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, 2022

 

or

 

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

 

For the transition period from __________ to __________

 

Commission File No. 001-39500

 

Creatd, Inc.

(Exact name of registrant as specified in its charter)

 

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

 

419 Lafayette Street, 6th Floor
New York, NY 10003

(Address of principal executive offices)

  

(201) 258-3770

(Registrant’s telephone number, including area code)

 

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

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
N/A   N/A   N/A
         
         

 

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 14, 2022, the registrant had 29,072,301 shares of its common stock, par value $0.001 per share, outstanding.

 

 

 

 

 

 

 

FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2022

 

TABLE OF CONTENTS

 

    Page
Special Note Regarding Forward-Looking Statements and Other Information Contained in this Report ii
     
PART I - FINANCIAL INFORMATION 1
     
Item 1. Financial Statements  
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 48
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 59
     
Item 4. Controls and Procedures 59
     
PART II - OTHER INFORMATION 60
     
Item 1. Legal Proceedings 60
     
Item 1A. Risk Factors 60
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 60
     
Item 3. Defaults Upon Senior Securities 61
   
Item 4. Mine Safety Disclosures 61
     
Item 5. Other Information 61
     
Item 6. Exhibits 62

 

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

 

Creatd, Inc.

Condensed Consolidated Balance Sheets

 

   September 30,
2022
   December 31,
2021
 
   (Unaudited)     
Assets        
         
Current Assets        
Cash  $439,539   $3,794,734 
Accounts receivable, net   222,183    337,440 
Inventory   879,050    106,403 
Marketable securities   96    
-
 
Prepaid expenses and other current assets   139,726    236,665 
Total Current Assets   1,680,594    4,475,242 
           
Property and equipment, net   248,963    102,939 
Intangible assets   2,536,599    2,432,841 
Goodwill   1,365,328    1,374,835 
Deposits and other assets   769,136    718,951 
Minority investment in businesses   
-
    50,000 
Operating lease right of use asset   2,123,171    18,451 
           
Total Assets  $8,723,791   $9,173,259 
           
Liabilities and Stockholders’ Deficit          
           
Current Liabilities          
Accounts payable and accrued liabilities  $6,714,606   $3,730,540 
Share liability   52,080    
-
 
Convertible Notes, net of debt discount and issuance costs   6,062,926    159,193 
Current portion of operating lease payable   279,593    18,451 
Note payable, net of debt discount and issuance costs   1,758,179    1,278,672 
Deferred revenue   305,555    234,159 
           
Total Current Liabilities   15,172,939    5,421,015 
           
Non-current Liabilities:          
Note payable   28,920    63,992 
Operating lease payable   2,135,393    
-
 
           
Total Non-current Liabilities   2,164,313    63,992 
           
Total Liabilities   17,337,252    5,485,007 
Commitments and contingencies   
 
    
 
 
Stockholders’ Equity (Deficit)          
Preferred stock, $0.001 par value, 20,000,000 shares authorized   
 
    
 
 
Series E Preferred stock, $0.001 par value, 8,000 shares authorized 500 and 500 shares issued and outstanding, respectively   
-
    
-
 
Common stock par value $0.001: 100,000,000 shares authorized; 24,469,675 issued and 24,380,218 outstanding as of September 30, 2022 and 16,691,170 Outstanding 16,685,513 outstanding as of December 31, 2021   24,470    16,691 
Additional paid in capital   124,667,772    111,563,618 
Less: Treasury stock at cost, 89,457 and 5,657 shares, respectively   (76,106)   (62,406)
Accumulated deficit   (133,762,800)   (109,632,574)
Accumulated other comprehensive income   (143,991)   (78,272)
Total Creatd, Inc. Stockholders’ Equity   (9,290,655)   1,807,057 
Non-controlling interest in consolidated subsidiaries   677,194    1,881,195 
    (8,613,461)   3,688,252 
           
Total Liabilities and Stockholders’ Equity (Deficit)  $8,723,791   $9,173,259 

 

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

 

1

 

 

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,
2022
   September 30,
2021
   September 30,
2022
   September 30,
2021
 
                 
Net revenue  $1,022,851   $1,179,620   $3,997,490   $2,894,390 
                     
Cost of revenue   1,404,562    1,418,213    4,771,151    4,160,743 
                     
Gross margin (loss)   (381,711)   (238,593)   (773,661)   (1,266,353)
                     
Operating expenses                    
Research and development   234,965    322,946    686,131    708,396 
Marketing   646,520    1,812,400    4,016,051    8,049,579 
Stock based compensation   626,568    2,151,900    3,848,578    5,662,389 
Impairment of intangible assets   249,586    -    257,117    93,791 
General and administrative   3,837,469    2,385,135    11,397,989    5,457,258 
                     
Total operating expenses   5,595,108    6,672,381    20,205,866    19,971,413 
                     
Loss from operations   (5,976,819)   (6,910,974)   (20,979,527)   (21,237,766)
                     
Other income (expenses)                    
Other income   
-
    123,710    99    123,710 
Interest expense   (673,694)   (59,859)   (707,950)   (319,290)
Accretion of debt discount and issuance cost   (1,884,679)   (2,176,651)   (2,531,687)   (3,028,015)
Derivative expense   
-
    
-
    
-
    (100,502)
Change in derivative liability   
-
    (833,456)   3,729    (1,096,287)
Impairment of investment   
-
    
-
    (50,000)   (62,733)
Settlement of vendor liabilities   
-
    
-
    (2,867)   92,909 
Loss on marketable securities   (11,415)   
-
    (11,646)   
-
 
Gain (loss) on extinguishment of debt   (979,738)   137,109    (832,482)   423,118 
Gain on forgiveness of debt   
-
    
-
    
-
    279,022 
                     
Other expenses, net   (3,549,526)   (2,809,147)   (4,132,804)   (3,688,068)
                     
Loss before income tax provision   (9,526,345)   (9,720,121)   (25,112,331)   (24,925,834)
                     
Equity in net loss from equity method investment   
-
    (16,413)   
-
    (16,413)
Income tax provision   
-
    
-
    
-
    
-
 
Net loss   (9,526,345)   (9,736,534)   (25,112,331)   (24,942,247)
                     
Non-controlling interest in net loss   299,903    (60,477)   1,285,661    (60,045)
                     
Net Loss attributable to Creatd, Inc.   (9,226,442)   (9,797,011)   (23,826,670)   (25,002,292)
                     
Deemed dividend   (221,829)   
-
    (303,557)   (410,750)
                     
Net loss attributable to common shareholders  $(9,448,271)  $(9,797,011)  $(24,130,227)  $(25,413,042)
Comprehensive loss                    
Net loss   (9,526,345)   (9,736,534)   (25,112,331)   (24,942,247)
                     
Currency translation gain (loss)   (36,110)   (8,436)   (65,719)   (16,299)
                     
Comprehensive loss  $(9,562,455)  $(9,744,970)  $(25,178,050)  $(24,958,546)
Per-share data                    
Basic and diluted loss per share
  $(0.45)  $(0.71)  $(1.23)  $(2.20)
Weighted average number of common shares outstanding
   21,030,188    13,710,111    19,669,411    11,563,150 

 

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

 

2

 

 

Creatd, Inc.

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

For the Three Months Ended September 30, 2022

(Unaudited)

 

   Series E
Preferred Stock
   Common Stock   Treasury stock   Additional
Paid In
   Accumulated   Non-Controlling   Other
Comprehensive
   Stockholders’
Equity
 
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Interest   Income   (Deficit) 
                                             
Balance, July 1, 2022   500   $-    20,254,839   $20,255    (5,657)  $(62,406)  $122,068,892   $(124,314,529)  $895,437   $(107,881)  $(1,500,232)
                                                        
Stock based compensation   -    -    107,260    107    -    -    568,107    -    -    -    568,214 
                                                        
Shares issued for prepaid services   -    -    50,000    50    -    -    34,900    -    -    -    34,950 
                                                        
Shares issued for acquisition   -    -    57,576    58    -    -    40,937    -    81,660    -    122,655 
                                                        
Purchase of treasury stock   -    -    -    -    (83,800)   (13,700)   -    -    -    -    (13,700)
                                                        
Cash received for common stock and warrants, net of $75,000 of issuance costs   -    -    4,000,000    4,000    -    -    721,000    -    -    -    725,000 
                                                        
Stock warrants issued with note payable   -    -    -    -    -    -    1,012,107    -    -    -    1,012,107 
                                                        
Foreign currency translation adjustments   -    -    -    -    -    -    -    -    -    (36,110)   (36,110)
                                                        
Dividends   -    -    -    -    -    -    221,829    (221,829)   -    -    - 
                                                        
Net loss for the three months ended September 30, 2022   -    -    -    -    -    -    -    (9,226,442)   (299,903)   -    (9,526,345)
                                                        
Balance, September 30, 2022   500   $-    24,469,675   $24,470    (89,457)  $(76,106)  $124,667,772   $(133,762,800)  $677,194   $(143,991)  $(8,613,461)

 

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

 

3

 

 

Creatd, Inc.

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

For the Nine Months Ended September 30, 2022

(Unaudited)

 

   Series E
Preferred Stock
   Common Stock   Treasury stock   Additional
Paid In
   Accumulated   Non-Controlling   Other
Comprehensive
   Stockholders’
Equity
 
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Interest   Income   (Deficit) 
                                             
Balance, January 1, 2022   500   $-    16,691,170   $16,691    (5,657)  $(62,406)  $111,563,618   $(109,632,574)  $1,881,195   $(78,272)  $3,688,252 
                                                        
Stock based compensation   -    -    415,180    415    -    -    3,822,564    -    -    -    3,822,979 
                                                        
Shares issued for prepaid services   -    -    150,000    150    -    -    141,000    -    -    -    141,150 
                                                        
Shares issued for acquisition   -    -    57,576    58    -    -    40,937    -    81,660    -    122,655 
                                                        
Purchase of treasury stock   -    -    -    -    (83,800)   (13,700)   -    -    -    -    (13,700)
                                                        
Stock warrants issued with note payable   -    -    -    -    -    -    2,907,497    -    -    -    2,907,497 
                                                        
Cash received for common stock and warrants, net of $190,000 of issuance costs   -    -    7,046,314    7,046    -    -    5,715,254    -    -    -    5,722,300 
                                                        
Common stock issued upon conversion of notes payable   -    -    109,435    110    -    -    173,346    -    -    -    173,456 
                                                        
Foreign currency translation adjustments   -    -    -    -    -    -    -    -    -    (65,719)   (65,719)
                                                        
Dividends   -    -    -    -    -    -    303,556    (303,556)   -    -    - 
                                                        
Net loss for the nine months ended September 30, 2022   -    -    -    -    -    -    -    (23,826,670)   (1,285,661)   -    (25,112,331)
                                                        
Balance, September 30, 2022   500   $-    24,469,675   $24,470    (89,457)  $(76,106)  $124,667,772   $(133,762,800)  $677,194   $(143,991)  $(8,613,461)

 

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

 

4

 

 

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.

 

5

 

 

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.

 

6

 

 

Creatd, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

   For the Nine Months Ended   For the Nine Months Ended 
   September 30, 2022   September 30, 2021 
         
         
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net loss  $(25,112,331)  $(24,942,247)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   441,943    194,929 
Impairment of investment   50,000    62,733 
Impairment of intangible assets   257,117    93,791 
Accretion of debt discount and issuance cost   2,531,687    3,028,015 
Share-based compensation   3,848,578    5,662,389 
Bad debt expense   124,186    
-
 
Loss (Gain) on Forgiveness of debt   832,482    (702,140)
Settlement of vendor liabilities   2,867    (92,909)
Change in fair value of derivative liability   (3,729)   1,096,287 
Derivative Expense   
-
    100,502 
Loss on marketable securities   11,646    
-
 
Non cash lease expense   44,305    60,756 
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   114,925    (471,899)
Inventory   (492,128)   (68,091)
Accounts receivable   (481,080)   150,980 
Deposits and other assets   (50,185)   107,115 
Deferred revenue   71,396    111,192 
Accounts payable and accrued expenses   3,805,245    160,434 
Operating lease liability   145,887    (61,605)
Net Cash Used In Operating Activities   (13,857,189)   (15,617,065)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Cash paid for property and equipment   (213,975)   (65,971)
Deposits   
-
    (325,000)
Cash paid for minority investment in business   
-
    (510,000)
Cash paid for investments in marketable securities   (48,878)   
-
 
Sale of marketable securities   37,135    
-
 
Cash consideration for acquisition   (75,679)   (412,943)
Purchases of digital assets   (192,795)   (11,241)
Net Cash Used In Investing Activities   (494,192)   (1,325,155)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from the exercise of warrant   
-
    5,472,068 
Net proceeds from issuance of notes   2,174,402    321,229 
Repayment of notes   (2,292,953)   (403,843)
Proceeds from issuance of convertible note   5,809,755    3,610,491 
Repayment of convertible notes   (337,899)   (941,880)
Purchase of treasury stock   (13,700)   - 
Proceeds from issuance of common stock and warrants   5,722,300    2,502,200 
Net Cash Provided By Financing Activities   11,061,905    10,560,265 
           
Effect of exchange rate changes on cash   (65,719)   (16,299)
           
Net Change in Cash   (3,355,195)   (6,398,254)
           
Cash - Beginning of period   3,794,734    7,906,782 
           
Cash - End of period  $439,539   $1,508,528 
           
SUPPLEMENTARY CASH FLOW INFORMATION:          
Cash Paid During the Year for:          
Income taxes  $
-
   $
-
 
Interest  $139,000   $58,395 
           
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:          
Settlement of vendor liabilities  $147,649   $168,667 
Warrants issued with debt  $2,907,497   $1,601,452 
Issuance of common stock for prepaid services  $141,150   $226,500 
Operating Lease liability  $2,250,648   $
-
 
Deferred offering costs  $
-
   $4,225 
Common stock and warrants issued upon conversion of notes payable  $173,455   $4,015,325 
Shares issued for acquisition  $40,994   $893,520 

  

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

 

7

 

 

Creatd, Inc.

September 30, 2022

Notes to the Condensed Consolidated Financial Statements

 

Note 1 – Organization and Operations

 

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

 

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

 

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

 

In connection with the Merger, on the Closing Date, GTPH and Kent Campbell entered into a Spin-Off Agreement (the “Spin-Off Agreement”), pursuant to which Mr. Campbell purchased from GTPH (i) all of GTPH’s interest in Ashland Holdings, LLC, a Florida limited liability company, and (ii) all of GTPH’s interest in Lil Marc, Inc., a Utah corporation, in exchange for the cancellation of 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”), a digital e-commerce agency.

 

On September 9, 2020, the Company filed a certificate of amendment with the Secretary of State of the State of Nevada to change our name to “Creatd, Inc.”, which became effective on September 10, 2020.  

 

8

 

 

On June 4, 2021, the Company acquired 89% of the membership interests of Plant Camp, LLC, a Delaware limited liability company (“Plant Camp”), which the Company subsequently rebranded as Camp. Camp is a direct-to-consumer (DTC) food brand which creates healthy upgrades to classic comfort food favorites. The results of Plant Camp’s operations have been included since the date of acquisition in the Statements of Operations.

 

On July 20, 2021, the Company acquired 44% of the membership interests of WHE Agency, Inc. WHE Agency, Inc, is a talent management and public relations agency based in New York (“WHE”). WHE has been consolidated due to the Company’s ownership of 55% voting control, and the results of operations have been included since the date of acquisition in the Statements of Operations.

 

Between October 21, 2020, and August 16, 2021, the Company acquired 21% of the membership interests of Dune, Inc. Dune, Inc. is a direct-to-consumer brand focused on promoting wellness through its range of health-oriented beverages.

 

On October 3, 2021, the Company acquired an additional 29% of the membership interests of Dune, Inc., bringing our total membership interests to 50%. Dune, Inc., has been consolidated due to the Company’s ownership of 50% voting control, and the results of operations have been included since the date of acquisition in the Statements of Operations. 

 

On March 7, 2022, the Company acquired 100% of the membership interests of Denver Bodega, LLC, d/b/a Basis, a Colorado limited liability company (“Basis”). Basis is a direct-to-consumer functional beverage brand that makes high-electrolyte mixes meant to aid hydration. Denver Bodega, LLC has been consolidated due to the Company’s ownership of 100% voting control, and the results of operations have been included since the date of acquisition in the Statement of Operations.

 

On August 1, 2022, the Company acquired 51% of the membership interests of Orbit Media LLC, a New York limited liability company. Orbit is a app-based stock trading platform designed to empower a new generation of investors. Orbit has been consolidated due to the Company’s ownership of 51% voting control, and the results of operations have been included since the date of acquisition in the Statement of Operations.

 

On September 13, 2022, the Company acquired 100% of the membership interests of Brave Foods, LLC, a Maine limited liability company. Brave is a plant-based food company that provides convenient and healthy breakfast food products. Brave Foods, LLC has been consolidated due to the Company’s ownership of 100% voting control, and the results of operations have been included since the date of acquisition in the Statement of Operations.

 

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, 2022 or any other interim period or for any other future year. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2021, included in the Company’s 2021 Annual Report on Form 10-K filed with the SEC. The balance sheet as of December 31, 2021 has been derived from audited financial statements at that date but does not include all of the information required by U.S. GAAP for complete financial statements.

 

Use of Estimates and Critical Accounting Estimates and Assumptions

 

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

  

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

 

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

 

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

 

Actual results could differ from those estimates.

 

Presentation

 

During 2021, we adopted a change in presentation on our Condensed Consolidated Statements of Comprehensive Loss in order to present a gross profit line and allocate certain overhead expenses, the presentation of which is consistent with our peers. Under the new presentation, we began allocating overhead expenses related to cost of goods sold. Prior periods have been revised to reflect this change in presentation.

 

10

 

 

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, 2022, the Company’s consolidated subsidiaries and/or entities are as follows:

 

Name of combined affiliate  State or other
jurisdiction of
incorporation
or organization
  Company
Ownership
Interest
 
Jerrick Ventures LLC  Delaware   100%
Abacus Tech Pty Ltd  Australia   100%
Seller’s Choice, LLC  New Jersey   100%
Brave Foods, LLC  Brave Foods, LLC   100%
Creatd Studios, LLC  Delaware   100%
Give, LLC  Delaware   100%
Creatd Partners LLC  Delaware   100%
Denver Bodega, LLC  Colorado   100%
Dune Inc.  Delaware   50%
Plant Camp LLC  Delaware   89%
Sci-Fi.com, LLC  Delaware   100%
OG Collection, Inc.  Delaware   100%
OG Gallery, LLC  Delaware   100%
Orbit Media LLC  New York   51%
VMENA LLC  Delaware   100%
Vocal For Brands, LLC  Delaware   100%
Vocal Ventures LLC  Delaware   100%
What to Buy, LLC  Delaware   100%
WHE Agency, Inc.  Delaware   44%

 

All inter-company balances and transactions have been eliminated. The condensed consolidated financial statements include Denver Bodega, LLC activity since March 7, 2022, Orbit Media LLC activity since August 1, 2022, and Brave Foods, LLC activity since September 13, 2022.

 

Variable Interest Entities

 

Management performs an ongoing assessment of its noncontrolling interests from investments in unrelated entities to determine if those entities are variable interest entities (VIEs), and if so, whether the Company is the primary beneficiary. If an entity in such a transaction, by design, meets the definition of a VIE and the Company determines that it, or a condensed consolidated subsidiary is the primary beneficiary, the Company will include the VIE in its condensed consolidated financial statements. If such an entity is deemed to not be condensed consolidated, the Company records only its investment in equity securities as a marketable security or investment under the equity method, as applicable

  

Fair Value of Financial Instruments

 

The fair value measurement disclosures are grouped into three levels based on valuation factors:

 

  Level 1 – quoted prices in active markets for identical investments

 

  Level 2 – other significant observable inputs (including quoted prices for similar investments and market corroborated inputs)

 

  Level 3 – significant unobservable inputs (including our own assumptions in determining the fair value of investments)

 

11

 

 

The Company’s Level 1 assets/liabilities include cash, accounts receivable, marketable trading securities, accounts payable, marketable trading securities, prepaid and other current assets, line of credit and due to related parties. Management believes the estimated fair value of these accounts at September 30, 2022 approximate their carrying value as reflected in the balance sheets due to the short-term nature of these instruments or the use of market interest rates for debt instruments.

 

The Company’s Level 2 assets/liabilities include certain of the Company’s notes payable. Their carrying value approximates their fair values based upon a comparison of the interest rate and terms of such debt given the level of risk to the rates and terms of similar debt currently available to the Company in the marketplace.

 

The Company’s Level 3 assets/liabilities include goodwill, intangible assets, equity investments at cost, and derivative liabilities. Inputs to determine fair value are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models. Unobservable inputs used in the models are significant to the fair values of the assets and liabilities. 

 

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

 

Fair Value Measurements as of

September 30, 2022

 

   Total   Quoted
Prices in
Active
Markets for
Identical
Assets or
Liabilities
(Level 1)
   Quoted
Prices for
Similar
Assets or
Liabilities
in Active Markets
(Level 2)
   Significant
Unobservable
Inputs
(Level 3)
 
Assets:                
Marketable securities - equity securities  $96   $96   $
       -
   $
       -
 
Total assets  $96   $96   $
-
   $
-
 

 

Our marketable equity securities are publicly traded stocks measured at fair value using quoted prices for identical assets in active markets and classified as Level 1 within the fair value hierarchy. Marketable equity securities as of September 30, 2022 are $96.

 

The change in net realized depreciation on equity trading securities that has been included in other expenses for the nine months ended September 30, 2022 and 2021 was $11,646 and $0, respectively. 

 

Cash Equivalents

 

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

 

At times, cash balances may exceed the Federal Deposit Insurance Corporation (“FDIC”) or Financial Claims Scheme (“FCS”) insurable limits. The Company has never experienced any losses related to these balances. The uninsured cash balance as of September 30, 2022, was $0. The Company does not believe it is exposed to significant credit risk on cash and cash equivalents.

 

12

 

 

Concentration of Credit Risk and Other Risks and Uncertainties

 

The Company provides credit in the normal course of business. The Company maintains allowances for credit losses on factors surrounding the credit risk of specific customers, historical trends, and other information.

 

The Company operates in Australia and holds total assets of $622,445. It is reasonably possible that operations located outside an entity’s home country will be disrupted in the near term.

  

Property and Equipment

 

Property and equipment are recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation is computed by the straight-line method (after taking into account their respective estimated residual values) over the estimated useful lives of the respective assets as follows:

 

   Estimated
Useful Life
(Years)
 
     
Computer equipment and software  3 
Furniture and fixtures  5 

 

Upon sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the condensed consolidated statements of operations.

 

Long-lived Assets Including Goodwill and Other Acquired Intangible Assets

 

We evaluate the recoverability of property and equipment, acquired finite-lived intangible assets and, purchased infinite life digital assets for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. The evaluation is performed at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Recoverability of these assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the assets are expected to generate from the use and eventual disposition. Digital assets accounted for as intangible assets are subject to impairment losses if the fair value of digital assets decreases other than temporary below the carrying value. The fair value is measured using the quoted price of the crypto asset at the time its fair value is being measured. If such review indicates that the carrying amount of property and equipment and intangible assets is not recoverable, the carrying amount of such assets is reduced to fair value. During the three months ended September 30, 2022, the Company recorded an impairment charge of $249,586  for intangible assets. During the nine months ended September 30, 2022, the Company recorded an impairment charge of $257,117 for intangible assets.

 

Acquired finite-lived intangible assets are amortized on a straight-line basis over the estimated useful lives of the assets. We routinely review the remaining estimated useful lives of property and equipment and finite-lived intangible assets. If we change the estimated useful life assumption for any asset, the remaining unamortized balance is amortized or depreciated over the revised estimated useful life. The remaining weighted average life of the intangible assets are 7.1 years.

 

13

 

 

Scheduled amortization over the next five years are as follows:

 

Twelve months ending September 30,
     
2023  $415,215 
2024   443,236 
2025   280,223 
2026   260,935 
2027   239,934 
Thereafter   739,762 
Total   2,379,305 
      
Intangible assets not subject to amortization   157,294 
Total Intangible Assets  $2,536,599 

 

Amortization expense was $94,130 and $75,069 for the three months ended September 30, 2022 and 2021, respectively. Amortization expense was $355,509 and $143,776 for the nine months ended September 30, 2022 and 2021, respectively.

 

Goodwill is not amortized but is subject to periodic testing for impairment in accordance with ASC Topic 350 “Intangibles – Goodwill and Other – Testing Indefinite-Lived Intangible Assets for Impairment” (“ASC Topic 350”). The Company tests goodwill for impairment on an annual basis as of the last day of the Company’s fiscal December each year or more frequently if events occur or circumstances change indicating that the fair value of the goodwill may be below its carrying amount. The Company has four reporting units. The Company uses an income-based approach to determine the fair value of the reporting units. This approach uses a discounted cash flow methodology and the ability of our reporting units to generate cash flows as measures of fair value of our reporting units.

  

During the year ended December 31, 2021, the Company completed its annual impairment test of goodwill. The Company performed the qualitative assessment as permitted by ASC 350-20 and determined for three of its reporting units that the fair value of those reporting units was more likely than not greater than their carrying value, including Goodwill. However, based on this qualitative assessment, the Company determined that the carrying value of the Seller’s Choice reporting unit was more likely than not greater than its carrying value, including Goodwill. Based on completion of the annual impairment test, the Company recorded an impairment charge of $1,035,795 for goodwill.

 

During the three months ended September 30, 2022, management observed impairment indicators that led them to believe the carrying amount of goodwill was below its carrying value. The Company determined that the carrying value of the Plant Camp and Dune reporting units were more likely than not greater than their carrying value, including Goodwill. Based on estimated impairment computed, the Company recorded an impairment charge of $25,139 for goodwill.

 

The following table sets forth a summary of the changes in goodwill for the three months ended September 30, 2022.

 

   For the
Three Months ended
September 30,
2022
 
   Total 
As of July 1, 2022    $1,383,785 
Goodwill acquired in a business combination   6,682 
Impairment of goodwill   (25,139)
As of September 30, 2022  $1,365,328 

 

The following table sets forth a summary of the changes in goodwill for the nine months ended September 30, 2022.

 

   For the
Nine Months ended
September 30,
2022
 
   Total 
As of January 1, 2022    $1,374,835 
Goodwill acquired in a business combination   15,632 
Impairment of goodwill   (25,139)
As of September 30, 2022  $1,365,328 

 

14

 

 

Commitments and Contingencies

 

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

 

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

 

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

 

Foreign Currency

 

Foreign currency denominated assets and liabilities are translated into U.S. dollars using the exchange rates in effect at our Condensed Consolidated Balance Sheet dates. Results of operations and cash flows are translated using the average exchange rates throughout the periods. The effect of exchange rate fluctuations on the translation of assets and liabilities is included as a component of stockholders’ equity in accumulated other comprehensive income. Gains and losses from foreign currency transactions, which are included in operating expenses, have not been significant in any period presented.

 

Derivative Liability

 

The Company evaluates its debt and equity issuances to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with paragraph 815-10-05-4 and Section 815-40-25 of the FASB Accounting Standards Codification. The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet date and recorded as either an asset or a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the condensed consolidated statement of operations as other income or expense. Upon conversion, exercise or cancellation of a derivative instrument, the instrument is marked to fair value at the date of conversion, exercise or cancellation and then the related fair value is reclassified to equity. 

 

In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.  

 

15

 

 

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to liability at the fair value of the instrument on the reclassification date. Derivative instrument liabilities will be classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument is expected within 12 months of the balance sheet date. 

 

The Company adopted Section 815-40-15 of the FASB Accounting Standards Codification (“Section 815-40-15”) to determine whether an instrument (or an embedded feature) is indexed to the Company’s own stock. Section 815-40-15 provides that an entity should use a two-step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument’s contingent exercise and settlement provisions.

 

The Company utilizes a binomial option model for convertible notes that have an option to convert at a variable number of shares to compute the fair value of the derivative and to mark to market the fair value of the derivative at each balance sheet date. The inputs utilized in the application of the Binomial model included a stock price on valuation date, an expected term of each debenture remaining from the valuation date to maturity, an estimated volatility, and a risk-free rate. The Company records the change in the fair value of the derivative as other income or expense in the condensed consolidated statements of operations.

 

Shipping and Handling Costs

 

The Company classifies freight billed to customers as sales revenue and the related freight costs as cost of revenue.

 

Revenue Recognition   

 

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

 

We determine revenue recognition through the following steps:

 

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

 

  identification of the performance obligations in the contract;

 

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

 

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

 

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

 

16

 

 

Revenue disaggregated by revenue source for the three and nine months ended September 30, 2022 and 2021 consists of the following:

 

   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2022   2021   2022   2021 
Agency (Managed Services, Branded Content, & Talent Management Services)  $442,867   $555,766   $1,613,924   $1,472,902 
Platform (Creator Subscriptions)   230,212    611,714    1,138,812    1,370,581 
Ecommerce   347,944    4,153    1,237,634    9,679 
Affiliate Sales   1,828    7,619    7,120    23,425 
Other Revenue   
-
    368    
-
    17,803 
   $1,022,851   $1,179,620   $3,997,490   $2,894,390 

 

The Company utilizes the output method to measures the results achieved and value transferred to a customer over time. Timing of revenue recognition for the three and nine months ended September 30, 2022 and 2021 consists of the following:

 

   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2022   2021   2022   2021 
Products and services transferred over time  $673,079   $1,167,480   $2,752,736   $2,843,483 
Products transferred at a point in time   349,772    12,140    1,244,754    50,907 
   $1,022,851   $1,179,620   $3,997,490   $2,894,390 

 

Agency Revenue

 

Managed Services

 

The Company provides Studio/Agency Service offerings to business-to-business (B2B) and business-to-consumer (B2C) product and service brands which encompasses a full range of digital marketing and e-commerce solutions. The Company’s services include the setup and ongoing management of clients’ websites, Amazon and Shopify storefronts and listings, social media pages, search engine marketing, and other various tools and sales channels utilized by e-commerce sellers for sales and growth optimization. Contracts are broken into three categories: Partners, Monthly Services, and Projects. Contract amounts for Partner and Monthly Services clients range from approximately $500-$7,500 per month while Project amounts vary depending on the scope of work. Partner and Monthly clients are billed monthly for the work completed within that month. Partner Clients may or may not have an additional billing component referred to as Sales Performance Fee, which is a fee based upon a previously agreed upon percentage point of the client’s total sales for the month. Some Partners may also have projects within their contracts that get billed and recognized as agreed upon project milestones are achieved. Revenue is recognized over time as service obligations and milestones in the contract are met.

 

Branded Content

 

Branded content represents the revenue recognized from the Company’s obligation to create and publish branded articles and/or branded challenges for clients on the Vocal platform and promote said stories, tracking engagement for the client. In the case of branded articles, the performance obligation is satisfied when the Company successfully publishes the articles on its platform and meets any required promotional milestones as per the contract. In the case of branded challenges, the performance obligation is satisfied when the Company successfully closes the challenge and winners have been announced. The Company utilizes the completed contract method when revenue is recognized over time as the services are performed and any required milestones are met. Certain contracts contain separate milestones whereas the Company separates its performance obligations and utilizes the stand-alone selling price method and residual method to determine the estimate of the allocation of the transaction price.

 

17

 

 

Below are the significant components of a typical agreement pertaining to branded content revenue:

 

  The Company collects fixed fees ranging from $10,000 to $110,000, with branded challenges ranging from $10,000 to $25,000 and branded articles ranging from $2,500 to $7,500 per article.
     
  Branded articles are created and published, and challenges are completed, within three months of the signed agreement, or as previously negotiated with the client.

 

  Branded articles and challenges are promoted per the contract and engagement reports are provided to the client.
     
  Most contracts include provisions for clients to acquire content rights at the end of the campaign for a flat fee. 

 

Talent Management Services

 

Talent Management represents the revenue recognized by WHE Agency, Inc. (“WHE”) from the Company’s obligation to manage and oversee influencer-led campaigns from the contract negotiation stage through content creation and publication. WHE acts in an agent capacity for influencers and collects a management fee of 20% of the value of an influencer’s contract with a brand. Revenue is recognized net of the 80% of the contract that is collected by the influencer and is recognized when performance obligations of the contract are met. Performance obligations are complete when milestones and deliverables of contracts are delivered to the client. 

 

Below are the significant components of a typical agreement pertaining to talent management revenue:

 

  Total gross contracts range from $500-$50,000.

 

The Company collects fixed fees in the amount of 20% of the gross contract amount, ranging from $100 to $20,000 in net revenue per contract.

 

  The campaign is created and made live by the influencer within the timeframe specified in the contract.

 

Campaigns are promoted per the contract and the customer is provided a link to the live deliverables on the influencer’s social media channels.

 

Most billing for contracts occur 100% at execution of the performance obligation. Net payment terms vary by client.

  

Platform Revenue

 

Creator Subscriptions

 

Vocal+ is a premium subscription offering for Vocal creators. In addition to joining for free, Vocal creators now have the option to sign up for a Vocal+ membership for either $9.99 monthly or $99 annually, though these amounts are subject to promotional discounts and free trials. Vocal+ subscribers receive access to value-added features such as increased rate of cost per mille (thousand) (“CPM”) monetization, a decreased minimum withdrawal threshold, a discount on platform processing fees, member badges for their profiles, access to exclusive Vocal+ Challenges, and early access to new Vocal features. Subscription revenues stem from both monthly and annual subscriptions, the latter of which is amortized over a twelve-month period. Any customer payments received are recognized over the subscription period, with any payments received in advance being deferred until they are earned.

 

18

 

 

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. Potential revenue offset is calculated by reviewing a subscriber’s earnings in conjunction with payments made by the subscriber on a monthly and/or annual basis.

 

Affiliate Sales Revenue

 

Affiliate sales represents the commission the Company receives when a purchase is made through affiliate links placed within content hosted on the Vocal platform. 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 four majority-owned e-commerce companies, Camp (previously Plant Camp), Dune Glow Remedy (“Dune”), Basis, and Brave. The Company generates revenue through the sale of Camp, Dune, and Basis, and Brave’s consumer products through its e-commerce distribution channels. The Company satisfies its performance obligation upon shipment of product to its customers and recognizes shipping and handling costs as a fulfillment cost. Customers have 30 days from receipt of an item to return unopened, unused, or damaged items for a full refund. All returns are processed within the relevant recording period and accounted for as a reduction in revenue. The Company runs discounts from time to time to promote sales, improve market penetration, and increase customer retention. Any discounts are run as coupon codes applied at the time of transaction and accounted for as a reduction in gross revenue. The Company assesses variable consideration using the most likely amount method.

 

Deferred Revenue

 

Deferred revenue consists of billings and payments from clients in advance of revenue recognition. The Company has two types of deferred revenue, subscription revenue whereas the revenue is recognized over the subscription period and contract liabilities where the performance obligation was not satisfied. The Company will recognize the deferred revenue within the next twelve months. As of September 30, 2022, the Company had deferred revenue of $305,555. As of December 31, 2021, the Company had deferred revenue of $234,159, of which $159,727 was recognized as revenue in the nine months ended September 30, 2022, and $13,512 was recognized as revenue in the three months ended September 30, 2022.

 

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, 2022, the Company recorded $124,186, as a bad debt expense. As of September 30, 2022, the Company has an allowance for doubtful accounts of $311,133. As of December 31, 2021, the Company has an allowance for doubtful accounts of $186,147.

 

19

 

 

Inventory

 

Inventories are stated at the lower of cost (first-in, first-out basis) or net realizable value. Inventories are periodically evaluated to identify obsolete or otherwise impaired products and are written off when management determines usage is not probable. The Company estimates the balance of excess and obsolete inventory by analyzing inventory by age using last used and original purchase date and existing sales pipeline for which the inventory could be used. As of September 30, 2022, and December 31, 2021, the Company had no valuation allowance.

 

Stock-Based Compensation

 

The Company recognizes compensation expense for all equity–based payments granted in accordance with Accounting Standards Codification (“ASC”) 718 “Compensation – Stock Compensation”. Under fair value recognition provisions, the Company recognizes equity–based compensation over the requisite service period of the award. The company has a relatively low forfeiture rate of stock based compensation and forfeitures are recognized as they occur.

 

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

 

The fair value of an option award is estimated on the date of grant using the Black–Scholes option valuation model. The Black–Scholes option valuation model requires the development of assumptions that are inputs into the model. These assumptions are the value of the underlying share, the expected stock volatility, the risk–free interest rate, the expected life of the option, the dividend yield on the underlying stock and the expected forfeiture rate. Expected volatility is volatility is derived from the Company’s historical data over the expected option life and other appropriate factors. Risk–free interest rates are calculated based on continuously compounded risk–free rates for the appropriate term. The dividend yield is assumed to be zero as the Company has never paid or declared any cash dividends on its Common stock and does not intend to pay dividends on its Common stock in the foreseeable future. Forfeitures are recognized as they occur.

 

Determining the appropriate fair value model and calculating the fair value of equity–based payment awards requires the input of the subjective assumptions described above. The assumptions used in calculating the fair value of equity–based payment awards represent management’s best estimates, which involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and the Company uses different assumptions, our equity–based compensation could be materially different in the future. The Company issues awards of equity instruments, such as stock options and restricted stock units, to employees and certain non-employee directors. Compensation expense related to these awards is based on the fair value of the underlying stock on the award date and is amortized over the service period, defined as the vesting period. The vesting period is generally one to three years. A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Company’s common stock at the date of grant is used for restricted stock units. Compensation expense is reduced for actual forfeitures as they occur.

 

Loss Per Share

 

Basic net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net loss per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. In periods when losses are reported, which is the case for the three and nine months ended September 30, 2022 and 2021 presented in these condensed consolidated financial statements, the weighted-average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive.

 

20

 

 

The Company had the following common stock equivalents at September 30, 2022 and 2021:

 

   September 30, 
   2022   2021 
Series E preferred   121    148 
Options   4,408,267    2,327,445 
Warrants   20,429,630    6,558,705 
Convertible notes   32,215,486    228,334 
Totals   57,053,504    9,114,632 

 

Reclassifications

 

Certain prior year amounts in the condensed consolidated financial statements and the notes thereto have been reclassified where necessary to conform to the current year’s presentation. These reclassifications did not affect the prior period’s total assets, total liabilities, stockholders’ deficit, net loss or net cash used in operating activities. During the year ended December 31, 2021, we adopted a change in presentation on our condensed consolidated statements of operations and comprehensive loss in order to present a gross profit line, the presentation of which is consistent with our peers. Under the new presentation, we began allocating payroll and related expenses, professional services and creator payouts. Prior periods have been revised to reflect this change in presentation.

   

Recently Adopted Accounting Guidance

 

In May 2021, the FASB issued authoritative guidance intended to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange. (ASU 2021-04), “Derivatives and Hedging Contracts in Entity’s Own Equity (Topic 815). This guidance’s amendments provide measurement, recognition, and disclosure guidance for an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange. The updated guidance, which became effective for fiscal years beginning after December 15, 2021, During the nine months ended September 30, 2022 the Company recognized a deemed dividend of $63,064 from the modification of warrants.

 

Recent Accounting Guidance Not Yet Adopted

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments (“ASU-2016-13”). ASU 2016-13 affects loans, debt securities, trade receivables, and any other financial assets that have the contractual right to receive cash. The ASU requires an entity to recognize expected credit losses rather than incurred losses for financial assets. On October 16, 2019, FASB approved a final ASU delaying the effective date of ASU 2016-13 for small reporting companies to interim and annual periods beginning after December 15, 2022. The Company is currently evaluating the impact of these amendments to the Company’s financial position and results of operations and currently does not know or cannot reasonably quantify the impact of the adoption of the amendments as a result of the complexity and extensive changes from the amendments. The Company does not believe the adoption will have a material impact on the Company’s condensed consolidated financial statements. The adoption of the guidance will affect disclosures and estimates around accounts receivable. 

 

21

 

 

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity’s own equity, and also improves and amends the related EPS guidance for both Subtopics. ASU 2020-06 is effective for the fiscal year beginning after December 15, 2022, including interim periods within that fiscal year. The Company is currently evaluating the impact of the new guidance on its condensed consolidated financial statements.

 

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

 

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

 

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

  

Note 3 – Going Concern

 

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

 

As reflected in the condensed consolidated financial statements, as of September 30, 2022, the Company had an accumulated deficit of $133.8 million, a net loss of $25.1 million and net cash used in operating activities of $13.9 million for the reporting period then ended. These factors raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial statements.

  

On January 30, 2020, the World Health Organization declared the COVID-19 novel coronavirus outbreak a “Public Health Emergency of International Concern” and on March 10, 2020, declared it to be a pandemic. Actions taken around the world to help mitigate the spread of the coronavirus include restrictions on travel, and quarantines in certain areas, and forced closures for certain types of public places and businesses. The COVID-19 coronavirus and actions taken to mitigate it have had and are expected to continue to have an adverse impact on the economies and financial markets of many countries, including the geographical area in which the Company operates. While it is unknown how long these conditions will last and what the complete financial impact will be to the Company, capital raising efforts and our operations may be negatively affected.

 

22

 

 

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, 2022 and December 31, 2021:

 

    September 30,
2022
    December 31,
2021
 
Raw Materials   $ 82,834     $ -  
Packaging     78,799       2,907  
Finished goods     717,417       103,496  
    $ 879,050     $ 106,403  

 

Note 5 – Property and Equipment

 

Property and equipment stated at cost, less accumulated depreciation, consisted of the following:

 

   September 30,
2022
   December 31,
2021
 
Computer Equipment  $447,342   $353,880 
Furniture and Fixtures   184,524    102,416 
Leasehold Improvements   47,616    11,457 
    679,482    467,753 
Less: Accumulated Depreciation   (430,519)   (364,814)
   $248,963   $102,939 

 

Depreciation expense was $43,546 and $10,047 for the three months ended September 30, 2022 and 2021, respectively. Depreciation expense was $67,951 and $30,141 for the nine months ended September 30, 2022 and 2021, respectively.

 

23

 

 

Note 6 – Notes Payable

 

Notes payable as of September 30, 2022 and December 31, 2021 is as follows:

 

   Outstanding
Principal as of
        
   September 30,
2022
   December 31,
2021
   Interest
Rate
   Maturity
Date
Seller’s Choice Note  $-   $660,000    30%  September 2020
The April 2020 PPP Loan Agreement   198,577    198,577    1%  May 2022
The First December 2021 Loan Agreement   47,990    185,655    10%  June 2023
The Second December 2021 Loan Agreement   -    313,979    14%  June 2022
First Denver Bodega LLC Loan   44,008    
-
    5%  March 2025
The Third May 2022 Loan Agreement   16,169    
-
    
-
%  November 2022
The Fourth May 2022 Loan Agreement   30,558    
-
    
-
%  November 2022
The First August 2022 Loan Agreement   129,634    
-
    14%  November 2022
The Second August 2022 Loan Agreement   646,100    
-
    
-
%  January 2023
The First September 2022 Loan Agreement   87,884    
-
    
-
%  September 2023
The Second September 2022 Loan Agreement   848,625    
-
    
-
%  May 2023
The Third September 2022 Loan Agreement   351,964    
-
    
-
%  April 2023
    2,401,509    1,358,211         
Less: Debt Discount   (614,410)   (15,547)        
Less: Debt Issuance Costs   
-
    
-
         
    1,787,099    1,342,664         
Less: Current Debt   (1,758,179)   (1,278,672)        
Total Long-Term Debt  $28,920   $63,992         

 

Seller’s Choice Note

 

On September 11, 2019, the Company entered into Seller’s Choice Purchase Agreement with Home Revolution LLC. As a part of the consideration provided pursuant to the Seller’s Choice Acquisition, the Company issued the Seller’s Choice Note to the Seller in the principal amount of $660,000The Seller’s Choice Note bears interest at a rate of 9.5% per annum and is payable on March 11, 2020 (the “Seller’s Choice Maturity Date”) at which time all outstanding principal, accrued and unpaid interest and other amounts become due. Upon maturity the Company utilized an automatic extension up to 6 months. This resulted in a 5% increase in the interest rate every month the Seller’s Choice Note is outstanding. As of December 31, 2021, the Company was in default on the Seller’s Choice note.

 

On March 3, 2022, after substantial motion practice, Creatd successfully settled the dispute with Home Revolution, LLC for a total of $799,000, which includes $660,000 of note principal and $139,000 of accrued interest. The matter has been dismissed. As part of the settlement the Company recorded a Gain on extinguishment of debt of $147,256.

  

24

 

 

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, 2022, the Company accrued interest of $4,815.

  

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

 

As of September 30, 2022, the Loan is in default, and the lender may require immediate payment of all amounts owed under the Loan or file suit and obtain judgment.

 

The First December 2021 Loan Agreement

 

On December 3, 2021, the Company entered into a loan agreement (the “First December 2021 Loan Agreement”) with a lender (the “First December 2021 Lender”) whereby the First December 2021 Lender issued the Company a promissory note of $191,975 (the “First December 2021 Note”). Pursuant to the First December 2021 Loan Agreement, the First December 2021 Note has an effective interest rate of 9%. The maturity date of the First December 2021 Note is June 3, 2023 (the “First December 2021 Maturity Date”), at which time all outstanding principal, accrued and unpaid interest and other amounts due under the First December 2021 Note are due.

 

During the nine months ended September 30, 2022, the Company repaid $137,665 in principal.

 

The Second December 2021 Loan Agreement

 

On December 14, 2021, the Company entered into a secured loan agreement (the “Second December 2021 Loan Agreement”) with a lender (the “Second December 2021 Lender”), whereby the Second December 2021 Lender issued the Company a secured promissory note of $438,096 AUD or $329,127 United States Dollars (the “Second December 2021 Note”). Pursuant to the Second December 2021 Loan Agreement, the Second December 2021 Note has an effective interest rate of 14%. The maturity date of the Second December 2021 Note is June 30, 2022 (the “Second December 2021 Maturity Date”) at which time all outstanding principal, accrued and unpaid interest and other amounts due under the Second December 2021 Loan Agreement are due. The Company has the option to extend the Maturity date by 60 days. The loan is secured by the Australian research & development credit.

 

During the nine months ended September 30, 2022, the Company accrued $22,287  in interest. 

 

As of the date of this filing the Company has exercised its option to extend the maturity date to August 29, 2022.

 

During the nine months ended September 30, 2022, the Company repaid $293,499 of principal and $26,115 of interest.  

 

25

 

 

The First February 2022 Loan Agreement

 

On February 22, 2022, the Company entered into a secured loan agreement (the “First February 2022 Loan Agreement”) with a lender (the “First February 2022 Lender”), whereby the First February 2022 Lender issued the Company a secured promissory note of $222,540 AUD or $159,223 United States Dollars (the “First February 2022 Note”). Pursuant to the First February 2022 Loan Agreement, the First February 2022 Note has an effective interest rate of 14%. The maturity date of the First February 2022 Note is June 30, 2022 (the “First February 2022 Maturity Date”) at which time all outstanding principal, accrued and unpaid interest and other amounts due under the First February 2022 Loan Agreement are due. The Company has the option to extend the Maturity date by 60 days. The loan is secured by the Australian research & development credit.

 

During the nine months ended September 30, 2022, the Company accrued $8,120 in interest. 

 

As of the date of this filing the Company has exercised its option to extend the maturity date to August 29, 2022.

 

During the nine months ended September 30, 2022, the Company repaid $149,089 of principal and $8,120 of interest.  

 

Denver Bodega LLC Notes payable

 

On March 7, 2022, The Company acquired five note payable agreements from the acquisition of Denver Bodega LLC. See note 12. The total liabilities of these notes amounted to $293,888. During the nine months ended September 30, 2022, the Company repaid $249,880. As of September 30, 2022, the Company has one note outstanding. This note has a principal balance of $44,088, bears interest at 5%, and requires 36 monthly payments of $1,496.

 

The First May 2022 Loan Agreement

 

On May 9, 2022, the Company entered into a loan agreement (the “First May 2022 Loan Agreement”) with a lender (the “First May 2022 Lender”), whereby the First May 2022 Lender issued the Company a promissory note of $693,500 (the “First May 2022 Note”). The Company received cash proceeds of $455,924. Pursuant to the First May 2022 Loan Agreement, the First May 2022 Note has an effective interest rate of 143%. The maturity date of the First May 2022 Note is December 18, 2022 (the “First May 2022 Maturity Date”). The Company is required to make weekly payment of $21,673. The First May 2022 Note is secured by officers of the Company.

 

The Company recorded a $237,576 debt discount relating to an original issue discount. The debt discount is being accreted over the life of the note to accretion of debt discount and issuance cost.

 

During the nine months ended September 30, 2022, the Company repaid $390,114 in principal.

 

On September 22, 2022, the Company and the First May 2022 Lender entered into an exchange agreement whereas both parties agreed to roll the remaining $303,386 in the Second September 2022 Loan Agreement. Since the PV cashflows of the new and old debt were more than 10% differences the company used extinguishment accounting. As part of the agreement the Company recognized $33,115 as loss on extinguishment of debt due to the remaining debt discount on the First May 2022 Loan Agreement.

 

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The Second May 2022 Loan Agreement

 

On May 9, 2022, the Company entered into a loan agreement (the “Second May 2022 Loan Agreement”) with a lender (the “Second May 2022 Lender”), whereby the Second May 2022 Lender issued the Company a promissory note of $401,500 (the “Second May 2022 Note”). The Company received cash proceeds of $263,815. Pursuant to the Second May 2022 Loan Agreement, the Second May 2022 Note has an effective interest rate of 162 %. The maturity date of the Second May 2022 Note is November 20, 2022 (the “Second May 2022 Maturity Date”). The Company is required to make weekly payment of $14,339. The Second May 2022 Note is secured by officers of the Company.

 

The Company recorded a $137,685 debt discount relating to an original issue discount. The debt discount is being accreted over the life of the note to accretion of debt discount and issuance cost.

 

During the nine months ended September 30, 2022, the Company repaid $272,447 in principal.

 

On September 23, 2022, the Company and the Second May 2022 Lender entered into an exchange agreement whereas both parties agreed to roll the remaining $129,053 in the Third September 2022 Loan Agreement. Since the PV cashflows of the new and old debt were more than 10% differences the company used extinguishment accounting. As part of the agreement the Company recognized $3,905 as loss on extinguishment of debt due to the remaining debt discount on the Second May 2022 Loan Agreement.

 

The Third May 2022 Loan Agreement

 

On May 25, 2022, the Company entered into a loan agreement (the “Third May 2022 Loan Agreement”) with a lender (the “Third May 2022 Lender”), whereby the Third May 2022 Lender issued the Company a promissory note of $27,604 (the “Third May 2022 Note”). Pursuant to the Third May 2022 Loan Agreement, the Third May 2022 Note has an effective interest rate of 20%. The maturity date of the Third May 2022 Note is November 23, 2022 (the “Third May 2022 Maturity Date”). The Company is required to make monthly payments of $3,067.

 

During the nine months ended September 30, 2022, the Company repaid $11,435 in principal.

 

The Fourth May 2022 Loan Agreement

 

On May 26, 2022, the Company entered into a loan agreement (the “Fourth May 2022 Loan Agreement”) with a lender (the “Fourth May 2022 Lender”), whereby the Fourth May 2022 Lender issued the Company a promissory note of $40,000 (the “Fourth May 2022 Note”). Pursuant to the Fourth May 2022 Loan Agreement, the Fourth May 2022 Note has an effective interest rate of 17%. The maturity date of the Fourth May 2022 Note is November 23, 2022 (the “Fourth May 2022 Maturity Date”).

 

During the nine months ended September 30, 2022, the Company repaid $9,442 in principal.

 

The June 2022 Loan Agreement

 

On June 17, 2022, the Company entered into a loan agreement (the “June 2022 Loan Agreement”) with a lender (the “June 2022 Lender”), whereby the June 2022 Lender issued the Company a promissory note of $568,000 (the “June 2022 Note”). The Company received cash proceeds of $378,000. Pursuant to the June 2022 Loan Agreement, the June 2022 Note has an effective interest rate of 217%. The maturity date of the June 2022 Note is November 4, 2022 (the “June 2022 Maturity Date”). The Company is required to make weekly payment of $28,400. The June 2022 Note is secured by officers of the Company.

 

The Company recorded a $190,000 debt discount relating to an original issue discount. The debt discount is being accreted over the life of the note to accretion of debt discount and issuance cost.

 

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During the nine months ended September 30, 2022, the Company repaid $255,600 in principal. 

 

On August 19, 2022, the Company and the June 2022 Lender entered into an exchange agreement whereas both parties agreed to roll the remaining $312,400 in the Third September 2022 Loan Agreement. Since the PV cashflows of the new and old debt were more than 10% differences the company used extinguishment accounting. As part of the agreement the Company recognized $66,749 as loss on extinguishment of debt due to the remaining debt discount on the Second May 2022 Loan Agreement.

 

The First August 2022 Loan Agreement

 

On August 18, 2022, the Company entered into a secured loan agreement (the “First August 2022 Loan Agreement”) with a lender (the “First August 2022 Lender”), whereby the First August 2022 Lender issued the Company a secured promissory note of $193,500 AUD or $129,64 United States Dollars (the “First August 2022 Note”). Pursuant to the First August 2022 Loan Agreement, the First August 2022 Note has an effective interest rate of 14%. The maturity date of the First August 2022 Note is June 30, 2023 (the “First August 2022 Maturity Date”) at which time all outstanding principal, accrued and unpaid interest and other amounts due under the First August 2022 Loan Agreement are due. The Company has the option to extend the Maturity date by 60 days. The loan is secured by the Australian research & development credit.

 

During the nine months ended September 30, 2022, the Company accrued $2,037 AUD in interest. 

 

The Second August 2022 Loan Agreement

 

On August 19, 2022, the Company entered into a loan agreement (the “Second August 2022 Loan Agreement”) with a lender (the “Second August 2022 Lender”), whereby the Second August 2022 Lender issued the Company a promissory note of $923,000 (the “Second August 2022 Note”). The Company received cash proceeds of $300,100 and rolled the remaining $312,400 of principal from the June 2022 Loan Agreement. Pursuant to the Second August 2022 Loan Agreement, the Second August 2022 Note has an effective interest rate of 704%. The maturity date of the Second August 2022 Note is January 9, 2022 (the “Second August 2022 Maturity Date”). The Company is required to make weekly payment of $46,150. The Second August 2022 Note is secured by officers of the Company.

 

The Company recorded a $310,500 debt discount relating to an original issue discount. The debt discount is being accreted over the life of the note to accretion of debt discount and issuance cost.

 

During the nine months ended September 30, 2022, the Company repaid $276,900 in principal. 

 

The First September 2022 Loan Agreement

 

On September 1, 2022, the Company entered into a loan agreement (the “First September 2022 Loan Agreement”) with a lender (the “First September 2022 Lender”), whereby the First September 2022 Lender issued the Company a promissory note of $87,884 (the “First September 2022 Note”). Pursuant to the First September 2022 Loan Agreement, the First September 2022 Note has an effective interest rate of 13%. The maturity date of the First September 2022 Note is September 1, 2023 (the “First September 2022 Maturity Date”).

 

During the nine months ended September 30, 2022, the Company repaid $0 in principal.

 

The Second September 2022 Loan Agreement

 

On September 22, 2022, the Company entered into a loan agreement (the “Second September 2022 Loan Agreement”) with a lender (the “Second September 2022 Lender”), whereby the Second September 2022 Lender issued the Company a promissory note of $876,000 (the “Second September 2022 Note”). The Company received cash proceeds of $272,614 and rolled the remaining $303,386 of principal from the First May 2022 Loan Agreement. Pursuant to the Second September 2022 Loan Agreement, the Second September 2022 Note has an effective interest rate of 475%. The maturity date of the Second September 2022 Note is May 5, 2023 (the “Second September 2022 Maturity Date”). The Company is required to make weekly payment of $27,375. The Second September 2022 Note is secured by officers of the Company.

 

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The Company recorded a $300,000 debt discount relating to an original issue discount. The debt discount is being accreted over the life of the note to accretion of debt discount and issuance cost.

 

During the nine months ended September 30, 2022, the Company repaid $27,375 in principal. 

 

The Third September 2022 Loan Agreement

 

On September 22, 2022, the Company entered into a loan agreement (the “Third September 2022 Loan Agreement”) with a lender (the “Third September 2022 Lender”), whereby the Third September 2022 Lender issued the Company a promissory note of $365,000 (the “Third September 2022 Note”). The Company received cash proceeds of $110,762 and rolled the remaining $129,053 of principal from the Second May 2022 Loan Agreement. Pursuant to the Third September 2022 Loan Agreement, the Third September 2022 Note has an effective interest rate of 556%. The maturity date of the Third September 2022 Note is May 5, 2023 (the “Second September 2022 Maturity Date”). The Company is required to make weekly payment of $13,036. The Third September 2022 Note is secured by officers of the Company.

 

The Company recorded a $300,000 debt discount relating to an original issue discount. The debt discount is being accreted over the life of the note to accretion of debt discount and issuance cost.

 

During the nine months ended September 30, 2022, the Company repaid $13,036 in principal. 

 

Note 7 – Convertible Notes Payable

 

Convertible notes payable as of September 30, 2022, is as follows:

 

   Outstanding 
Principal as of
              Warrants granted 
  

September 30,

2022