UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period
ended:
or
For the transition period from __________ to __________
Commission File No.
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(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.
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).
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| ☒ | 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. ☐
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No
As of May 18, 2023, the registrant had
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2023
TABLE OF CONTENTS
| Page | ||
| Special Note Regarding Forward-Looking Statements and Other Information Contained in this Report | ii | |
| PART I - FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements | 1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 2 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 14 |
| Item 4. | Controls and Procedures | 14 |
| PART II - OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 15 |
| Item 1A. | Risk Factors | 15 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 16 |
| Item 3. | Defaults Upon Senior Securities | 16 |
| Item 4. | Mine Safety Disclosures | 16 |
| Item 5. | Other Information | 16 |
| Item 6. | Exhibits | 17 |
i
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
AND
OTHER INFORMATION CONTAINED IN THIS REPORT
This Quarterly Report on Form 10-Q (this “Form 10-Q”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. You can find many (but not all) of these statements by looking for words such as “approximates,” “believes,” “hopes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,” “plans,” “would,” “should,” “could,” “may” or other similar expressions in this Form 10-Q. In particular, these include statements relating to future actions; prospective products, applications, customers and technologies; future performance or results of anticipated products; anticipated expenses; and projected financial results. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:
| ● | our ability to continue as a going concern; |
| ● | our operating expenses exceed our revenues and will likely continue to do so for the foreseeable future; |
| ● | our ability to obtain additional capital, which may be difficult to raise as a result of our limited operating history or any number of other reasons; |
| ● | our ability to provide digital content that is useful to users; |
| ● | our ability to retain existing users or add new users; |
| ● | competition from traditional media companies; |
| ● | general economic conditions and events and the impact they may have on us and our users; and |
| ● | other factors discussed in this Form 10-Q. |
We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Form 10-Q, particularly in the “Risk Factors” section, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make or collaborations or strategic partnerships we may enter into.
You should read this Form 10-Q and the documents that we have filed as exhibits to this Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Unless otherwise stated or the context otherwise requires, the terms “Creatd,” “we,” “us,” “our” and the “Company” refer collectively to Creatd, Inc. and its subsidiaries.
ii
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Creatd, Inc.
March 31, 2023
Index to the Condensed Consolidated Financial Statements
1
Creatd, Inc.
Condensed Consolidated Balance Sheets
| March 31, 2023 | December 31, 2022 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, Net | ||||||||
| Inventory | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total Current Assets | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets | ||||||||
| Goodwill | ||||||||
| Deposits and other assets | ||||||||
| Operating lease right of use asset | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Deficit | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Convertible Notes, net of debt discount and issuance costs | ||||||||
| Current portion of operating lease payable | ||||||||
| Note payable, net of debt discount and issuance costs | ||||||||
| Derivative Liability | ||||||||
| Deferred revenue | ||||||||
| Total Current Liabilities | ||||||||
| Non-current Liabilities: | ||||||||
| Note payable | ||||||||
| Operating lease payable | ||||||||
| Total Non-current Liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and contingencies (Note 10) | ||||||||
| Stockholders’ Deficit | ||||||||
| Preferred stock, $ | ||||||||
| Series E Preferred stock, $ | ||||||||
| Common stock par value $ | ||||||||
| Additional paid in capital | ||||||||
| Less: Treasury stock, | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total Creatd, Inc. Stockholders’ Deficit | ( | ) | ( | ) | ||||
| Non-controlling interest in consolidated subsidiaries | ( | ) | ||||||
| ( | ) | ( | ) | |||||
| Total Liabilities and Stockholders’ Deficit | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-1
Creatd, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
| For the Three Months Ended |
For the Three Months Ended |
|||||||
| March 31, 2023 |
March 31, 2022 |
|||||||
| Net revenue | $ | $ | ||||||
| Cost of revenue | ||||||||
| Gross margin (loss) | ( |
) | ( |
) | ||||
| Operating expenses | ||||||||
| Compensation | ||||||||
| Research and development | ||||||||
| Marketing | ||||||||
| Stock based compensation | ||||||||
| General and administrative | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( |
) | ( |
) | ||||
| Other income (expenses) | ||||||||
| Other income | ||||||||
| Interest expense | ( |
) | ( |
) | ||||
| Accretion of debt discount and issuance cost | ( |
) | ( |
) | ||||
| Derivative liability | ( |
|||||||
| Settlement of vendor liabilities | ||||||||
| Gain on extinguishment of debt | ||||||||
| Other income (expenses), net | ( |
) | ||||||
| Loss before income tax provision | ( |
) | ( |
) | ||||
| Income tax provision | ||||||||
| Net loss | ( |
) | ( |
) | ||||
| Non-controlling interest in net loss | ||||||||
| Net Loss attributable to Creatd, Inc. | ( |
) | ( |
) | ||||
| Deemed dividend | ( |
) | ( |
) | ||||
| Net loss attributable to common shareholders | $ | ( |
) | $ | ( |
) | ||
| Comprehensive loss | ||||||||
| Net loss | ( |
) | ( |
) | ||||
| Currency translation gain (loss) | ( |
) | ||||||
| Comprehensive loss | $ | ( |
) | $ | ( |
) | ||
| Per-share data | ||||||||
| $ | ( |
) | $ | ( |
) | |||
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-2
Creatd, Inc.
Condensed Consolidated Statement of Changes in Stockholders’ Equity (Deficit)
| Series E Preferred Stock | Common Stock | Treasury stock | Additional Paid In | Accumulated | Non-Controlling | Other Comprehensive | Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Interest | Income | (Deficit) | ||||||||||||||||||||||||||||||||||
| Balance, January 1, 2023 | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||
| Stock based compensation | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Shares issued for prepaid services | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Shares issued for acquisition of Non-controlling interest in consolidated subsidiaries | - | - | ( | ) | - | |||||||||||||||||||||||||||||||||||||||
| BCF issued with convertible note | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Exercise of warrants to stock | - | |||||||||||||||||||||||||||||||||||||||||||
| Stock warrants issued with note payable | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Cash received for common stock | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Common stock issued upon conversion of convertible notes | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Sale of minority interest in OG Collection INC | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Dividends | - | - | - | ( | ) | - | ||||||||||||||||||||||||||||||||||||||
| Net loss for the three months ended March 31, 2023 | - | - | - | ( | ) | ( | ) | - | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance, March 31, 2023 | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-3
Creatd, Inc.
Condensed Consolidated Statement of Changes in Stockholders’ Equity (Deficit)
For the Three Months Ended March 31, 2022
(Unaudited)
| Series
E Preferred Stock | Common Stock | Treasury stock | Additional Paid In | Accumulated | Non- Controlling | Other Comprehensive | Stockholders’ | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Interest | Income | Equity | ||||||||||||||||||||||||||||||||||
| Balance, January 1, 2022 | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
| Stock based compensation | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Shares issued for prepaid services | - | |||||||||||||||||||||||||||||||||||||||||||
| Cash received for common stock and warrants, net of $ | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued upon conversion of notes payable | - | |||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Dividends | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Net loss for the three months ended March 31, 20222 | - | - | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-4
Creatd, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| For the Three Months Ended | For the Three Months Ended | |||||||
| March 31, 2023 | March 31, 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Accretion of debt discount and issuance cost | ||||||||
| Share-based compensation | ||||||||
| Derivative Expense | - | |||||||
| Currency Translation | ( | ) | ||||||
| Bad debt expense | ||||||||
| Settlement of vendor liabilities | ( | ) | ( | ) | ||||
| Change in fair value of derivative liability | ( | ) | ||||||
| Gain on extinguishment of debt | ( | ) | ||||||
| Non-cash lease expense | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ||||||
| Prepaid expenses | ( | ) | ||||||
| Deposits and other assets | ( | ) | ( | ) | ||||
| Operating lease right of use asset | ( | ) | ||||||
| Accounts payable and accrued liabilities | ||||||||
| Deferred revenue | ( | ) | ( | ) | ||||
| Operating lease liability | ( | ) | ||||||
| Net Cash Used In Operating Activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Cash paid for property and equipment | - | ( | ) | |||||
| Cash received from the sale of minority interest in OG Collection Inc | ||||||||
| Cash consideration for acquisition | ||||||||
| Purchases of digital assets | ( | ) | ||||||
| Net Cash Provided By (Used In) Investing Activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from the exercise of warrant | ||||||||
| Net proceeds from issuance of notes | ||||||||
| Repayment of notes | ( | ) | ( | ) | ||||
| Proceeds from issuance of convertible note | ||||||||
| Repayment of convertible notes | ( | ) | ||||||
| Proceeds from issuance of common stock and warrants | ||||||||
| Net Cash Provided By Financing Activities | ||||||||
| Net Change in Cash | ( | ) | ( | ) | ||||
| Cash - Beginning of period | ||||||||
| Cash - End of period | $ | $ | ||||||
| SUPPLEMENTARY CASH FLOW INFORMATION: | ||||||||
| Cash Paid During the Year for: | ||||||||
| Interest | $ | $ | ||||||
| SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Conversion of marketable debt securities into equity securities | $ | $ | ||||||
| Deemed dividend | $ | $ | ||||||
| Shares issued for acquisition of NCI in consolidated subsidiaries | $ | $ | ||||||
| Beneficial conversion feature on convertible notes | $ | $ | ||||||
| Issuance of common stock for prepaid services | $ | $ | ||||||
| Common stock and warrants issued upon conversion of notes payable | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-5
Creatd, Inc.
March 31, 2023
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
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
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
On September 9, 2020, the Company filed a certificate of amendment with the Secretary of State of the State of Nevada to change our name to “Creatd, Inc.”, which became effective on September 10, 2020.
On June 4, 2021, the Company acquired
On July 20, 2021, the Company acquired
On January 9, 2023, the Company acquired an additional
Between October 21, 2020, and August 16, 2021,
the Company acquired
On October 3, 2021, the Company acquired an additional
On January 25, 2023, the Company acquired an
additional
On March 7, 2022, the Company acquired
On August 1, 2022, the Company acquired
F-6
On February 3, 2023, the Company acquired an
additional
On September 13, 2022, the Company acquired
On December 13, 2022, an investor entered into
a Subscription Agreement whereby it purchased from OG Collection, Inc., a subsidiary of the Company (“OG”),
February 1, 2023, an investor entered into a
Subscription Agreement whereby it purchased from OG Collection, Inc., a subsidiary of the Company (“OG”),
Note 2 – Significant Accounting Policies and Practices
Management of the Company is responsible for the selection and use of appropriate accounting policies and the appropriateness of accounting policies and their application. Critical accounting policies and practices are those that are both most important to the portrayal of the Company’s financial condition and results and require management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain. The Company’s significant and critical accounting policies and practices are disclosed below as required by the accounting principles generally accepted in the United States of America.
Basis of Presentation
The Company’s condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and following the requirements of the U.S. Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. These interim financial statements have been prepared on the same basis as the Company’s annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair statement of the Company’s financial information. These interim results are not necessarily indicative of the results to be expected for the year ending December 31, 2023, 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, 2022, included in the Company’s 2022 Annual Report on Form 10-K filed with the SEC. The balance sheet as of December 31, 2022, 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 Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
These significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to these estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.
Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly. The Company uses estimates in accounting for, among other items, revenue recognition, allowance for doubtful accounts, stock-based compensation, income tax provisions, excess and obsolete inventory reserve, and impairment of intellectual property.
Actual results could differ from those estimates.
F-7
Principles of consolidation
The Company consolidates all majority-owned subsidiaries, if any, in which the parent’s power to control exists. All consolidated subsidiaries report based on a year ending of December 31.
As of March 31, 2023, the Company’s consolidated subsidiaries and/or entities are as follows:
| Name of combined affiliate | State or other jurisdiction of incorporation or organization | Company Ownership Interest | ||||
| Jerrick Ventures LLC | % | |||||
| Abacus Tech Pty Ltd | % | |||||
| Creatd Ventures LLC | % | |||||
| Dune Inc. | % | |||||
| OG Collection, Inc. | % | |||||
| Orbit Media LLC | % | |||||
| WHE Agency, Inc. | % | |||||
As of March 31, 2023, Creatd Ventures, LLC (formerly Creatd Partners, LLC) is operating three DBAs for Brave Foods, Plant Camp, and Basis (formerly Denver Bodega, LLC).
All other previously consolidated subsidiaries have been dissolved.
All inter-company balances and transactions have been eliminated. The condensed consolidated financial statements include Denver Bodega, LLC activity since March 7, 2022, Orbit Media LLC activity since August 1, 2022, and Brave Foods, LLC activity since September 13, 2022.
Variable Interest Entities
Management performs an ongoing assessment of its noncontrolling interests from investments in unrelated entities to determine if those entities are variable interest entities (VIEs), and if so, whether the Company is the primary beneficiary. If an entity in such a transaction, by design, meets the definition of a VIE and the Company determines that it, or a consolidated subsidiary is the primary beneficiary, the Company will include the VIE in its consolidated financial statements. If such an entity is deemed to not be consolidated, the Company records only its investment in equity securities as a marketable security or investment under the equity method, as applicable.
Fair Value of Financial Instruments
The fair value measurement disclosures are grouped into three levels based on valuation factors:
| ● | Level 1 – quoted prices in active markets for identical investments |
| ● | Level 2 – other significant observable inputs (including quoted prices for similar investments and market corroborated inputs) |
| ● | Level 3 – significant unobservable inputs (including our own assumptions in determining the fair value of investments) |
F-8
The Company’s Level 1 assets/liabilities include cash, accounts receivable, marketable trading securities, accounts payable, marketable trading securities, prepaid and other current assets, line of credit and due to related parties. Management believes the estimated fair value of these accounts at March 31, 2023 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 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 provide a summary of the relevant liabilities that are measured at fair value on a recurring basis:
Fair Value Measurements as of
March 31, 2023
| Total | Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) | Quoted Prices for Similar Assets or Liabilities in Active Markets (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
| Liabilities: | ||||||||||||||||
| Derivative liabilities | $ | $ | $ | $ | ||||||||||||
| Total Liabilities | $ | $ | $ | $ | ||||||||||||
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 March 31, 2023, was $
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 $
F-9
Property and Equipment
Property and equipment are recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation is computed by the straight-line method (after taking into account their respective estimated residual values) over the estimated useful lives of the respective assets as follows:
Estimated Useful Life (Years) | ||||
| Computer equipment and software | ||||
| Furniture and fixtures | ||||
| Leasehold Improvements | ||||
Upon sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the consolidated statements of operations.
Long-lived Assets Including 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 temporarily below the carrying value. The fair value is measured using the quoted price
of the crypto asset at the time its fair value is being measured. If such review indicates that the carrying amount of property and equipment
and intangible assets is not recoverable, the carrying amount of such assets is reduced to fair value. During the three months ended
March 31, 2023, the Company recorded an impairment charge of $
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 is
| Scheduled amortization over the next five years are as follows: |
Twelve months ending March 31,
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total | ||||
| Intangible assets not subject to amortization | ||||
| Total Intangible Assets | $ |
Amortization expense was $
Goodwill
Goodwill is not amortized but is subject to periodic testing for impairment in accordance with ASC Topic 350 “Intangibles – Goodwill and Other – Testing Indefinite-Lived Intangible Assets for Impairment” (“ASC Topic 350”). The Company tests goodwill for impairment on an annual basis as of the last day of the Company’s fiscal December each year or more frequently if events occur or circumstances change indicating that the fair value of the goodwill may be below its carrying amount. The Company uses an income-based approach to determine the fair value of the reporting units. This approach uses a discounted cash flow methodology and the ability of our reporting units to generate cash flows as measures of fair value of our reporting units.
F-10
During the year ended December 31, 2022, the
Company completed its annual impairment tests of goodwill. The Company performed the qualitative assessment as permitted by ASC 350-20
and determined for one of its reporting units that the fair value of that reporting unit was more likely than not greater than its carrying
value, including Goodwill. However, based on this qualitative assessment, the Company determined that the carrying value of the Denver
Bodega, Dune, Plant Camp, and WHE Agency reporting units was more likely than not greater than their carrying value, including Goodwill.
Based on the completion of the annual impairment tests, the Company recorded an impairment charge of $
During the three months ended March 31, 2023, the Company did not acquire any additional goodwill or recognize any additional impairment of goodwill.
The following table sets forth a summary of the changes in goodwill for the three months ended March 31, 2023
For the Three Months | ||||
| Total | ||||
| As of January 1, 2023 | $ | |||
| Goodwill acquired in a business combination | ||||
| Impairment of goodwill | ||||
| As of March 31, 2023 | ||||
Commitments and Contingencies
The Company follows subtopic 450-20 of the FASB ASC to report accounting for contingencies. Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or un-asserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or un-asserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
F-11
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.
Foreign Currency
Foreign currency denominated assets and liabilities are translated into U.S. dollars using the exchange rates in effect at our Consolidated Balance Sheet dates. Results of operations and cash flows are translated using the average exchange rates throughout the periods. The effect of exchange rate fluctuations on the translation of assets and liabilities is included as a component of stockholders’ equity in accumulated other comprehensive income. Gains and losses from foreign currency transactions, which are included in operating expenses, have not been significant in any period presented.
Derivative Liability
The Company evaluates its debt and equity issuances to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with paragraph 815-10-05-4 and Section 815-40-25 of the FASB Accounting Standards Codification. The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet date and recorded as either an asset or a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the consolidated statement of operations as other income or expense. Upon conversion, exercise or cancellation of a derivative instrument, the instrument is marked to fair value at the date of conversion, exercise or cancellation and then the related fair value is reclassified to equity.
In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.
The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to liability at the fair value of the instrument on the reclassification date. Derivative instrument liabilities will be classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument is expected within 12 months of the balance sheet date.
The Company adopted Section 815-40-15 of the FASB Accounting Standards Codification (“Section 815-40-15”) to determine whether an instrument (or an embedded feature) is indexed to the Company’s own stock. Section 815-40-15 provides that an entity should use a two-step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument’s contingent exercise and settlement provisions.
The Company 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 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.
F-12
Revenue Recognition
Under Topic 606, revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
We determine revenue recognition through the following steps:
| ● | identification of the contract, or contracts, with a customer; |
| ● | identification of the performance obligations in the contract; |
| ● | determination of the transaction price. The transaction price for any given subscriber could decrease based on any payments made to that subscriber. A subscriber may be eligible for payment through one or more of the monetization features offered to Vocal creators, including earnings through reads (on a cost per mile basis) and cash prizes offered to Challenge winners; |
| ● | allocation of the transaction price to the performance obligations in the contract; and |
| ● | recognition of revenue when, or as, we satisfy a performance obligation. |
Revenue disaggregated by revenue source for the three months ended March 31, 2023 and 2022 consists of the following:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| Agency (Managed Services, Branded Content, & Talent Management Services) | $ | $ | ||||||
| Platform (Creator Subscriptions) | ||||||||
| Ecommerce (Tangible Products) | ||||||||
| Affiliate Sales | ||||||||
| Other Revenue | - | |||||||
| $ | $ | |||||||
The Company utilizes the output method to measure the results achieved and value transferred to a customer over time. Timing of revenue recognition for the three months ended March 31, 2023 and 2022 consists of the following:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| Products and services transferred over time | $ | $ | ||||||
| Products transferred at a point in time | ||||||||
| $ | $ | |||||||
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 $
F-13
Branded Content
Branded content represents the revenue recognized from the Company’s obligation to create and publish branded articles and/or branded challenges for clients on the Vocal platform and promote said stories, tracking engagement for the client. In the case of branded articles, the performance obligation is satisfied when the Company successfully publishes the articles on its platform and meets any required promotional milestones as per the contract. In the case of branded challenges, the performance obligation is satisfied when the Company successfully closes the challenge and winners have been announced. The Company utilizes the completed contract method when revenue is recognized over time as the services are performed and any required milestones are met. Certain contracts contain separate milestones whereas the Company separates its performance obligations and utilizes the stand-alone selling price method and residual method to determine the estimate of the allocation of the transaction price.
Below are the significant components of a typical agreement pertaining to branded content revenue:
| ● | The Company collects fixed fees ranging from $ | |
| ● | Branded articles are created and published, and challenges are completed, within three months of the signed agreement, or as previously negotiated with the client. |
| ● | Branded articles and challenges are promoted per the contract and engagement reports are provided to the client. | |
| ● | Most contracts include provisions for clients to acquire content rights at the end of the campaign for a flat fee. |
Talent Management Services
Talent Management represents the revenue recognized
by WHE Agency, Inc. (“WHE”) from the Company’s obligation to manage and oversee influencer-led campaigns from the contract
negotiation stage through content creation and publication. WHE acts in an agent capacity for influencers and collects a management fee
of approximately
Below are the significant components of a typical agreement pertaining to talent management revenue:
| ● | Total gross contracts range from $ |
| ● | The Company collects fixed fees in the amount of |
| ● | 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 |
F-14
Platform Revenue
Creator Subscriptions
Vocal+ is a premium subscription offering for
Vocal creators. In addition to joining for free, Vocal creators now have the option to sign up for a Vocal+ membership for either $
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 from views or sales of its multimedia assets. Affiliate revenue is earned on a “click through” basis, upon visitors viewing or purchasing the relevant video, book, or other media asset and completing a specific conversion. The revenue is recognized upon receipt as reliable estimates could not be made.
E-Commerce Revenue
The Company’s e-commerce businesses are housed under Creatd Ventures, and currently consists of 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, 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 for Camp, Dune, and Basis, and 7 days from receipt of purchase for Brave. All returns are processed within the relevant recording period and accounted for as a reduction in revenue. The Company runs discounts from time to time to promote sales, improve market penetration, and increase customer retention. Any discounts are run as coupon codes applied at the time of transaction and accounted for as a reduction in gross revenue. The Company assesses variable consideration using the most likely amount method.
Deferred Revenue
Deferred revenue consists of billings and payments
from clients in advance of revenue recognition. The Company has two types of deferred revenue, subscription revenue whereas the revenue
is recognized over the subscription period and contract liabilities where the performance obligation was not satisfied. The Company will
recognize the deferred revenue within the next twelve months. As of March 31, 2023, the Company had deferred revenue of $
F-15
Accounts Receivable and Allowances
Accounts receivable are recorded and carried when the Company has performed
the work in accordance with managed services, project, partner, consulting and branded content agreements. For example, we bill a managed
service client monthly when we have updated their Amazon store, modified SEO, or completed the other services listed in the agreement.
For projects and branded content, we will bill the client and record the receivable once milestones are reached that are set in the agreement.
We make estimates for the allowance for doubtful accounts and allowance for unbilled receivables based upon our assessment of various
factors, including historical experience, the age of the accounts receivable balances, credit quality of our customers, current economic
conditions, and other factors that may affect our ability to collect from customers. During the three months ended March 31, 2023, the
Company recorded $
Inventory
Inventories are stated at the lower of cost (first-in, first-out basis)
or net realizable value. Inventories are periodically evaluated to identify obsolete or otherwise impaired products and are written off
when management determines usage is not probable. The Company estimates the balance of excess and obsolete inventory by analyzing inventory
by age using last used and original purchase date and existing sales pipeline for which the inventory could be used. As of March 31, 2023,
the Company had a reserve for obsolescence of $
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 forfeitures are recognized as they occur. Expected 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 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
F-16
Loss Per Share
Basic net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net loss per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. For the three months ended March 31, 2023, the weighted-average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive.
The Company had the following common stock equivalents at March 31, 2023 and 2022:
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| Series E preferred | ||||||||
| Options | ||||||||
| Warrants | ||||||||
| Convertible notes | ||||||||
| Totals | ||||||||
Recently Adopted Accounting Guidance
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 adoption did not material impact on the Company’s consolidated financial statements.
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations — Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805), Which aims to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in recognition and payment terms that effect subsequent revenue recognition. ASU 2021-08 is effective for the fiscal year beginning after December 15, 2022, including interim periods within that fiscal year. The adoption did not have a material impact on the Company’s consolidated financial statements.
F-17
Note 3 – Going Concern
The Company’s consolidated financial statements have been prepared assuming that it will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
As reflected in the consolidated financial statements,
as of March 31, 2023, the Company had an accumulated deficit of $
The Company is attempting to further implement its business plan and generate sufficient revenues; however, its cash position may not be sufficient to support its daily operations. While the Company believes in the viability of its strategy to further implement its business plan and generate sufficient revenues and in its ability to raise additional funds by way of a public or private offering of its debt or equity securities, there can be no assurance that it will be able to do so on reasonable terms, or at all. The ability of the Company to continue as a going concern is dependent upon its ability to further implement its business plan and generate sufficient revenues and its ability to raise additional funds by way of a public or private offering.
The consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Note 4 – Inventory
Inventory was comprised of the following at March 31, 2023 and December 31, 2022:
| March 31, 2023 | December 31, 2022 | |||||||
| Raw Materials | $ | $ | ||||||
| Packaging | ||||||||
| Finished goods | ||||||||
| $ | $ | |||||||
F-18
Note 5 – Notes Payable
Notes payable as of March 31, 2023 and December 31, 2022 is as follows:
Outstanding | ||||||||||||||
March
31, | December 31, | Interest | Maturity | |||||||||||
| The April 2020 PPP Loan Agreement | % | |||||||||||||
| First Denver Bodega LLC Loan | % | |||||||||||||
| The Third May 2022 Loan Agreement | % | |||||||||||||
| The Fourth May 2022 Loan Agreement | % | |||||||||||||
| The Second June 2022 Loan agreement | % | |||||||||||||
| The First August 2022 Loan Agreement | % | |||||||||||||
| The Second August 2022 Loan Agreement | % | |||||||||||||
| The First September 2022 Loan Agreement | % | |||||||||||||
| The Second September 2022 Loan Agreement | % | |||||||||||||
| The Third September 2022 Loan Agreement | % | |||||||||||||
| The November 2022 Loan | % | |||||||||||||
| The First February 2023 Loan Agreement | % | |||||||||||||
| Less: Debt Discount | ( | ) | ( | ) | ||||||||||
| Less: Debt Issuance Costs | ||||||||||||||
| Less: Current Debt | ( | ) | ( | ) | ||||||||||
| Total Long-Term Debt | $ | $ | ||||||||||||
The April 2020 PPP Loan Agreement
On April 30, 2020, the Company was granted a
loan with a principal amount of $
During the three months ended March 31, 2023,
the Company accrued interest of $
As of March 31, 2023, 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.
F-19
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 $
During the year ended December 31, 2022, the
Company repaid $
Denver Bodega LLC Notes Payable
On March 7, 2022, The Company acquired five note
payable agreements from the acquisition of Denver Bodega LLC. See Note 11. The total liabilities of these notes amounted to $
During the three months ended March 31, 2023, the Company accrued
interest of $
F-20
The Third May 2022 Loan Agreement
On May 25, 2022, the Company entered into a loan
agreement (the “Third May 2022 Loan Agreement”) with a lender (the “Third May 2022 Lender”), whereby the Third
May 2022 Lender issued the Company a promissory note of $
As of March 31, 2023, the Loan is in default.
During the three months ended March 31, 2023, the Company repaid $
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 $
As of March 31, 2023, the Loan is in default. During the three months
ended March 31, 2023, the Company repaid $
F-21
The Second June 2022 Loan Agreement
On June 17, 2022, the Company entered into a
loan agreement (the “Second June 2022 Loan Agreement”) with a lender (the “Second June 2022 Lender”), whereby
the Second June 2022 Lender issued the Company a promissory note of $
As of March 31, 2023, this note is in default.
The First August 2022 Loan Agreement
On August 18, 2022, the Company entered into
a secured loan agreement (the “First August 2022 Loan Agreement”) with a lender (the “First August 2022 Lender”),
whereby the First August 2022 Lender issued the Company a secured promissory note of $
During the three months ended March 31, 2023, the Company accrued $
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 $
The Company recorded a $
During the three months ended March 31, 2023,
the Company repaid $
Subsequent to March 31, 2023, the Company repaid
$
F-22
The First September 2022 Loan Agreement
On September 1, 2022, the Company entered into
a loan agreement (the “First September 2022 Loan Agreement”) with a lender (the “First September 2022 Lender”),
whereby the First September 2022 Lender issued the Company a promissory note of $
During the three months ended March 31, 2023 the
Company repaid $
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 $
The Company recorded a $
As of March 31, 2023, the Loan is in default.
During the three months ended March 31, 2023, the Company repaid $
Subsequent to March 31, 2023, the Company made
repayments of $
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 $
The Company recorded a $
As of March 31, 2023, the Loan is in default.
During the three months ended March 31, 2023, the Company repaid $
Subsequent to March 31, 2023, the Company made
repayments of $
The November 2022 Loan Agreement
On November 15, 2022, the Company entered into
a loan agreement (the “November 2022 Loan Agreement”) with a lender (the “November 2022 Lender”) whereby the November
2022 Lender issued the Company a promissory note of $
During the three months ended March 31, 2023,
the Company repaid $
F-23
The First February 2023 Loan Agreement
On February 13, 2023, the Company entered into
a secured loan agreement (the “First February 2023 Loan Agreement”) with a lender (the “First February 2023 Lender”),
whereby the First February 2023 Lender issued the Company a secured promissory note of $
During the three months ended March 31, 2023,
the Company accrued $
Note 6 – Convertible Notes Payable
Convertible notes payable as of March 31, 2023 and December 31, 2022 is as follows:
| Outstanding Principal as of |
Outstanding Principal as of |
Warrants granted | ||||||||||||||||||||||||
| March 31, | December 31, | Interest | Conversion | Maturity |
Exercise | |||||||||||||||||||||
| 2023 | 2022 | Rate | Price | Date | Quantity | Price | ||||||||||||||||||||
| The May 2022 Convertible Loan Agreement | - | % | - | (*) | - | - | ||||||||||||||||||||
| The May 2022 Convertible Note Offering | % | (*) | $ | |||||||||||||||||||||||
| The July 2022 Convertible Note Offering | % | (*) | $ | |||||||||||||||||||||||
| The First October 2022 Convertible Loan Agreement | % | - | (*) | |||||||||||||||||||||||
| The Second October 2022 Convertible Loan Agreement | % | - | (*) | |||||||||||||||||||||||
| The Third October 2022 Convertible Loan Agreement | - | % | (*) | |||||||||||||||||||||||
| The December 2022 Convertible Loan Agreement | - | % | (*) | $ | ||||||||||||||||||||||
| The January 2023 Loan Agreement | - | -% | (*) | - | $ | - | ||||||||||||||||||||
| The February 2023 Loan Agreement | - | -% | (*) | - | $ | - | ||||||||||||||||||||
| The March 2023 Loan Agreement | - | % | (*) | - | $ | - | ||||||||||||||||||||
| Less: Debt Discount | ( |
) | ( |
) | ||||||||||||||||||||||
| Less: Debt Issuance Costs | ( |
) | ( |
) | ||||||||||||||||||||||
| (*) | As subject to adjustment as further outlined in the notes |
F-24
The May 2022 Convertible Loan Agreement
On May 20, 2022, the Company entered into a loan
agreement (the “May 2022 Loan Agreement”) with an individual (the “May 2022 Lender”), whereby the May 2022 Lender
issued the Company a promissory note of $
F-25
Upon default the May 2022 Note is convertible
into shares of the Company’s common stock, par value $
The Company recorded a $
During the year ended December 31, 2022, the Company
repaid $
On January 17, 2023, the May 2022 Lender converted
$
The May 2022 Convertible Note Offering
During May of 2022, the Company conducted multiple
closings of a private placement offering to accredited investors (the “May 2022 Convertible Note Offering”) of units of the
Company’s securities by entering into subscription agreements with “accredited investors” (the “May 2022 Investors”)
for aggregate gross proceeds of $
The Company recorded a $
The Company recorded a $
On September 2, 2022, the Company went into default
on these notes. As part of the default terms the Company owes
On September 15, 2022, the Company and six out
of eight lenders May 2022 Investors agreed to forgive default interest and extend the maturity date to March 31, 2023, for a reduced conversion
price of $
During the three months ended March 31, 2023,
the Company accrued $
The July 2022 Convertible Note Offering
During July of 2022, the Company conducted multiple
closings of a private placement offering to accredited investors (the “July 2022 Convertible Note Offering”) of units of the
Company’s securities by entering into subscription agreements with “accredited investors” (the “July 2022 Investors”)
for aggregate gross proceeds of $
The Company recorded a $
The Company recorded a $
F-26
On September 2, 2022, the Company went into default
on these notes. As part of the default terms the Company owes
On September 15, 2022, the Company and the July
Investors agreed to forgive default interest and extend the maturity date to March 31, 2023, for a reduced conversion price of $
During the three months ended March 31, 2023,
the Company repaid $
As of the date of this filing, this loan is in default.
The First October 2022 Loan Agreement
On October 3, 2022, the Company entered into a
loan agreement (the “First October 2022 Loan Agreement”) with a lender (the “First October 2022 Lender”), whereby
the First October 2022 Lender issued the Company a promissory note of $
On April 1, 2023, the First October 2022 Note
is convertible into shares of the Company’s common stock, par value $
The Company recorded a $
The Second October 2022 Loan Agreement
On October 20, 2022, the Company entered into
a loan agreement (the “Second October 2022 Loan Agreement”) with a lender (the “Second October 2022 Lender”),
whereby the Second October 2022 Lender issued the Company a promissory note of $
Upon default, the Second October 2022 Note is
convertible into shares of the Company’s common stock, par value $
The Company recorded a $
During the three months ended March 31, 2023,
the Company made a repayment of $
The Third October 2022 Loan Agreement
On October 24, 2022, the Company entered into
a loan agreement (the “Third October 2022 Loan Agreement”) with a lender (the “Third October 2022 Lender”), whereby
the Third October 2022 Lender issued the Company a promissory note of $
The Third October 2022 Note is convertible into
shares of the Company’s common stock, par value $
The Company recorded a $
During the three months ended March 31, 2023,
the Third October 2022 Lender converted the remaining balance of $
F-27
The December 2022 Convertible Loan Agreement
On December 12, 2022, the Company entered into
a loan agreement (the “December 2022 Loan Agreement”) with a lender (the “December 2022 Lender”), whereby the
December 2022 Lender issued the Company a promissory note of $
The Second October 2022 Note is convertible into
shares of the Company’s common stock, par value $
The Company recorded a $
During the three months ended in March 31, 2023,
the December 2022 Lender converted $
As of the date of this filing, this note is in default.
The January 2023 Loan Agreement
On January 13, 2023, the Company entered into
a loan agreement (the “January 2023 Loan Agreement”) with a lender (the “TJanuary 2023 Lender”), whereby the January
2023 Lender issued the Company a promissory note of $
The January 2023 Note is convertible into shares
of the Company’s common stock, par value $
The Company recorded a $
The February 2023 Loan Agreement
On February 1, 2023, the Company entered into
a loan agreement (the “February 2023 Loan Agreement”) with a lender (the “February 2023 Lender”), whereby the
February 2023 Lender issued the Company a promissory note of $
The Third October 2022 Note is convertible into
shares of the Company’s common stock, par value $
The Company recorded a $
The March 2023 Loan Agreement
On March 31, 2023 the Company entered into a loan
agreement (the “March 2023 Loan Agreement”) with a lender (the “March 2023 Lender”), whereby the March 2023 Lender
issued the Company a promissory note of $
On October 1, 2023, the March 2023 Note is convertible
into shares of the Company’s common stock, par value $
The Company recorded a $
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Note 7 – Related Party
Officer compensation
During the three months ended March 31, 2023 and 2022, the Company
paid $
Note 8 – Derivative Liabilities
The Company has identified derivative instruments arising from a make-whole feature in the Company’s outstanding Equity Line of Credit at March 31, 2023.
The Company utilized a Monte Carlo simulation model 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 simulation included a stock price on valuation date, the term of the make-whole feature, an estimated volatility, and a risk-free rate. The Company records the change in the fair value of the derivative as other income or expense in the consolidated statements of operations.
Risk-free interest rate: The Company uses the risk-free interest rate of a U.S. Treasury Note adjusted to be on a continuous return basis to align with the Monte Carlo simulation model and binomial model.
Dividend yield: The Company uses a
Volatility: The Company calculates the expected volatility based on the company’s historical stock prices with a look back period commensurate with the period to maturity.
Expected term: The Company’s remaining term is based on the remaining contractual life of the make-whole feature.
The following are the changes in the derivative liabilities during the three months ended March 31, 2023:
Three Months Ended March 31, 2023 | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Derivative liabilities as January 1, 2023 | $ | $ | $ | |||||||||
| Addition | ||||||||||||
| Changes in fair value | ||||||||||||
| Extinguishment | ||||||||||||
| Derivative liabilities as March 31, 2023 | ||||||||||||
F-29
Note 9 – Stockholders’ Equity
Shares Authorized
The Company is authorized to issue up to one billion,
five hundred and twenty million (
Common Stock
On January
25, 2023, the Company entered into a securities purchase agreement with an investor resulting in gross proceeds of $
On
February 8, 2023, in recognition of certain employees having accepted reduced salaries beginning August 22, 2023, the Company issued
equity awards totaling
On February
14, 2023, the Company issued
F-30
On February 28, 2023, the Company issued
On March 13, 2023, the Company
sold
On March 14, 2023, the Company issued
On March 27, 2023, the Company issued
Stock Options
The following is a summary of the Company’s stock option activity:
| Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (in years) | ||||||||||
| Balance – January 1, 2023 – outstanding | ||||||||||||
| Granted | ||||||||||||
| Exercised | ||||||||||||
| Forfeited/Cancelled | ( | ) | ||||||||||
| Balance – March 31, 2023 – outstanding | ||||||||||||
| Balance – March 31, 2023 – exercisable | ||||||||||||
| Option Outstanding | Option Exercisable | |||||||||||||||||||||
| Exercise price | Number Outstanding | Weighted Average Remaining Contractual Life (in years) | Weighted Exercise Price | Number Exercisable | Weighted Average Remaining Contractual Life (in years) | |||||||||||||||||
| $ | ||||||||||||||||||||||
Stock-based compensation for stock options has
been recorded in the consolidated statements of operations and totaled $
As of March 31, 2023 there was $
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Warrants
The Company applied fair value accounting for all share-based payments awards. The fair value of each warrant granted is estimated on the date of grant using the Black-Scholes option-pricing model.
The following is a summary of the Company’s warrant activity:
| Warrant | Weighted | |||||||
| Balance – January 1, 2023 – outstanding | ||||||||
| Granted | ||||||||
| Exercised | ( | ) | ( | ) | ||||
| Forfeited/Cancelled | ( | ) | ||||||
| Balance – March 31, 2023 – outstanding | ||||||||
| Balance – March 31, 2023 – exercisable | $ | |||||||
| Warrants Outstanding | Warrants Exercisable | |||||||||||||||||||||
| Exercise price | Number Outstanding | Weighted Average Remaining Contractual Life (in years) | Weighted Exercise Price | Number Exercisable | Weighted Average Exercise Price | |||||||||||||||||
| $ | ||||||||||||||||||||||
During the three months ended March 31, 2023,
the Company issued
During the three months ended March 31, 2023,
the company granted warrant holders
During the three months ended March 31, 2023,
some of the Company’s warrants had a down-round provision triggered that also resulted in an additional
Note 10 – Commitments and Contingencies
Litigation
Skube v. WHE Agency Inc., et al
A complaint against WHE, Creatd and Jeremy Frommer
filed December 22, 2022, was filed in the Supreme Court of the State of New York, New York County, by Jessica Skube, making certain claims
alleging conversion, trespass to chattel, unjust enrichment, breach of contract, fraud in the inducement, seeking damages of $
Lind Global v. Creatd, Inc.
A complaint against Creatd dated September 21,
2022, has been filed in the Supreme Court of the State of New York, New York County, by Lind Global Macro Fund LP and Lind Global Fund
II LP, making certain claims alleging breach of contract related to two Securities Purchase Agreements executed on May 31, 2022, seeking
damages in excess of $
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Laurie Weisberg v. Creatd, Inc.
A confession of judgment against Creatd
dated September 2, 2022, has been filed in the Supreme Court of the State of New York, New York County, by Laurie Weisberg, seeking
to enforce payment of approximately $
The Company has recorded approximately $
Inflation Reduction Act of 2022
On August
16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was signed into law. The IRA includes a
Lease Agreements
The Company currently does not own any properties.
Our corporate headquarters consists of a total of
The components of lease expense were as follows:
Three Months | ||||
| Operating lease cost | $ | |||
| Short term lease cost | ||||
| Total net lease cost | $ | |||
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Supplemental cash flow and other information related to leases was as follows:
Three Months | ||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||
| Operating lease payments | ||||
| Weighted average remaining lease term (in years): | ||||
| Weighted average discount rate: | % | |||
Total future minimum payments required under the lease as of March 31 are as follows:
| For the Twelve Months Ended March 31, | Operating Leases | |||
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total lease payments | ||||
| Less: Amounts representing interest | ( | ) | ||
| Total lease obligations | ||||
| Less: Current | ( | ) | ||
| $ | ||||
Rent expense for the three months ended March 31, 2023, was $
Market price risk of crypto (“digital”) assets
The Company holds crypto and digital assets in third-party wallets. Crypto asset price risk could adversely affect its operating results and will depend upon the market price of Bitcoin, ETH, as well as other crypto assets. Crypto asset prices have fluctuated significantly from quarter to quarter. There is no assurance that crypto asset prices will reflect historical trends. A decline in the market price of Bitcoin, ETH, and Other crypto assets could have an adverse effect on our earnings, the carrying value of the crypto assets, and future cash flows. This may also affect the liquidity and the ability to meet our ongoing obligations.
Nasdaq Notice of Delisting
Following passage of the proscribed 15-day time period for appeal as stated in the Letter, on October 26, 2022, Nasdaq completed the delisting by filing a Form 25 Notification of Delisting with the Securities and Exchange Commission.
The Company’s common stock, under the symbol “CRTD,” is quoted on the OTCQB marketplace operated by OTC Markets Group Inc. effective as of September 26, 2022. Effective April 4, 2023, our symbol changed to “VOCL.” The Company’s publicly-traded warrants, under the symbol “CRTDW,” are quoted on the OTCPink marketplace operated by OTC Markets Group Inc.
F-34
Employment Agreements
On April 5, 2022, upon the recommendation of the
Compensation Committee of the Board, the Board approved employment agreements with, and equity issuances for, (i) Jeremy Frommer, Executive
Chairman, who will receive (a) an signing award of $
Pursuant to the Executive Employment Arrangements, the Company entered into executive employment agreements with each of the respective executives as of April 5, 2022 (the “Executive Employment Agreements”). The Executive Employment Agreements contain customary terms, conditions and rights.
Executive Separation Agreement
On September 2, 2022, the Company entered into an Executive Separation Agreement with Laurie Weisberg the Company’s Chief Executive Officer and member of the Board of Directors setting forth the terms and conditions related to the Executive’s resignation for good reason as Chief Executive Officer, Director and any other positions held with the Company or any subsidiary.
The Company will pay severance in the aggregate
amount of $
Additionally, all unvested and/or outstanding stock options held by Ms. Weisberg as of the date of the separation agreement that are not subject to metric based vesting shall automatically and fully vest. All unvested and/or outstanding stock options held by Ms. Weisberg as of the date of the separation agreement that are subject to metric based vesting shall vest in accordance with their respective original terms.
F-35
Note 11 – Acquisitions
Denver Bodega, LLC d/b/a Basis
On March 7, 2022, the Company entered into a Membership
Interest Purchase (the “Agreement”) with Henry Springer and Kyle Nowak (collectively the “Sellers”), whereby the
Company purchased a majority stake in Denver Bodega, LLC, a Colorado limited liability company whose product is Basis, a direct-to-consumer
functional beverage brand that makes high-electrolyte mixes meant to aid hydration. Pursuant to the Agreement, Creatd acquired all of
the issued and outstanding membership interests of Denver Bodega, LLC for consideration of one dollar ($
The following sets forth the components of the purchase price:
| Purchase price: | ||||
| Cash paid to seller | $ | |||
| Total purchase price | ||||
| Assets acquired: | ||||
| Cash | ||||
| Accounts Receivable | ||||
| Inventory | ||||
| Total assets acquired | ||||
| Liabilities assumed: | ||||
| Accounts payable and accrued expenses | ||||
| Notes payable | ||||
| Total liabilities assumed | ||||
| Net liabilities acquired | ( | ) | ||
| Excess purchase price | $ | |||
The following table provides a summary of the preliminary allocation of the excess purchase price.
| Goodwill | $ | |||
| Trade Names & Trademarks | ||||
| Know-How and Intellectual Property | ||||
| Customer Relationships | ||||
| Excess purchase price | $ |
The goodwill represents the assembled workforce, acquired capabilities, and future economic benefits resulting from the acquisition.
Orbit Media, LLC
On August 1, 2022 the Company entered into a Membership
Interest Purchase (the “Agreement”) with Zachary Shenkman, Wuseok Jung, Wesley Petry, Nicholas Scibilia, Gary Rettig, Brandon
Fallin (collectively the “Sellers”), whereby the Company purchased a majority stake in Orbit Media LLC, a New York limited
liability company whose product is an app-based stock trading platform designed to empower a new generation of investors, providing users
with a like-minded community as well as access to tools, content, and other resources to learn, train, and excel in the financial markets.
Pursuant to the Agreement, Creatd acquired fifty one percent (
F-36
Brave Foods, LLC
On September 13, 2022, the Company acquired
The following sets forth the components of the purchase price:
| Purchase price: | ||||
| Cash paid to seller | $ | |||
| Total purchase price | ||||
| Assets acquired: | ||||
| Cash | ||||
| Inventory | ||||
| Total assets acquired | ||||
| Liabilities assumed: | ||||
| Accounts payable and accrued expenses | ||||
| Notes payable | ||||
| Total liabilities assumed | ||||
| Net assets acquired | ||||
| Excess purchase price | $ | |||
The excess purchase price amounts are provisional and may be adjusted during the one-year measurement period as required by U.S. GAAP. It is likely that all intangible assets will be reallocated during the measurement period. The following table provides a summary of the allocation of the excess purchase price.
| Goodwill | $ | |||
| Trade Names & Trademarks | ||||
| Know-How and Intellectual Property | ||||
| Website | ||||
| Customer Relationships | ||||
| Excess purchase price | $ |
The goodwill represents the assembled workforce, acquired capabilities, and future economic benefits resulting from the acquisition.
F-37
Note 12 – Segment Information
We operate in three reportable segments: Creatd Labs, Creatd Ventures, and Creatd Partners. Our segments were determined based on the economic characteristics of our products and services, our internal organizational structure, the manner in which our operations are managed and the criteria used by our Chief Operating Decision Maker (CODM) to evaluate performance, which is generally the segment’s operating losses.
| Operations of: | Products and services provided: | |
| Creatd Labs |
Creatd Labs is the segment focused on development initiatives. Creatd Labs houses the Company’s proprietary technology, including its flagship platform, Vocal, as well as oversees the Company’s content creation framework, and management of its digital communities. Creatd Labs derives revenues from Vocal creator subscriptions, platform processing fees and technology licensing fees. | |
| Creatd Ventures |
Creatd Ventures builds, develops, and scales e-commerce brands. This segment generates revenues through product sales of its two majority-owned direct-to-consumer brands, Camp and Dune Glow Remedy.
| |
| Creatd Partners | Creatd Partners fosters relationships between brands and creators through its suite of agency services, including content marketing (Vocal for Brands), performance marketing (Seller’s Choice), and influencer marketing (WHE Agency). Creatd Partners derives revenues in the form of brand fees and talent management commissions. |
The following tables present certain financial information related to our reportable segments and Corporate:
| As of March 31, 2023 | ||||||||||||||||||||||||
| Creatd Labs | Creatd Ventures | Creatd Studios | Creatd Partners | Corporate | Total | |||||||||||||||||||
| Accounts receivable, net | $ | $ | $ | $ | $ | - | $ | |||||||||||||||||
| Prepaid expenses and other current assets | ||||||||||||||||||||||||
| Deposits and other assets | - | |||||||||||||||||||||||
| Intangible assets | - | |||||||||||||||||||||||
| Goodwill | ||||||||||||||||||||||||
| Inventory | ||||||||||||||||||||||||
| All other assets | ||||||||||||||||||||||||
| Total Assets | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Accounts payable and accrued liabilities | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Note payable, net of debt discount and issuance costs | ||||||||||||||||||||||||
| Deferred revenue | ||||||||||||||||||||||||
| All other Liabilities | ||||||||||||||||||||||||
| Total Liabilities | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
F-38
| As of December 31, 2022 | ||||||||||||||||||||||||
| Creatd Labs | Creatd Ventures | Creatd Studios | Creatd Partners | Corporate | Total | |||||||||||||||||||
| Accounts receivable, net | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Prepaid expenses and other current assets | ||||||||||||||||||||||||
| Deposits and other assets | ||||||||||||||||||||||||
| Intangible assets | ||||||||||||||||||||||||
| Goodwill | ||||||||||||||||||||||||
| Inventory | ||||||||||||||||||||||||
| All other assets | ||||||||||||||||||||||||
| Total Assets | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Accounts payable and accrued liabilities | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Note payable, net of debt discount and issuance costs | ||||||||||||||||||||||||
| Deferred revenue | ||||||||||||||||||||||||
| All other Liabilities | ||||||||||||||||||||||||
| Total Liabilities | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| For the three months ended March 31, 2023 | ||||||||||||||||||||||||
| Creatd Labs | Creatd Ventures | Creatd Studios | Creatd Partners | Corporate | Total | |||||||||||||||||||
| Net revenue | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Cost of revenue | ||||||||||||||||||||||||
| Gross margin | ( | ) | ( | ) | ||||||||||||||||||||
| Compensation | ||||||||||||||||||||||||
| Research and development | ||||||||||||||||||||||||
| Marketing | ||||||||||||||||||||||||
| Stock based compensation | ||||||||||||||||||||||||
| General and administrative | ||||||||||||||||||||||||
| Depreciation and amortization | - | - | ||||||||||||||||||||||
| Total operating expenses | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Interest expense | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| All other expenses | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||
| Other expenses, net | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||
| Loss before income tax provision and equity in net loss from unconsolidated investments | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
F-39
| For the three months ended March 31, 2022 | ||||||||||||||||||||||||
| Creatd Labs | Creatd Ventures | Creatd Studios | Creatd Partners | Corporate | Total | |||||||||||||||||||
| Net revenue | $ | $ | $ | $ | $ | |||||||||||||||||||
| Cost of revenue | ||||||||||||||||||||||||
| Gross margin | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Compensation | ||||||||||||||||||||||||
| Research and development | ||||||||||||||||||||||||
| Marketing | ||||||||||||||||||||||||
| Stock based compensation | ||||||||||||||||||||||||
| General and administrative | ||||||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||||||
| Impairment of goodwill | ||||||||||||||||||||||||
| Impairment of intangibles | ||||||||||||||||||||||||
| Total operating expenses | $ | $ | $ | $ | $ | |||||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| All other expenses | ||||||||||||||||||||||||
| Other expenses, net | ( | ) | ||||||||||||||||||||||
| Loss before income tax provision and equity in net loss from unconsolidated investments | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||
Note 14 – Subsequent Events
Convertible Notes
Subsequent to March 31, 2023, the Company entered
into a loan agreement with a lender whereby the lender issued the Company a promissory note of $
Beginning on October 24, 2023, the note is convertible
into shares of the Company’s common stock, par value $
Consultant Shares
Subsequent to March 31, 2023, the Company issued
Equity Line of Credit
Subsequent to March 31, 2023, the Company drew
down from its outstanding Equity Line of Credit and issued
F-40
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This Form 10-Q and other reports filed by Creatd, Inc. (the “Company”), from time to time with the SEC (collectively, the “Filings”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the Filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks relating to the Company’s business, industry, and the Company’s operations and results of operations. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.
Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. The following discussion should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this Form 10-Q.
We intend for this discussion to provide information that will assist in understanding our financial statements, the changes in certain key items in those financial statements, and the primary factors that accounted for those changes, as well as how certain accounting principles affect our financial statements. This discussion should be read in conjunction with our financial statements and accompanying notes for the year ended December 31, 2022, which are included in the Company’s Annual Report on Form 10-K that was filed with the SEC on April 19, 2023.
Overview
Creatd, Inc. provides economic opportunities for creators through access to its curated social platform called Vocal, enabling creators to share their stories, build an audience, and be rewarded. In addition to revenues generated directly from the platform from subscribers and microtransactions, the existence of Vocal, and the first-party data it produces, has resulted in the creation of numerous derivative business opportunities for the Company. Secondary opportunities with the potential to eventually exceed the core Vocal revenues include well-known brands activating through the Vocal platform under Creatd’s “Vocal for Brands” business unit. In addition to this branded content production, the establishment of a portfolio of consumer brands owned and operated in-house, will similarly leverage the core data and intelligence derived from the Company’s core Vocal platform.
2
Creator-Centric Strategy
Creatd exists to support the boundless capacity of creators. Our mission is to empower creators by providing best-in-class tools, supportive audience communities, and avenues for monetization. Our creator-first approach is the cornerstone of our culture and purpose and is what drives every decision we make. We are committed to channeling our resources toward fueling the dreams and ambitions of creators and helping them to unleash their full potential.
That’s why we built our flagship proprietary technology platform, Vocal-a home base for creators offering an unparalleled suite of digital tools and resources, curated communities, and monetization opportunities.
Vocal
Our flagship technology, Vocal, provides the Company with a core platform that is highly scalable on its own but also provides the foundation upon which other revenue sources rely. The first direct core business of Vocal has proven to be a scalable revenue source-Creator Subscriptions. The core will be augmented in the near term with the introduction of the ability for writers and creators to monetize their followings further by directly charging for premium content such as newsletters. Vocal will charge a recurring commission on these new premium content subscriptions. As discussed above, the core Vocal platform underlies numerous derivative revenue sources for the Company.
Since its launch in 2016, Vocal has quickly become the go-to platform for content creators of all kinds, with over 1.5 million registered creators and counting. Whether you’re a blogger, social media influencer, podcaster, founder, musician, photographer, or anything in between, Vocal has everything you need to unleash your creativity and monetize your content.
Creators can opt to use Vocal for free, or upgrade to the premium membership tier, Vocal+. Upon joining Vocal, either as a freemium or premium member, creators can immediately begin to utilize Vocal’s storytelling tools to create and publish their stories, as well as benefit from Vocal’s monetization features.
At Creatd, we believe in rewarding creators for their hard work and dedication. That’s why we offer a range of monetization features on Vocal, whereby creators earn in numerous ways including i) the number of ‘reads’ their story receives; ii) via Vocal Challenges, or writing contests with cash prizes; iii) receiving Bonuses; iv) by participating in Vocal for Brands marketing campaigns; v) through ‘ Subscribe,’ which enables creators to receive payment directly from their audience via monthly subscriptions and one-off microtransactions; vi) via Vocal’s Ambassador Program, which enables creators to be compensated for referring new premium members. But what sets Vocal apart from other platforms is our commitment to innovation and scalability. Built on Keystone, the same open-source framework used by industry leaders in the SaaS space, Vocal’s technology is designed for speed, sustainability, and scalability. And with our capital-light infrastructure and focus on research and development, we are able to continuously improve and enhance the platform, without incurring the operational costs that have weighed down legacy media platforms.
Creatd firmly believes that the future belongs to creators. And with Vocal, we’re proud to be leading the charge in providing them with the tools, resources, and opportunities they need to succeed.
Branded Content
In developing our creator ecosystem, we came to understand that like individual creators, all brands have a unique story to tell. That’s why we’ve developed Vocal for Brands, our in-house content studio that specializes in creating best-in-class organic marketing campaigns. Our approach combines the production of branded content influencer and performance marketing initiatives that work together to increase sales, revenue, visibility, and brand affinity for our clients.
We work with leading brands to pair them with our network of creators, tapping into their communities to help share their stories in a way that is engaging, direct-response driven, and non-interruptive. Similarly, through Sponsored Challenges, we prompt the creation of thousands of high-quality stories that are centered around the brand’s mission, further disseminated through creators’ respective social channels and promotional outlets.
Our campaigns are amplified with the help of Vocal’s first-party data insights, allowing us to create highly targeted, segmented audiences for brands with optimal results.
3
Consumer Products Group
At Creatd, we are proud of our internally owned and operated e-commerce businesses and associated technology and infrastructure. Our Consumer Products Group has grown to become a significant revenue contributor and we continue to invest in our portfolio to support direct-to-consumer brands with a wide range of services including design and development, marketing and distribution, and go-to-market strategies. We additionally remain on the lookout for up-and-coming brands that can potentially be acquired and easily consolidated into our shared supply chain, resources, and infrastructure to further broaden our portfolio.
The Company’s Consumer Products portfolio currently includes:
Camp, a direct-to-consumer (DTC) food brand which creates healthy upgrades to classic comfort food favorites. Each of Camp’s products is created with servings of vegetables and contains Vitamins A, C, D, E, B1, and B6. Since its launch in 2020, Camp continues to add new products to its line of healthy, veggie-based, family-friendly foods, with flavors including Classic Cheddar Mac ‘N’ Cheese, White Cheddar Mac ‘N’ Cheese, Vegan Cheezy Mac, and Twist Veggie Pasta.
Dune Glow Remedy (“Dune”), which the Company purchased and brought to market in 2021, is a beverage brand focused on promoting wellness and beauty from within. Each beverage in Dune’s product line is meticulously crafted with functional ingredients that nourish skin from the inside out and enhance one’s natural glow. During 2022, Dune has continued to advance its retail and wholesale distribution strategy, securing numerous partnerships including with lifestyle retailer Urban Outfitters, Equinox, and the Los Angeles-based Erewhon Market.
Basis is a hydrating electrolyte drink mix that was acquired in the first quarter of 2022. This brand has a history of strong sales volume both on the brand’s website as well as through third-party distribution channels such as Amazon.
Brave is a plant-based food company that provides convenient and healthy breakfast food products. Our Company acquired 100% of the membership interests of Brave Foods, LLC in September 2022. What started as a search for a better morning routine evolved into a business serving thousands of go-getters of every type. We are thrilled to have these amazing brands as part of our portfolio and we are excited to continue expanding our Consumer Products portfolio.
IP Development and Production
At Creatd, we’re always looking for ways to bring our creators’ stories to new audiences across different media. Our IP Development and Production efforts involve partnering with our top creators to develop their content for television, film, podcasts, and print. With our cutting-edge Vocal platform, we have access to a wealth of intellectual property that’s constantly being curated by a blend of human moderation and advanced machine learning models. Our Vocal technology allows us to analyze community, creator, and audience insights to surface the best candidates for transmedia adaptations. We’re committed to leveraging our vast library of compelling stories to create engaging and impactful content across multiple platforms. As of early 2023, Creatd announced a series of newly released and production projects. They include podcasts, books, and Web 3.0 opportunities.
Application of First-Party Data
First-party data is information that a creator platform collects directly from its users, such as their demographics, interests, and behaviors. By utilizing this data, Vocal’s creator platform can gain insights into its users’ preferences and tailor marketing campaigns accordingly.
For example, a large segment of Vocal users is interested in health and fitness, as evidenced through the Longevity community. This information can additionally be used not only to create more personalized experiences for Vocal audiences, but additionally to help fitness-oriented brands create targeted campaigns for workout equipment, supplements, or fitness apparel. With our ability to understand users’ niche interests and behaviors, the platform can create campaigns that resonate with its audience and drive better engagement and conversions.
The use of first-party data also helps the creator platform maintain a closer relationship with its users, as it enables a more personalized experience of content consumption and engagement for Vocal users. This can lead to higher retention rates, increased user loyalty, and improved user satisfaction. Finally, our business intelligence team pairs first-party Vocal data with third-party data from distribution platforms such as Instagram, TikTok, Twitter, and Snapchat providing a more granular profile of creators, brands, and audiences. By generating this valuable first-party data, the Company can continually enrich and refine its targeting capabilities for branded content marketing and creator acquisition, specifically, to reduce creator acquisition costs (CAC) and subscriber acquisition costs (SAC).
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Competitive Advantage
The idea for Vocal came as a response to what Creatd’s founders recognized as systemic flaws inherent to the digital media industry and its operational infrastructures, and the competitive advantage that a closed and safe platform ecosystem would provide. First-party data is widely understood as a tool for companies to collect and analyze data about their users directly from the source, providing valuable insights into their behaviors, preferences, and interests. Importantly, by leveraging this data within a closed and safe platform ecosystem, companies can create more personalized experiences for their users, deliver more relevant content and advertising, and increase user engagement and retention.
A secondary, and crucial, advantage of a closed ecosystem is that it allows companies to control the user experience and ensure a high level of safety and security. By controlling the data that is shared and the interactions that take place within the ecosystem, companies can minimize the risk of fraud, abuse, and other harmful behaviors that can undermine user trust and loyalty. This can be particularly important in industries where user safety and privacy are paramount, such as social networking, e-commerce, and financial services.
Finally, the existence of Vocal and its ecosystem enables the Company to optimize our operations and increase efficiencies, effectively creating a more defensible business model by reducing the risk of competition and disintermediation. By controlling the data and interactions within the ecosystem, we create barriers to entry for competitors and reduce the risk of users migrating to other platforms. This can be particularly important in an industry such as Creatd’s, in which network effects and economies of scale are critical to success, such as social networking, e-commerce, and digital advertising.
Leveraging these advantages has enabled the Company to differentiate itself in the market, attract and retain users, and drive sustainable growth and profitability.
Acquisition Strategy
Creatd’s strategic business line expansion has led to the acquisition of several complementary businesses. These acquisitions have allowed Creatd to expand its reach and diversify its revenue streams, enabling the company to leverage its internal resources and expertise to drive continued growth. In addition, the acquisitions have provided opportunities for cost synergies and operational efficiencies, further enhancing the company’s profitability and positioning it for long-term success.
Revenue Model
Creatd’s revenues are primarily generated through:
Platform: Creatd’s flagship technology product, Vocal, generates revenues through subscription fees from premium Vocal creators, a membership program known as Vocal+. The Vocal+ subscription offering provides creators with increased monetization and access to premium tools and features. At approximately $10 per month, Vocal+ offers creators a strong value proposition for freemium users to upgrade, while providing a scalable source of monthly recurring gross revenue for Creatd. Additional platform-based revenues are generated from Tipping and other transactions that occur on the platform. For each such transaction, which are designed to enable Vocal audiences to engage and support their favorite creators, Vocal takes platform processing fees ranging from approximately 3% to 7%.
E-commerce: The majority of the Company’s e-commerce revenues comes from sales associated with Creatd’s portfolio of internally owned and operated e-commerce businesses, Camp, Dune, Basis, and Brave. Additionally, the Company’s e-commerce strategy involves revitalizing archival imagery and media content in dormant legacy portfolios. Creatd maintains an exclusive license to leverage the stories housed on Vocal, reimagining them for films, episodic shows, games, graphic novels, collectibles, books, and more.
Agency: The Company derives revenues from marketing partnerships through its internal branded content studio, Vocal for Brands, which specializes in pairing leading brands with select Vocal creators to produce content marketing campaigns, including sponsored Challenges, that leverage the power of Vocal. Branded stories and Challenges are distributed to a targeted audience based on Vocal’s first-party data, and are optimized for conversions to maximize revenue growth.
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Corporate History and Information
We were originally incorporated under the laws of the State of Nevada on December 30, 1999 under the name LILM, Inc. The Company changed its name on December 3, 2013 to Great Plains Holdings, Inc.
On February 5, 2016 (the “Merger Closing Date”), we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with GPH Merger Sub, Inc., a Nevada corporation and our wholly-owned subsidiary (“Merger Sub”), and Jerrick Ventures, Inc., a privately-held Nevada corporation headquartered in New Jersey (“Jerrick”), pursuant to which the Merger Sub was merged with and into Jerrick, with Jerrick surviving as our wholly-owned subsidiary (the “Merger”). Pursuant to the terms of the Merger Agreement, we acquired, through a reverse triangular merger, all of the outstanding capital stock of Jerrick in exchange for issuing Jerrick’s shareholders (the “Jerrick Shareholders”), pro-rata, a total of 475,000 shares of our common stock, par value $0.001 per share (“Common Stock”). Additionally, we assumed 33,415 shares of Jerrick’s Series A Convertible Preferred Stock (the “Jerrick Series A Preferred”) and 8,064 shares of Series B Convertible Preferred Stock (the “Jerrick Series B Preferred”).
Upon closing of the Merger on February 5, 2016, the Company changed its business plan to our current plan.
In connection with the Merger, on the Merger Closing Date, we entered into a Spin-Off Agreement with Kent Campbell (the “Spin-Off Agreement”), pursuant to which Mr. Campbell purchased (i) all of our interest in Ashland Holdings, LLC, a Florida limited liability company, and (ii) all of our interest in Lil Marc, Inc., a Utah corporation, in exchange for the cancellation of 13,030 shares of our common stock held by Mr. Campbell. In addition, Mr. Campbell assumed all of our debts, obligations and liabilities, including any existing prior to the Merger, pursuant to the terms and conditions of the Spin-Off Agreement.
Effective February 28, 2016, we entered into an Agreement and Plan of Merger (the “Statutory Merger Agreement”), pursuant to which we became the parent company of Jerrick Ventures, LLC, our wholly-owned operating subsidiary (the “Statutory Merger”).
On February 28, 2016, we changed our name to Jerrick Media Holdings, Inc. to better reflect our new business strategy.
On July 25, 2019, we filed a certificate of amendment to our articles of incorporation, as amended (the “Amendment”), with the Secretary of State of the State of Nevada to effectuate a one-for-twenty (1:20) reverse stock split (the “Reverse Stock Split”) of our common stock without any change to its par value. The Amendment became effective on July 30, 2019. The number of shares of authorized common stock was proportionately reduced as a result of the Reverse Stock Split. The number of shares of authorized preferred stock was not affected by the Reverse Stock Split. No fractional shares were issued in connection with the Reverse Stock Split as all fractional shares were “rounded up” to the next whole share.
On September 11, 2019, the Company acquired 100% of the membership interests of Seller’s Choice, LLC, a New Jersey limited liability company (“Seller’s Choice”). Seller’s Choice is digital e-commerce agency based in New Jersey. On March 3, 2022, the Company settled the Seller’s Choice Note for a cash payment of $799,000.
On July 13, 2020, upon approval from our board of directors and stockholders, we filed Second Amended and Restated Articles of Incorporation with the Secretary of State of the State of Nevada for the purpose of increasing our authorized shares of Common Stock to 100,000,000.
On August 13, 2020, we filed a certificate of amendment to our second amended and restated articles of incorporation (the “Amendment”), with the Secretary of State of the State of Nevada to effectuate a one-for-three (1:3) reverse stock split (the “August 2020 Reverse Stock Split”) of our common stock without any change to its par value. The Amendment became effective on August 17, 2020. No fractional shares were issued in connection with the August 2020 Reverse Stock Split as all fractional shares were rounded down to the next whole share. All share and per share amounts of our common stock listed in this Form 10-K have been adjusted to give effect to the August 2020 Reverse Stock Split.
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On September 9, 2020, the Company filed a certificate of amendment with the Secretary of State of the State of Nevada to change our name to “Creatd, Inc.”, which became effective on September 10, 2020.
On June 4, 2021, the Company acquired 89% of the membership interests of Plant Camp, LLC, a Delaware limited liability company (“Plant Camp”), which the Company subsequently rebranded as Camp. Camp is a direct-to-consumer (DTC) food brand which creates healthy upgrades to classic comfort food favorites. The results of Plant Camp’s operations have been included since the date of acquisition in the Statements of Operations.
On July 20, 2021, the Company acquired 44% of the membership interests of WHE Agency, Inc. WHE Agency, Inc, is a talent management and public relations agency based in New York (“WHE”).
On January 9, 2023, the Company acquired an additional 51% of the equity interest in WHE Agency, Inc. bringing our total ownership to 95%. WHE has been consolidated due to the Company’s ownership of 55% voting control, and the results of operations have been included since the date of acquisition in the Statements of Operations.
Between October 21, 2020, and August 16, 2021, the Company acquired 21% of the membership interests of Dune, Inc. Dune, Inc. is a direct-to-consumer brand focused on promoting wellness through its range of health-oriented beverages.
On October 3, 2021, the Company acquired an additional 29% of the membership interests of Dune, Inc., bringing our total membership interests to 50%.
On January 25, 2023, the Company acquired an additional 23% equity interest in Dune, Inc. bringing our total ownership to 85%. Dune, Inc., has been consolidated due to the Company’s ownership of 50% voting control, and the results of operations have been included since the date of acquisition in the Statements of Operations.
On March 7, 2022, the Company acquired 100% of the membership interests of Denver Bodega, LLC, d/b/a Basis, a Colorado limited liability company (“Basis”). Basis is a direct-to-consumer functional beverage brand that makes high-electrolyte mixes meant to aid hydration. Denver Bodega, LLC has been consolidated due to the Company’s ownership of 100% voting control, and the results of operations have been included since the date of acquisition in the Statement of Operations.
On August 1, 2022, the Company acquired 51% of the membership interests of Orbit Media LLC, a New York limited liability company. Orbit is a app-based stock trading platform designed to empower a new generation of investors.
On February 3, 2023, the Company acquired an additional 5% of the membership interests of Orbit Media, LLC., bringing our total membership interests to 56%. Orbit has been consolidated due to the Company’s ownership of 51% voting control, and the results of operations have been included since the date of acquisition in the Statement of Operations.
On September 13, 2022, the Company acquired 100% of the membership interests of Brave Foods, LLC, a Maine limited liability company. Brave is a plant-based food company that provides convenient and healthy breakfast food products. Brave Foods, LLC has been consolidated due to the Company’s ownership of 100% voting control, and the results of operations have been included since the date of acquisition in the Statement of Operations.
Recent Developments
Dorado Goose Transaction
On January 18, 2023, the Company, entered into and closed two securities purchase agreements with Dorado Goose LLC or the investor, whereby the investor purchased from the Company for an aggregate of $1,500,000 in subscription amount, (i) an unsecured debenture in the principal amount of $847,500 and (ii) 1,562,500 shares of common stock. The Company and the investor also entered into a registration rights agreement pursuant to the securities purchase agreements. The subsidiaries of the Company delivered a guarantee in favor of the investor whereby each such subsidiary guaranteed the full payment and performance of all obligations of the Company pursuant to the debenture. The debenture has an original issue discount of 13%, has a maturity date of June 13, 2023, may be extended by six months at the Company’s option subject to certain conditions, and are convertible into shares of common stock at a conversion price of $0.20 per share, subject to adjustment upon certain events. The debenture and the common stock were not registered under the Securities Act but qualified for exemption under Section 4(a)(2) and Rule 506 promulgated thereunder.
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Quotation on OTCQB
Effective on September 7, 2022, our common stock is quoted on the OTCQB Marketplace operated by OTC Markets Group Inc. (“OTCQB”) under the symbol “CRTD.” Effective April 4, 2023, our symbol changed to “VOCL.”
Board of Directors and Management
On June 1, 2022, the Board of Directors approved the Creatd, Inc. 2022 Omnibus Securities and Incentive Plan. On November 10, 2022, the Board of Directors approved an amendment to the Creatd, Inc. 2022 Omnibus Securities and Incentive Plan. The plan provides for the granting of distribution equivalent rights, incentive share options, non-qualified share options, performance unit awards, restricted share awards, restricted share unit awards, share appreciation rights, tandem share appreciation rights, unrestricted share awards or any combination of the foregoing, as may be best suited to the circumstances of the particular employee, director or consultant as provided in the plan. the aggregate number of common shares (including common shares underlying options designated as incentive share options or non-qualified share options) that may be issued under the plan shall not exceed the sum of (i) 30,000,000 common shares plus (ii) an annual increase on the first day of each calendar year beginning January 1, 2023 and ending on and including January 1, 2031 equal to the lesser of (a) five percent (5%) of the common shares outstanding on the final day of the immediately preceding calendar year, and (b) such smaller number of common shares as determined by the Board.
On January 18, 2023, the Company held its Annual Meeting of Stockholders. The results of the matters voted on by the Company’s stockholders included the election of Directors to serve on the Company’s board; Amendment to our Articles of Incorporation to Increase Authorized Stock; and the approval of Creatd 2022 Omnibus Securities and Incentive Plan.
On February 8, 2023 (the “Effective Date”), the Board of Directors (the “Board”) of Creatd, Inc., a Nevada corporation (the “Company”) approved, based on the recommendation of the Compensation Committee (the “Committee”) of the Board, certain equity and cash compensation for certain key members of the Company’s management team and non-employee directors as discussed below.
The Company has made certain equity awards to the key members of the Company’s management team (the “Equity Awards”), comprised of 10,692,308 shares of the Company’s common stock (“Common Stock”) to Jeremy Frommer, Chief Executive Officer of the Company, 5,894,788 shares of Common Stock to Justin Maury, Chief Operating Officer of the Company, and 1,663,223 shares of Common Stock to Chelsea Pullano, Chief Financial Officer of the Company. As a condition to receiving the Equity Awards, each such officer agreed to lock-up terms such that only 10% of the shares comprising such individual’s Equity Award can be sold until 90 days after the date of the issuance of the Equity Awards (the “Lock Up Period”) and that during the Lock Up Period, and for nine months thereafter, each such individual can only sell the number of shares equal to the lesser of 5% of the trailing 30 day average volume or 25,000 shares in any single trading day. Additionally, beginning one year after the issuance of the Equity Awards, each individual receiving Equity Awards can only sell the number of shares equal to the lesser of 5% of the trailing 30-day average volume or 40,000 shares in any single trading day (the “Volume Restrictions”).
The Company will also pay cash bonuses to the key members of the Company’s management team (the “Executive Bonuses”) in the amounts of $125,000 to Jeremy Frommer, $62,500 to Justin Maury and $31,250 to Chelsea Pullano, to be paid out on a discretionary basis as determined by the Committee. In addition, each of Jeremy Frommer and Justin Maury will receive monthly housing stipends in the amount of $6,300 (the “Housing Stipends”).
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Additionally, the Company will make certain cash payments and equity awards to the non-employee members of the Board (the “Director Compensation”), comprised of annual cash compensation of $140,000, payable in monthly installments, an annual grant of $140,000 in Common Stock, issued quarterly and priced at the average of the last five trading days of the previous quarter. In the fiscal year 2023, each independent director shall be eligible for a cash bonus of $20,000, which shall be paid on a discretionary basis. As a share bonus, 1,700,000 shares of Common Stock shall be issuable to Peter Majar and 1,000,000 shares of Common Stock shall be issuable to Erica Wagner, with such shares subject to the same lock-up and volume restrictions as the Equity Awards.
The Company will offer the chair of the audit committee of the Board (the “Audit Committee Chair”) an additional annual cash compensation of $20,000, payable in monthly installments, and an annual grant of $20,000 in Common Stock, issued quarterly and priced at the average of the last five trading days of the previous quarter.
All equity awards made to the independent directors of the Company are made pursuant to the Creatd, Inc. 2022 Omnibus Securities and Incentive Plan (the “Plan”).
Common Stock Purchase Agreement, Securities Purchase Agreement and Promissory Note
On October 20, 2022, the Company entered into the Investment Agreement with Coventry (the “Investor”). Pursuant to the terms of the Investment Agreement, for a period of thirty-six (36) months commencing on the trading day immediately following date of effectiveness of the Registration Statement (as defined below), the Investor shall purchase up to $15,000,000 of the Company’s common stock, par value $0.001 per share (the “Shares”), pursuant to Drawdown Notices (as defined below), covering the Registrable Securities (as defined below). The purchase price of the Shares under the Investment Agreement is equal to 82% of the lowest volume weighted average price (VWAP) during the last ten trading days prior to the date the Company delivers to the Investor a Put notice (a “Drawdown Notice”) in writing requiring Investor to purchase shares of the Company, subject to the terms of the Investment Agreement.
On October 20, 2022, the Company also entered into a Securities Purchase Agreement (the “Purchase Agreement”) with the Investor, pursuant to which the Company issued to the Investor on that date a Promissory Note (the “Note”) in the principal amount of $300,000 in exchange for a purchase price of $255,000, which the Investor funded on October 20,2022. The proceeds of the Note will be used by the Company for general working capital purposes.
The Note bears interest at the rate of 10% per annum. Starting on the fifth month anniversary of the funding of the Note, and for the next six months thereafter, the Company will make seven equal monthly payments of $47,142.85 to the Investor.
On October 20, 2022, in connection with the entry by the Company and the Investor into the economic agreements, (i.e., the Investment Agreement, the Purchase Agreement, and the Note and the funding thereof), the Company issued 800,000 shares of its common stock to the Investor.
The February 2023 Securities Purchase Agreement
On February 1, 2023, the Company entered into and closed a securities purchase agreement with one accredited investor, whereby the Investor purchased from the Company for an aggregate of $1,250,000 in subscription amount, an unsecured debenture in the principal amount of $1,250,000. The Company and the investor also entered into a registration rights agreement pursuant to the securities purchase agreement. The debenture has a term of six months with a maturity date of August 1, 2023, which may be extended by six months at the Company’s option subject to certain conditions and monthly redemption options at the election of the holder and are convertible into shares of Common Stock at a conversion price of $0.20 per share, subject to adjustment upon certain events.
Listing on Upstream
On February 14, 2023, the Company completed the listing on Upstream of the Company’s shares of common stock, comprising the same class of common shares currently registered with the Commission that are currently issued and outstanding. Upstream is the trading app for digital securities and NFTs powered by Horizon Fintex and MERJ Exchange Limited (“MERJ”). The shares listed on Upstream are represented on MERJ Exchange as a “digital security” in the form of uncertificated securities that have the same shareholder rights as all other shares of such issuer. It is a representation of common stock in an uncertificated form. The Company has not issued any new securities pursuant to the listing on Upstream. All common shares have been registered with the Commission and comprise the entire number of shares of the Company issued and outstanding and all of the Company’s shares of common stock have the same CUSIP/ISIN number.
MERJ operates Upstream as a fully regulated and licensed integrated securities exchange, clearing system and depository for digital and non-digital securities. MERJ is an affiliate of the World Federation of Exchanges (WFE), recognized by HM Revenue and Customs UK, a full member of the Association of National Numbering Agencies (ANNA) and a Qualifying Foreign Exchange for OTC Markets in the US. MERJ is also a member of the Sustainable Stock Exchanges Initiative. MERJ is regulated in the Seychelles by the Financial Services Authority Seychelles, https://fsaseychelles.sc/. MERJ is not registered or regulated in any manner in the United States.
Upstream is accessible via the major app stores. After downloading the application, users will have access to review all the securities that trade on Upstream including trading activity, regulatory disclosures and other corporate information. Further there is a direct link of information on our Company at https://investors.creatd.com/resources/faqs/default.aspx. This includes a listing particulars document, which is a required disclosure as part of the requirements of MERJ Exchange Limited as defined by Securities Act 2007 of the Seychelles (as amended) and any other measure prescribed thereunder by the Minister or the Securities Authority. Investors are encouraged to review the listing particulars that may be found at the following link: https://upstream.exchange/creatd.
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Pursuant to Upstream’s policy, terms and conditions, investors based in the United States or Canada are prohibited from buying shares on the Upstream secondary market. However, U.S.- and Canada-based investors may sell securities they previously purchased or acquired from an issuer, stockbroker or stock exchange that has dual-listed on Upstream. U.S.- or Canada-based investors are those investors who citizens of the United States or Canada, including those living abroad, or permanent residents of the United States or Canada. To the extent shares had been deposited at a time prior to Upstream’s policy prohibiting such deposits, such shares cannot be sold at this time, and such shareholder would need to have such shares returned to the Company’s transfer agent to complete a sale.
The Press Release stated, “Global investors can now trade by downloading Upstream from their preferred app store at https://upstream.exchange/, creating an account by tapping sign up...”. This was not to suggest that investors based in the United States or Canada can buy shares on the Upstream secondary market, but to suggest that investors who are not U.S.- and Canada-based can trade on Upstream.
Investors who have deposited shares with Upstream may subsequently elect, at any time, to transfer such shares to from Upstream to the Company’s transfer agent for trade via their U.S. broker.
The Company is providing our investors with detailed information on the process on how to deposit and trade shares on Upstream directly on our website at the following link: https://investors.creatd.com/resources/faqs/default.aspx.
Shares transferred into Upstream will be effected via the Company’s Transfer Agent, Pacific Stock Transfer Company (“Pacific”). For shares already recorded with Pacific, investors can transfer such shares to Upstream by taking the following steps: Open Upstream, then choose Investor: Manage Securities, Deposit Securities and, next, Enter the Company’s Ticker Symbol and Number of Shares their requesting to deposit. Investors would then confirm the shares are unrestricted or “free trading” and tap Submit. The value of each share deposit request on the Upstream app may not exceed $100,000, with such value determined by the closing price of the security on the previous trading day multiplied by the number of shares being deposited. Once the investor makes the share deposit request using the Upstream app, and the transfer agent has the investor’s shares in ‘book entry’, the deposit is typically processed within 48 hours during business days. Once the transfer has been completed investors will receive a push notification in the Upstream app and see the share deposit in their Upstream Portfolio.
If the investor’s shares are currently in the investor’s brokerage account, then the investor will be required to transfer its shares to Pacific to have shares recorded as “direct registration” in “book entry” with Pacific. To make such transfer request, an investor would need to contact their brokerage firm and request to transfer their shares back to “book entry” with the transfer agent.
All shares transferred to Upstream shall be held in MERJ Dep., which is a company licensed as a Securities Facility pursuant to the Seychelles Securities Act, 2007. The Company has appointed MERJ Dep. to act as the Depository Nominee in respect of any securities traded which are quoted on Upstream and granted MERJ Dep. as the Depository Nominee, pursuant to the Securities Facility Rules Directive on Depository Interests.
Shares may be withdrawn from Upstream back to the transfer agent. The Upstream app has a function under Investor Services, Manage Securities, Withdraw Securities. The shareholder then enters the ticker symbol and the number of shares to being withdrawn and taps ‘Notarize’ to cryptographically sign this transaction. The shares are removed from the user’s Upstream portfolio and an email is sent to the transfer agent with a share withdrawal request whereafter the transfer agent will liaise directly with the shareholder to ensure the share balance is entered in ‘book entry’ into the user’s name & address. Third party share withdrawals from Upstream are not permitted, the share withdrawal request name and address (as retrieved from the Upstream know your customer (KYC) information by Upstream compliance) is required to be the same name and address that will be entered in the transfer agents ‘book entry’ for such shareholder.
The NFTs traded on Upstream are issued by the Company and convey no ownership interest in the Company, nor do they provide any dividends, royalties, or other equity interests or rights that would indicate an expectation of profit. The NFTs are issued only on Upstream and can only be traded on Upstream.
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The Commission evaluates whether a particular digital asset, including an NFT, is a security based on what is commonly referred to as the Howey Test. The Howey Test looks at four factors: (i) an investment of money (ii) in a common enterprise (iii) with the expectation of profit (iv) to be derived from the efforts of others. We believe the commemorative NFTs issued by Creatd do not meet the definition for securities under the Howey Test. Such NFTs, issued to investors who deposited shares of Creatd with Upstream, are commemorative in nature, memorializing the listing on Upstream, as a novelty item, being akin to a tombstone, plaque, sticker, poster or t-shirt commemorating the listing, similar to what NASDAQ and the NYSE may provide to its issuers. The NFT issued by Creatd conveys no ownership interest in Creatd, nor does it provide any dividends, royalties, or other equity interests or rights that would indicate an expectation of profit. The NFTs are issued only on Upstream and can only be traded on Upstream. No consideration was paid for the NFTs, and such investors are still able to transfer such shares back to Pacific Stock Transfer following receipt of the NFTs.
To trade on Upstream, users create a trading account using the Upstream smartphone app, with a random-generated username (in the form of an address that’s a 42-character hexadecimal address derived from the last 20 bytes of a random public key) and a password (in the form of a random cryptographic private key).The public and private key (the cryptographic keypair) is generated locally on the smartphone and only the public key is ever known to Upstream, MERJ Dep., or peer to peer tradin