock at a purchase price of $12.00 per share.
July 2019 Loan Agreement
On July 26, 2019, the Company entered into a loan agreement (the “July 2019 Loan Agreement”) with an investor, whereby the Company issued a promissory note in the principal amount of $12,000 (the “July 2019 Note”). As additional consideration for entering in the July 2019 Loan Agreement, the Company issued a five-year warrant to purchase 180 shares of the Company’s common stock at a purchase price of $6.00 per share. Pursuant to the July 2019 Loan Agreement, the July 2019 Note bears interest at a flat rate of $600 and payable on the maturity date of August 2, 2019 (the “July 2019 Maturity Date”).
This note was subsequently repaid.
July 2019 Gravitas Capital Loan Agreement
On July 16, 2019, the Company entered into a loan agreement (the “August 2019 Gravitas Capital Loan Agreement”) with Gravitas Capital, whereby the Company issued Gravitas Capital a promissory note in the principal amount of $100,000 (the “August 2019 Gravitas Capital Note”). As additional consideration for entering in the August 2019 Gravitas Capital Loan Agreement, the Company issued Gravitas Capital a five-year warrant to purchase 333 shares of the Company’s common stock at a purchase price of $18.00 per share. Pursuant to the August 2019 Gravitas Capital Loan Agreement, the August 2019 Gravitas Capital Note bears interest at a flat rate of $5,000 and payable on the maturity date of September 1, 2019 (the “July 2019 Gravitas Capital Maturity Date”).
August 2019 Schiller Loan Agreement
On August 6, 2019, the Company entered into a loan agreement (the “August 2019 Schiller Loan Agreement”) with Gravitas Capital, whereby the Company issued Leonard Schiller a promissory note in the principal amount of $15,000 (the “August 2019 Schiller Note”). As additional consideration for entering in the August 2019 Schiller Note Loan Agreement, the Company issued Leonard Schiller a five-year warrant to purchase 75 shares of the Company’s common stock at a purchase price of $18.00 per share. Pursuant to the August 2019 Schiller Loan Agreement, the August 2019 Schiller Note bears interest at a flat rate of $750 and payable on the maturity date of August 9, 2019 (the “August 2019 Schiller Note Maturity Date”).
This note was subsequently repaid.
August 2019 Loan Agreement
On August 6, 2019, the Company entered into a loan agreement (the “August 2019 Loan Agreement”) with an investor, whereby the Company issued a promissory note in the principal amount of $12,000 (the “August 2019 Note”). As additional consideration for entering in the August 2019 Loan Agreement, the Company issued a five-year warrant to purchase 60 shares of the Company’s common stock at a purchase price of $18.00 per share. Pursuant to the August 2019 Loan Agreement, the August 2019 Note bears interest at a flat rate of $600 and payable on the maturity date of August 9, 2019 (the “August 2019 Maturity Date”).
This note was subsequently repaid.
September 2019 Loan Agreement
On September 4, 2019, the Company entered into a loan agreement (the “September 2019 Loan Agreement”) with an investor, whereby the Company issued a promissory note in the principal amount of $15,000 (the “September 2019 Note”). As additional consideration for entering in the September 2019 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. Pursuant to the September 2019 Loan Agreement, the September 2019 Note bears interest at a flat rate of $750 and payable on the maturity date of September 9, 2019 (the “September 2019 Maturity Date”).
II-3Item 16. Exhibits and Consolidated Financial Statement Schedules.
This note was subsequently repaid.
On September 17, 2019 the Company entered into an agreement to extend the July 2019 Gravitas Capital Loan Agreement. In consideration for this extension, the Company issued the accredited investor a five-year warrant to purchase 333 shares of the Company’s common stock with an exercise price of $18.00 per share.
On September 26, 2019, the Company entered into loan agreements with accredited investors (the “September 2019 Loan Agreements”), whereby the Company issued such accredited investors promissory notes in the aggregate principal amount of $62,500 (the “September 2019 Notes”). As additional consideration for entering into the September 2019 Loan Agreements, the Company issued such accredited investors five-year warrants to purchase up to an aggregate of 396 shares of the Company’s common stock with an exercise price of $18.00 per share.
On October 23, 2019, the Company issued warrants to purchase up to 6,666 shares of common stock to a director in connection with his resignation for past board services rendered.
November 2019 Convertible Promissory Notes
In November 2019, the Company issued to accredited investors a series of convertible promissory notes with an aggregate principal amount of $554,182.50 (the “November 2019 Notes”). The November 2019 Notes are convertible into shares of the Company’s common stock at a conversion price of $13.50 per share or upon a Qualified Public Offering (as defined in the November 2019 Notes) at the option of the holder at a conversion price per share equal to the lesser of 80% of the lowest per share weighted average volume price or $13.50.
Consultant Shares
During the 3 months ended December 31, 2019, the Company issued 4,965 shares to consultants.
2018
During the year ended December 31, 2018, we issued the securities below that were not registered under the Securities Act. All of the securities discussed herein were issued in reliance on the exemption under Section 4(a)(2) of the Securities Act.
January 2018 Rosen Loan Agreement
On January 16, 2018, the Company entered into a loan agreement (the “January 2018 Rosen Loan Agreement”) with Rosen, whereby the Company issued Rosen a promissory note in the principal amount of $60,000 (the “January 2018 Rosen Note”). The January 2018 Rosen Note is secured by Jeremy Frommer, whereas upon default Mr. Frommer would owe his own personal default shares of the Company’s common stock to Rosen equal to the amount of principal outstanding divided by 12.00. Pursuant to the January 2018 Rosen Loan Agreement, the January 2018 Rosen Note bears interest at a rate of 6% per annum and is payable on the maturity date 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 secured term loan in the principal amount of $1,000,000 issued by Mr. Rosen are due. During the year ended December 31, 2018, the Company repaid $60,000 in principal and $200 in interest and the loan is no longer outstanding.
January 2018 Gordon Loan Agreement
On January 16, 2018, the Company entered into a loan agreement (the “January 2018 Gordon Loan Agreement”) with Mr. Christopher Gordon (“Gordon”), whereby the Company issued Gordon a promissory note in the principal amount of $40,000 (the “January 2018 Gordon Note”). The January 2018 Gordon Note is secured by Jeremy Frommer, whereas upon default Mr. Frommer would owe his own personal default shares of the Company’s common stock to Gordon equal to the amount of principal outstanding divided by 12.00. Pursuant to the January 2018 Gordon Loan Agreement, the January 2018 Gordon 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.
February 2018 Note
On February 8, 2018, the Company issued a convertible note to a third-party lender totaling $40,750 (the “February 2018 Note”). The February 2018 Note accrues interest at 18% per annum and matures with interest and principal both due on February 8, 2020. In addition, the Company issued a warrant to purchase 1,358 shares of Company common stock. The warrant entitles the holder to purchase the Company’s common stock at a purchase price of $12.00 per share for a period of five years from the issue date. The Company recorded a $7,963 debt discount relating to the warrants issued to the investor based on the relative fair value of each equity instrument on the dates of issuance and an original issue discount of $5,298. The debt discount is being accreted over the life of the note. The February 2018 Note and accrued interest is convertible at a conversion price of $12.00 per share, subject to adjustment. During the year ended December 31, 2018 the Company repaid $40,750 of principal and $3,548 of unpaid interest and the loan is no longer outstanding.
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 Rosen, whereby the Company issued Rosen a promissory note in the principal amount of $10,000 (the “First March 2018 Rosen Note”). As additional consideration for entering in the First March 2018 Rosen Note Loan Agreement, the Company issued Rosen a five-year warrant to purchase 166 shares of the Company’s common stock at a purchase price of $12.00 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 year ended December 31, 2018, the Company repaid $10,000 in principal and $260 in interest and the loan is no longer outstanding.
Second March 2018 Rosen Loan Agreement
On March 9, 2018, the Company entered into a loan agreement (the “Second March 2018 Rosen Loan Agreement”) with Rosen, whereby the Company issued 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 Rosen a five-year warrant to purchase 250 shares of the Company’s common stock at a purchase price of $12.00 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 year ended December 31, 2018, the Company repaid $15,000 in principal and $365 in interest and the loan is no longer outstanding.
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 Rosen, whereby the Company issued 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 Rosen a five-year warrant to purchase 166 shares of the Company’s common stock at a purchase price of $12.00 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 year 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 Schiller, a member of the Board, whereby the Company issued 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 Schiller a four-year warrant to purchase 5,000 shares of the Company’s common stock at a purchase price of $12.00 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”). 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.
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 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 500 shares of the Company’s common stock at a purchase price of $12.00 per share. Pursuant to the June 2018 Frommer Loan Agreement, the June 2018 Frommer Note bears interest at a rate of 6% per annum and payable on the maturity date of August 17, 2018 (the “June 2018 Frommer Maturity Date”). On November 8, 2018 the Company executed an agreement that extended the maturity date of the June 2018 Frommer Loan Agreement to March 7, 2019. As part of the extension agreement, the Company issued Frommer an additional 680 warrants to purchase common stock of the Company at an exercise price of $18.00. On March 29, 2019, the Company executed an agreement to further extend the maturity date of the June 2018 Frommer Loan Agreement to May 15, 2019.
First July 2018 Schiller Loan Agreement
On July 3, 2018, the Company entered into a loan agreement (the “First 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 $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 1,250 shares of the Company’s common stock at a purchase price of $12.00 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. 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 Schiller warrants to purchase 2,383 shares of common stock of the Company at an exercise price of $18.00. On March 29, the Company executed an agreement to further extend the maturity date of this loan to May 15, 2019.
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 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 1,250 shares of the Company’s common stock at a purchase price of $12.00 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. 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 Schiller warrants to purchase 1,698 shares of common stock of the Company at an exercise price of $18.00. On March 29, the Company executed an agreement to further extend the maturity date of this loan to May 15, 2019.
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 Rosen, whereby the Company issued Rosen a promissory note in the principal aggregate amount 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. Subsequent to the 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 Rosen warrants to purchase 458 shares of common stock of the Company at an exercise price of $18.00. On March 29, the Company executed an agreement to further extend the maturity date of this loan to May 15, 2019.
Second July 2018 Rosen Loan Agreements
On July 18, 2018, the Company entered into a loan agreement (the “Second July 2018 Rosen Loan Agreement”) with Rosen, whereby the Company issued Rosen a promissory note in the principal aggregate amount of $50,000 (the “Second July 2018 Rosen Note”) resulting from the conversion of a demand note (as described below). As additional consideration for entering into the Second July 2018 Rosen Loan Agreement, the Company issued Rosen a four-year warrant to purchase 2,500 shares of the Company’s common stock at a purchase price of $12.00 per share. The Second July 2018 Rosen Note bears interest at a rate of 6% per annum and payable on the maturity date of August 17, 2018. 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 Rosen warrants to purchase 3,399 shares of common stock of the Company at an exercise price of $18.00. On March 29, the Company executed an agreement to further extend the maturity date of this loan to May 15, 2019.
November 2018 Rosen Loan Agreement
On November 29, 2018, the Company entered into a loan agreement (the “November 2018 Rosen Loan Agreement”) with Rosen, whereby the Company issued Rosen a promissory note in the principal amount of $25,000 (the “November 2018 Rosen Note”). As additional consideration for entering in the November 2018 Rosen Note Loan Agreement, the Company issued Rosen a four-year warrant to purchase 1,250 shares of the Company’s common stock at a purchase price of $18.00 per share. The November 2018 Rosen Note bears interest at a rate of 6% per annum and is payable on the maturity date of December 23, 2018. 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.
December 2018 Rosen Loan Agreement
On December 27, 2018, the Company entered into a loan agreement (the “December 2018 Rosen Loan Agreement”) with Rosen, whereby the Company issued 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 Rosen a four-year warrant to purchase 1,250 shares of the Company’s common stock at a purchase price of $6.00 per share. The December 2018 Rosen Note bears interest at a rate of 6% per annum and is payable on the maturity date of January 26, 2019. On March 29, the Company executed an agreement to further extend the maturity date of this loan to May 15, 2019.
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 833 shares of the Company’s common stock at a purchase price of $18.00 per share. The December 2018 Gravitas Capital Note bears interest at a rate of 6% per annum and is payable on the maturity date of January 27, 2019.In January 2019, the Company repaid $50,000 in principal and $250 in interest, and the loan is no longer outstanding.
2017
During the year ended December 31, 2017, we issued the securities below that were not registered under the Securities Act. All of the securities discussed herein were issued in reliance on the exemption under Section 4(a)(2) of the Securities Act.
On February 7, 2017, the Company issued 29,460 shares of its restricted Common Stock to consultants in exchange for services at a fair value of $293,427.
In March of 2017, the Company issued 20,000 shares of Common Stock to ProActive Capital Resources Group, under an Advisory Agreement for their services as an Investor Relations group.
On April 25, 2017, the Company issued convertible notes to Arthur Rosen, totaling $25,000 (the “April Rosen Notes”). The April Rosen Notes accrue interest at 12% per annum and mature with interest and principal both due on September 1, 2017. In addition, in connection with the April Rosen Notes, the Company issued a five-year warrant to purchase 291 shares of Company common stock at a purchase price of $12.00 per share. On September 7, 2017, the April Rosen Notes and accrued interest was converted into the August 2017 Convertible Note Offering.
On April 25, 2017, the Company issued a convertible note to Chris Gordon, totaling $25,000 (the “April Gordon Notes”). The April Gordon Notes accrue interest at 12% per annum and matures with interest and principal both due on September 1, 2017. In addition, the Company issued a five-year warrant to purchase 291 shares of Company common stock at a purchase price of $12.00 per share. The April Gordon Notes and accrued interest were converted into the August 2017 Convertible Note Offering.
In November of 2017, the Company issued a warrant to purchase 1,666 shares of Common Stock to Arthur Rosen in consideration for the extension of an outstanding Promissory Note. The warrants have an exercise price of $12.00 and an expiration date of November 13, 2022.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Exhibit No. | | Description | 2.1 | | | 2.1 | | Agreement and Plan of Merger dated February 5, 2016 by and among the Company, GPH Merger Sub., Inc., and Jerrick Ventures, Inc. (incorporated by reference to Exhibit 2.1 of the Company’s current report on Form 8-K filed with the Commission on February 11, 2016). | 2.2 | | | 2.2 | | Agreement and Plan of Merger dated February 28, 2016 by and among the Company and Jerrick Ventures, Inc. (incorporated by reference to Exhibit 2.1 of the Company’s current report on Form 8-K filed with the Commission on March 3, 2016). | 3.1 | | | 3.1 | | Articles of Incorporation, filed with the Nevada Secretary of State on December 30, 1999 (incorporated by reference to the Company’s annual report on Form 10-SB filed with the Commission on March 30, 2006). | 3.2 | | | 3.2 | | Amended and Restated Articles of Incorporation, filed with the Nevada Secretary of State on November 6, 2013 (incorporated by reference to Exhibit 3.3 to the Company’s current report on Form 8-K filed with the Commission on December 4, 2013). | 3.3 | | | 3.3 | | Certificate of Designation, Preferences, and Rights of Series A Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s current report on Form 8-K filed with the Commission on April 8, 2014). | 3.4 | | | 3.4 | | Certificate of Designation, Preferences and Rights of Series B Preferred Stock (incorporated by reference to Exhibit 3.1 of the Company’s current report on Form 8-K filed with the Commission on December 4, 2014). | 3.5 | | | 3.5 | | Certificate of Designation of Series C Preferred Stock (incorporated by reference to Exhibit 3.1 of the Company’s current report on Form 8-K filed with the Commission on August 3, 2015). | 3.6 | | | 3.6 | | Certificate of Designation of Series D Preferred Stock (incorporated by reference to Exhibit 3.1(f) of the Company’s current report on Form 8-K filed with the Commission on February 11, 2016). | 4.1 | | | 3.7 | | Jerrick Ventures, Inc. CertificateForm of Designation of Series A Cumulative Convertible Preferred Stock.Common Stock Purchase Warrant (incorporated herein by reference to Exhibit 3.1(f)10.2 of the Company’s current reportCurrent Report on Form 8-K filed with the Commission on February 11, 2016). | | | | 3.8 | | Jerrick Ventures, Inc. Amendment to Certificate of Designation of Series A Cumulative Convertible Preferred Stock. (incorporated by reference to Exhibit 3.1(f) of the Company’s current report on Form 8-K filed with the Commission on February 11, 2016). | | | | 3.9 | | Jerrick Ventures, Inc. Certificate of Designation of Series B Cumulative Convertible Preferred Stock. (incorporated by reference to Exhibit 3.1(f) of the Company’s current report on Form 8-K filed with the Commission on February 11, 2016). | | | | 3.10 | | Certificate of Withdrawal of Certificate of Designation for Series A Preferred Stock. (incorporated by reference to Exhibit 3.1 of the Company’s current report on Form 8-K filed with the CommissionSEC on March 3, 2016).2022) |
3.114.2 | | CertificateForm of Withdrawal of Certificate of Designation for Series B Preferred Stock. (incorporated by reference to Exhibit 3.2 of the Company’s current report on Form 8-K filed with the Commission on March 3, 2016). | | | | 3.12 | | Certificate of Withdrawal of Certificate of Designation for Series C Preferred Stock. (incorporated by reference to Exhibit 3.3 of the Company’s current report on Form 8-K filed with the Commission on March 3, 2016). | | | | 3.13 | | Certificate of Designation for Series A Cumulative Convertible PreferredCommon Stock (incorporated by reference to Exhibit 3.4 of the Company’s current report on Form 8-K filed with the Commission on March 3, 2016). | | | | 3.14 | | Certificate of Designation for Series C Cumulative Convertible Preferred Stock (incorporated by reference to Exhibit 3.5 of the Company’s current report on Form 8-K filed with the Commission on March 3, 2016). | | | | 3.15 | | Second Amended and Restated Articles of Incorporation, filed with the Secretary of State of the State of Nevada on July 13, 2020.
| | | | 3.16 | | Certificate of Amendment, filed with the Secretary of State of the State of Nevada on August 13, 2020. | | | | 3.17 | | Bylaws (incorporated by reference to the Company’s annual report on Form 10-SB filed with the Commission on March 30, 2006). | | | | 3.18 | | Amended and Restated Bylaws (incorporated by reference to the Company’s current report on Form 8-K filed with the Commission on May 12, 2020. | | | | 3.19 | | Articles of Incorporation of Jerrick Ventures, Inc. (incorporated by reference to Exhibit 3.3 of the Company’s current report on Form 8-K filed with the Commission on February 11, 2016). | | | | 4.1 | | Convertible Promissory Note between the Company and KBM Worldwide, Inc. dated August 22, 2014Purchase Warrant (incorporated by reference to Exhibit 4.1 to the Company’s current report on Form 8-K filed with the Commission on August 26, 2014)March 9, 2022). | 4.3 | | | 4.2 | | Form of Original Issue Discount Senior Convertible Promissory Note between the Company and KBM Worldwide, Inc. dated November 17, 2014Debenture (incorporated by reference to Exhibit 4.1 to the Company’s current report on Form 8-K filed with the Commission on December 2, 2014).June 3, 2022) | 4.4 | | Form of Series C Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.2 to the Company’s current report on Form 8-K filed with the Commission on June 3, 2022) | 4.34.5 | | SecuritiesForm of Series D Common Stock Purchase Agreement betweenWarrant (incorporated by reference to Exhibit 4.3 to the Company, Bonjoe Gourmet Chips LLC and certain purchasers dated December 10, 2014Company’s current report on Form 8-K filed with the Commission on June 3, 2022) | 4.6 | | Form of Original Issue Discount Senior Convertible Debenture (incorporated by reference to Exhibit 4.1 to the Company’s current report on Form 8-K filed with the Commission on December 10, 2014).July 29, 2022) | 4.7 | | | 4.4 | | Amended and Restated SecuritiesForm of Series E Common Stock Purchase Agreement between the Company, Bonjoe Gourmet Chips LLC and certain purchasers dated January 30, 2015Warrant (incorporated by reference to Exhibit 4.14.2 to the Company’s current report on Form 8-K filed with the Commission on February 3, 2015).July 29, 2022) | 4.8 | | | 4.5 | | Convertible Debenture, dated March 17, 2016 (incorporated by reference to Exhibit 4.5 to the Company’s annual report on Form 10-K filed with the Commission on April 14, 2016). | | | | 4.6 | | Secured Promissory Note, dated April 5, 2016 (incorporated by reference to Exhibit 4.6 to the Company’s annual report on Form 10-K filed with the Commission on April 14, 2016). | | | | 4.7 | | Form of Warrant. (incorporated by reference to Exhibit 4.1 to the Company’s quarterly report on Form 10-Q filed with the Commission on August 24, 2016). | | | | 4.8 | | Form of Warrant. (incorporated by reference to Exhibit 4.1 to the Company’s current report on Form 8- K filed with the Commission on March 21, 2017). | | | | 4.9 | | Form of Series A PreferredF Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.5 the Company’s Registration Statement on Form S-1 filed with the Commission on August 31, 2016) | | | | 4.10 | | Form of Series B Preferred Common Stock Purchase Warrant (incorporated by reference4.3 to Exhibit 4.6 the Company’s Registration Statement on Form S-1 filed with the Commission on August 31, 2016) |
4.11 | | Common Stock Purchase Warrant, dated April 5, 2016 (incorporated by reference to Exhibit 10.15 to the Company’s annual report on Form 10-K filed with the Commission on April 14, 2016). | | | | 4.12 | | Form of Warrant (incorporated by reference to Exhibit 4.1 of the Company’s quarterly report on Form 10-Q filed with the Commission on August 24, 2016). | | | | 4.13 | | Form of Warrant (incorporated by reference to Exhibit 10.3 of the Company’s current report on Form 8-K filed with the Commission on January 17, 2017). | | | | 4.14 | | Form of Warrant (incorporated by reference to Exhibit 4.1 of the Company’s current report on Form 8-K filed with the Commission on March 21, 2017). | | | | 4.15 | | Form of Warrant (incorporated by reference to Exhibit 4.1 of the Company’s current report on Form 8-K filed with the Commission on July 21, 2017).29, 2022) | 4.9* | | Form of Non-Transferable Subscription Rights Certificate | 4.164.10* | | Form of Series A Warrant Certificate (included in Exhibit 4.8) | 4.11* | | Form of Warrant (incorporated by referenceAgreement between Creatd, Inc. and Continental Stock Transfer & Trust with respect to Exhibit 4.1 of the Company’s current report on Form 8-K filed with the Commission on September 18, 2017)Warrants | 5.1* | | Opinion of Lucosky Brookman LLP | 4.178.1* | | Form of Warrant (incorporated by reference to Exhibit 4.1 of the Company’s current report on Form 8-K filed with the Commission on January 2, 2018)Tax opinion | 10.1 | | | 4.18 | | Form of Warrant (incorporated by reference to Exhibit 4.1 of the Company’s current report on Form 8-K filed with the Commission on April 2, 2018) | | | | 4.19 | | Form of Warrant (incorporated by reference to Exhibit 4.1 of the Company’s current report on Form 8-K filed with the Commission on May 29, 2018) | | | | 4.20 | | Form of Purchaser Warrant (incorporated by reference to Exhibit 4.1 of the Company’s current report on Form 8-K filed with the Commission on August 31, 2018) | | | | 4.21 | | Form of Incentive Warrant (incorporated by reference to Exhibit 4.2 of the Company’s current report on Form 8-K filed with the Commission on August 31, 2018) | | | | 5.1+ | | Opinion of Sheppard, Mullin, Richter & Hampton LLP | | | | 10.1 | | Agreement for the Purchase and Sale of Real Estate between Ashland Holdings, LLC and TD Bank dated October 29, 2013 (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Commission on November 1, 2013). | | | | 10.2 | | Release Agreement between the Company and George I. Norman dated August 15, 2014 (incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed with the Commission on August 15, 2014). | | | | 10.3 | | Securities Purchase Agreement between the Company and KBM Worldwide, Inc. dated August 22, 2014 (incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed with the Commission on August 26, 2014). | | | | 10.4 | | Sale and Purchase Agreement between Ashland Holdings, LLC and Jonathon and Jessica Delavan dated October 2, 2014 (incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed with the Commission on October 9, 2014). | | | | 10.5 | | Securities Purchase Agreement between the Company and KBM Worldwide, Inc. dated November 17, 2014 (incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed with the Commission on December 2, 2014). |
10.6 | | Investment Agreement dated as of November 30, 2014 by and between the Company and Kent Campbell (incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed with the Commission on December 4, 2014). | | | | 10.7 | | Royalty Agreement between the Company and Bonjoe Gourmet Chips LLC dated December 10, 2014 (incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed with the Commission on December 16, 2014). | | | | 10.8 | | Securities Purchase Agreement dated as of July 29, 2015 between Great Plains Holdings, Inc. and Cape One Master Fund II LP. (incorporated by reference to Exhibit 10.1 of the Company’s current report on Form 8-K filed with the Commission on August 3, 2015). | | | | 10.9 | | Spin-Off Agreement dated as of February 5, 2016 between the Company and Kent Campbell. (incorporated by reference to Exhibit 10.9 of the Company’s current report on Form 8-K filed with the Commission on February 11, 2016). | 10.2 | | | 10.10 | | Share Exchange Agreement dated as of February 5, 2016 by and among Great Plains Holdings, Inc., Kent Campbell, Denis Espinoza and Sarah Campbell. (incorporated by reference to Exhibit 10.10 of the Company’s current report on Form 8-K filed with the Commission on February 11, 2016). | 10.3 | | | 10.11 | | Form of Stock Purchase Agreement. (incorporated by reference to Exhibit 10.11 of the Company’s current report on Form 8-K filed with the Commission on February 11, 2016). | 10.4 | | | 10.12 | | Loan Agreement by and between the Company and Arthur Rosen, dated May 26, 2016. (incorporated by reference to Exhibit 10.1 of the Company’s current report on Form 8-K filed with the Commission on June 2, 2016). | | | | 10.13 | | Security Agreement by and between the Company and Arthur Rosen, dated May 26, 2016. (incorporated by reference to Exhibit 10.2 of the Company’s current report on Form 8-K filed with the Commission on June 2, 2016). | | | | 10.14 | | Form of Subscription Agreement (incorporated by reference to Exhibit 10.1 to the Company’s quarterly report on Form 10-Q filed with the Commission on August 24, 2016). | | | | 10.15 | | Form of Subscription Agreement (incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed with the Commission on March 21, 2017). | 10.5 | | | 10.16 | | Form of Promissory Note (incorporated by reference to Exhibit 10.2 to the Company’s current report on Form 8-K filed with the Commission on March 21, 2017). | | | | 10.17 | | Form of Subscription Agreement (incorporated by reference to Exhibit 10.1 of the Company’s quarterly report on Form 10-Q filed with the Commission on August 24, 2016). | | | | 10.18 | | Assignment and Assumption Agreement, dated May 12, 2017 (incorporated by reference to Exhibit 10.1 of the Company’s quarterly report on Form 10-Q filed with the Commission on May 15, 2017). | | | | 10.1910.6 | | Line of Credit Agreement, dated May 9, 2017 by and between the Company and Arthur Rosen (incorporated by reference to Exhibit 10.110.2 of the Company’s quarterly report on Form 10-Q filed with the Commission on May 15, 2017). | | | | 10.2010.7 | | Promissory Note Issued Inin Favor Grawlin,of Grawin, LLC, Dated May 12, 2017, (incorporated by reference to Exhibit 10.110.3 of the Company’s quarterly report on Form 10-Q filed with the Commission on May 15, 2017). |
10.2110.8 | | Form of Subscription Agreement (incorporated by reference to Exhibit 10.1 of the Company’s current report on Form 8-K filed with the Commission on January 17, 2017). | | | | 10.22 | | Form of Promissory Note (incorporated by reference to Exhibit 10.2 of the Company’s current report on Form 8-K filed with the Commission on January 17, 2017). | | | | 10.23 | | Form of Subscription Agreement (incorporated by reference to Exhibit 10.1 of the Company’s current report on Form 8-K filed with the Commission on March 21, 2017). | 10.9 | | | 10.24 | | Form of Promissory Note (incorporated by reference to Exhibit 10.2 of the Company’s current report on Form 8-K filed with the Commission on March 21, 2017). | | | | 10.25 | | Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 of the Company’s current report on Form 8-K filed with the Commission on July 21, 2017). | | | | 10.26 | | Form of 8.5% Convertible Redeemable Debentures due April 18, 2018 (incorporated by reference to Exhibit 10.2 of the Company’s current report on Form 8-K filed with the Commission on July 21, 2017). | 10.10 | | | 10.27 | | Securities Purchase Agreement between the Company and Crossover Capital Fund I, LLC dated July 11, 2017 (incorporated by reference to Exhibit 10.1 of the Company’s current report on Form 8-K filed with the Commission on September 15, 2017) | | | | 10.28 | | Jerrick Media Holdings Inc. 8.5% Convertible Redeemable Note Due April 11, 2018 (incorporated by reference to Exhibit 10.2 of the Company’s current report on Form 8-K filed with the Commission on September 15, 2017) | 10.11 | | | 10.29 | | First Amendment to 8.5% Convertible Redeemable Note Due April 11, 2018 (incorporated by reference to Exhibit 10.3 of the Company’s current report on Form 8-K filed with the Commission on September 15, 2017) |
| | | 10.3010.12 | | Securities Purchase Agreement between the Company and Diamond Rock LLC dated July 24, 2017 (incorporated by reference to Exhibit 10.4 of the Company’s current report on Form 8-K filed with the Commission on September 15, 2017) | | | | 10.3110.13 | | Jerrick Media Holdings Inc 8.5% Convertible Redeemable Note Due April 11, 2018 (incorporated by reference to Exhibit 10.5 of the Company’s current report on Form 8-K filed with the Commission on September 15, 2017) | | | | 10.32 | | First Amendment to 8.5% Convertible Redeemable Note Due April 24, 2018 (incorporated by reference to Exhibit 10.6 of the Company’s current report on Form 8-K filed with the Commission on September 15, 2017) | | | | 10.33 | | First Amendment to 8.5% Convertible Redeemable Note Due April 18, 2018 (incorporated by reference to Exhibit 10.7 of the Company’s current report on Form 8-K filed with the Commission on September 15, 2017) | | | | 10.34 | | Form of Subscription Agreement (incorporated by reference to Exhibit 10.1 of the Company’s current report on Form 8-K filed with the Commission on September 18, 2017) | | | | 10.3510.14 | | Form of Promissory Note (incorporated by reference to Exhibit 10.2 of the Company’s current report on Form 8-K filed with the Commission on September 18, 2017) | | | | 10.36 | | Form of Registration Rights Agreement (incorporated by reference to Exhibit 10.3 of the Company’s current report on Form 8-K filed with the Commission on February 14, 2018) |
10.3710.15 | | Form of Subscription Agreement (incorporated by reference to Exhibit 10.1 of the Company’s current report on Form 8-K filed with the Commission on January 2, 2018) | | | | 10.38 | | Form of Promissory Note (incorporated by reference to Exhibit 10.2 of the Company’s current report on Form 8-K filed with the Commission on January 2, 2018) | | | | 10.39 | | Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 of the Company’s current report on Form 8-K filed with the Commission on February 13, 2018) | 10.16 | | | 10.40 | | Form of Promissory Note (incorporated by reference to Exhibit 10.2 of the Company’s current report on Form 8-K filed with the Commission on February 13, 2018) | | | | 10.41 | | Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 of the Company’s current report on Form 8-K filed with the Commission on April 2, 2018) | 10.17 | | | 10.42 | | Form of Promissory Note (incorporated by reference to Exhibit 10.2 of the Company’s current report on Form 8-K filed with the Commission on April 2, 2018) | | | | 10.43 | | Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 of the Company’s current report on Form 8-K filed with the Commission on May 29, 2018) | 10.18 | | | 10.44 | | Form of Promissory Note (incorporated by reference to Exhibit 10.2 of the Company’s current report on Form 8-K filed with the Commission on May 29, 2018) | 10.19 | | | 10.45 | | Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 of the Company’s current report on Form 8-K filed with the Commission on August 31, 2018) | | | | 10.46 | | Form Registration Rights Agreement (incorporated by reference to Exhibit 10.2 of the Company’s current report on Form 8-K filed with the Commission on August 31, 2018) | 10.20 | | | 10.47 | | Form of Lock-Up Agreement (incorporated by reference to Exhibit 10.3 of the Company’s current report on Form 8-K filed with the Commission on August 31, 2018) | 10.21 | | | 10.48 | | Form of Series A Preferred Stock Conversion Letter Agreement (incorporated by reference to Exhibit 10.4 of the Company’s current report on Form 8-K filed with the Commission on August 31, 2018) | 10.22 | | | 10.49 | | Form of Series B Preferred Stock Conversion Letter Agreement (incorporated by reference to Exhibit 10.5 of the Company’s current report on Form 8-K filed with the Commission on August 31, 2018) | 10.23 | | | 10.50 | | Form of Convertible Note Conversion Letter Agreement (incorporated by reference to Exhibit 10.6 of the Company’s current report on Form 8-K filed with the Commission on August 31, 2018) | | | | 10.51 | | Form of Promissory Note Conversion Letter Agreement (incorporated by reference to Exhibit 10.7 of the Company’s current report on Form 8-K filed with the Commission on August 31, 2018) | 10.24 | | | 10.52 | | Lease Agreement (incorporated by reference to Exhibit 10.5 of the Company’s quarterly report on Form 10-Q filed with the Commission on August 20, 2018) | 10.25+ | | | 10.53* | | Jerrick Ventures, Inc. 2015 Incentive Stock and Award Plan and forms of award agreements thereunder (incorporated by reference to Exhibit 10.53 the Company’s Amendment No. 3 to Registration Statement on Form S-1/A filed with the Commission on August 21, 2020) | 10.26+ | | | 10.54* | | 2020 Equity Incentive Plan and forms of award agreements thereunder (incorporated by reference to Exhibit 10.54 the Company’s Amendment No. 3 to Registration Statement on Form S-1/A filed with the Commission on August 21, 2020) | | | | 16.110.27 | | Warrant Agreement, including form of Warrant, dated September 15, 2020 (incorporated by reference to Exhibit 10.1 of the Company’s current report on Form 8-K filed with the Commission on September 15, 2020). | 10.28+ | | Weisberg Employment Letter from Sadler, Gibb & Associates,Agreement, dated September 28, 2020 (incorporated by reference to Exhibit 10.1 of the Company’s current report on Form 8-K filed with the Commission on October 1, 2020). | 10.29 | | Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 of the Company’s current report on Form 8-K filed with the Commission on January 5, 2021). | 10.30 | | Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 10.2 of the Company’s current report on Form 8-K filed with the Commission on January 5, 2021). | 10.31 | | Form of Registration Rights Agreement (incorporated by reference to Exhibit 10.3 of the Company’s current report on Form 8-K filed with the Commission on January 5, 2021). | 10.32 | | Form of PA Warrant (incorporated by reference to Exhibit 10.4 of the Company’s current report on Form 8-K filed with the Commission on January 5, 2021). | 10.33 | | Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed with the Commission on October 27, 2021). | 10.34 | | Placement Agency Agreement (incorporated by reference to Exhibit 10.2 to the Company’s current report on Form 8-K filed with the Commission on October 27, 2021). | 10.35 | | Membership Interest Purchase Agreement, dated as of June 4, 2021, by and among, Creatd Partners, LLC, Angela Hein and Heidi Brown (incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed with the Commission on June 10, 2021). | 10.36 | | Stock Purchase Agreement, dated as of July 20, 2021, by and among, Creatd Partners, LLC, WHE Agency, Inc., and individuals named therein (incorporated by reference to Exhibit 10.1 of the Company’s current report on Form 8-K filed with the Commission on July 26, 2021). |
10.37 | | Voting Agreement and Proxy, dated as of July 19, 2021, by and among, Creatd Partners, LLC, and individuals named therein (incorporated by reference to Exhibit 10.2 of the Company’s current report on Form 8-K filed with the Commission on July 26, 2021). | 10.38 | | Stock Purchase Agreement by and among Standard Holdings Inc., Mark De Luca, Stephanie Roy Dufault, Dune Inc. and Creatd Partners, LLC dated JanuaryOctober 3, 2021 (incorporated by reference to Exhibit 10.1 of the Company’s current report on Form 8-K filed with the Commission on October 7, 20192021). | 10.39 | | Stockholders Agreement by and among Dune Inc., Creatd Partners, LLC, Mark De Luca and Standard Holdings Inc. dated October 3, 2021 (incorporated by reference to Exhibit 10.2 of the Company’s current report on Form 8-K filed with the Commission on October 7, 2021). | 23.1*10.40+ | | Executive Employment Agreement between the Company and Jeremy Frommer (incorporated by reference to Exhibit 10.40 of the Company’s annual report on Form 10-K filed with the Commission on April 6, 2022) | 10.41+ | | Executive Employment Agreement between the Company and Laurie Weisberg (incorporated by reference to Exhibit 10.41 of the Company’s annual report on Form 10-K filed with the Commission on April 6, 2022) | 10.42+ | | Executive Employment Agreement between the Company and Justin Maury (incorporated by reference to Exhibit 10.42 of the Company’s annual report on Form 10-K filed with the Commission on April 6, 2022) | 10.43+ | | Executive Employment Agreement between the Company and Chelsea Pullano (incorporated by reference to Exhibit 10.43 of the Company’s annual report on Form 10-K filed with the Commission on April 6, 2022) | 10.44 | | Form of Securities Purchase Agreement (incorporated herein by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on March 3, 2022) | 10.45 | | Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed with the Commission on March 9, 2022). | 10.46 | | Letter of resignation of Mark Standish (incorporated by reference to Exhibit 17.1 to the Company’s current report on Form 8-K filed with the Commission on February 18, 2022). | 10.47 | | Letter of resignation of Leonard Schiller (incorporated by reference to Exhibit 17.2 to the Company’s current report on Form 8-K filed with the Commission on February 18, 2022). | 10.48 | | Letter of resignation of LaBrena Martin (incorporated by reference to Exhibit 17.3 to the Company’s current report on Form 8-K filed with the Commission on February 18, 2022). | 10.49 | | Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed with the Commission on June 3, 2022) | 10.50 | | Form of Registration Rights Agreement (incorporated by reference to Exhibit 10.2 to the Company’s current report on Form 8-K filed with the Commission on June 3, 2022) | 10.51 | | Form of Guaranty (incorporated by reference to Exhibit 10.3 to the Company’s current report on Form 8-K filed with the Commission on June 3, 2022) | 10.52 | | Creatd, Inc. 2022 Omnibus Securities and Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed with the Commission on June 7, 2022) | 10.53 | | Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed with the Commission on July 29, 2022) | 10.54 | | Form of Registration Rights Agreement (incorporated by reference to Exhibit 10.2 to the Company’s current report on Form 8-K filed with the Commission on July 29, 2022) | 10.55 | | Form of Guaranty (incorporated by reference to Exhibit 10.3 to the Company’s current report on Form 8-K filed with the Commission on July 29, 2022) | 21.1 | | List of Subsidiaries (incorporated by reference to Exhibit 21.1 of the Company’s annual report on Form 10-K filed with the Commission on March 30, 2020) | 23.1 | | Consent of Rosenberg Rich Baker Berman, P.A., independent registered public accounting firm for Jerrick Media Holdings, Inc. | 23.2* | | Consent of Lucosky Brookman LLP (included in Exhibit 5.1 and Exhibit 8.1) | 23.3+99.1* | | ConsentForm of Sheppard Mullin Richter & Hampton LLP (includedInstructions as Exhibit 5.1)to Use of Non-Transferable Subscription Rights Certificates | 99.2* | | Form of Letter to Shareholders who are Record Holders | 24.199.3* | | PowerForm of Attorney (included on signature pageLetter to Brokers and Other Nominee Holders | 99.4* | | Form of this Registration Statement)Broker Letter to Clients Who are Beneficial Holders | 99.5* | | Form of Beneficial Owner Election Form | 99.6* | | Form of Nominee Holder Certification | 99.7* | | Form of Notice of Guaranteed Delivery | 99.8* | | Form of Notice of Important Tax Information | 101.INS | | Inline XBRL Instance Document. | 101.SCH | | Inline XBRL Taxonomy Extension Schema Document. | 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document. | 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document. | 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | 107 | | Filing Fee Table |
+ | Indicates management contract or compensatory plan. | * | filed herewith. |
| + | To be filed by amendment. |
(b) | Consolidated Financial Statement Schedules |
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. ITEMItem 17. UNDERTAKINGS.Undertakings.
The undersigned registrant hereby undertakes:
(a) | The undersigned registrant hereby undertakes: |
(1) | (1) | To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: |
| (i) | To include any prospectus required by sectionSection 10(a)(3) of the Securities Act; |
| (ii) | To reflect in the prospectus any facts or events arising after the effective date of thethis registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high endand of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20%20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.statement; and |
| (iii) | To include any material information with respect to the plan of distribution not previously disclosed in thethis registration statement or any material change to such information in this registration statement; provided, however, that paragraphs (1)(i), (1)(ii) and (1)(iii) above do not apply if the registration statement;statement is on Form S-1 and the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the Commission by the registrant pursuant to Section 13 or Section 15(d) of the Exchange Act that are incorporated by reference in the registration statement. |
(2) | (2) | That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
(3) | (3) | To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. |
(4) | (4) | That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, ifpurchaser: |
| (i) | Each prospectus filed by the registrant is subjectpursuant to Rule 430C, each424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and | | | | | (ii) | Each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use. |
(5) | (5) | That, for the purpose of determining liability of the registrant under the Securities Act to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: |
| (i) | Anyany preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; |
| (ii) | Anyany free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; |
| (iii) | Thethe portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and |
| (iv) | Any | | (iv) | any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. |
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
(b) | The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the registrant’s annual report pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.
(c) | Insofar as indemnification for liabilities arising under the Securities Act, as amended, may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes to file an application for the purpose of determining the eligibility of the trustee to act under subsection (a) of Section 310 of the Trust Indenture Act (“Act”) in accordance with the rules and regulations prescribed by the Commission under Section 305(b)(2) of the Act. |
The undersigned registrant hereby undertakes that:
(d) | The undersigned registrant hereby undertakes that: |
| (1)(i) | For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b) (1)(I) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.effective; and |
| (2)(ii) | For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Registration Statementregistration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the BoroughCity of Fort Lee,New York, State of New Jersey,York, on the 20th day of August 2020.25, 2022. Creatd, Inc. | JERRICK MEDIA HOLDINGS, INC. | | | | By: | By: | /s/ Jeremy FrommerLaurie Weisberg | | | Name: | Jeremy FrommerLaurie Weisberg | | | Title: | Chief Executive Officer | | | | (Principal Executive Officer) | |
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 indicated.indicated: Signature | | Title | | Date | | | | | | /s/ Jeremy FrommerLaurie Weisberg | | Chief Executive Officer and Director | | August 20, 202025, 2022 | Jeremy FrommerLaurie Weisberg | | (Principal Executive Officer), Director | | | | | | | | */s/ Chelsea Pullano | | Chief Financial Officer | | August 20, 202025, 2022 | Chelsea Pullano | | (Principal Financial and Accounting Officer) | | | | | | | | */s/ Jeremy Frommer | | Executive Chairman of the Board | | August 20, 202025, 2022 | Mark StandishJeremy Frommer | | | | | | | | | | */s/ Brad Justus | | Director | | August 20, 202025, 2022 | Mark PattersonBrad Justus | | | | | | | | | | */s/ Lorraine Hendrickson | | Director | | August 20, 202025, 2022 | Leonard SchillerLorraine Hendrickson | | | | | | | | | | */s/ Joanna Bloor | | Director | | August 20, 202025, 2022 | Laurie WeisbergJoanna Bloor | | | | |
* By: | /s/ Jeremy Frommer | | | Jeremy Frommer, Attorney-in-fact | |
II-7 II-16
0001357671 crtd:May2021LoanMember 2021-12-31 |
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