UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: September 30, 2021

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to __________

 

Commission File No. 001-39500

 

Creatd, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada   87-0645394
(State or other jurisdiction
of incorporation)
  (I.R.S. Employer
Identification No.)

 

2050 Center Avenue Suite 640

Fort Lee, New Jersey 07024

(Address of principal executive offices)

 

(201) 258-3770

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock, par value $0.001   CRTD   The Nasdaq Stock Market LLC
         
Common Stock Purchase Warrants   CRTDW   The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes ☒   No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

Yes ☒   No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of a “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
Emerging growth company    

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).

 

Yes ☐   No

 

As of November 15, 2021, the registrant had 16,295,455 shares of its common stock, par value $0.001 per share, outstanding.

 

 

 

 

 

 

 

 

FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2021

 

TABLE OF CONTENTS

 

      Page
Special Note Regarding Forward-Looking Statements and Other Information Contained in this Report   ii
       
PART I – FINANCIAL INFORMATION    
       
Item 1. Financial Statements   1
       
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   42
       
Item 3. Quantitative and Qualitative Disclosures About Market Risk   53
       
Item 4. Controls and Procedures   53
       
PART II – OTHER INFORMATION    
       
Item 1. Legal Proceedings   54
       
Item 1A. Risk Factors   54
       
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds   54
       
Item 3. Defaults Upon Senior Securities   55
       
Item 4. Mine Safety Disclosures   55
       
Item 5. Other Information   55
       
Item 6. Exhibits   55

  

i

 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND
OTHER INFORMATION CONTAINED IN THIS REPORT

 

This Quarterly Report on Form 10-Q (this “Form 10-Q”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. You can find many (but not all) of these statements by looking for words such as “approximates,” “believes,” “hopes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,” “plans,” “would,” “should,” “could,” “may” or other similar expressions in this Form 10-Q. In particular, these include statements relating to future actions; prospective products, applications, customers and technologies; future performance or results of anticipated products; anticipated expenses; and projected financial results. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:

 

  our ability to continue as a going concern;

 

  our operating expenses exceed our revenues and will likely continue to do so for the foreseeable future;

 

  our ability to obtain additional capital, which may be difficult to raise as a result of our limited operating history or any number of other reasons;

 

  our ability to provide digital content that is useful to users;

 

  our ability to retain existing users or add new users;

 

  competition from traditional media companies;

 

  general economic conditions and events and the impact they may have on us and our users; and

 

  other factors discussed in this Form 10-Q.

 

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Form 10-Q, particularly in the “Risk Factors” section, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make or collaborations or strategic partnerships we may enter into.

 

You should read this Form 10-Q and the documents that we have filed as exhibits to this Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

 

Unless otherwise stated or the context otherwise requires, the terms “Creatd,” “we,” “us,” “our” and the “Company” refer collectively to Creatd, Inc. and its subsidiaries.

  

ii

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

Creatd, Inc.

September 30, 2021

Index to the Condensed Consolidated Financial Statements

 

Contents   Page(s)
Condensed Consolidated Balance Sheets as of September 30, 2021 (unaudited) and December 31, 2020   2
     
Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2021 and 2020 (unaudited)   3
     
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the Three and Nine Months Ended September 30, 2021 and 2020 (unaudited)   4
     
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020 (unaudited)   8
     
Notes to the Condensed Consolidated Financial Statements (unaudited)   9

 

1

 

 

Creatd, Inc.

Condensed Consolidated Balance Sheets

 

   September 30,  2021   December 31,  2020 
   (Unaudited)     
Assets        
Current Assets        
Cash  $1,508,528   $7,906,782 
Accounts receivable, net   393,291    90,355 
Inventory   88,061    - 
Prepaid expenses and other current assets   561,031    23,856 
Total Current Assets   2,550,911    8,020,993 
           
Property and equipment, net   86,900    56,258 
Intangible assets   2,488,903    960,611 
Goodwill   1,978,793    1,035,795 
Deposits and other assets   84,721    191,836 
Marketable securities   
-
    62,733 
Minority investment in businesses   152,096    217,096 
Equity method investment   732,297    
-
 
Operating lease right of use asset   178,402    239,158 
Total Assets  $8,253,023   $10,784,480 
           
Liabilities and Stockholders’ Deficit          
           
Current Liabilities          
Accounts payable and accrued liabilities  $2,728,967   $2,638,688 
Derivative liabilities   
-
    42,231 
Convertible Notes, net of debt discount and issuance costs   154,037    897,516 
Current portion of operating lease payable   96,817    79,816 
Note payable - related party, net of debt discount   1,134,712    
-
 
Note payable, net of debt discount and issuance costs   1,072,190    1,221,539 
Deferred revenue   200,500    88,637 
Total Current Liabilities   5,387,223    4,968,427 
           
Non-current Liabilities:          
Note payable   18,959    213,037 
Convertible Notes   640,496    
-
 
Operating lease payable   79,214    157,820 
           
Total Non-current Liabilities   738,669    370,857 
Total Liabilities   6,125,892    5,339,284 
           
Commitments and contingencies   
 
    
 
 
           
Stockholders’ Equity          
Series E Preferred stock, $0.001 par value, 1,088 and 7,738 shares issued and outstanding, respectively   1    8 
Common stock par value $0.001: 100,000,000 shares authorized; 14,033,197 issued and 14,023,847 outstanding as of September 30, 2021 and 8,736,378 issued and 8,727,028 outstanding as of December 31, 2020   14,032    8,737 
Additional paid in capital   98,264,091    77,505,013 
Subscription receivable   
-
    (40,000)
Less: Treasury stock, 5,657 and 5,657 shares, respectively   (62,406)   (62,406)
Accumulated deficit   (97,341,964)   (71,928,922)
Accumulated other comprehensive income   (53,533)   (37,234)
Total Creatd, Inc. Stockholders’ Equity   820,221    5,445,196 
Non-controlling interest in consolidated subsidiaries   1,306,910    
-
 
    2,127,131    5,445,196 
Total Liabilities and Stockholders’ Equity  $

8,253,023

   $10,784,480 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

2

 

 

Creatd, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

 

   For the Three Months
Ended
   For the Three Months
Ended
   For the
Nine Months
Ended
   For the
Nine Months
Ended
 
   September 30,
2021
   September 30,
2020
   September 30,
2021
   September 30,
2020
 
                 
Net revenue  $1,179,620   $424,814   $2,894,390   $1,040,496 
                     
Cost of revenue   1,418,213    731,309    4,160,743    1,863,148 
                     
Gross margin (loss)   (238,593)   (306,495)   (1,266,353)   (822,652)
                     
Operating expenses                    
Research and development   322,946    158,528    708,396    329,803 
Marketing   1,812,400    540,555    8,049,579    1,396,119 
Stock based compensation   2,151,900    4,582,766    5,662,389    6,577,558 
General and administrative   2,385,135    1,435,520    5,551,049    3,258,933 
Total operating expenses   6,672,381    6,717,369    19,971,413    11,562,413 
                     
Loss from operations   (6,910,974)   (7,023,864)   (21,237,766)   (12,385,065)
                     
Other income (expenses)                    
Other income   123,710    437,657    123,710    515,442 
Interest expense   (59,859)   (512,650)   (319,290)   (1,379,386)
Accretion of debt discount and issuance cost   (2,176,651)   (4,058,286)   (3,028,015)   (4,385,507)
Derivative expense   
-
    
-
    (100,502)   
-
 
Change in derivative liability   (833,456)   
-
    (1,096,287)   
-
 
Impairment of investment   
-
         (62,733)   
-
 
Settlement of vendor liabilities   
-
    
-
    92,909    (126,087)
Loss on marketable securities   
-
    (17,495)   
-
    (7,453)
Gain (loss) on extinguishment of debt   137,109    (5,004,060)   423,118    (5,539,100)
Gain on forgiveness of debt   -    
-
    279,022    470 
Other expenses, net   (2,809,147)   (9,154,834)   (3,688,068)   (10,921,621)
                     
Loss before income tax provision and equity in net loss from unconsolidated investments   (9,720,121)   (16,178,698)   (24,925,834)   (23,306,686)
                     
Equity in net loss from equity method investment   (16,413)   -    (16,413)   - 
Income tax provision   
-
    
-
    
-
    
-
 
Net loss   (9,736,534)   (16,178,698)   (24,942,247)   (23,306,686)
                     
Non-controlling interest in net loss   (60,477)   
-
    (60,045)   
-
 
                     
Net Loss attributable to Creatd, Inc.   (9,797,011)   (16,178,698)   (25,002,292)   (23,306,686)
                     
Deemed dividend   
-
    (18,421)   (410,750)   (18,421)
                     
Net loss attributable to common shareholders  $(9,797,011)  $(16,197,119)  $(25,413,042)  $(23,325,107)
                     
Comprehensive loss                    
                     
Net loss  $(9,736,534)  $(16,178,698)  $(24,942,247)  $(23,306,686)
                     
Currency translation gain (loss)   (8,436)   5,735    (16,299)   (22,795)
                     
Comprehensive loss  $(9,744,970)  $(16,172,963)  $(24,958,546)  $(23,329,481)
                     
Per-share data                    
Basic and diluted loss per share  $(0.71)  $(3.81)  $(2.20)  $(6.65)
                     
Weighted average number of common shares outstanding   13,710,111    4,254,300    11,563,150    3,506,393 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

3 

 

 

Creatd, Inc.
Condensed Consolidated Statement of Changes in Stockholders’ Equity (Deficit)
For the Three Months Ended September 30, 2021 (Unaudited)

 

   Series E Preferred Stock   Common Stock   Treasury stock  

Additional

Paid In

   Accumulated   Non-Controlling   Other Comprehensive   Stockholders’ 
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Interest   Income   Equity 
Balance, July 1, 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)
                                                        
Stock based compensation   -    -    22,934    23    -    -    2,094,787    -    -    -    2,094,810 
                                                        
Conversion of warrants to stock   
-
    
-
    954,568    955    
-
    
-
    4,198,442    
-
    
-
    
-
    4,199,397 
                                                        
Shares issued for acquisition   -    
-
    224,503    224    -    
-
    893,297    
-
    
-
    
-
    893,521 
                                                        
Cash received for common stock   -    
-
    87,500    87    -    
-
    248,613    
-
    
-
    
-
    248,700 
                                                        
Common stock issued upon conversion of notes payable   -    
-
    779,706    779    
-
    
-
    3,697,725    
-
    
-
    
-
    3,698,504 
                                                        
Conversion of preferred series E to stock   (438)   
-
    106,311    106    
-
    
-
    (106)   
-
    
-
    
-
    
-
 
                                                        
Foreign currency translation adjustments   -    
-
    -    
-
    -    
-
    
-
    
-
    
-
    (8,436)   (8,436)
                                                        
Non-controlling interest in consolidated subsidiary from acquisition   -    
-
    -    
-
    -    
-
    
-
    
-
    1,190,000    -    1,190,000 
                                                        
Net loss for the three months ended September 30, 2021   -    -    -    -    -    -    -    (9,797,011)   60,477    -    (9,736,534)
Balance, September 30, 2021  610   $1    14,033,197   $14,032   (5,657)  $(62,406)  $98,264,091   $(97,341,964)  $1,306,910   $(53,533)  $2,127,131 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4 

 

 

Creatd, Inc.

Condensed Consolidated Statement of Changes in Stockholders’ Equity (Deficit)

For the Nine Months Ended September 30, 2021 (Unaudited)

 

   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, 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   -    -    224,245    224    -    -    5,505,165    -    -    -    -    5,505,389 
                                                             
Shares issued for prepaid services   -    -    50,000    50    -    -    226,450    -    -    -    -    226,500 
                                                             
Shares issued to settle vendor liabilities   -    -    44,895    44    -    -    181,341    -    -    -    -    181,385 
                                                             
Common stock issued upon conversion of notes payable   -    -    900,665    901    -    -    4,014,424    -    -    -    -    4,015,325 
                                                             
Exercise of warrants to stock   -    -    1,275,261    1,275    -    -    5,470,793    -    -    -    -    5,472,068 
                                                             
Cash received for common   -    -    837,500    837    -    -    2,461,363    -    -    -    -    2,462,200 
                                                             
Cash received for preferred series E and warrants   40    -    -    -    -    -    (4,225)   40,000    -    -    -    35,775 
                                                             
Conversion of preferred series E to stock   (7,168)   (7)   1,739,750    1,739    -    -    (1,732)   -    -    -    -    - 
                                                             
Stock warrants issued with note payable   -    -    -    -    -    -    1,601,452    -    -    -    -    1,601,452 
                                                             
Shares issued for acquisition   -    -    224,503    225    -    -    893,297    -    -    -    -    893,522 
                                                             
Foreign currency translation adjustments   -    -    -    -    -    -    -    -    -    -    (16,299)   (16,299)
                                                             
Non-controlling interest in consolidated subsidiary from acquisition   -    -    -    -    -    -    
-
    
-
    
-
    1,246,865    -    1,246,865 
                                                             
Dividends   -    -    -    -    -    -    410,750    -    (410,750)   -    -    - 
                                                             
Net loss for the nine months ended September 30, 2021   -    -    -    -    -    -    -    -    (25,002,292)   60,045    -    (24,942,247)
Balance, September 30, 2021   610   $1    14,033,197   $14,032    (5,657)  $(62,406)  $98,264,091   $
-
   $(97,341,964)  $1,306,910   $(53,533)  $2,127,131 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5

 

 

Creatd, Inc.
Condensed Consolidated Statement of Changes in Stockholders’ Equity (Deficit)
For the Three Months Ended September 30, 2020 (Unaudited)

 

   Common Stock   Treasury stock   Additional
Paid In
   Accumulated   Other
Comprehensive
   Stockholders  
   Shares   Amount   Shares   Amount   Capital   Deficit   Income   Equity 
Balance, July 1, 2020   3,327,398   $3,327    (7,461)  $(60,162)  $39,075,664   $(51,708,425)  $(34,525)  $(12,724,121)
                                         
Shares Issued with note payable   6,667    7    
-
    
-
    71,322    
-
    
-
    71,329 
                                         
Stock warrants issued with note payable   -    
-
    -    
-
    326,364    
-
    
-
    326,364 
                                         
Stock based compensation   91,167    91    -    -    4,582,674    -    -    4,582,765 
                                         
Recognition of intrinsic value of beneficial conversion features – convertible notes   -    -    -    -    5,109,680    -    -    5,109,680 
                                       - 
Cash received for common stock and warrants   1,725,000    1,725    -    -    7,025,962    -    -    7,027,687 
                                       - 
Purchase of treasury stock   
-
    
-
    (1,889)   (27,398)   
-
    
-
    
-
    (27,398)
                                         
Common stock and warrants issued upon conversion of notes payable   3,512,513    3,513    -    -    11,213,850    -    -    11,217,363 
                                         
Foreign currency translation adjustments   -    
-
    -    
-
    
-
    
-
    5,735    5,735 
                                         
Dividends   -    -    -    -    18,421    (18,421)   -    - 
                                         
Net loss for the three months ended September 30, 2020   -    
-
    -    
-
    
-
    (16,178,698)   
-
    (16,178,698)
Balance, September 30, 2020   8,662,745   $8,663    (9,350)  $(87,560)  $67,423,937   $(67,905,544)  $(28,790)  $(589,294)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

6 

 

 

Creatd, Inc.
Condensed Consolidated Statement of Changes in Stockholders’ Equity (Deficit)
For the Nine Months Ended September 30, 2020 (Unaudited)

 

   Common Stock   Treasury stock   Additional
Paid In
   Accumulated   Other
Comprehensive
   Stockholders’ 
   Shares   Amount   Shares   Amount   Capital   Deficit   Income   Equity 
                                 
Balance, Jan 1, 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   14,774    15    
-
    
-
    130,244    
-
    
-
    130,259 
                                         
Stock based compensation   141,167    141    -    -    5,167,633    -    -    5,167,774 
                                         
Shares issued for services   -    -    
-
    
-
    -    
-
    
-
    - 
                                         
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    
-
    
-
    1,405,436    
-
    
-
    1,405,665 
                                         
Stock warrants issued with note payable   -    
-
    -    
-
    1,078,501    
-
    
-
    1,078,501 
                                         
Cancellation of Treasury stock   (50,650)   (51)   50,650    349,030    (348,979)   
-
    
-
    
-
 
                                         
Purchase of treasury stock   
-
    
-
    (6,717)   (69,416)   
-
    
-
    
-
    (69,416)
                                         
Recognition of intrinsic value of beneficial conversion features – convertible notes   -    -    -    -    5,109,680    -    -    5,109,680 
                                         
Cash received for common stock and warrants   1,725,000    1,725    -    -    7,025,962    -    -    7,027,687 
                                         
Common stock and warrants issued upon conversion of notes payable   3,512,513    3,513    -    -    11,213,850    -    -    11,217,363 
                                         
Dividends   -    -    -    -    18,421    (18,421)   -    - 
                                         
Foreign currency translation adjustments   -    -    -    -    -    -    (22,795)   (22,795)
                                         
Net loss for the nine months ended September 30, 2020   -    
-
    -    
-
    
-
    (23,306,686)   
-
    (23,306,686)
Balance, September 30, 2020   8,662,745   $8,663    (9,350)  $(87,560)  $67,423,937   $(67,905,544)  $(28,790)  $(589,294)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

7

 

 

Creatd, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)

 

   For the
Nine Months
Ended
   For the
Nine Months
Ended
 
   September 30,
2021
   September 30,
2020
 
         
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net loss  $(24,942,247)  $(23,306,686)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   194,929    116,614 
Impairment of note receivable   62,733    
-
 
Impairment of intangible assets   93,791    - 
Accretion of debt discount and issuance cost   3,028,015    4,385,507 
Share-based compensation   5,662,389    6,577,558 
Bad debt expense   
-
    52,849 
Gain on marketable securities   
-
    7,453 
Gain on Forgiveness of debt   (279,022)   (470)
Settlement of vendor liabilities   (92,909)   126,087 
Change in fair value of derivative liability   1,096,287    - 
Derivative Expense   100,502    
-
 
Loss on extinguishment of debt   (423,118)   5,539,100 
Non cash lease expense   60,756    53,462 
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   (471,899)   
-
 
Inventory   (68,091)   - 
Accounts receivable   150,980    (92,319)
Deposits and other assets   107,115    (5,407)
Deferred revenue   111,192    (13,270)
Accounts payable and accrued expenses   160,434    1,578,302 
Operating lease liability   (61,605)   (51,268)
Net Cash Used In Operating Activities   (15,617,065)   (5,032,488)
CASH FLOWS FROM INVESTING ACTIVITIES:          
Cash paid for property and equipment   (65,971)   (19,460)
Deposits   

-

   (175,000)
Cash paid for minority investment in business   (325,000)   
-
 
Cash paid for equity method investment   (510,000)   
-
 
Cash paid for investments in marketable securities   
-
    (238,272)
Sale of marketable securities   
-
    36,048 
Cash acquired in business acquisition   31,807   - 
Cash consideration for acquisition   (444,750)   
-
 
Purchases of digital assets   (11,241)   
-
 
Net Cash Used In Investing Activities   (1,325,155)   (396,684)
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from the exercise of warrant   5,472,068    
-
 
Net proceeds from issuance of notes   321,229    1,396,649 
Repayment of notes   (403,843)   (447,024)
Proceeds from issuance of demand loan   
-
    440,000 
Repayment of demand Loan   
-
    (90,000)
Proceeds from issuance of convertible note   3,610,491    2,904,255 
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   
-
    (983,752)
Proceeds from issuance of common stock and warrants   2,502,200    6,662,015 
Purchase of treasury stock and warrants   
-
    (89,416)
Net Cash Provided By Financing Activities   10,560,265    8,337,715 
Effect of exchange rate changes on cash   (16,299)   (22,795)
Net Change in Cash   (6,398,254)   2,885,748 
Cash – Beginning of Year   7,906,782    11,637 
Cash – End of period  $1,508,528   $2,897,385 
SUPPLEMENTARY CASH FLOW INFORMATION:          
Cash Paid During the Year for:          
Income taxes  $
-
   $
-
 
Interest  $58,395   $175,626 
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:          
Settlement of vendor liabilities  $168,667   $475,220 
Beneficial conversion feature on convertible notes  $
-
   $5,498,313 
Warrants issued with debt  $1,601,452   $1,079,213 
Shares issued with debt  $
-
   $130,264 
Issuance of common stock for prepaid services  $226,500   $585,000 
Cancellation of Treasury stock  $
-
   $349,030 
Conversion of note payable and interest into convertible notes  $
-
   $385,000 
Conversion of Demand loan into notes payable  $
-
   $150,000 
Deferred offering costs  $4,225   $
-
 
Common stock and warrants issued upon conversion of notes payable  $4,015,325   $11,217,362 
Shares issued for acquisition  $

893,520

   $- 
Conversion of note payable and interest into convertible notes  $
-
   $385,000 

 

The accompanying notes are an integral part of these condensed consolidated financial statements. 

 

8

 

 

Creatd, Inc.

September 30, 2021

Notes to the Condensed Consolidated Financial Statements

 

Note 1 – Organization and Operations

 

Creatd, Inc., formerly Jerrick Media Holdings, Inc. (“we,” “us,” the “Company,” or “Creatd”), is a technology company focused on providing economic opportunities for creators, which it accomplishes through its four main business pillars: Creatd Labs, Creatd Partners, Creatd Ventures, and Creatd Studios. Creatd’s flagship product, Vocal, delivers a robust long-form, digital publishing platform organized into highly engaged niche-communities capable of hosting all forms of rich media content. Through Creatd’s proprietary algorithm dynamics, Vocal enhances the visibility of content and maximizes viewership, providing advertisers access to target markets that most closely match their interests. 

 

The Company was originally incorporated under the laws of the State of Nevada on December 30, 1999 under the name LILM, Inc. The Company changed its name on December 3, 2013 to Great Plains Holdings, Inc. as part of its plan to diversify its business.

 

On February 5, 2016 (the “Closing Date”), GTPH, GPH Merger Sub, Inc., a Nevada corporation and wholly-owned subsidiary of GTPH (“Merger Sub”), and Jerrick Ventures, Inc., a privately-held Nevada corporation headquartered in New Jersey (“Jerrick”), entered into an Agreement and Plan of Merger (the “Merger”) pursuant to which the Merger Sub was merged with and into Jerrick, with Jerrick surviving as a wholly-owned subsidiary of GTPH (the “Merger”). GTPH acquired, pursuant to the Merger, all of the outstanding capital stock of Jerrick in exchange for issuing Jerrick’s shareholders (the “Jerrick Shareholders”), pro-rata, a total of 475,000 shares of GTPH’s common stock. In connection therewith, GTPH acquired 33,415 shares of Jerrick’s Series A Convertible Preferred Stock (the “Jerrick Series A Preferred”) and 8,064 shares of Series B Convertible Preferred Stock (the “Jerrick Series B Preferred”).

 

In connection with the Merger, on the Closing Date, GTPH and Kent Campbell entered into a Spin-Off Agreement (the “Spin-Off Agreement”), pursuant to which Mr. Campbell purchased from GTPH (i) all of GTPH’s interest in Ashland Holdings, LLC, a Florida limited liability company, and (ii) all of GTPH’s interest in Lil Marc, Inc., a Utah corporation, in exchange for the cancellation of 39,091 shares of GTPH’s Common Stock held by Mr. Campbell. In addition, Mr. Campbell assumed all debts, obligations and liabilities of GTPH, including any existing prior to the Merger, pursuant to the terms and conditions of the Spin-Off Agreement.

 

Upon closing of the Merger on February 5, 2016, the Company changed its business plan to that of Jerrick.

 

Effective February 28, 2016, GTPH entered into an Agreement and Plan of Merger (the “Statutory Merger Agreement”) with Jerrick, pursuant to which GTPH became the parent company of Jerrick Ventures, LLC, a wholly-owned operating subsidiary of Jerrick (the “Statutory Merger”) and GTPH changed its name to Jerrick Media Holdings, Inc. to better reflect its new business strategy.

 

On September 11, 2019, the Company acquired 100% of the membership interests of Seller’s Choice, LLC, a New Jersey limited liability company (“Seller’s Choice”). Seller’s Choice is a digital e-commerce agency based in New Jersey.

 

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%. Dune, Inc. is a direct-to-consumer brand focused on promoting wellness through its range of health-oriented beverages. 

 

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.

 

9

 

 

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, 2021 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, 2020, included in the Company’s 2020 Annual Report on Form 10-K filed with the SEC. The balance sheet as of December 31, 2020 has been derived from audited financial statements at that date but does not include all of the information required by U.S. GAAP for complete financial statements.

 

Use of Estimates and Critical Accounting Estimates and Assumptions

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

 

These significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to these estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.

 

Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

 

Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly. The Company uses estimates in accounting for, among other items, revenue recognition, allowance for doubtful accounts, stock-based compensation, income tax provisions, excess and obsolete inventory reserve, and impairment of intellectual property.

 

Actual results could differ from those estimates.

 

Principles of consolidation

 

The Company consolidates all majority-owned subsidiaries, if any, in which the parent’s power to control exists.

 

As of September 30, 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%
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%

 

10

 

 

All inter-company balances and transactions have been eliminated.

  

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 September 30, 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 table provides a summary of the relevant assets and liabilities that are measured at fair value on recurring basis:

 

Fair Value Measurements as of

September 30, 2021

 

   Total   Quoted Prices in Active Markets for Identical Assets or Liabilities
(Level 1)
   Quoted Prices for Similar Assets or Liabilities in Active Markets
(Level 2)
   Significant Unobservable Inputs
(Level 3)
 
Assets:                    
Marketable securities - debt securities  $
-
   $
-
   $
-
   $
        -
 
Total assets  $
-
   $
-
   $
-
   $
-
 
                     
Liabilities:                    
Derivative liabilities  $
-
   $
-
   $
-
   $
-
 
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 September 30, 2021:

 

   Fair Value   Valuation Methodology  Unobservable Inputs
Marketable securities - debt securities  $
       -
   Discounted cash flow analysis  Expected cash flows from the investment
            
Derivative liabilities  $
-
   Monte Carlo simulations and Binomial model  Risk free rate   Expected volatility; Drift rate

 

11

 

  

The following table provides a summary of the relevant assets that are measured at fair value on non-recurring basis:

 

Fair Value Measurements as of

September 30, 2021

 

   Total   Quoted
Prices in
Active
Markets for
Identical
Assets or
Liabilities
(Level 1)
   Quoted
Prices for
Similar
Assets or
Liabilities
in Active Markets
(Level 2)
   Significant
Unobservable
Inputs
(Level 3)
 
Assets:                
Equity investments, at cost  $152,096   $
         -
   $
           -
   $152,096 
Total assets  $152,096   $
-
   $
-
   $152,096 

 

The following table shows the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on non-recurring basis as of September 30, 2021:

 

   Fair Value   Valuation Methodology  Unobservable Inputs
Equity investments, at cost  $152,096   Qualitative assessment per ASC 321-10-35  Qualitative factors

 

The Company valued the initial value of debt securities, which are investments in convertible notes receivable, by assessing the separate values of the debt and equity components for similar instruments convertible into private company equity (Level 3). The investment was initially measured at cost, which was determined to approximate fair value due to the lack of marketability of the conversion shares underlying these convertible instruments and the expected recoverability of the note principal. The key assumption affecting the level 3 fair values would be 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”) insurable limits. The Company has never experienced any losses related to these balances. As of September 30, 2021, and December 31, 2020, cash amounts in excess of $250,000 were not fully insured. The uninsured cash balance as of September 30, 2021 was approximately $1.3 million. The Company does not believe it is exposed to significant credit risk on cash and cash equivalents.

 

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. During the three and nine months ended September 30, 2021 the Company recorded an impairment charge of $93,791 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.

 

During the year ended December 31, 2020 the Company completed its annual impairment test of goodwill. The Company performed the qualitative assessment as permitted by ASC 350-20 and determined that the fair value of the reporting units are more likely than not equal or greater than the carrying value, including Goodwill. Based on completion of this annual impairment test, no impairment was indicated.

 

12

 

 

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
nine months ended
September 30,
2021
 
   Total 
Beginning of period  $62,733 
Purchase of marketable securities   
-
 
Interest due at maturity   
-
 
Other than temporary impairment   (62,733)
Conversion of marketable securities   
-
 
September 30, 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 September 30, 2021, all of our investments had maturities between one and three years. The marketable debt security investments are evaluated for impairment if events or circumstances arise that indicate that the carrying amount of such assets may not be recoverable. During the nine months ended September 30, 2021 the Company recognized a $62,733 impairment of the debt security.

 

The following table sets forth a summary of the changes in equity investments, at cost that are measured at fair value on a non-recurring basis: 

 

   For the
three months ended
September 30,
2021
   For the
nine months ended
September 30,
2021
 
   Total   Total 
Beginning of period  $367,096   $217,096 
Purchase of equity investments   
-
    150,000 
Conversion to equity method investments   (215,000)   (215,000)
September 30, 2021  $152,096   $152,096 

  

The Company has elected to measure its equity securities without a readily determinable fair value at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. An election to measure an equity security in accordance with this paragraph shall be made for each investment separately.

 

13

 

 

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.

 

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 no indicators of impairment related to our equity method investments for the three and nine months ended September 30, 2021.

 

Commitments and Contingencies

 

The Company follows subtopic 450-20 of the FASB ASC to report accounting for contingencies. Certain conditions may exist as of the date the condensed consolidated financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or un-asserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or un-asserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

 

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s condensed consolidated financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.

 

Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.

 

Foreign Currency

 

Foreign currency denominated assets and liabilities are translated into U.S. dollars using the exchange rates in effect at our 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.

 

14

 

 

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.

 

Revenue Recognition  

 

Under Topic 606, revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

 

We determine revenue recognition through the following steps:

 

  identification of the contract, or contracts, with a customer;

 

  identification of the performance obligations in the contract;

 

  determination of the transaction price. The transaction price for any given subscriber could decrease based on any payments made to that subscriber. A subscriber may be eligible for payment through one or more of the monetization features offered to Vocal creators, including earnings through reads (on a cost per mile basis) and cash prizes offered to Challenge winners;

 

  allocation of the transaction price to the performance obligations in the contract; and

 

  recognition of revenue when, or as, we satisfy a performance obligation.

 

Revenue disaggregated by revenue source for the three and nine months ended September 30, 2021 and 2020 consists of the following:

 

   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2021   2020   2021   2020 
Agency (Managed Services, Branded Content, & Talent Management Services)  $555,766   $349,148   $1,472,902   $856,233 
Platform (Creator Subscriptions)   611,714    66,198    1,370,581    157,132 
Ecommerce   4,153    
-
    9,679    
-
 
Affiliate Sales   7,619    8,400    23,425    24,744 
Other Revenue   368    1,068    17,803    2,387 
   $1,179,620   $424,814   $2,894,390   $1,040,496 

 

15

 

 

The Company utilizes the output method to measures the results achieved and value transferred to a customers over time. Timing of revenue recognition for the three and nine months ended September 30, 2021 and 2020 consists of the following:

 

   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2021   2020   2021   2020 
Products and services transferred over time  $1,167,480   $415,346   $2,843,483   $1,013,365 
Products and services transferred at a point in time   12,140    9,468    50,907    27,131 
   $1,179,620   $424,814   $2,894,390   $1,040,496 

 

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 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 and any required milestones are met.

 

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.
     
  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.
     
  Most billing for contracts occurs 50% at signing and 50% upon completion of the services, with net payment terms varying per 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 $10,000 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.

 

16

 

 

 

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 by its customers. 

 

Deferred Revenue

 

Deferred revenue consists of billings and payments from clients in advance of revenue recognition. As of September 30, 2021, and December 31, 2020, the Company had deferred revenue of $200,500 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 nine months ended September 30, 2021, the Company recorded $0 as a bad debt expense. As of September 30, 2021, and December 31, 2020, the Company has an allowance for doubtful accounts of $76,340 and $80,509, respectively.

 

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 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.

 

17

 

 

Restricted stock awards are granted at the discretion of the Company. These awards are restricted as to the transfer of ownership and generally vest over the requisite service periods.

 

The fair value of an option award is estimated on the date of grant using the Black–Scholes option valuation model. The Black–Scholes option valuation model requires the development of assumptions that are inputs into the model. These assumptions are the value of the underlying share, the expected stock volatility, the risk–free interest rate, the expected life of the option, the dividend yield on the underlying stock and the expected forfeiture rate. Expected volatility is benchmarked against similar companies in a similar 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. The Company issues awards of equity instruments, such as stock options and restricted stock units, to employees and certain non-employee directors. Compensation expense related to these awards is based on the fair value of the underlying stock on the award date and is amortized over the service period, defined as the vesting period, using the cliff straight-line method. The vesting period is generally one to three years. A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Company’s common stock at the date of grant is used for restricted stock units. Compensation expense is reduced for actual forfeitures as they occur.

 

Loss Per Share

 

Basic net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net loss per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. In periods when losses are reported, which is the case for the three and nine months ended September 30, 2021 and 2020 presented in these condensed consolidated financial statements, the weighted-average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive.

 

The Company had the following common stock equivalents at September 30, 2021 and 2020:

 

   September 30, 
   2021   2020 
Options   2,327,445    542,687 
Warrants   6,558,705    3,059,040 
Convertible notes   228,334    
-
 
Totals   9,114,484    3,601,727 

 

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 three months ended September 30, 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.

 

18

 

 

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 condensed consolidated financial statements.

 

Recent Accounting Guidance Not Yet Adopted

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments (“ASU-2016-13”). ASU 2016-13 affects loans, debt securities, trade receivables, and any other financial assets that have the contractual right to receive cash. The ASU requires an entity to recognize expected credit losses rather than incurred losses for financial assets. ASU 2016-13 is effective for the fiscal year beginning after December 15, 2022, including interim periods within that fiscal year. The Company is currently evaluating the impact of the new guidance on its condensed consolidated financial statements.

 

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity’s own equity, and also improves and amends the related EPS guidance for both Subtopics. The ASU will 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 condensed 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 condensed consolidated financial statements.

 

In July 2021, the FASB issued ASU No. 2021-05, Lessors—Certain Leases with Variable Lease Payments (Topic 842), Which requires a lessor to classify a lease with variable lease payments that do not depend on an index or rate (hereafter referred to as “variable payments”) as an operating lease on the commencement date of the lease if specified criteria are met. ASU 2021-05 is effective for the fiscal year beginning after December 15, 2022, including interim periods within that fiscal year. The Company expects that there would be no material impact on the Company’s condensed consolidated financial statements upon the adoption of this ASU.

 

In October 2021, the FASB issued ASU No. 2021-08, Business Combinations — Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805), Which aims to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in recognition and payment terms that effect subsequent revenue recognition. ASU 2021-08 is effective for the fiscal year beginning after December 15, 2022, including interim periods within that fiscal year. The Company expects that there would be no material impact on the Company’s condensed consolidated financial statements upon the adoption of this ASU.

 

Management does not believe that any recently issued, but not yet effective accounting pronouncements, when adopted, will have a material effect on the accompanying condensed consolidated financial statements. 

 

Note 3 – Going Concern

 

The Company’s condensed consolidated financial statements have been prepared assuming that it will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.

 

As reflected in the condensed consolidated financial statements, as of September 30, 2021, the Company had an accumulated deficit of $97.3 million, a net loss of $25.0 million and net cash used in operating activities of $15.6 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.

 

19

 

 

The Company is attempting to further implement its business plan and generate sufficient revenues; however, its cash position may not be sufficient to support its daily operations. While the Company believes in the viability of its strategy to further implement its business plan and generate sufficient revenues and in its ability to raise additional funds by way of a public or private offering of its debt or equity securities, there can be no assurance that it will be able to do so on reasonable terms, or at all. The ability of the Company to continue as a going concern is dependent upon its ability to further implement its business plan and generate sufficient revenues and its ability to raise additional funds by way of a public or private offering. 

 

The condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Note 4 – Inventory

 

Inventory was comprised of the following at September 30, 2021:

 

  

September 30,

2021

 
Raw Materials  $75,585 
Packaging   769 
Finished goods   11,707 
   $88,061 

 

Note 5 – Equity investments, at cost

 

The Company has elected to measure its equity securities without a readily determinable fair value at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. An election to measure an equity security in accordance with this paragraph shall be made for each investment separately.

 

The Company performed a qualitative assessment considering impairment indicators to evaluate whether these investments were impaired. Impairment indicators that the Company considered included the following: a) a significant deterioration in the earnings performance, credit rating, asset quality or business prospects of the investee; b) a significant adverse change in the regulatory, economic or technology environment of the investee; c) a significant adverse change in the general market condition of either the geographical area or the industry in which the investee operates; d) a bona fide offer to purchase or an offer by the investee to sell the investment; e) factors that raise significant concerns about the investee’s ability to continue as a going concern.

 

On October 2, 2020, the Company converted $102,096 of its marketable debt security into 119,355 shares of preferred stock or a 1.3% equity investment in a private company.

 

On October 23, 2020, the Company entered into an equity interest purchase agreement whereas the Company purchased 3.8% ownership of a private company for $115,000. During the three months ended September 30, 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 6).

 

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 three months ended September 30, 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 6).

 

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 6 – Equity Method Investments

 

During the nine months ended September 30, 2021, we invested $410,000 in cash into Dune, Inc., and received equity interest for services that were recorded to other income on the Statement of Operations. Our investment in Dune, Inc., is accounted for under the equity method and is included within Equity method investment in our consolidated balance sheet as of September 30, 2021. Our ownership percentage in Dune, Inc. which is recorded under the equity method investment, is 21%. During the three and nine months ended September 30, 2021, we recorded $16,413 of losses from this investment as equity in net loss from equity method investment within our consolidated statements of operations. As of September 30, 2021, our Equity method investment total $732,297.

 

20

 

 

Note 7 – Notes Payable

 

Notes payable as of September 30, 2021 and December 31, 2020 is as follows:

 

   Outstanding Principal as of        
   September 30,
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   232,432    412,500    1%  April 2022
The April 2020 PPP Loan Agreement   
-
    282,432    1%  May 2022
The October 2020 Loan Agreement   54,412    55,928    14%  July 2021
The November 2020 Loan Agreement   
-
    23,716    14%  May 2021
The February 2021 Loan Agreement   81,789    
-
    14%  July 2021
The July 2021 Loan Agreement   72,204    
-
    10%  October 2022
    1,100,837    1,434,576         
Less: Debt Discount   (9,688)   
-
         
Less: Debt Issuance Costs   
-
    
-
         
    1,091,149    1,434,576         
Less: Current Debt   (1,072,190)   (1,221,539)        
Total Long-Term Debt  $18,959   $213,037         

 

Seller’s Choice Note

 

On September 11, 2019, the Company entered into Seller’s Choice Purchase Agreement with Home Revolution LLC. As a part of the consideration provided pursuant to the Seller’s Choice Acquisition, the Company issued the Seller’s Choice Note to the Seller in the principal amount of $660,000. The Seller’s Choice Note bears interest at a rate of 9.5% per annum and is payable on March 11, 2020 (the “Seller’s Choice Maturity Date”) at which time all outstanding principal, accrued and unpaid interest and other amounts become due. Upon maturity the Company utilized an automatic extension up to 6 months. This resulted in a 5% increase in the interest rate every month the Seller’s Choice Note is outstanding. As of September 30, 2021, the Company is in default on the Seller’s Choice note.

 

During the nine months ended September 30, 2021, the Company accrued interest of $148,093.

 

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 nine months ended September 30, 2021, the Company accrued interest of $1,395.

 

During the nine months ended September 30, 2021, the Company repaid $50,000 in principal.

 

The Company is in the process of returning the funds received from the Loan.

 

21

 

 

When the applications for PPP first opened up, there was limited available funding and much confusion surrounding the application process. The Company initially submitted its application for the May 2020 PPP Loan in early April but received no response in the aftermath of submitting the application. After consulting multiple advisors, the Company made the decision to apply elsewhere, due to the rampant media coverage of institutions running out of funding and the Company’s need for the capital and belief that if 2 separate loans were approved, the remaining application could simply be withdrawn.

 

Therefore, in late April, the company proceeded with applying for the April 2020 PPP Loan. After some conflicting communications regarding acceptance, the Company attempted to contact the lender to clarify but got no response. After continued attempts to follow up with both lenders, the Company received approval for the May 2020 PPP Loan and funding for the April 2020 PPP Loan on the same day, followed the next day by the funding of the May 2020 PPP Loan. The Company immediately separated the funds for the April 2020 PPP Loan into a separate reserved bank account with the intention of returning the funds. However, after several attempts to contact the lender with no response, the Company was faced with difficulty raising funds in the early-Covid economy and made the decision to utilize the funds for operations and pursue an installment repayment plan when they were able to reach the lender. As of the date of this filing, the Company has begun making repayments on the loan, absent a formal installment agreement due to difficulties reaching the lender. The Company intends to complete repayment before the end of 2021.

 

As each company is only permitted one loan under the CARES Act, there is a possibility the loan may be called by the SBA and the Company would have to repay the loan in full at such time.

 

The May 2020 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 nine months ended September 30, 2021, the Company accrued interest of $1,017

 

During the nine months ended September 30, 2021, the Company repaid $136,597 in principal and was forgiven $275,903 of principal and $3,119 of accrued interest.

 

The October 2020 Loan Agreement

 

On October 6, 2020, the Company entered into a secured loan agreement (the “October 2020 Loan Agreement”) with a lender (the “October 2020 Lender”), whereby the October 2020 Lender issued the Company a secured promissory note of $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 nine months ended September 30, 2021, the Company accrued $7,780 AUD in interest. 

 

The November 2020 Loan Agreement

 

On November 24, 2020, the Company entered into a loan agreement (the “November 2020 Loan Agreement”) with a lender (the “November 2020 Lender”) whereby the November 2020 Lender issued the Company a promissory note of $34,000 (the “November 2020 Note”). Pursuant to the November 2020 Loan Agreement, the November 2020 Note 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.

 

22

 

 

During the nine months ended September 30, 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 nine months ended September 30, 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 nine months ended September 30, 2021, the Company repaid $92,140 in principal and converted $35,970 into the July 2021 Loan Agreement. As part of the conversion the Company recorded $8,341 as extinguishment expense.

 

The July 2021 Loan Agreement

 

On July 2, 2021, the Company entered into a loan agreement (the “July 2021 Loan Agreement”) with a lender (the “July 2021 Lender”) whereby the July 2021 Lender issued the Company a promissory note of $137,625 (the “July 2021 Note”). Pursuant to the July 2021 Loan Agreement, the July 2021 Note has an effective interest rate of 10%. The maturity date of the July 2021 Note is December 31, 2022 (the “July 2021 Maturity Date”), at which time all outstanding principal, accrued and unpaid interest and other amounts due under the July 2021 Note are due.

 

During the nine months ended September 30, 2021, the Company repaid $65,421 in principal.

 

Note 8 – Convertible Note Payable

 

Convertible notes payable as of September 30, 2021, and December 31, 2020, is as follows:

 

   Outstanding Principal as of                 Warrants granted 
  

September 30,

2021

  

December 31,

2020

  

Interest

Rate

  

Conversion

Price

     

Maturity

Date

  Quantity  

Exercise

Price

 
The September 2020 convertible Loan Agreement  $
-
   $341,880    12%   
-
  (*)    September-21   85,555    5 
The First December 2020 convertible Loan Agreement   
-
    600,000    12%   
-
  (*)    December-21   
-
    
-
 
The October 2020 convertible Loan Agreement   
-
    169,400    6%   
-
  (*)    October-21   
-
    
-
 
The Second December 2020 convertible Loan Agreement   500    169,400    6%   
-
  (*)    December-21   
-
    
-
 
The May 2021 Loan   1,141,669    
-
    
-
%   5.00  (*)    November-22   1,090,908    4.50  
The July 2021 Loan   168,850    
-
    6%   
-
  (*)    July - 22          
    1,311,019    1,280,680                           
Less: Debt Discount   (430,026)   (309,637)                          
Less: Debt Issuance Costs   (86,460)