As filed with the Securities and Exchange Commissionon August 25, 2022
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
CREATD, INC.
(Exact name of registrant as specified in itscharter)
Nevada | | 7819 | | 87-0645394 |
(State or other jurisdiction of incorporationor organization) | | (Primary Standard Industrial ClassificationCode Number) | | (I.R.S. Employer Identification Number) |
419 Lafayette Street
6th Floor
New York, NY 10003
(201) 258-3770
(Address, including zip code and telephone number,including area code, of registrant’s principal executive offices)
Laurie Weisberg
Chief Executive Officer
419 Lafayette Street, 6th Floor
New York, NY 10003
Telephone: (201) 258-3770
(Name, address, including zip code and telephonenumber, including area code, of agent for service)
Copies of all communications, including communicationssent to agent for service, should be sent to:
Joseph M. Lucosky, Esq. Scott E. Linsky, Esq. Lucosky Brookman LLP 101 Wood Avenue South, 5th Floor Iselin, NJ 08830 (732) 395-4400 |
Approximate date of commencement of proposed saleto the public:
As soon as practicable after the effective dateof this registration statement.
If any of the securities being registered on thisForm are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. ☒
If this Form is filed to register additional securitiesfor an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statementnumber of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filedpursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number ofthe earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filedpursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number ofthe earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrantis a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ |
Non-accelerated filer ☒ | Smaller reporting company ☒ |
| Emerging growth company ☐ |
If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accountingstandards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
The registrant hereby amends this registrationstatement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment whichspecifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the SecuritiesAct of 1933 or until this registration statement shall become effective on such date as the Securities and Exchange Commission, actingpursuant to said Section 8(a), may determine.
The information inthis preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filedwith the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and weare not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
SUBJECTTO COMPLETION, DATED AUGUST 25, 2022
PRELIMINARY PROSPECTUS
Subscription Rights to Purchase Up to 20,000,000Units
Consisting of Up to 20,000,000 Shares of Common Stock
Series A Warrants to Purchase Up to 20,000,000 Shares of Common Stock
at a Subscription Price of $ Per Unit
Up to 20,000,000 Shares of Common Stock
Issuable upon the Exercise of Series A Warrantsincluded in the Units
We are distributing, at no charge, non-transferablesubscription rights entitling holders of common stock as of the record date of 5:00 p.m. (Eastern time) on , 2022 and holders ofcertain shares of Series E Preferred Stock, common stock, warrants, options, and convertible notes, to purchase units at a subscriptionprice of $ per unit. Each unit will consist of one share of common stock and a Series A warrant exercisable to acquire one share of commonstock at an exercise price of $1.00. Shares of common stock and Series A warrants comprising the units may only be purchased as a unit,but will be issued separately. You will receive two subscription rights for every share of common stock and every share of common stockissuable upon conversion or exercise of the Preferred Shares, Eligible Warrants, Eligible Options, and Eligible Convertible Notes (allas defined herein) you hold as of the record date.
Pursuant to your subscription rights, you will havethe right, which we refer to as your basic right, to purchase a number of units equal to two times (i) the number of shares of commonstock you held as of the record date and (ii) the number of shares of common stock issuable upon conversion or exercise of the PreferredShares, Eligible Warrants, Eligible Options, and/or Eligible Convertible Notes you held as of the record date. If you exercise your basicright in full, you will also have the right, or over-subscription privilege, to purchase additional units for which other rights holdersdo not subscribe. Once made, all exercises of rights are irrevocable.
Your basic rights and over-subscription privilegewill expire if not exercised by 5:00 p.m. (Eastern time) on 2022, unless we extend or terminate this offering. We may extend this offeringfor one or more additional periods in our sole discretion not to exceed 45 days from the initial expiration date. We will announce anyextension in a press release issued no later than 9:00 a.m. (Eastern time) on the business day after the most recently announced expirationdate. If this offering is not fully subscribed following the expiration date of the offering, we use commercially reasonable efforts toplace any unsubscribed units at the subscription price for an additional period of up to 45 days. The number of units that may be soldby us during this period will depend upon the number of units that are subscribed for pursuant to the exercise of subscription rightsby shareholders and other rights holders.
Our common stock is traded on The Nasdaq CapitalMarket, or the Nasdaq, under the symbol “CRTD.” The closing price of the common stock on August 24, 2022 was $0.645 pershare. Neither the subscription rights nor the units are transferable.
Investing in our securities involves risks.See “Risk Factors” beginning on page 11 of this prospectus. We and our board of directors are not making any recommendationregarding the exercise of your rights.
This offering is being conducted on a best-effortsbasis, and we do not need to receive any minimum amount of proceeds in order to complete the offering. We have currently not entered intoany standby purchase agreement, backstop commitment or similar arrangement in connection with this offering.
Continental Stock Transfer & Trust will serveas the subscription agent for this offering and an escrow agent retained by the subscription agent will hold in escrow funds receivedfrom subscribers until we complete or terminate the offering.
| | | Per Unit | | | | Total(1) | |
Subscription price | | $ | | | | $ | | |
Proceeds to us, before expenses | | $ | | | | $ | | |
(1) | Assumes sale of all offered units and no exercise of Series A warrants included in the units. |
Neither the Securities and Exchange Commissionnor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus.Any representation to the contrary is a criminal offense.
If you have any questions or need further informationabout this offering, please call D.F. King & Co., Inc., the information agent for the offering, at (212) 269-5550 (bankers and brokers)or (877) 283-0323 (all others) or by email at creatd@dfking.com.
The date of this prospectus is August 25, 2022.
TABLE OF CONTENTS
Unless the context requires otherwise, referencesin this prospectus to “Creatd,” “our company,” “we,” “our” “us” and similarterms refer to Creatd, Inc., a Nevada corporation, and its subsidiaries, unless the context otherwise requires.
PROSPECTUS SUMMARY
The following summary highlights selected informationcontained in this prospectus. Because the following is only a summary, it does not contain all of the information you should considerbefore investing in our securities. Before making an investment decision, you should carefully read all of the information contained inthis prospectus, including the risks described under “Risk Factors” and our consolidated financial statements and the relatednotes from our 2021 Annual Report and most recent Form 10-Q, before making an investment decision.
Overview
Creatd, Inc. is a companywhose mission is to provide economic opportunities to creators and brands by multiplying the impact of platforms, people, and technology.
We operate four mainbusiness segments, or ‘pillars’: Creatd Labs, Creatd Partners, Creatd Ventures, and Creatd Studios. Together, Creatd’spillars work together to create a flywheel effect, supporting our core vision of creating a viable ecosystem for all stakeholders in thecreator economy.
Creator-Centric Strategy
Our purpose is to empowercreators to prosper through exceptional tools, built-in communities, and opportunities for monetization and audience expansion. This creator-firstapproach is the foundation of our culture and mission, and how we choose to allocate our resources.
Creatd Labs
Creatd Labs is dedicatedto the development of technology products that support the creator economy. This pillar houses Creatd’s proprietary technology platforms,including Creatd’s flagship product, Vocal.
Vocal
Vocal was built to serveas a home base for digital creators. This robust, proprietary technology platform provides best-in-class tools, safe and curated communities,and monetization opportunities that enable creators to find a receptive audience and get rewarded. Creators of all types call Vocal theirhome, from bloggers to social media influencers, to podcasters, founders, musicians, photographers, and more.
Since its initial launchin 2016, Vocal has grown to be one of the fastest-growing communities for content creators of all shapes and sizes. Creators can opt touse Vocal for free, or upgrade to the premium membership tier, Vocal+. Upon joining Vocal, either as a freemium or premium member, creatorscan immediately begin to utilize Vocal’s storytelling tools to create and publish their stories, as well as benefit from Vocal’smonetization features. Creatd facilitates creators’ monetization on Vocal in numerous different ways, including i) by rewardingcreators for each ‘read’ their story receives; ii) via Vocal Challenges, or writing contests through which creators can wincash and other rewards; iii) by awarding Bonuses; iv) by connecting creators with brands for opportunities to collaborate on Vocal forBrands branded content campaigns; v) through ‘Subscribe,’ which enables creators to receive payment directly from their audiencevia monthly subscriptions and one-off microtransactions; vi) via Vocal’s Ambassador Program, which enables creators to receive additionalrewards whenever they refer a new Vocal+ member.
In July 2022, Creatd released the first iteration of the new Vocalapp for iOS, giving its premium Vocal+ members exclusive first access to the app ahead of its full release, and then launched the appin full in mid-August 2022. The app, which was designed based on Vocal audience insights, is focused on optimizing Vocal’s readership;the app works to increase audience’s ability to easily discover curated stories, thereby widening creators' distribution of content,and opening up new opportunities for monetization to creators.
Vocal+
Vocal+ is Vocal’spremium membership program. Subscribers pay a membership fee to access additional premium features on the platform, including: a higherrate of earnings per read, reduced platform processing fees on tips received, eligibility to participate in exclusive Vocal+ Challenges,access to Vocal’s ‘Quick Edit’ feature for published stories, and more. The current cost of a Vocal+ membership is either$9.99 per month or $99 annually.
Moderation and Compliance
One of the key differentiatingfactors between Vocal and most other user-generated content platforms is the fact that each story submitted to Vocal is run through theCompany’s proprietary moderation process before it goes live on the platform. The decision to implement moderation into the submissionprocess was in direct response to the rise of misinformation and bad actors on many social platforms. In response to these inherent pitfallswithin the content landscape, Vocal’s proprietary moderation system combines the algorithmic detection of copyrighted material,hate speech, graphic violence, and nudity, and human-led curation to ensure the quality and safety of each story published on Vocal, thusfostering a safe and trustworthy environment for creators, audiences, and brands. During the second quarter 2022, Creatd announced Vocal’snew integration partnership with Two Hat, a Microsoft acquiree and a leading provider of AI-assisted content moderation and protectionsolutions for digital communities. Through the partnership, the Company further updated its proprietary moderation technology, with theaim of ensuring that the Vocal platform remains a safe place for its creators, brand partners, and audiences.
Trust and safety areparamount to the Vocal ecosystem. We follow best practices when handling personally identifiable information, with guidance from the EuropeanUnion’s General Data Protection Regulation (GDPR), the California Consumer Privacy Act (CCPA), and the Digital Millennium CopyrightAct (DMCA).
Platform Compliance Policiesinclude:
| ● | Human-led, technology-assistedmoderation of every story submitted; |
| ● | Algorithmic detection of hatespeech, nudity, and copyright infringement; |
| ● | Brand, creator, and audiencesafety enforced through community watch; and |
| ● | The rejection of what we considertoxic content, with the understanding that diverse opinions are encouraged. |
Technology Development
Vocal’s proprietarytechnology is built on Keystone, the same underlying open-source framework used by industry leaders such as Atlassian, a $43-billion Australiantechnology company. Some of the key differentiating elements of Vocal’s technology are speed, sustainability, and scalability. TheCompany continues to invest heavily in research and development to continuously improve and innovate its platform, with the goal of optimizingthe user experience for creators.
Additionally, the Vocalplatform and its underlying technology allow us to maintain an advantageous capital-light infrastructure. By using cloud service providers,we are able to focus on platform and revenue growth rather than building and maintaining the costly internal infrastructures that havematerially affected so many legacy media platforms.
Vocal’s technologyhas been specifically designed and built to scale without a material corresponding increase in operational costs. While our users canembed rich media, such as video, audio, and product links, into their Vocal stories, the rich media content is hosted elsewhere (suchas YouTube, Instagram, Vimeo, Shopify, Spotify, etc.). Thus, our platform can accommodate rich media content of all kinds without bearingthe financial or operational costs associated with hosting the rich media itself. In addition to the benefits this framework affords tothe Company, it provides the additional benefit to our content creators, in that a creator can increase their monetization; for example,a creator can embed their YouTube video into a Vocal story and thus derive earnings from both platforms when their video is viewed.
Creatd Partners
Creatd Partners housesthe Company’s agency businesses, with the goal of fostering partnerships between creators and brands. Creatd Partners’ offeringsinclude: Vocal for Brands (content marketing), WHE Agency (influencer marketing), and Seller’s Choice (performance marketing).
Vocal for Brands
All brands have a storyto tell, and we leverage Vocal’s creator community to help them tell it. Vocal for Brands, Creatd’s content marketing studio,specializes in pairing leading brands with Vocal creators as well as WHE influencers to produce marketing campaigns that are non-interruptive,engaging, and direct-response driven. Additionally, brands can opt to collaborate with Vocal on a sponsored Challenge, prompting the creationof high-quality stories that are centered around the brand’s mission and further disseminated through creators’ respectivesocial channels and promotional outlets. All Vocal for Brands campaigns leverage Vocal’s first-party audience insights, which enablesthe creation of highly targeted and segmented audiences and optimized campaign results.
WHE Agency
The WHE Agency (“WHE”),acquired by Creatd in 2021, was founded with the goal of supporting top creators and influencers, by connecting them with leading brandsand global audiences. Today, WHE manages a talent roster comprising over 100 creators across numerous verticals, including family andlifestyle, music, entertainment, and celebrity categories. Since acquiring WHE, the Company has helped WHE expand into new verticals,as well as facilitated partnerships on influencers’ behalf with leading brands including CBS, Amazon, Target, Disney, Warby Parker,CVS, Kay Jewelers, Walmart, Gerber, Masterclass, Procter & Gamble, Nike, and NFL, among others.
Seller’sChoice
Seller’s Choiceis Creatd Partners’ performance marketing agency specializing in DTC (direct-to-consumer) and e-commerce clientele. Seller’sChoice provides direct-to-consumer brands with design, development, strategy, and sales optimization services.
Creatd Ventures
Creatd Ventures housesCreatd’s portfolio of e-commerce businesses, both majority and minority-owned as well as associated e-commerce technology and infrastructure.The Company supports founders by providing capital, as well as a host of services including design and development, marketing and distribution,and go-to-market strategy. While working to scale Creatd Ventures’ existing portfolio brands, including through the introductionof new product offerings, Creatd continues to actively explore new potential additions to the Creatd Ventures portfolio. Specifically,the Company expects to broaden Creatd Ventures’ portfolio through the acquisition of brands that are aligned and that can be easilyconsolidated into its supply chain and infrastructure.
Currently, the CreatdVentures portfolio includes:
| ● | Camp, a direct-to-consumer(DTC) food brand which creates healthy upgrades to classic comfort food favorites. Each of Camp’s products are created with hiddenservings of vegetables and contain Vitamins A, C, D, E, B1 + B6. Since its launch in 2020, Camp continues to add new products to itsline of healthy, veggie-based, family-friendly foods, with flavors including Classic Cheddar Mac ‘N’ Cheese, White CheddarMac ‘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 outand enhance one’s natural glow. During 2022, Dune has continued to advance its retail and wholesale distribution strategy, securingnumerous partnerships including with lifestyle retailer Urban Outfitters and the Los Angeles-based Erewhon Market. Further, Creatd Venturescontinues to leverage these and other successful partnerships to create similar opportunities for the other brands in its portfolio. |
| ● | Basis, a hydrating electrolytedrink mix formulated using rehydration therapies developed by the World Health Organization. Acquired by the Company in first quarter2022, Basis has a history of strong sales volume both on the brand’s website as well as through third-party distribution channelssuch as Amazon. Creatd’s acquisition of 100% ownership in Basis marks its third majority ownership acquisition for Creatd Ventures. |
Creatd Studios
The goal of Creatd Studiosis to partner with creators to produce stories for TV, film, podcasts, and print. With millions of compelling stories in its midst, Creatd’sVocal technology surfaces the best candidates for transmedia adaptations, through a deep analysis of community, creator, and audienceinsights. Then, Creatd Studios helps creators tell their existing stories in new ways, by partnering them with entertainment and publishingstudios to create unique content experiences that accelerate earnings, discoverability, and foster new opportunities.
| ● | In 2022, Creatd Studios announceda series of newly released and upcoming production projects, including: |
“WriteHere, Write Now,” the Company’s first-ever podcast showcasing select Vocal creators and stories; a partnership with UK-basedpublisher, Unbound, for the publication of books featuring stories sourced from Vocal; the formation of a new graphic novel developmentarm which in Fall 2022 will release its first title, Steam Wars, created by artist and independent filmmaker Larry Blamire.
| ● | OG Gallery: The OG Collectionis an extensive library of original artwork and imagery from the archives of some of the most iconic magazines of the 20th century. OGGallery is an exploratory initiative aimed at identifying opportunities to propel the OG Collection into a new technological sphere:the NFT marketplace. |
Application of First-PartyData
Creatd’s businessintelligence and marketing teams identify and target individual creators, communities, and brands, utilizing empirical data harnessedfrom the Vocal platform. The team’s ability to apply its proprietary first-party data works to reduce acquisition costs for newcreators and to help provide brands with conversions and an ideal targeted audience. In this way, our ability to apply first-party datais one of the value-drivers for the Company across its four business pillars.
Importantly, we do notsell the collected data, that being a common monetization opportunity for many other businesses. Instead, we use our collected first partydata for the purposes of bettering the platform. Specifically, our data helps us understand the behaviors and attributes that are commonamong the creators, brands, and audiences within our ecosystem. We then pair our first-party Vocal data with third-party data from distributionplatforms such as Facebook and Snapchat to provide a more granular profile of our creators, brands, and audiences.
It is through generatingthis valuable first-party data that we can continually enrich and refine our targeting capabilities for branded content promotion andcreator acquisition, and specifically, to reduce our creator acquisition costs (CAC) and subscriber acquisition costs (SAC).
Competition
The idea for Vocal cameas a response to what Creatd’s founders recognized as systemic flaws inherent to the digital media industry and its operationalinfrastructures. The depreciating value of digital media business models built on legacy technology platforms created a unique opportunityfor the development of a creator-centric platform that could appeal to a global community and, at the same time, be capable of acquiringundervalued complimentary technology assets.
Creatd’s foundersbuilt the Vocal platform upon the general thesis that a closed and safe ecosystem utilizing first-party data to increase efficienciescould create a sustainable and defensible business model. Vocal was strategically developed to provide value for content creators, readers,and brands, and to serve as a home for the ever-increasing amount of digital content being produced and the libraries of digital assetslying dormant.
Vocal is most commonlydiscussed as a combination of:
| ● | Medium, a platform for writersbuilt by former Twitter founder Ev Williams; |
| ● | Reddit, a social news aggregation,web content rating, and discussion website; and |
| ● | Patreon, a membership platformthat provides business tools for content creators to run a subscription service. |
Creatd does not viewVocal as a substitute or competitor to segment-specific content platforms, such as Vimeo, YouTube, Instagram, Pinterest, TikTok, Spotify,or SoundCloud. We don’t want to replace anyone; we built Vocal to be accretive to the entire digital ecosystem. In fact, one ofthe most powerful components of our technology is the fact that Vocal makes it easy for creators to embed their existing published content,including videos, songs, podcasts, photographs, and more, directly into Vocal. We see this as a growth opportunity by building partnershipswith the world’s greatest technology companies and to further spread our roots deeper into the digital landscape
Acquisition Strategy
Creatd’s hybridfinance and design culture is key to its acquisition strategy. Acquisition targets are companies that meet a set of opportunistic or financialstandards or that are part of specific digital environments that are accretive and can seamlessly integrate into Creatd’s existingrevenue lines. Creatd will continue to make strategic acquisitions when presented with opportunities that are in the interest of shareholdervalue.
Recent Developments
Resignation of Chief Executive Officer andDirector
On August 9, 2022, Laurie Weisberg, the Company’sChief Executive Officer and a member of the Board, notified the Company of her intention to resign from the positions of Chief ExecutiveOfficer, director, and any other positions held with the Company or any of its subsidiaries, regardless of whether Ms. Weisberg had beenappointed. Such resignations are to become effective on a date to be determined following further discussion with the Board, but in noevent later than August 31, 2022.
Appointment of Chief Executive Officer
Effective upon Ms. Weisberg’s resignationas Chief Executive Officer, Jeremy Frommer, currently the Company’s Executive Chairman, will be appointed as Chief Executive Officer,pursuant to the Board’s approval.
Jeremy Frommer
Mr. Frommer was appointed Executive Chairman inFebruary 2022 and has been a member of our board of directors since February 2016. Previously, he served as our Chief Executive Officerfrom February 2016 to August 2021, and Co-Chief Executive Officer from August 2021 to February 2022. Mr. Frommer has over 20 years ofexperience in the financial technology industry. Previously, Mr. Frommer held key leadership roles in the investment banking and tradingdivisions of large financial institutions. From 2009 to 2012, Mr. Frommer was briefly retired until beginning concept formation for JerrickVentures which he officially founded in 2013. From 2007 to 2009, Mr. Frommer was Managing Director of Global Prime Services at RBC CapitalMarkets, the investment banking arm of the Royal Bank of Canada, the largest financial institution in Canada, after the sale of CarlinFinancial Group, a professional trading firm. From 2004 to 2007, Mr. Frommer was the Chief Executive Officer of Carlin Financial Groupafter the sale of NextGen Trading, a software development company focused on building equity trading platforms. From 2002 to 2004, Mr.Frommer was Founder and Chief Executive Officer of NextGen Trading. From 2000 to 2002, he was Managing Director of Merger Arbitrage Tradingat Bank of America, a financial services firm. Mr. Frommer was also a director of LionEye Capital, a hedge fund from June 2012 to June2014. He holds a B.A. from the University of Albany. We believe Mr. Frommer is qualified to serve on our board of directors due to hisfinancial and leadership experience.
Appointment of Director
Effective upon Ms. Weisberg’s resignationas a director, Justin Maury, currently the Company’s President and Chief Operating Officer, will be appointed to the Board, pursuantto the Board’s approval.
Justin Maury
Mr. Maury has served as our President since January2019 and was appointed Chief Operating Officer in August 2021. A full-stack designer and product developer by training, Mr. Maury partneredwith Jeremy Frommer and founded the Company in 2013, having brought with him 10 years of experience in the creative industry. Since joiningCreatd in 2013, Mr. Maury has been an instrumental force in the Company’s business and revenue expansion, and has overseen the Company’sproduct development since inception, including overseeing the design, development, launch, and ongoing growth of the Company’s flagshipproduct, Vocal, the innovative creator that, under Mr. Maury’s leadership, has grown to a community of over 1.5 million users witha total audience reach of over 175 million.
As a director, we believe Mr. Maury will add considerablevalue, including through by providing a unique perspective into Creatd’s product performance and evolution and by providing invaluabledirect input to help guide the Company’s ongoing refinement of its technology roadmap and maturation of its business model.
Trigger of Price Reset
On July 29, 2022, the Company announced that it was not moving forwardwith its previously announced Rights Offering. In doing so, it triggered a price reset in the July 2022 Financing and the May 2022 SecuritiesPurchase Agreement. As a result of this price reset, the May 2022 Securities Purchase Agreement debentures now have a conversion priceof $1.00, and both the Series C and Series D warrants have exercise prices of $0.96. As a result of the price reset, the July 2022 Financingdebentures now have a conversion price of $1.25, and both the Series E and Series F warrants have exercise prices of $1.01.
July 2022 Financing
On July 25, 2022 (the“Effective Date”), the Company entered into and closed securities purchase agreements (each, a “Purchase Agreement”)with five accredited investors (the “Investors”), whereby the Investors purchased from the Company for an aggregate of $1,935,019in subscription amount (i) debentures in the principal amount of $2,150,000 (the “Debentures”); (ii) 1,075,000 Series E CommonStock Purchase Warrants to purchase shares of the Common Stock (the “Series E Warrants”); and (iii) 1,075,000 Series F CommonStock Purchase Warrants to purchase shares of Common Stock (the “Series F Warrants”, and collectively with the Series E Warrants,the “Warrants”). The Company and the Investors also entered into registration rights agreements (each, a “RegistrationRights Agreement”) pursuant to the Purchase Agreement.
The Debentures have anoriginal issue discount of 10%, have a maturity date of November 30, 2022, may be extended by six months at the Company’s optionsubject to certain conditions, and are convertible into shares of Common Stock at a conversion price of $2.00 per share, subject to adjustmentupon certain events including a one-time adjustment to the price of the Common Stock offered in the Rights Offering (as defined therein),with such adjusted conversion price not to be lower than $1.25.
The Warrants are immediatelyexercisable for a term of five years until July 25, 2027. The Series E Warrants are exercisable at an exercise price of $3.00, subjectto adjustment upon certain events including a one-time adjustment to the price of the Common Stock offered in the Rights Offering, withsuch adjusted exercise price not to be lower than $1.01. The Series F Warrants are exercisable at an exercise price of $6.00 subject toadjustment upon certain events including a one-time adjustment to the price of the Common Stock offered in the Rights Offering, with suchadjusted exercise price not to be lower than $1.01. The Warrants provide for cashless exercise to the extent that there is no registrationstatement available for the underlying shares of Common Stock. The shares underlying the Debentures, the Series E Warrants and the SeriesF Warrants are to be registered within 90 days of the Effective Date.
The representations andwarranties contained in the Purchase Agreement were made by the parties to, and solely for the benefit of, the other in the context ofall of the terms and conditions of the Purchase Agreement and in the context of the specific relationship between the parties. The provisionsof the Purchase Agreement, including the representations and warranties contained therein, are not for the benefit of any party otherthan the parties to the Purchase Agreement. The Purchase Agreement is not intended for investors and the public to obtain factual informationabout the current state of affairs of the parties.
Additionally, in connectionwith the Purchase Agreements, the subsidiaries of the Company delivered a guarantee (the “Guarantee”) in favor of the Investorswhereby each such subsidiary guaranteed the full payment and performance of all obligations of the Company pursuant to the Purchase Agreement.
Nasdaq - ContinuedListing
On March 1, 2022, theCompany received a letter from the staff of The Nasdaq Capital Market (the “Exchange”) notifying the Company that the Exchangehas determined to delist the Company’s common stock from the Exchange based on the Company’s Market Value of Listed Securitiesfor the 30-consecutive day period between January 15, 2022 and February 25, 2022 falling short of the requirements under Listing Rule5550(b)(2) (the “Rule”). Although a 180-day period is typically allowed for an issuer to regain compliance, the Company wasnot eligible to use such compliance period, as the Exchange had instituted a Panel Monitor through March 9, 2022.
The Company pursued anappeal to the Nasdaq Hearings Panel (the “Panel”) of such determination, in accordance with the Exchange’s rules and,pursuant to such request by the Company to appeal, the delisting of the Company’s securities and the Form 25 Notification of Delistingfiling was stayed pending the Panel’s decision.
On April 22, 2022, theExchange notified the Company that the Panel has determined to continue the listing of the Company on the Exchange, subject to the followingconditions: (i) on or before May 16, 2022, the Company will file its Quarterly Report on Form 10-Q for the period ended March 31, 2022demonstrating compliance with Nasdaq Listing Rule 550(b)(1) requiring shareholders’ equity of $2.5 million and (ii) on or beforeAugust 29, 2022, the Company will file a Form 8-K documenting the successful completion of any fund-raising activity that has taken placesince April 14, 2022 and the Company’s long-term compliance with the continued listing requirements of the Nasdaq Capital Market.
The Panel has advisedthat August 29, 2022 represents the full extent of the Panel’s discretion to grant continued listing during the time the Companyis non-compliant and should the Company fail to demonstrate compliance by such date, the Panel will issue a final delist determinationand the Company will be suspended from trading on the Exchange.
May 2022 SecuritiesPurchase Agreement
On May 31, 2022, theCompany entered into and closed securities purchase agreements (each, a “Purchase Agreement”) with eight accredited investors(the “Investors”), whereby the Investors purchased from the Company for an aggregate of $3,600,036 in subscription amount(i) debentures in the principal amount of $4,000,000 (the “Debentures”); (ii) 2,000,000 Series C Common Stock Purchase Warrantsto purchase shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”) (the “SeriesC Warrants”); and (iii) 2,000,000 Series D Common Stock Purchase Warrants to purchase shares of Common Stock (the “SeriesD Warrants”, and collectively with the Series C Warrants, the “Warrants”). The Company and the Investors also enteredinto registration rights agreements (each, a “Registration Rights Agreement”) pursuant to the Purchase Agreement.
The Debentures have anoriginal issue discount of 10%, have a term of six months with a maturity date of November 30, 2022, may be extended by six months atthe Company’s option subject to certain conditions, and are convertible into shares of Common Stock at a conversion price of $2.00per share, subject to adjustment upon certain events including a one-time adjustment to the price of the Common Stock offered in the RightsOffering (as defined therein), with such adjusted conversion price not to be lower than $1.00.
The Warrants are exercisablefor a term of five years from the initial exercise date of November 30, 2022, until November 30, 2027. The Series C Warrants are exercisableat an exercise price of $3.00, subject to adjustment upon certain events including a one-time adjustment to the price of the Common Stockoffered in the Rights Offering, with such adjusted exercise price not to be lower than $0.96. The Series D Warrants are exercisable atan exercise price of $6.00 subject to adjustment upon certain events including a one-time adjustment to the price of the Common Stockoffered in the Rights Offering, with such adjusted exercise price not to be lower than $0.96. The Warrants provide for cashless exerciseto the extent that there is no registration statement available for the underlying shares of Common Stock. The shares underlying the Debentures,the Series C Warrants and the Series D Warrants are to be registered within 90 days of the Effective Date.
Additionally, in connectionwith the Purchase Agreements, the subsidiaries of the Company delivered a guarantee (the “Guarantee”) in favor of the Investorswhereby each such subsidiary guaranteed the full payment and performance of all obligations of the Company pursuant to the PurchaseAgreement.
The Debentures, Warrants,Common Stock underlying the Debentures and the Common Stock underlying the Warrants were not registered under the Securities Act, butqualified for exemption under Section 4(a)(2) and Rule 506 promulgated thereunder. The Company is relying on this exemption from registrationfor private placements based in part on the representations made by Investors, including representations with respect to each Investor’sstatus as an accredited investor, as such term is defined in Rule 501(a) of the Securities Act, and each Investor’s investment intent.
Our Corporate History
Creatd, Inc., formerly Jerrick Media Holdings,Inc. (“we,” “us,” the “Company,” or “Creatd”), is a technology company focused on thedevelopment of digital communities, marketing branded digital content, and e-commerce opportunities. Creatd’s content distributionplatform, Vocal, delivers a robust long-form, digital publishing platform organized into highly engaged niche-communities capable of hostingall forms of rich media content. Through Creatd’s proprietary algorithm dynamics, Vocal enhances the visibility of content and maximizesviewership, providing advertisers access to target markets that most closely match their interests.
The Company was originally incorporated underthe 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 GreatPlains Holdings, Inc. (“GTPH”) 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-ownedsubsidiary of GTPH (the “Merger”). GTPH acquired, pursuant to the Merger, all of the outstanding capital stock of Jerrickin exchange for issuing Jerrick’s shareholders (the “Jerrick Shareholders”), pro-rata, a total of 475,000 shares ofGTPH’s common stock. In connection therewith, GTPH acquired 33,415 shares of Jerrick’s Series A Convertible Preferred Stock(the “Jerrick Series A Preferred”) and 8,064 shares of Series B Convertible Preferred Stock (the “Jerrick Series B Preferred”).
In connection with the Merger, on the ClosingDate, GTPH and Kent Campbell entered into a Spin-Off Agreement (the “Spin-Off Agreement”), pursuant to which Mr. Campbellpurchased from GTPH (i) all of GTPH’s interest in Ashland Holdings, LLC, a Florida limited liability company, and (ii) all of GTPH’sinterest in Lil Marc, Inc., a Utah corporation, in exchange for the cancellation of 13,030 shares of GTPH’s Common Stock held byMr. Campbell. In addition, Mr. Campbell assumed all debts, obligations and liabilities of GTPH, including any existing prior to the Merger,pursuant to the terms and conditions of the Spin-Off Agreement.
Upon closing of the Merger on February 5, 2016,the Company changed its business plan to that of Jerrick.
Effective February 28, 2016, GTPH entered intoan Agreement and Plan of Merger (the “Statutory Merger Agreement”) with Jerrick, pursuant to which GTPH became the parentcompany of Jerrick Ventures, LLC, a wholly-owned operating subsidiary of Jerrick (the “Statutory Merger”) and GTPH changedits name to Jerrick Media Holdings, Inc. to better reflect its new business strategy.
On September 11, 2019, the Company acquired 100%of the membership interests of Seller’s Choice, LLC, a New Jersey limited liability company (“Seller’s Choice”).Seller’s Choice is digital e-commerce agency based in New Jersey.
On September 9, 2020, the Company filed a certificateof amendment with the Secretary of State of the State of Nevada to change our name to “Creatd, Inc.”, which became effectiveon 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 subsequentlyrebranded as Camp. Plant Camp is a direct-to-consumer (DTC) food brand which creates healthy upgrades to classic comfort food favorites.The results of Plant Camp’s operations have bene included since the date of acquisition in the Statements of Operations.
On July 20, 2021, theCompany acquired 44% of the membership interests of WHE Agency, Inc. WHE Agency, Inc, is a talent management and public relationsagency based in New York. WHE Agency, Inc, has been consolidated due to the Company’s ownership of 55% voting control, andthe results of operations have been included since the date of acquisition in the Statements of Operations.
On August 16, 2021, the Company acquired 16%of the membership interests of Dune, Inc. bring our total membership interests to 21%.
On October 3, 2021, the Company acquired 29%of the membership interests of Dune, Inc. bring our total membership interests to 50%. Dune, Inc. is a direct-to-consumer brand focusedon promoting wellness through its range of health-oriented beverages. Dune, Inc, has been consolidated due to the Company’s ownershipof 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% ofthe membership interests of Denver Bodega, LLC, d/b/a Basis, a Colorado limited liability company (“Basis”). Basis is a direct-to-consumerfunctional beverage brand that makes high-electrolyte mixes meant to aid hydration. Denver Bodega, LLC has been consolidated due to theCompany’s ownership of 100% voting control, and the results of operations have been included since the date of acquisition in theStatement of Operations.
On August 1, 2022 the Company entered into a Membership Interest Purchase(the “Agreement”) with Zachary Shenkman, Wuseok Jung, Wesley Petry, Nicholas Scibilia, Gary Rettig, Brandon Fallin (collectivelythe “Sellers”), whereby the Company purchased a majority stake in Orbit Media LLC, a New York limited liability company whoseproduct is an app-based stock trading platform designed to empower a new generation of investors, providing users with a like-minded communityas well as access to tools, content, and other resources to learn, train, and excel in the financial markets. Pursuant to the Agreement,Creatd acquired fifty one percent (51%) of the issued and outstanding membership interests of Orbit Media LLC for consideration of forty-fourthousand dollars ($44,000) in cash and 57,576 shares of the Company’s Common Stock.
SUMMARY OF THE OFFERING
Subscription Rights
We are distributing, at no charge, non-transferablesubscription rights to (i) holders of common stock as of the record date of 5:00 p.m. (Eastern time) on , 2022; (ii) holders of SeriesE Preferred Stock convertible into a total of 121,359 shares of common stock (the “Preferred Shares”); (iii) holders of warrantsto purchase a total of 14,756,412 shares of common stock (the “Eligible Warrants”); (iv) holders of options to purchase atotal of 4,409,100 shares of common stock (the “Eligible Options”), and (v) holders of convertible notes that are convertibleinto 5,720,000 shares of common stock (the “Eligible Convertible Notes”), who we refer to collectively as “rights holders”or “you.” Rights holders will receive two subscription rights for every share of common stock and every share of common stockissuable upon conversion or exercise of the Preferred Shares, Eligible Warrants, Eligible Options, and Eligible Convertible Notes heldas of the record date.
The Eligible Warrants include:
| ● | warrants issued between October 12, 2017, and November 8, 2018, to purchase a total of 27,500 shares of common stock at an exercise price of $12.00 per share; |
| ● | warrants issued between January 9, 2018, and February 8, 2018, to purchase a total of 11,941 shares of common stock at an exercise price of $12.00 per share; |
| ● | warrants issued on March 14, 2018, to purchase 1,667 shares of common stock at an exercise price of $12.00 per share; |
| ● | warrants issued between August 30, 2018, and September 25, 2018, to purchase a total of 24,234 shares of common stock at an exercise price of $18.00 per share; |
| ● | warrants issued between August 31, 2018, and January 25, 2019, to purchase a total of 223,371 shares of common stock at an exercise price of $1.75 per share; |
| ● | warrants issued between February 20, 2019, and May 15, 2019, to purchase a total of 44,468 shares of common stock at an exercise price of $18.00 per share; |
| ● | warrants issued between April 12, 2019 and September 26, 2019, to purchase a total of 11,241 shares of common stock at an exercise price of $18.00 per share; |
| ● | warrants issued between July 26, 2019, to July 30, 2020, to purchase a total of 597 shares of common stock at an exercise price of $18.00 per share; |
| ● | warrants issued on February 11, 2020, to purchase a total of 6,667 shares of common stock at an exercise price of $1.75 per share; |
| ● | warrants issued on June 19, 2020, to purchase a total of 49,603 shares of common stock at an exercise price of $12.00 per share; |
| ● | warrants issued between July 29, 2020, to September 9, 2020, to purchase a total of 26,669 shares of common stock at an exercise price of $4.50 per share; |
| ● | warrants issued on December 31, 2020, to purchase a total of 471,953 shares of common stock at an exercise price of $5.15 per share; |
| ● | warrants issued on December 31, 2020, to purchase a total of 1,103,397 shares of common stock at an exercise price of $4.50 per share; |
| ● | warrants issued on May 14, 2021, to purchase a total of 970,908 shares of common stock at an exercise price of $4.50 per share; |
| ● | warrants issued on June 16, 2021, to purchase a total of 46,667 shares of common stock at an exercise price of $5.40 per share; |
| ● | warrants issued on June 21, 2021, to purchase a total of 37,500 shares of common stock at an exercise price of $4.08 per share; |
| ● | warrants issued on October 27, 2021, to purchase a total of 42,500 shares of common stock at an exercise price of $5.40 per share; |
| ● | warrants issued on March 1, 2022, to purchase a total of 1,401,457 shares of common stock at an exercise price of $1.75 per share; |
| ● | warrants issued on March 9, 2022, to purchase a total of 1,519,857 shares of common stock at an exercise price of $1.75 per share; |
| ● | warrants issued on February 25, 2020, to purchase a total of 41,665 shares of common stock at an exercise price of $15.00 per share; |
| ● | warrants issued on May 31, 2019, to purchase a total of 50 shares of common stock at an exercise price of $12.00 per share; |
| ● | warrants issued on September 15, 2020, to purchase a total of 2,542,500 shares of common stock at an exercise price of $4.50 per share; |
| ● | warrants issued on May 31, 2022, to purchase a total of 4,000,000 shares of common stock at an exercise price of $0.96 per share; |
| | |
| ● | warrants issued on July 25, 2022, to purchase a total of 2,150,000 shares of common stock at an exercise price of $1.01 per share; |
The Eligible Options include:
| ● | options issued between June 28, 2017 and August 28, 2017, to purchase 833 shares of common stock at exercise prices from $9.60 to $18.00 per share; |
| ● | options issued on October 21, 2019, to purchase 9,664 shares of common stock at exercise prices from $7.20 to $13.20 per share; |
| ● | options issued on July 29, 2020, to purchase 391,853 shares of common stock at an exercise price of $8.55 per share; |
| ● | options issued between February 4, 2021 and December 31, 2021, to purchase 53,750 shares of common stock at exercise prices from $2.09 to $14.20 per share; |
| ● | options issued on February 19, 2021 to purchase 1,473,000 shares of common stock at an exercise price of $5.65 per share; |
| ● | options issued on October 28, 2021 to purchase 540,000 shares of common stock at an exercise price of $5.00 per share; |
| ● | options issued on April 5, 2022 to purchase 360,000 shares of common stock at an exercise price of $1.75 per share. |
| ● | options issued between June 1, 2022 and June 3, 2022, to purchase 1,580,000 shares of common stock at exercise prices from $1.10 to $1.90 per share; |
The Eligible Convertible Notes include:
| ● | convertible notes issued on May 31, 2022, convertible into 4,000,000 shares of common stock at a price of $1.00 per share; |
| ● | convertible notes issued on July 25, 2022, convertible into 1,720,000 shares of common stock at a price of $1.25 per share; |
Your subscription rights will consist of:
| ● | your basic right, which will entitle you to purchase a number of units equal to two times (i) the number of shares of common stock you held as of the record date and (ii) the number of shares of common stock issuable upon conversion or exercise of the Preferred Shares, Eligible Warrants, Eligible Options, and/or Eligible Convertible Notes you held as of the record date; and |
| ● | your over-subscription privilege, which will be exercisable only if you exercise your basic right in full and will entitle you to purchase additional units for which other rights holders do not subscribe, subject to pro rata allocation of those additional units to participating rights holders in proportion to the product (rounded down to the nearest whole number so that the aggregate number of units does not exceed the aggregate number offered) obtained by multiplying the number of units such rights holder subscribed for pursuant to the over-subscription privilege by a fraction (A) the numerator of which is the number of unsubscribed units and (B) the denominator of which is the total number of units sought to be subscribed for pursuant to the over-subscription privilege by all rights holders participating in such over-subscription. |
All units are being offered and sold at a subscriptionprice of $ per unit.
Units
Each unit will consist of:
| ● | one share of common stock; and |
| ● | a Series A warrant exercisable to acquire one share of common stock at an exercise price of $1.00. |
The shares of common stock and Series A warrantcomprising a unit may only be purchased as a unit, but will be issued separately.
The Series A warrants will be exercisable commencingon their date of issuance and expiring on , 2027. They will be exercisable for cash or, solely during any period when a registration statementcovering the issuance of the shares of common stock subject to the Series A warrants is not in effect, on a cashless basis.
Exercise of Subscription Rights
Subscription rights, consisting of basic rightsand over-subscription privileges, may be exercised at any time during the subscription period, which commences on , 2022 and expires at5:00 p.m. (Eastern time) on , 2022, or the expiration date, unless we extend or terminate this offering. Once made, all exercises of subscriptionrights are irrevocable.
We may extend this offering for one or more additionalperiods in our sole discretion not to exceed 45 days from the initial expiration date. We will announce any extension in a press releaseissued no later than 9:00 a.m. (Eastern time) on the business day after the most recently announced expiration date.
Subscription rights may only be exercised in aggregatefor whole numbers of units. Only whole numbers of shares of common stock and Series A warrants exercisable for whole numbers of shareswill be issuable to you in this offering; any right to a fractional share to which you would otherwise be entitled will be terminated,without consideration to you.
Transferability
Subscription Rights. The subscription rightsare evidenced by a subscription certificate and are non-transferable.
Units. Shares of common stock and SeriesA warrants comprising the units will be issued separately. Units will not be issued as a separate security and will not be transferable.
Common Stock. Shares of common stock includedin units will be separately transferable following their issuance. All of the shares issued in this offering are expected to be listedon The Nasdaq Capital Market.
Series A warrants. The Series A warrantswill be separately transferable following their issuance and through , 2027.
Use of Proceeds
Assuming this offering is fully subscribed, we estimate our net proceedsfrom the offering will total approximately $ million, after deducting our estimated offering expenses. We intend to use the net proceedsfor sales and marketing and general working capital purposes. The Company also intends to repay certain outstanding convertible notes,totaling $6,150,000, in the event that they do not convert prior to the closing of this offering. These notes mature on 11/30/2022 andbear no interest. See “Use of Proceeds.”
Subscription Information
In order to obtain subscription information, youshould contact:
| ● | D.F. King & Co., Inc. which will act as the information agent in connection with this offering, by telephone at (212) 269-5550 (bankers and brokers) or (877) 283-0323 (all others) or by email at creatd@dfking.com; or |
| ● | your broker-dealer, trust company or other nominee (including any mobile investment platform) where your subscription rights are held. |
Subscription Procedures
In order to exercise your subscription rights,including your over-subscription privilege, you should:
| ● | deliver a completed subscription certificate and the required payment to Continental Stock Transfer & Trust, the subscription agent for this offering, by the expiration date, or |
| ● | if your shares of common stock are held in an account with a broker-dealer, trust company, bank or other nominee (including any mobile investment platform) that qualifies as an Eligible Guarantor Institution under Rule 17Ad-15 under the Securities Exchange Act of 1934, have your Eligible Guarantor Institution deliver a notice of guaranteed delivery to the subscription agent by the expiration date. |
If you cannot deliver your completed subscriptioncertificate to the subscription agent prior to the expiration for the rights offering, you may follow the guaranteed delivery proceduresdescribed under “The Rights Offering—Methods for Exercising Subscription Rights—Guaranteed Delivery Procedures.”
Placement Period
If this offering is not fully subscribed followingthe expiration date of the offering, we will use commercially reasonable efforts to place any unsubscribed units at the subscription pricefor an additional period of up to 45 days. The number of units that may be sold by us during this period will depend upon the number ofunits that are subscribed for pursuant to the exercise of subscription rights by our shareholders and other rights holders. No assurancecan be given that any unsubscribed units will be sold during this period.
Important Dates
Set forth below are important dates for this offering,which generally are subject to extension:
Record date | | | , 2022 | |
Commencement date | | | , 2022 | |
Expiration date | | | , 2022 | |
Deadline for delivery of subscription certificates and payment of subscription prices | | | , 2022 | |
Deadline for delivery of notices of guaranteed delivery | | | , 2022 | |
Deadline for delivery of subscription certificates and payment of subscription prices pursuant to notices of guaranteed delivery | | | , 2022 | |
RISK FACTORS
Investing in our securities involves a highdegree of risk. You should consider and read carefully all of the risks and uncertainties described below, as well as other informationcontained in this prospectus, before making an investment decision with respect to our securities. The occurrence of any of the followingrisks or those incorporated by reference, or additional risks and uncertainties not presently known to us or that we currently believeto be immaterial could materially and adversely affect our business, financial condition, results of operations or cash flows. In anysuch case, the trading price of common stock and the trading price of Series A warrants, if any, could decline, and you may lose all orpart of your investment. This prospectus also contains forward-looking statements and estimates that involve risks and uncertainties.Our actual results could differ materially from those anticipated in the forward-looking statements as a result of specific factors, includingthe risks and uncertainties described below and those incorporated by reference.
This offering may cause the price of commonstock to decline, and the price may not recover for a substantial period of time, or at all.
The subscription price of units in this offering,together with the number of shares of common stock we propose to issue and ultimately will issue in the offering (including the numberof additional shares of common stock we propose to issue and ultimately will issue upon exercise of Series A warrants), may result inan immediate decrease in the market value of the common stock. We cannot predict the effect, if any, that the availability of shares forfuture sale represented by the Series A warrants will have on the market price of common stock from time to time. If the market priceof common stock falls, you may have irrevocably committed to buy shares of common stock in this offering at an effective price per sharegreater than the prevailing market price. Further, if a substantial number of subscription rights are exercised and the exercising rightsholders choose to sell some or all of the shares purchased either directly or upon Series A warrant exercises, the resulting sales coulddepress the market price of common stock. We cannot assure you that the market price of common stock will not decline prior to the expirationof this offering or that, after shares of common stock are issued upon exercise of subscription rights, you will be able to sell sharesof common stock purchased in the offering at a price greater than or equal to the effective price paid in the offering.
The subscription price determined for thisoffering may not be indicative of the fair value of common stock.
The subscription price was set by management andapproved by our board of directors, and you should not consider the subscription price as an indication of the fair value of common stock.The subscription price does not necessarily bear any relationship to the book value of our assets, net worth, past operations, cash flows,earnings/losses, financial condition or any other established criteria for fair value. The market price of common stock could declineduring or after this offering, and you may not be able to sell shares of common stock purchased in the offering, including shares of commonstock issuable upon the exercise of Series A warrants, at a price equal to or greater than the effective price paid in the offering, orat all.
Your interest in our company may be dilutedas a result of this offering.
If you do not fully exercise your basicrights, you will, at the completion of this offering, own a smaller proportional interest in our company on a fully diluted basisthan would have been the case if you had fully exercised your basic rights. Based on shares outstanding as of August 25, 2022, after givingeffect to this offering (assuming the offering is fully subscribed and the Series A warrants issued in the offering are exercised infull), we would have 60,361,758 shares of common stock outstanding, representing an increase in outstanding shares of 196%.
The subscription rights are non-transferable.
You cannot transfer or sell your subscriptionrights to anyone else. We therefore do not intend to list the subscription rights on any securities exchange or include them in any automatedquotation system and there will be no market for the subscription rights.
Holders of Series A warrants issued in thisoffering will have no rights as holders of common stock until they exercise their Series A warrants and acquire common stock.
Until holders of Series A warrants issued in thisoffering acquire shares of common stock upon exercise of such Series A warrants, they will have no rights with respect to the shares ofcommon stock underlying such Series A warrants. Upon exercise of the Series A warrants, the holders thereof will be entitled to exercisethe rights of holders of common stock only as to matters for which the record date occurs after the warrant exercise date.
There is no established public trading marketfor the warrants being offered in this offering.
There is no established public trading market forthe Series A warrants being offered in this offering. We do not intend to apply to list the Series A warrants to be issued in this offeringon any national securities exchange or other nationally recognized trading system. Without an active trading market, the liquidity ofthe Series A warrants will be limited without first exercising them.
During the period immediately followingthe expiration of this offering, you may not be able to resell any shares of common stock that you purchase in the offering or upon exerciseof your Series A warrants.
If you exercise your subscription rights, youmay not be able to resell shares of common stock purchased by exercising your subscription rights, or shares of common stock issued toyou upon exercise of your Series A warrants, until you (or your broker or other nominee) have received a stock certificate or book-entryrepresenting those shares. Although we will endeavor to issue the appropriate certificates and book entries promptly, there may be somedelay between the expiration date of this offering, or the exercise date of your Series A warrants, and the time that we issue the newstock certificates and book entries.
In addition, to the extent you are an affiliate,as defined in Rule 144 under the Securities Act, the resale of shares of common stock or Series A warrants by you will be subject to certainrestrictions, including volume limitations.
We may have broad discretion in the useof a significant portion of the net proceeds from this offering and may not use those net proceeds effectively.
We intend to use the net proceeds for sales andmarketing and general working capital purposes. We cannot specify with any certainty the particular uses of the net proceeds, if any,that we receive from this offering. Our management will have broad discretion in the application of those additional net proceeds, andwe may spend or invest those net proceeds in a way with which shareholders disagree. The failure by management to apply these funds effectivelycould harm our business and financial condition. Pending their use, we may invest the net proceeds in a manner that does not produce incomeor that loses value.
If we terminate this offering, neither wenor the subscription agent will have any obligation to you except to promptly return your subscription payments.
We may terminate this offering at any time. Ifwe do, neither we nor the subscription agent will have any obligation to you with respect to subscription rights that you have exercised,other than to promptly return, without interest or deduction, the subscription payment you delivered to the subscription agent.
If you do not act on a timely basis andfollow subscription instructions, your exercise of subscription rights may be rejected.
Holders of common stock and holders of PreferredShares, Eligible Warrants, Eligible Convertible Notes, and/or Eligible Options who desire to purchase units in this offering must acton a timely basis to ensure that all required forms and payments are actually received by the subscription agent prior to 5:00 p.m. (Easterntime) on the expiration date, unless this offering is extended. If you are a beneficial owner of shares of common stock and you wish toexercise your subscription rights, you must act promptly to ensure that your broker, custodian bank or other nominee (including any mobileinvestment platform) acts for you and that all required forms and payments are actually received by your broker, custodian bank or othernominee (including any mobile investment platform) in sufficient time to deliver such forms and payments to the subscription agent inorder to exercise your subscription rights by 5:00 p.m. (Eastern time) on the expiration date, unless extended. We will not be responsibleif your broker, custodian or nominee (including any mobile investment platform) fails to ensure that all required forms and payments areactually received by the subscription agent in a timely manner.
If you fail to complete and sign the requiredsubscription forms, send an incorrect payment amount, or otherwise fail to follow the subscription procedures that apply to your exerciseof rights, the subscription agent may, depending on the circumstances, reject your subscription or accept it only to the extent of thepayment received. Neither we nor the subscription agent undertakes to contact you concerning an incomplete or incorrect subscription formor payment, nor are we or the subscription agent under any obligation to correct such forms or payment. We have the sole discretion todetermine whether a subscription exercise properly follows the subscription procedures.
If you pay the subscription price by uncertifiedcheck, your check may not clear in sufficient time to enable you to exercise your subscription rights.
Any uncertified check used to pay for the subscriptionprice in this offering must clear prior to the expiration date of this offering. The clearing process may require five or more businessdays. If you choose to pay the subscription price, in whole or in part, by uncertified check and your check does not clear prior to theexpiration date of this offering, you will not have satisfied the conditions to exercise your rights and you will not receive the unitsyou wish to purchase.
You may not receive all of the units forwhich you subscribe under the over-subscription privilege.
Rights holders who fully exercise their basicrights will have the right, pursuant to their over-subscription privileges, to purchase additional units to the extent other rights holdersdo not exercise their basic rights in full. Over-subscription privileges will be allocated pro rata among rights holders who over-subscribe,based on the number of over-subscription units for which the rights holders have subscribed. We cannot guarantee that you will receiveall, or a significant portion, of the units for which you subscribe pursuant to your over-subscription privilege.
If the number of units allocated to you is lessthan your subscription request, the excess funds held by the subscription agent on your behalf will be promptly returned to you, withoutinterest or deduction, after this offering has expired, and we will have no further obligations to you.
Your receipt of subscription rights maybe treated as a taxable dividend to you.
The distribution of subscription rights in thisoffering should be a non-taxable stock dividend under Section 305(a) of the Internal Revenue Code of 1986. This position is not bindingon the Internal Revenue Service or the courts, however. If this offering is part of a “disproportionate distribution” underSection 305 of the Internal Revenue Code, your receipt of subscription rights may be treated as the receipt of a distribution equalto the fair market value of the rights. Any such distribution treated as a disproportionate distribution would be treated as dividendincome to the extent of our current and accumulated earnings and profits, with any excess being treated as a return of basis to the extentthereof and then as capital gain. See “Material U.S. Federal Income Tax Considerations.”
Because we do not have a standby purchaseagreement, backstop commitment or similar arrangement in connection with this offering, the net proceeds we receive from the offeringmay be less than we intend.
We have currently not entered into any standbypurchase agreement, backstop commitment or similar arrangement in connection with this offering. We therefore cannot assure you that anyof our shareholders will exercise all or any part of their subscription rights. If rights holders subscribe for fewer units than anticipated,the net proceeds we receive from this offering could be significantly reduced. Regardless of whether this offering is fully subscribedor we do enter into a standby purchase agreement, backstop commitment or similar arrangement, we may need to raise additional capitalin the future.
We may in the future enter into a standby purchaseagreement, backstop commitment or similar arrangement in connection with this offering if we are able to negotiate commercially reasonableterms with a standby purchaser or backstop purchaser. We cannot assure you that such an arrangement will be available on commerciallyreasonable terms and if we are unable to negotiate commercially reasonable terms for a standby purchase agreement, backstop commitmentor similar arrangement in connection with this offering we would not enter into such an arrangement. In the event we enter into a standbypurchase agreement, backstop commitment or similar arrangement in connection with this offering we will file a Current Report on Form8-K with a summary of the terms of such arrangement.
We do not expect to pay dividends in thefuture. Any return on investment may be limited to the value of our common stock.
We do not anticipate paying any cash dividendson our common stock in the foreseeable future. The payment of dividends on our common stock will depend on earnings, financial conditionand other business and economic factors affecting us at such time as our board of directors may consider relevant. If we do not pay dividends,our common stock may be less valuable because a return on your investment will only occur if our stock price appreciates.
Because the Series A warrants are executorycontracts, they may have no value in a bankruptcy or reorganization proceeding.
In the event a bankruptcy or reorganization proceedingis commenced by or against us, a bankruptcy court may hold that any then-unexercised Series A warrants are executory contracts subjectto rejection by us with the approval of a bankruptcy court. As a result, even if we have sufficient funds, holders may not be entitledto receive any consideration for their Series A warrants or may receive an amount less than they would be entitled to if they had exercisedtheir Series A warrants prior to the commencement of any such bankruptcy or reorganization proceeding.
Each of our Second Amended and RestatedArticles of Incorporation and our Amended and Restated Bylaws provide that the Eighth Judicial District Court of Clark County, Nevadawill be the sole and exclusive forum for certain disputes which could limit stockholders’ ability to obtain a favorable judicialforum for disputes with the Company or its directors, officers, employees or agents.
Each of our Second Amended and Restated Articlesof Incorporation and our Amended and Restated Bylaws provide that unless the Company consents in writing to the selection of an alternativeforum, the Eighth Judicial District Court of Clark County, Nevada shall be the sole and exclusive forum for state law claims with respectto: (i) any derivative action or proceeding brought in the name or right of the Company or on its behalf, (ii) any action assertinga claim for breach of any fiduciary duty owed by any director, officer, employee or agent of the Company to the Company or the Company’sstockholders, (iii) any action arising or asserting a claim arising pursuant to any provision of Nevada Revised Statutes Chapters 78 or92A or any provision of the Company’s Second Amended and Restated Articles of Incorporation or Amended and Restated Bylaws or (iv) anyaction asserting a claim governed by the internal affairs doctrine, including, without limitation, any action to interpret, apply, enforceor determine the validity of the Company’s Second Amended and Restated Articles of Incorporation or Amended and Restated Bylaws.This exclusive forum provision would not apply to suits brought to enforce any liability or duty created by the Securities Act or theExchange Act or any other claim for which the federal courts have exclusive jurisdiction. To the extent that any such claims may be basedupon federal law claims, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any dutyor liability created by the Exchange Act or the rules and regulations thereunder.
Section 22 of the Securities Act creates concurrentjurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or therules and regulations thereunder. However, each of our Second Amended Articles of Incorporation and our Amended and Restated Bylaws containa federal forum provision which provides that unless the Company consents in writing to the selection of an alternative forum, the federaldistrict courts of the United States of America will be the exclusive forum for the resolution of any complaint asserting a cause of actionarising under the Securities Act. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of theCompany are deemed to have notice of and consented to this provision. As this provision applies to Securities Act claims, there may beuncertainty whether a court would enforce such a provision.
These choice of forum provisions may limit a stockholder’sability to bring a claim in a judicial forum that it finds favorable for disputes with the Company or its directors, officers or otheremployees, which may discourage such lawsuits against the Company and its directors, officers and other employees. Alternatively, if acourt were to find our choice of forum provisions contained in either our Second Amended and Restated Articles of Incorporation or Amendedand Restated Bylaws to be inapplicable or unenforceable in an action, the Company may incur additional costs associated with resolvingsuch action in other jurisdictions, which could harm its business, results of operations, and financial condition.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statementswithin the meaning of Section 27A of the Securities Act of 1933 or the Securities Act, Section 21E of the Securities Exchange Act of 1934or the Exchange Act, and the Private Securities Litigation Reform Act of 1995. Forward-looking statements are those that reflect our currentviews with respect to future events and financial performance, and all statements other than statements of historical fact are statementsthat are, or could be, deemed forward-looking statements. In some cases, you can identify forward-looking statements by terms such as“may,” “might,” “will,” “intend,” “should,” “could,” “can,”“would,” “believe,” “expect,” “seek,” “anticipate,” “intend,”“estimate,” “plan,” “target,” “project,” “forecast,” “envision”or the negative of these terms, and other similar phrases. All statements contained in this prospectus and any prospectus supplement regardingfuture financial position, sales, costs, earnings, losses, cash flows, other measures of results of operations, capital expenditures ordebt levels and plans, objectives, outlook, targets, guidance or goals are forward-looking statements.
You should not place undue reliance on our forward-lookingstatements because they are not guarantees of future performance or expectations, and involve risks and uncertainties. Our forward-lookingstatements are based on the information currently available to us and speak only as of the date on the cover of this prospectus, the dateof any prospectus supplement, or, in the case of forward-looking statements incorporated by reference, the date of the filing that includesthe statement. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statementsrelate to future events or our future operational or financial performance, and involve known and unknown risks, uncertainties and otherfactors that may cause our actual results, performance or achievements to be materially different from any future results, performanceor achievements expressed or implied by these forward-looking statements. Except as required by applicable law, we assume no obligation,and disclaim any obligation, to update forward-looking statements whether as a result of new information, events or otherwise.
The forward-looking statements contained in thisprospectus are set forth principally in “Risk Factors” above, and in “Risk Factors,” “Management’sDiscussion and Analysis of Financial Condition and Results of Operations,” “Business” and other sectionsin our 2021 Annual Report and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”“Risk Factors” and other sections in our Latest Form 10-Q. In addition, there may be events in the future that we arenot able to predict accurately or control which may cause actual results to differ materially from expectations expressed or implied byforward-looking statements. Please consider our forward-looking statements in light of these risks as you read this prospectus.
QUESTIONS AND ANSWERS RELATING TO THIS OFFERING
The following are examples of what we anticipatewill be common questions about this offering. The answers are based on selected information included elsewhere in this prospectus. Thefollowing questions and answers do not contain all of the information that may be important to you and may not address all of the questionsthat you may have about this offering. This prospectus, including the documents we incorporate by reference, contains more detailed descriptionsof the terms and conditions of this offering and provides additional information about our company and our business, including potentialrisks related to our business, the offering and common stock.
What is the rights offering?
We are issuing to each holder of common stockas of the record date and each holder of the Preferred Shares, Eligible Warrants, Eligible Options, and/or Eligible Convertible Notesas of the record date, who we refer to as a rights holder or you, two non-transferable subscription rights for each share of common stockthen owned or issuable upon conversion or exercise by the holder. Each basic right entitles the holder to purchase one unit at a subscriptionprice of $ , which we refer to as the subscription price. Holders of fractional shares shall be entitled, in proportion to their fractionalholdings, to receive basic rights, provided that such basic rights may only be exercised in aggregate for whole numbers of units.
What securities comprise the units?
Each unit will consist of 1 share of common stockand a Series A warrant exercisable for one share of common stock at a price of $ per unit. Shares of common stock and Series A warrantscomprising a unit may only be purchased as a unit, but will be issued separately. Subscription rights will not be transferrable. The subscriptionrights may only be exercised in aggregate for whole numbers of units.
What are the terms of the Series A warrantsincluded in the units?
For each unit you purchase, you will be entitledto receive a Series A warrant exercisable to acquire one share of common stock at an exercise price of $1.00. Each warrant will expireon , 2027, and will be exercisable for cash or, solely during any period when a registration statement covering the issuance of the sharesof common stock subject to the Series A warrants is not in effect, on a cashless basis. Each warrant is exercisable commencing upon issuanceand expire on , 2027. The Series A warrants will be issued in registered forms under warrant agreements with Pacific Stock Transfer aswarrant agent.
Will the Series A warrants be listed?
No, the Series A warrants will not be listed on anon any securities exchange or included in any automated quotation system.
What are the basic rights?
For each basic right held, each rights holder hasthe opportunity to purchase two units at a subscription price of $ , provided that (a) basic rights may be exercised in aggregate onlyto purchase whole numbers of units, (b) the total subscription price payable upon any exercise of subscription rights will be roundedto the nearest whole cent and (c) only whole numbers of shares of common stock and Series A warrants exercisable for whole numbers ofshares will be to a holder in this offering, with any right to a fractional share to which a holder would otherwise be entitled beingterminated without consideration to the rights holder. Holders of fractional shares shall be entitled, in proportion to their fractionalholdings, to receive basic rights, provided that such basic rights may only be exercised in aggregate for whole numbers of units. We havegranted to you, as a holder of common stock as of the record date or a holder of the Preferred Shares, Eligible Warrants, Eligible ConvertibleNotes, Eligible Options, and/or Eligible Convertible Notes as of the record date, two basic rights for each whole share of common stockyou then owned or you are entitled to upon conversion or exercise of the Preferred Shares, Eligible Warrants, Eligible Convertible Notesand/or Eligible Options. For example, if you owned 1,000 shares of common stock as of the record date, you would receive 2,000 basic rightsand would have the right to purchase, for an aggregate subscription price of $ , 2,000 units comprised of 2,000 sharesof common stock and a Series A warrant to purchase 2,000 shares of common stock at an aggregate purchase price of $2,000. You may exerciseall, a portion or none of your basic rights. If you exercise fewer than all of your basic rights, however, you will not be entitled topurchase any additional units pursuant to the over-subscription privilege. See “-What is the over-subscription privilege?”below.
What is the over-subscription privilege?
If you exercise all of your basic rights, youwill have the right, which we refer to as the over-subscription privilege, to purchase additional units that remain unsubscribed as aresult of any unexercised basic rights. We refer to the basic rights and over-subscription privilege together as subscription rights.You should indicate on your subscription certificate, or the form provided by your nominee if your shares are held in the name of a nominee,how many additional units you would like to purchase pursuant to your over-subscription privilege. You are entitled to exercise your over-subscriptionprivilege only if you exercise your basic rights in full. If over-subscription requests exceed the number of units available, however,we will allocate the available units pro rata among rights holders who over-subscribe based on the number of over-subscription units forwhich they have subscribed. See “The Rights Offering-Over-Subscription Privilege.”
To properly exercise your over-subscription privilege,you must deliver the subscription payment related to your over-subscription privilege before this offering expires. Because we will notknow the total number of unsubscribed units before this offering expires, if you wish to maximize the number of units you purchase pursuantto your over-subscription privilege, you will need to deliver payment in an amount equal to the aggregate subscription price for the maximumnumber of units available, assuming that no rights holder other than you has purchased any units pursuant to such rights holder’sbasic right and over-subscription privilege.
Subject to the ownership limitation describedbelow, we will seek to honor the over-subscription requests in full. If over-subscription requests exceed the number of units available,however, we will allocate the available units pro rata among the rights holders in proportion to the product (rounded down to the nearestwhole number so that the aggregate number of units does not exceed the aggregate number offered) obtained by multiplying the number ofunits such rights holder subscribed for pursuant to the over-subscription privilege by a fraction (A) the numerator of which is the numberof unsubscribed units and (B) the denominator of which is the total number of units sought to be subscribed for pursuant to the over-subscriptionprivilege by all rights holders participating in such over-subscription.. Continental Stock Transfer & Trust, which will act as thesubscription agent in connection with this offering and which we refer to as the subscription agent, will determine the over-subscriptionallocation based on the formula described above and will notify rights holders of the number of units allocated to each holder exercisingthe over-subscription privilege as promptly as may be practicable after the allocations are completed.
To the extent your aggregate subscription paymentfor the actual number of unsubscribed units available to you pursuant to the over-subscription privilege is less than the amount you actuallypaid in connection with the exercise of the over-subscription privilege, you will be allocated only the number of unsubscribed units availableto you, and any excess subscription payment will be promptly returned to you, without interest or deduction, after the expiration of thisoffering.
May the subscription rights that I exercisebe reduced for any reason?
There are a sufficient number of units availableto honor your basic rights in full. As a result, if this offering is completed, you will receive whole units to the full extent you haveproperly exercised your basic rights in whole or in part for such whole units.
Sufficient units may not be available to honoryour exercise of the over-subscription privilege. If exercises of over-subscription privileges exceed the number of units available, wewill allocate the available units pro rata among rights holders who over-subscribe based on the number of over-subscription units forwhich the rights holders have subscribed.
Why are we conducting this offering?
In accordance with our strategic plan, we areconducting this offering primarily to raise funds for sales and marketing and general working capital purposes. Our board of directorshas approved this offering. Based on information available to the board, the board believes that this offering is in the best interestsof our company and shareholders. Our board is not, however, making any recommendation regarding your exercise of the subscription rights.
Our board considered and evaluated a number offactors relating to this offering, including:
| ● | our current capital resources and indebtedness, and our future need for additional liquidity and capital; |
| ● | our need for increased financial flexibility in order to enable us to achieve our business plan; |
| ● | the size and timing of the offering and alternative securities to be offered; |
| ● | the potential dilution to our current shareholders if they choose not to participate in the offering; |
| ● | the non-transferability of the subscription rights; |
| ● | alternatives available for raising capital; |
| ● | the potential impact of the offering on the public float for the common stock if the Series A warrants are exercised; and |
| ● | the fact that existing shareholders would have the opportunity to purchase additional units. |
Am I required to exercise the subscriptionrights I receive in this offering?
No. You may exercise any number of your subscriptionrights, or you may choose not to exercise any of your subscription rights. If, however, you choose not to exercise your subscription rightsor you exercise less than your full amount of subscription rights and other rights holders fully exercise their subscription rights, thepercentage of common stock owned by other shareholders will increase relative to your ownership percentage and your voting and other rightsin our company will likewise be diluted-see “Description of Securities” for a description of the voting and liquidationrights of our common stock and preference stock.
May I sell, transfer or assign my subscriptionrights?
No. You may not transfer, sell or assign any ofthe subscription rights distributed to you, except that subscription rights will be transferable by operation of law (e.g., bydeath). The subscription rights are non-transferable and will not be listed on any securities exchange or included in any automated quotationsystem. Therefore, there will be no market for the subscription rights.
The shares of common stock and Series A warrantscomprising the units will be issued separately. Units will not be issued as a separate security and will not be transferable.
Shares of common stock issued upon the exerciseof subscription rights or Series A warrants are expected to be listed on The Nasdaq Capital Market under the symbol “CRTD.”We do not intent to apply to list the Series A warrants for trading on any national securities exchange or other nationally recognizedtrading system. See “The Rights Offering-Transferability- Series A warrants” below.
How do I exercise my subscription rights ifmy shares of common stock are held in my name?
If you hold your shares of common stock in yourname and you wish to participate in this offering, you must deliver a properly completed and duly executed subscription certificate andall other required subscription documents, together with payment of the full subscription price, to the subscription agent before 5:00p.m. (Eastern time) on the expiration date.
If you send an uncertified check, payment willnot be deemed to have been delivered to the subscription agent until the check has cleared. In certain cases, you may be required to providesignature guarantees.
Please follow the delivery instructions on thesubscription certificate. Do not deliver documents to us. You are solely responsible for completing delivery of your subscription certificate,all other required subscription documents and subscription payment to the subscription agent. You should allow sufficient time for deliveryof your subscription materials to the subscription agent so that the subscription agent receives them by 5:00 p.m. (Eastern time) on theexpiration date. See “-To whom should I send my forms and payment?” below.
If you send a payment that is insufficient topurchase the number of units you requested, or if the number of units you requested is not specified in the forms, the payment receivedwill be applied to exercise your subscription rights to the fullest extent possible based on the amount of the payment received pursuantto your subscription rights. Any payment that is received but not so applied will be refunded to you without interest (subject to therounding of the amount so applied to the nearest whole cent).
What form of payment is required to purchaseunits?
As described in the instructions accompanyingthe subscription certificate, payments submitted to the subscription agent must be made in U.S. dollars. Checks or bank drafts drawn onU.S. banks should be payable to the order of “Continental Stock Transfer & Trust, as Subscription Agent for Creatd, Inc.”Payments by uncertified check will be deemed to have been received upon clearance. Please note that funds paid by uncertified check maytake five or more business days to clear. Accordingly, rights holders who wish to pay the subscription price by means of uncertified checkare urged to make payment sufficiently in advance of the expiration time to ensure that such payment is received and clears by such date.If you hold your shares of common stock in the name of a broker, dealer, custodian bank or other nominee (including any mobile investmentplatform), separate payment instructions may apply. Please contact your nominee, if applicable, for further payment instructions.
How do I exercise my subscription rights ifmy shares of common stock are held in the name of a broker, dealer, custodian bank or other nominee?
If you hold shares of common stock in the nameof a broker, dealer, custodian bank or other nominee (including any mobile investment platform) that uses the services of Depository TrustCompany, then Depository Trust Company will credit two subscription rights to your nominee record holder for (i) each share of commonstock that you beneficially owned as of the record date or (ii) each share of common stock issuable upon conversion of exercise of thePreferred Shares, Eligible Warrants, Eligible Options, and/or Eligible Convertible Notes you held as of the record date. If you are notcontacted by your nominee (including any mobile investment platform), you should contact your nominee as soon as possible.
How soon must I act to exercise my subscriptionrights?
If your shares of common stock are registeredin your name and you elect to exercise any of your subscription rights, the subscription agent must receive your properly completed andduly executed subscription certificate, all other required subscription documents and full subscription payment, including final clearanceof any uncertified check, before 5:00 p.m. (Eastern time) on the expiration date on , 2022. If you hold shares in the name of a broker,dealer, custodian bank or other nominee (including any mobile investment platform), your nominee may establish an earlier deadline beforethe expiration of this offering by which time you must provide the nominee with your instructions and payment to exercise your subscriptionrights.
Although we will make reasonable attempts to providethis prospectus to our shareholders to whom rights are distributed, this offering and all related subscription rights will expire at 5:00p.m. (Eastern time) on the expiration date, whether or not we have been able to locate and deliver this prospectus to you or any othershareholder.
After I exercise my subscription rights, canI change my mind?
No. Once made, all exercises of subscription rightsare irrevocable.
Can this offering be terminated or extended?
Yes. If we terminate this offering, neither wenor the subscription agent will have any obligation with respect to subscription rights that have been exercised except to promptly return,without interest or deduction, any subscription payment the subscription agent received from you. If we were to terminate this offering,any money received from subscribing shareholders would be promptly returned, without interest or deduction, and we would not be obligatedto issue units, shares of common stock, or Series A warrants to rights holders who have exercised their subscription rights prior to termination.
We may extend this offering for one or more additionalperiods in our sole discretion not to exceed 45 days from the initial expirations date. We will announce any extension in a press releaseissued no later than 9:00 a.m. (Eastern time) on the business day after the most recently announced expiration date.
How was the subscription price determined?
The subscription price was set by management andapproved by our board of directors. The factors considered are discussed in “The Rights Offering-Reasons for this Offering”and “Determination of the Subscription Price.”
Has the board of directors made a recommendationto shareholders regarding the exercise of rights under this offering?
No. Our board of directors has not made, nor willit make, any recommendation to shareholders regarding the exercise of subscription rights in this offering. We cannot predict the priceat which shares of our outstanding common stock will trade after this offering. You should make an independent investment decision aboutwhether or not to exercise your subscription rights. Rights holders who exercise subscription rights risk investment loss on new moneyinvested. We cannot assure you that the market price for common stock will remain above the price payable per share of common stock orthe warrant exercise price, or that anyone purchasing units or exercising Series A warrants to purchase shares of common stock at theexercise price will be able to sell those shares in the future at the same price or a higher price. If you do not exercise your subscriptionrights, you will lose any value represented by your subscription rights, and if you do not exercise your rights in full, your percentageownership interest and related rights in our company will be diluted.
By when must I purchase shares of common stockin order to participate in this offering? May I participate in this offering if I sell my common stock after the record date?
The record date for this offering is 5:00 p.m.(Eastern time) , 2022. If you purchase shares of our common stock and do not settle such purchase by 5:00 p.m. (Eastern time) ,2022, you will not receive subscription rights with respect to such shares. If you own common stock as of the record date, you will receivesubscription rights and may participate in this offering even if you subsequently sell your common stock.
Are there any risks associated with this offering?
Yes. The exercise of your subscription rightsinvolves risks. Exercising your subscription rights involves the purchase of common stock and Series A warrants and should be consideredas carefully as you would consider any other equity investment. Among other things, you should carefully consider the risks describedunder the heading “Risk Factors” in this prospectus and all other information contained in this prospectus.
Will the directors and executive officers participatein this offering?
To the extent they hold common stock as of therecord date or common stock issuable upon conversion or exercise of Preferred Shares, Eligible Warrants and/or Eligible Options, our directorsand executive officers are entitled to participate in this offering on the same terms and conditions applicable to all other rights holders.We expect that each of our directors and executive officers will participate in this offering, although they have not committed to doso.
When will I receive my shares of common stockand Series A warrants?
Holders whose shares are held of record by Cede&Co., the nominee of Depository Trust Company, or by any other depository or nominee on their or their broker-dealers’ behalf willhave any shares of common stock and warrants comprising units they acquire credited to the account of Cede & Co. or such other depositoryor nominee. With respect to all other shareholders, certificates for all shares of common stock and all Series A warrants acquired willbe mailed after payment for all the subscribed securities has cleared, which may take up to 15 business days from the expiration date.
What effects will this offering have on ouroutstanding common stock?
Based on shares of common stock outstanding as ofAugust 25, 2022, if this offering is fully subscribed and the Series A warrants issued in the offering are exercised in full, we willhave 60,361,758 shares of common stock outstanding, representing an increase of 196% in our outstanding shares as of the record date.If you fully exercise your basic rights, your proportional interest in our company will not change. If you exercise only a portion, ornone, of your basic rights, your interest in our company will be diluted and your proportional interest in our company will decrease.
The number of shares of common stock outstandinglisted in each case above assumes that (a) all of the other shares of common stock issued and outstanding on the record date will remainissued and outstanding and owned by the same persons as of the closing of this offering, and (b) we will not issue any shares of commonstock in the period between the record date and the closing of this offering.
How much will we receive from this offering,and how will the proceeds be used?
If this offering is fully subscribed, we estimateour net proceeds from the offering will total approximately $ million, after deducting our estimated offering expenses. We intend to usethe net proceeds for sales and marketing and general working capital purposes.
If my exercise of subscription rights is notvalid or if this offering is not completed, will my subscription payment be refunded to me?
Yes. An escrow agent retained by the subscriptionagent will hold all funds it receives in escrow until the completion or termination of this offering. If your exercise of subscriptionrights is deemed not to be valid or this offering is not completed, all subscription payments received by the subscription agent willbe promptly returned, without interest or deduction, following the expiration of the offering. If you own shares through a nominee (includingany mobile investment platform), it may take longer for you to receive your subscription price repayment because the subscription agentwill return payments through your nominee.
What fees or charges apply if I purchase unitsin this offering?
We are not charging any fee or sales commissionto issue rights to you or, if you exercise any of your subscription rights, to issue units to you. If you exercise your subscription rightsthrough a broker, dealer, custodian bank or other nominee (including any mobile investment platform), you are responsible for paying anyfees your nominee may charge you.
What are the U.S. federal income tax consequencesof exercising my subscription rights?
For U.S. federal income tax purposes, a rightsholder should not recognize income or loss in connection with the receipt or exercise of rights in this offering. You should consult yourtax advisor as to your particular tax consequences resulting from the offering. For a summary of certain U.S. federal income tax consequencesof this offering, see “Material U.S. Federal Income Tax Considerations.”
To whom should I send my forms and payment?
If your shares of common stock are held in thename of a broker, dealer, custodian bank or other nominee (including any mobile investment platform), then you should deliver all requiredsubscription documents and subscription payments pursuant to the instructions provided by your nominee. If your shares of common stockare held in your name, then you should send your subscription certificate, all other required subscription documents and your subscriptionpayment by mail to:
Continental Stock Transfer & Trust
Attn: Corporate Actions
1 State Street, 30th Floor
New York, NY 10004
or by hand delivery or overnight courier to:
Continental Stock Transfer & Trust
Attn: Corporate Actions
1 State Street, 30th Floor
New York, NY 10004
You and, if applicable, your nominee are solelyresponsible for completing delivery to the subscription agent of your subscription certificate, as well as for completing delivery ofall other required subscription documents and your subscription payment. You should allow sufficient time for delivery of your subscriptionmaterials to the subscription agent and for clearance of payments before the expiration of this offering. If you hold your common stockthrough a broker, dealer, custodian bank or other nominee (including any mobile investment platform), your nominee may establish an earlierdeadline before the expiration date of this offering.
Whom should I contact if I have other questions?
If you have any questions regarding this offering,completion of the subscription certificate or any other subscription documents or submitting payment in the offering, please contact D.F.King & Co., Inc., the information agent, by telephone at (212) 269-5550 (bankers and brokers) or (877) 283-0323 (all others) or byemail at creatd@dfking.com.
USE OF PROCEEDS
If this offering is fully subscribed, we estimateour net proceeds from the offering will total approximately $ million, after deducting our estimated offering expenses.
We intend to use the net proceeds for sales and marketing and generalworking capital purposes. The Company also intends to repay certain outstanding convertible notes, totaling $6,150,000, in the event thatthey do not convert prior to the closing of this offering. These notes mature on 11/30/2022 and bear no interest. Because we cannot currentlyspecify with any certainty the particular uses of a significant portion of our net proceeds, our management will have broad discretionin the application of those net proceeds.
CAPITALIZATION
The table below sets forth our cash and cash equivalentsand capitalization as of June 30, 2022 on an actual basis and on a pro forma basis to reflect our issuance and sale of shares of commonstock, Series A warrants to purchase shares of common stock in this offering and our receipt and application of the proceeds in the amountof approximately $ million from this offering, after deducting our estimated offering expenses. This table should be read in conjunctionwith “Use of Proceeds” above and our consolidated audited and unaudited financial statements and the notes theretoset forth in this prospectus.
| | | | | June 30, 2022 | |
| | Actual | | | Adjustments | | | Pro Forma as Adjusted | |
Cash | | $ | 1,556,663 | | | | (2,588,404 | ) | | $ | (1,031,741 | ) |
Marketable Securities | | | 48,646 | | | | - | | | | 48,646 | |
Notes Payable | | | 1,895,248 | | | | - | | | | 1,895,248 | |
Convertible Notes Payable | | | 2,291,010 | | | | (2,291,010 | ) | | | - | |
Common stock - par value $0.001; 100,000,000 shares authorized; 20,254,839 issued and 20,249,182 outstanding as of June 30, 2022 | | | 20,255 | | | | 20,000 | | | | 40,255 | |
Additional paid-in capital | | | 122,068,892 | | | | (317,394 | ) | | | 121,751,498 | |
Accumulated deficit | | | (124,314,530 | ) | | | - | | | | (124,314,530 | ) |
Accumulated other comprehensive income (loss) | | | (107,881 | ) | | | - | | | | (107,881 | ) |
Treasury Stock | | | (62,406 | ) | | | - | | | | (62,406 | ) |
Stockholders’ equity | | | (1,500,233 | ) | | | (1,192,831 | ) | | | (2,693,064 | ) |
Total capitalization | | | 2,686,025 | | | | (3,483,841 | ) | | | (797,816 | ) |
The table above excludes:
| ● | 4,409,100 shares of common stock issuable upon the exercise of outstanding stock options having a weighted average exercise price of $4.06 per share; |
| ● | 14,756,411 shares of common stock issuable upon the exerciseof outstanding warrants having a weighted average exercise price of $3.53 per share; and |
| ● | 4,000,000 shares of common stock issuable upon the conversion of convertiblepromissory notes having a conversion price of $1.00 per share; |
| ● | 121,359 shares of common stockissuable upon the conversion of Series E preferred shares; |
| ● | 1,720,000 shares of common stock issuable upon the conversion of convertible promissory notes having a conversion price of $1.25 per share; and |
| | |
| ● | 20,000,000 shares of common stock issuable upon the exercise of Series A warrants sold in this offering. |
DILUTION
If you invest in the Company’s common stockin this offering, your ownership interest will be diluted to the extent of the difference between the offering price per share of itscommon stock and the as adjusted net tangible book value per share of its common stock immediately after the offering. Historical nettangible book value per share represents the amount of the Company’s total tangible assets less total liabilities, divided by thenumber of shares of its common stock outstanding.
The historical net tangible book value (deficit)of the Company’s common stock as of June 30, 2022 was approximately $(7,608,175) or $(0.37) per share based upon shares of commonstock outstanding on such date. Historical net tangible book value (deficit) per share represents the amount of its total tangible assetsreduced by the amount of its total liabilities, divided by the total number of shares of common stock outstanding. After giving effectto the Company’s sale of all of the 20,000,000 Units (and the shares of common stock thereunder) offered in this offering ata subscription price of per Unit after deducting the Company’s estimated offering expenses, the Company’s pro forma as adjustednet tangible book value as of June 30, 2022 would have been or per share. This represents an immediate increase in net tangiblebook value of per share to the Company’s existing stockholders, and an immediate dilution in net tangible book value of per shareto new investors. The following table illustrates this per share dilution:
Assumed public offering price per share | | | | | | $ | 0.00 | |
Pro forma net tangible book value per share as of June 30, 2022 | | $ | (0.37 | ) | | | | |
Increase in net tangible book value per share attributable to new investors in this offering | | | 0.18 | | | | | |
| | | | | | | | |
Pro forma, as adjusted net tangible book value, after this offering | | | | | | $ | (0.20 | ) |
| | | | | | | | |
Adjusted net tangible book value per share as of June 30, 2022 after this offering | | | | | | $ | 0.20 | |
A $1.00 increase (decrease) in thesubscription price of per unit would increase (decrease) the pro forma as adjustednet tangible book value by per share and increase (decrease) thedilution to new investors by per share, assuming the numberof shares offered by the Company, as set forth on the cover page of this prospectus, remains the same, and after deducting theestimated expenses payable by the Company. The Company may also increase or decrease the number of units it is offering. An increaseof 100,000 units offered by it would increase the pro forma as adjusted net tangible book value by per share and increase the dilution to new investors by per share, assuming the subscription price of per unit remains the same and after deducting theexpenses payable by the Company. Similarly, a decrease of 100,000 units offered by the Company would decrease the pro forma asadjusted net tangible book value by per share and decreasethe dilution to new investors by per share, assuming the subscription price of per unit remains the same and after deducting theestimated expenses payable by the Company.
The number of shares of common stock outstandingis based on 20,254,839 shares of common stock issued and outstanding as of June 30, 2022, and excludes the following:
| ● | 4,409,100 shares of common stock issuable upon the exercise of outstanding stock options having a weighted average exercise price of $4.06 per share; |
| ● | 14,756,411 shares of common stock issuable upon the exercise of outstanding warrants having a weighted average exercise price of $3.53 per share; and |
| ● | 4,000,000 shares of common stock issuable upon the conversion of convertible promissory notes having a conversion price of $1.00 per share; |
| ● | 121,359 shares of common stock issuable upon the conversion of Series E preferred shares; |
| ● | 1,720,000 shares of common stock issuable upon the conversion of convertible promissory notes having a conversion price of $1.25 per share; and |
| | |
| ● | 20,000,000 shares of common stock issuable upon the exercise of Series A warrants sold in this offering. |
MARKET FOR COMMON STOCK AND DIVIDEND POLICY
Our common stock is listed on The Nasdaq CapitalMarket under the symbol “CRTD.” As of August 24, 2022, the last reported sale price of the common stock as reported on The Nasdaq CapitalMarket was $0.645 per share. As of August 25, 2022, there were approximately 374 holders of record of common stock. The actual number of shareholdersis greater than this number of record holders and includes shareholders who are beneficial owners but whose shares are held in streetname by brokers and other nominees (including any mobile investment platform).
To date, we have not paid cash dividends on ourcommon stock and do not plan to pay such dividends in the foreseeable future. Our board of directors will determine our future dividendpolicy on the basis of many factors, including results of operations, capital requirements, and general business conditions. Dividends,under the Nevada Revised Statutes, may only be paid from our net profits or surplus.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis shouldbe read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this prospectus. In additionto historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions.Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, includingbut not limited to those set forth in “Risk Factors.”
This prospectus and otherreports filed by Creatd, Inc. (the “Company”), from time to time with the SEC (collectively, the “Filings”) containor may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, theCompany’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to placeundue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in theFilings, 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 theCompany’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect tofuture events and are subject to risks, uncertainties, assumptions, and other factors, including the risks relating to the Company’sbusiness, 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 Companybelieves 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 statementsare prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principlesrequire us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which werely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. Theseestimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statementsas well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to theextent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particulartransaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areasin which management’s judgment in selecting any available alternative would not produce a materially different result. The followingdiscussion should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this prospectus.
We intend for this discussionto provide information that will assist in understanding our financial statements, the changes in certain key items in those financialstatements, and the primary factors that accounted for those changes, as well as how certain accounting principles affect our financialstatements. This discussion should be read in conjunction with our financial statements and accompanying notes for the year ended December31, 2021, which are included in the Company’s Annual Report on Form 10-K that was filed with the SEC on April 6, 2022 and the Company’s Quarterly Report on Form 10-Q that was filed with the SEC on August 15, 2022.
Overview
Creatd, Inc. is a companywhose mission is to provide economic opportunities to creators and brands by multiplying the impact of platforms, people, and technology.
We operate four mainbusiness segments, or ‘pillars’: Creatd Labs, Creatd Partners, Creatd Ventures, and Creatd Studios. Together, Creatd’spillars work together to create a flywheel effect, supporting our core vision of creating a viable ecosystem for all stakeholders in thecreator economy.
Creator-Centric Strategy
Our purpose is to empowercreators to prosper through exceptional tools, built-in communities, and opportunities for monetization and audience expansion. This creator-firstapproach is the foundation of our culture and mission, and how we choose to allocate our resources.
Creatd Labs
Creatd Labs is dedicatedto the development of technology products that support the creator economy. This pillar houses Creatd’s proprietary technology platforms,including Creatd’s flagship product, Vocal.
Vocal
Vocal was built to serveas a home base for digital creators. This robust, proprietary technology platform provides best-in-class tools, safe and curated communities,and monetization opportunities that enable creators to find a receptive audience and get rewarded. Creators of all types call Vocal theirhome, from bloggers to social media influencers, to podcasters, founders, musicians, photographers, and more.
Since its initial launchin 2016, Vocal has grown to be one of the fastest-growing communities for content creators of all shapes and sizes. Creators can opt touse Vocal for free, or upgrade to the premium membership tier, Vocal+. Upon joining Vocal, either as a freemium or premium member, creatorscan immediately begin to utilize Vocal’s storytelling tools to create and publish their stories, as well as benefit from Vocal’smonetization features. Creatd facilitates creators’ monetization on Vocal in numerous different ways, including i) by rewardingcreators for each ‘read’ their story receives; ii) via Vocal Challenges, or writing contests through which creators can wincash and other rewards; iii) by awarding Bonuses; iv) by connecting creators with brands for opportunities to collaborate on Vocal forBrands branded content campaigns; v) through ’Subscribe,’ which enables creators to receive payment directly from their audiencevia monthly subscriptions and one-off microtransactions; vi) via Vocal’s Ambassador Program, which enables creators to receive additionalrewards whenever they refer a new Vocal+ member.
In July 2022, Creatd released the first iteration of the new Vocalapp for iOS, giving its premium Vocal+ members exclusive first access to the app ahead of its full release, and then launched the appin full in mid-August 2022. The app, which was designed based on Vocal audience insights, is focused on optimizing Vocal’s readership;the app works to increase audience’s ability to easily discover curated stories, thereby widening creators' distribution of content,and opening up new opportunities for monetization to creators.
Vocal+
Vocal+ is Vocal’spremium membership program. Subscribers pay a membership fee to access additional premium features on the platform, including: a higherrate of earnings per read, reduced platform processing fees on tips received, eligibility to participate in exclusive Vocal+ Challenges,access to Vocal’s ‘Quick Edit’ feature for published stories, and more. The current cost of a Vocal+ membership is either$9.99 per month or $99 annually.
Moderation and Compliance
One of the key differentiatingfactors between Vocal and most other user-generated content platforms is the fact that each story submitted to Vocal is run through theCompany’s proprietary moderation process before it goes live on the platform. The decision to implement moderation into the submissionprocess was in direct response to the rise of misinformation and bad actors on many social platforms. In response to these inherent pitfallswithin the content landscape, Vocal’s proprietary moderation system combines the algorithmic detection of copyrighted material,hate speech, graphic violence, and nudity, and human-led curation to ensure the quality and safety of each story published on Vocal, thusfostering a safe and trustworthy environment for creators, audiences, and brands. During the second quarter 2022, Creatd announced Vocal’snew integration partnership with Two Hat, a Microsoft acquiree and a leading provider of AI-assisted content moderation and protectionsolutions for digital communities. Through the partnership, the Company further updated its proprietary moderation technology, with theaim of ensuring that the Vocal platform remains a safe place for its creators, brand partners, and audiences.
Trust and safety areparamount to the Vocal ecosystem. We follow best practices when handling personally identifiable information, with guidance from the EuropeanUnion’s General Data Protection Regulation (GDPR), the California Consumer Privacy Act (CCPA), and the Digital Millennium CopyrightAct (DMCA).
Platform Compliance Policiesinclude:
| ● | Human-led, technology-assisted moderation of every story submitted; |
| ● | Algorithmic detection of hate speech, nudity, and copyright infringement; |
| ● | Brand, creator, and audience safety enforced through community watch; and |
| ● | The rejection of what we consider toxic content, with the understanding that diverse opinions are encouraged. |
Technology Development
Vocal’s proprietarytechnology is built on Keystone, the same underlying open-source framework used by industry leaders such as Atlassian, a $43-billion Australiantechnology company. Some of the key differentiating elements of Vocal’s technology are speed, sustainability, and scalability. TheCompany continues to invest heavily in research and development to continuously improve and innovate its platform, with the goal of optimizingthe user experience for creators.
Additionally, the Vocalplatform and its underlying technology allow us to maintain an advantageous capital-light infrastructure. By using cloud service providers,we are able to focus on platform and revenue growth rather than building and maintaining the costly internal infrastructures that havematerially affected so many legacy media platforms.
Vocal’s technologyhas been specifically designed and built to scale without a material corresponding increase in operational costs. While our users canembed rich media, such as video, audio, and product links, into their Vocal stories, the rich media content is hosted elsewhere (suchas YouTube, Instagram, Vimeo, Shopify, Spotify, etc.). Thus, our platform can accommodate rich media content of all kinds without bearingthe financial or operational costs associated with hosting the rich media itself. In addition to the benefits this framework affords tothe Company, it provides the additional benefit to our content creators, in that a creator can increase their monetization; for example,a creator can embed their YouTube video into a Vocal story and thus derive earnings from both platforms when their video is viewed.
Creatd Partners
Creatd Partners housesthe Company’s agency businesses, with the goal of fostering partnerships between creators and brands. Creatd Partners’ offeringsinclude: Vocal for Brands (content marketing), WHE Agency (influencer marketing), and Seller’s Choice (performance marketing).
Vocal for Brands
All brands have a storyto tell, and we leverage Vocal’s creator community to help them tell it. Vocal for Brands, Creatd’s content marketing studio,specializes in pairing leading brands with Vocal creators as well as WHE influencers to produce marketing campaigns that are non-interruptive,engaging, and direct-response driven. Additionally, brands can opt to collaborate with Vocal on a sponsored Challenge, prompting the creationof high-quality stories that are centered around the brand’s mission and further disseminated through creators’ respectivesocial channels and promotional outlets. All Vocal for Brands campaigns leverage Vocal’s first-party audience insights, which enablesthe creation of highly targeted and segmented audiences and optimized campaign results.
WHE Agency
The WHE Agency (“WHE”),acquired by Creatd in 2021, was founded with the goal of supporting top creators and influencers, by connecting them with leading brandsand global audiences. Today, WHE manages a talent roster comprising over 100 creators across numerous verticals, including family andlifestyle, music, entertainment, and celebrity categories. Since acquiring WHE, the Company has helped WHE expand into new verticals,as well as facilitated partnerships on influencers’ behalf with leading brands including CBS, Amazon, Target, Disney, Warby Parker,CVS, Kay Jewelers, Walmart, Gerber, Masterclass, Procter & Gamble, Nike, and NFL, among others.
Seller’sChoice
Seller’s Choiceis Creatd Partners’ performance marketing agency specializing in DTC (direct-to-consumer) and e-commerce clientele. Seller’sChoice provides direct-to-consumer brands with design, development, strategy, and sales optimization services.
Creatd Ventures
Creatd Ventures housesCreatd’s portfolio of e-commerce businesses, both majority and minority-owned as well as associated e-commerce technology and infrastructure.The Company supports founders by providing capital, as well as a host of services including design and development, marketing and distribution,and go-to-market strategy. While working to scale Creatd Ventures’ existing portfolio brands, including through the introductionof new product offerings, Creatd continues to actively explore new potential additions to the Creatd Ventures portfolio. Specifically,the Company expects to broaden Creatd Ventures’ portfolio through the acquisition of brands that are aligned and that can be easilyconsolidated into its supply chain and infrastructure.
Currently, the CreatdVentures portfolio includes:
| ● | Camp, a direct-to-consumer (DTC) food brand which creates healthy upgrades to classic comfort food favorites. Each of Camp’s products are created with hidden servings of vegetables and contain Vitamins A, C, D, E, B1 + B6. Since its launch in 2020, Camp continues to add new products to its line of healthy, veggie-based, family-friendly foods, with flavors including Classic Cheddar Mac ‘N’ Cheese, White Cheddar Mac ‘N’ Cheese, Vegan Cheezy Mac, and Twist Veggie Pasta. |
| ● | Dune Glow Remedy (“Dune”), which the Company purchased and brought to market in 2021, is a beverage brand focused on promoting wellness and beauty from within. Each beverage in Dune’s product line is meticulously crafted with functional ingredients that nourish skin from the inside out and enhance one’s natural glow. During 2022, Dune has continued to advance its retail and wholesale distribution strategy, securing numerous partnerships including with lifestyle retailer Urban Outfitters and the Los Angeles-based Erewhon Market. Further, Creatd Ventures continues to leverage these and other successful partnerships to create similar opportunities for the other brands in its portfolio. |
| ● | Basis, a hydrating electrolyte drink mix formulated using rehydration therapies developed by the World Health Organization. Acquired by the Company in first quarter 2022, Basis has a history of strong sales volume both on the brand’s website as well as through third-party distribution channels such as Amazon. Creatd’s acquisition of 100% ownership in Basis marks its third majority ownership acquisition for Creatd Ventures. |
Creatd Studios
The goal of Creatd Studiosis to partner with creators to produce stories for TV, film, podcasts, and print. With millions of compelling stories in its midst, Creatd’sVocal technology surfaces the best candidates for transmedia adaptations, through a deep analysis of community, creator, and audienceinsights. Then, Creatd Studios helps creators tell their existing stories in new ways, by partnering them with entertainment and publishingstudios to create unique content experiences that accelerate earnings, discoverability, and foster new opportunities.
| ● | In 2022, Creatd Studios announced a series of newly released and upcoming production projects, including: |
“WriteHere, Write Now,” the Company’s first-ever podcast showcasing select Vocal creators and stories; a partnership with UK-basedpublisher, Unbound, for the publication of books featuring stories sourced from Vocal; the formation of a new graphic novel developmentarm which in Fall 2022 will release its first title, Steam Wars, created by artist and independent filmmaker Larry Blamire.
| ● | OG Gallery: The OG Collection is an extensive library of original artwork and imagery from the archives of some of the most iconic magazines of the 20th century. OG Gallery is an exploratory initiative aimed at identifying opportunities to propel the OG Collection into a new technological sphere: the NFT marketplace. |
Application of First-PartyData
Creatd’s businessintelligence and marketing teams identify and target individual creators, communities, and brands, utilizing empirical data harnessedfrom the Vocal platform. The team’s ability to apply its proprietary first-party data works to reduce acquisition costs for newcreators and to help provide brands with conversions and an ideal targeted audience. In this way, our ability to apply first-party datais one of the value-drivers for the Company across its four business pillars.
Importantly, we do notsell the collected data, that being a common monetization opportunity for many other businesses. Instead, we use our collected first partydata for the purposes of bettering the platform. Specifically, our data helps us understand the behaviors and attributes that are commonamong the creators, brands, and audiences within our ecosystem. We then pair our first-party Vocal data with third-party data from distributionplatforms such as Facebook and Snapchat to provide a more granular profile of our creators, brands, and audiences.
It is through generatingthis valuable first-party data that we can continually enrich and refine our targeting capabilities for branded content promotion andcreator acquisition, and specifically, to reduce our creator acquisition costs (CAC) and subscriber acquisition costs (SAC).
Competition
The idea for Vocal cameas a response to what Creatd’s founders recognized as systemic flaws inherent to the digital media industry and its operationalinfrastructures. The depreciating value of digital media business models built on legacy technology platforms created a unique opportunityfor the development of a creator-centric platform that could appeal to a global community and, at the same time, be capable of acquiringundervalued complimentary technology assets.
Creatd’s foundersbuilt the Vocal platform upon the general thesis that a closed and safe ecosystem utilizing first-party data to increase efficienciescould create a sustainable and defensible business model. Vocal was strategically developed to provide value for content creators, readers,and brands, and to serve as a home for the ever-increasing amount of digital content being produced and the libraries of digital assetslying dormant.
Vocal is most commonlydiscussed as a combination of:
| ● | Medium, a platform for writers built by former Twitter founder Ev Williams; |
| ● | Reddit, a social news aggregation, web content rating, and discussion website; and |
| ● | Patreon, a membership platform that provides business tools for content creators to run a subscription service. |
Creatd does not viewVocal as a substitute or competitor to segment-specific content platforms, such as Vimeo, YouTube, Instagram, Pinterest, TikTok, Spotify,or SoundCloud. We don’t want to replace anyone; we built Vocal to be accretive to the entire digital ecosystem. In fact, one ofthe most powerful components of our technology is the fact that Vocal makes it easy for creators to embed their existing published content,including videos, songs, podcasts, photographs, and more, directly into Vocal. We see this as a growth opportunity by building partnershipswith the world’s greatest technology companies and to further spread our roots deeper into the digital landscape
Acquisition Strategy
Creatd’s hybridfinance and design culture is key to its acquisition strategy. Acquisition targets are companies that meet a set of opportunistic or financialstandards or that are part of specific digital environments that are accretive and can seamlessly integrate into Creatd’s existingrevenue lines. Creatd will continue to make strategic acquisitions when presented with opportunities that are in the interest of shareholdervalue.
Recent Developments
Resignation of Chief Executive Officer andDirector
On August 9, 2022, Laurie Weisberg, the Company’sChief Executive Officer and a member of the Board, notified the Company of her intention to resign from the positions of Chief ExecutiveOfficer, director, and any other positions held with the Company or any of its subsidiaries, regardless of whether Ms. Weisberg had beenappointed. Such resignations are to become effective on a date to be determined following further discussion with the Board, but in noevent later than August 31, 2022.
Appointment of Chief Executive Officer
Effective upon Ms. Weisberg’s resignationas Chief Executive Officer, Jeremy Frommer, currently the Company’s Executive Chairman, will be appointed as Chief Executive Officer,pursuant to the Board’s approval.
Jeremy Frommer
Mr. Frommer was appointed Executive Chairman inFebruary 2022 and has been a member of our board of directors since February 2016. Previously, he served as our Chief Executive Officerfrom February 2016 to August 2021, and Co-Chief Executive Officer from August 2021 to February 2022. Mr. Frommer has over 20 years ofexperience in the financial technology industry. Previously, Mr. Frommer held key leadership roles in the investment banking and tradingdivisions of large financial institutions. From 2009 to 2012, Mr. Frommer was briefly retired until beginning concept formation for JerrickVentures which he officially founded in 2013. From 2007 to 2009, Mr. Frommer was Managing Director of Global Prime Services at RBC CapitalMarkets, the investment banking arm of the Royal Bank of Canada, the largest financial institution in Canada, after the sale of CarlinFinancial Group, a professional trading firm. From 2004 to 2007, Mr. Frommer was the Chief Executive Officer of Carlin Financial Groupafter the sale of NextGen Trading, a software development company focused on building equity trading platforms. From 2002 to 2004, Mr.Frommer was Founder and Chief Executive Officer of NextGen Trading. From 2000 to 2002, he was Managing Director of Merger Arbitrage Tradingat Bank of America, a financial services firm. Mr. Frommer was also a director of LionEye Capital, a hedge fund from June 2012 to June2014. He holds a B.A. from the University of Albany. We believe Mr. Frommer is qualified to serve on our board of directors due to hisfinancial and leadership experience.
Appointment of Director
Effective upon Ms. Weisberg’s resignationas a director, Justin Maury, currently the Company’s President and Chief Operating Officer, will be appointed to the Board, pursuantto the Board’s approval.
Justin Maury
Mr. Maury has served as our President since January2019 and was appointed Chief Operating Officer in August 2021. A full-stack designer and product developer by training, Mr. Maury partneredwith Jeremy Frommer and founded the Company in 2013, having brought with him 10 years of experience in the creative industry. Since joiningCreatd in 2013, Mr. Maury has been an instrumental force in the Company’s business and revenue expansion, and has overseen the Company’sproduct development since inception, including overseeing the design, development, launch, and ongoing growth of the Company’s flagshipproduct, Vocal, the innovative creator that, under Mr. Maury’s leadership, has grown to a community of over 1.5 million users witha total audience reach of over 175 million.
As a director, we believe Mr. Maury will add considerablevalue, including through by providing a unique perspective into Creatd’s product performance and evolution and by providing invaluabledirect input to help guide the Company’s ongoing refinement of its technology roadmap and maturation of its business model.
Trigger of Price Reset
On July 29, 2022, theCompany announced that it was not moving forward with its previously announced Rights Offering. In doing so, it triggered a price resetin the July 2022 Financing and the May 2022 Securities Purchase Agreement. As a result of this price reset, the May 2022 Securities PurchaseAgreement debentures now have a conversion price of $1.00, and both the Series C and Series D warrants have exercise prices of $0.96.As a result of the price reset, the July 2022 Financing debentures now have a conversion price of $1.25, and both the Series E and SeriesF warrants have exercise prices of $1.01.
July 2022 Financing
On July 25, 2022 (the“Effective Date”), the Company entered into and closed securities purchase agreements (each, a “Purchase Agreement”)with five accredited investors (the “Investors”), whereby the Investors purchased from the Company for an aggregate of $1,935,019in subscription amount (i) debentures in the principal amount of $2,150,000 (the “Debentures”); (ii) 1,075,000 Series E CommonStock Purchase Warrants to purchase shares of the Common Stock (the “Series E Warrants”); and (iii) 1,075,000 Series F CommonStock Purchase Warrants to purchase shares of Common Stock (the “Series F Warrants”, and collectively with the Series E Warrants,the “Warrants”). The Company and the Investors also entered into registration rights agreements (each, a “RegistrationRights Agreement”) pursuant to the Purchase Agreement.
The Debentures have anoriginal issue discount of 10%, have a maturity date of November 30, 2022, may be extended by six months at the Company’s optionsubject to certain conditions, and are convertible into shares of Common Stock at a conversion price of $2.00 per share, subject to adjustmentupon certain events including a one-time adjustment to the price of the Common Stock offered in the Rights Offering (as defined therein),with such adjusted conversion price not to be lower than $1.25.
The Warrants are immediatelyexercisable for a term of five years until July 25, 2027. The Series E Warrants are exercisable at an exercise price of $3.00, subjectto adjustment upon certain events including a one-time adjustment to the price of the Common Stock offered in the Rights Offering, withsuch adjusted exercise price not to be lower than $1.01. The Series F Warrants are exercisable at an exercise price of $6.00 subject toadjustment upon certain events including a one-time adjustment to the price of the Common Stock offered in the Rights Offering, with suchadjusted exercise price not to be lower than $1.01. The Warrants provide for cashless exercise to the extent that there is no registrationstatement available for the underlying shares of Common Stock. The shares underlying the Debentures, the Series E Warrants and the SeriesF Warrants are to be registered within 90 days of the Effective Date.
The representations andwarranties contained in the Purchase Agreement were made by the parties to, and solely for the benefit of, the other in the context ofall of the terms and conditions of the Purchase Agreement and in the context of the specific relationship between the parties. The provisionsof the Purchase Agreement, including the representations and warranties contained therein, are not for the benefit of any party otherthan the parties to the Purchase Agreement. The Purchase Agreement is not intended for investors and the public to obtain factual informationabout the current state of affairs of the parties.
Additionally, in connectionwith the Purchase Agreements, the subsidiaries of the Company delivered a guarantee (the “Guarantee”) in favor of the Investorswhereby each such subsidiary guaranteed the full payment and performance of all obligations of the Company pursuant to the Purchase Agreement.
Nasdaq - ContinuedListing
On March 1, 2022, theCompany received a letter from the staff of The Nasdaq Capital Market (the “Exchange”) notifying the Company that the Exchangehas determined to delist the Company’s common stock from the Exchange based on the Company’s Market Value of Listed Securitiesfor the 30-consecutive day period between January 15, 2022 and February 25, 2022 falling short of the requirements under Listing Rule5550(b)(2) (the “Rule”). Although a 180-day period is typically allowed for an issuer to regain compliance, the Company wasnot eligible to use such compliance period, as the Exchange had instituted a Panel Monitor through March 9, 2022.
The Company pursued anappeal to the Nasdaq Hearings Panel (the “Panel”) of such determination, in accordance with the Exchange’s rules and,pursuant to such request by the Company to appeal, the delisting of the Company’s securities and the Form 25 Notification of Delistingfiling was stayed pending the Panel’s decision.
On April 22, 2022, theExchange notified the Company that the Panel has determined to continue the listing of the Company on the Exchange, subject to the followingconditions: (i) on or before May 16, 2022, the Company will file its Quarterly Report on Form 10-Q for the period ended March 31, 2022demonstrating compliance with Nasdaq Listing Rule 550(b)(1) requiring shareholders’ equity of $2.5 million and (ii) on or beforeAugust 29, 2022, the Company will file a Form 8-K documenting the successful completion of any fund-raising activity that has taken placesince April 14, 2022 and the Company’s long-term compliance with the continued listing requirements of the Nasdaq Capital Market.
The Panel has advisedthat August 29, 2022 represents the full extent of the Panel’s discretion to grant continued listing during the time the Companyis non-compliant and should the Company fail to demonstrate compliance by such date, the Panel will issue a final delist determinationand the Company will be suspended from trading on the Exchange.
Securities PurchaseAgreement
On May 31, 2022, theCompany entered into and closed securities purchase agreements (each, a “Purchase Agreement”) with eight accredited investors(the “Investors”), whereby the Investors purchased from the Company for an aggregate of $3,600,036 in subscription amount(i) debentures in the principal amount of $4,000,000 (the “Debentures”); (ii) 2,000,000 Series C Common Stock Purchase Warrantsto purchase shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”) (the “SeriesC Warrants”); and (iii) 2,000,000 Series D Common Stock Purchase Warrants to purchase shares of Common Stock (the “SeriesD Warrants”, and collectively with the Series C Warrants, the “Warrants”). The Company and the Investors also enteredinto registration rights agreements (each, a “Registration Rights Agreement”) pursuant to the Purchase Agreement.
The Debentures have anoriginal issue discount of 10%, have a term of six months with a maturity date of November 30, 2022, may be extended by six months atthe Company’s option subject to certain conditions, and are convertible into shares of Common Stock at a conversion price of $2.00per share, subject to adjustment upon certain events including a one-time adjustment to the price of the Common Stock offered in the RightsOffering (as defined therein), with such adjusted conversion price not to be lower than $1.00.
The Warrants are exercisablefor a term of five years from the initial exercise date of November 30, 2022, until November 30, 2027. The Series C Warrants are exercisableat an exercise price of $3.00, subject to adjustment upon certain events including a one-time adjustment to the price of the Common Stockoffered in the Rights Offering, with such adjusted exercise price not to be lower than $0.96. The Series D Warrants are exercisable atan exercise price of $6.00 subject to adjustment upon certain events including a one-time adjustment to the price of the Common Stockoffered in the Rights Offering, with such adjusted exercise price not to be lower than $0.96. The Warrants provide for cashless exerciseto the extent that there is no registration statement available for the underlying shares of Common Stock. The shares underlying the Debentures,the Series C Warrants and the Series D Warrants are to be registered within 90 days of the Effective Date.
Additionally, in connectionwith the Purchase Agreements, the subsidiaries of the Company delivered a guarantee (the “Guarantee”) in favor of the Investorswhereby each such subsidiary guaranteed the full payment and performance of all obligations of the Company pursuant to the PurchaseAgreement.
The Debentures, Warrants,Common Stock underlying the Debentures and the Common Stock underlying the Warrants were not registered under the Securities Act, butqualified for exemption under Section 4(a)(2) and Rule 506 promulgated thereunder. The Company is relying on this exemption from registrationfor private placements based in part on the representations made by Investors, including representations with respect to each Investor’sstatus as an accredited investor, as such term is defined in Rule 501(a) of the Securities Act, and each Investor’s investment intent.
Results of Operations
Liquidity and CapitalResources
The following table summarizestotal current assets, liabilities and working capital at June 30, 2022 compared to December 31, 2021:
| | June 30, 2022 | | | December 31, 2021 | | | Increase / (Decrease) | |
Current Assets | | $ | 2,601,258 | | | $ | 4,475,242 | | | $ | (1,873,984 | ) |
Current Liabilities | | $ | 9,497,442 | | | $ | 5,421,015 | | | $ | 4,076,427 | |
Working Capital (Deficit) | | $ | (6,896,184 | ) | | $ | (945,773 | ) | | $ | (5,950,411 | ) |
At June 30, 2022,we had a working capital deficit of $6,896,184 as compared to a working capital deficit of $945,773 at December 31, 2021, anincrease in working capital deficit of $5,950,411. The increase is primarily attributable to a reduction in cash, prepaid expensesand other current assets, an increase in accounts payable and notes payable, as well as an increase in deferred revenue resultingprimarily from an increase in Vocal+ customers opting for annual subscriptions, whose revenues are amortized over a 12-month period.This was offset by an increase in accounts receivable.
On January 30, 2020,the World Health Organization declared the COVID-19 novel coronavirus outbreak a “Public Health Emergency of International Concern”and on March 10, 2020, declared it to be a pandemic. Actions taken around the world to help mitigate the spread of the coronavirus includerestrictions on travel, and quarantines in certain areas, and forced closures for certain types of public places and businesses. The COVID-19coronavirus and actions taken to mitigate it have had and are expected to continue to have an adverse impact on the economies and financialmarkets of many countries, including the geographical area in which the Company operates. While it is unknown how long these conditionswill last and what the complete financial impact will be to the Company, capital raising efforts and our operations may be negativelyaffected.
Net Cash
Net cash used in operatingactivities for the six months ended June 30, 2022, and 2021, was $(10,620,156) and $(10,996,578), respectively. The net loss for the sixmonths ended June 30, 2022, and 2021 was $(15,585,986) and $(15,205,713), respectively. The decrease in net cash used in operating activitiesreflects a decrease in cash paid for marketing expenditures, research and development, legal fees, and accounting & audit fees.
Net cash used in investingactivities for the six months ended June 30, 2022, was $367,240. This is primarily attributable to the purchase of digital assets, includingMetaverse plots in Decentraland, the OG Gallery NFT portfolio and cryptocurrencies Ethereum, Polygon and Mana, as well as physical propertyand equipment.
Net cash provided byfinancing activities for the six months ended June 30, 2022, and 2021 was $8,778,934 and $5,967,733, respectively. During the six monthsended June 30, 2022, the Company’s operations were predominantly financed by net proceeds of $4,997,301 from the sale of commonstock and warrants and $5,152,350 from the proceeds of notes payable, which were partially offset by the repayments of notes payable.Similarly, the Company’s financing activity for the six months ended June 30, 2021, generated $1,312,672 from the exercises of warrants,the proceeds of which were partially offset by repayment of notes of $1,218,718.
Summary of Statementsof Operations for the Three Months Ended June 30, 2022, and 2021:
| | Three Months Ended
June 30, | |
| | 2022 | | | 2021 | |
Revenue | | $ | 1,625,901 | | | $ | 970,857 | |
Cost of revenue | | $ | (1,794,419 | ) | | $ | (731,309 | ) |
Operating expenses | | $ | (7,824,906 | ) | | $ | (8,620,343 | ) |
Loss from operations | | $ | (7,993,424 | ) | | $ | (8,380,795 | ) |
Other income (expenses) | | $ | (711,514 | ) | | $ | (181,681 | ) |
Net loss | | $ | (8,704,938 | ) | | $ | (8,562,476 | ) |
Loss per common share - basic and diluted | | $ | (0.41 | ) | | $ | (0.81 | ) |
Revenue
Revenue totaled $1,625,901for the three months ended June 30, 2022, as compared to $970,857 for the comparable three months ended June 30, 2021, an increase of$655,044. The 67% increase in revenue is attributable to the steady growth of Creatd Partners (influencer and content marketing) whichincreased 19% year-over-year, as well as Creatd Ventures (e-Commerce), which generated sales totaling $634,966 across its portfolio ofCPG brands, including Basis, which the Company acquired in the previous quarter, and continues to demonstrate revenue momentum. This growthwas offset by a decrease in total revenues generated from Creatd Labs (Vocal and technology development), which comes as a result of theCompany’s strategic shift in Vocal+ marketing toward driving annual versyus monthly subscriptions, with annual subscriptions beingamortized over a 12-month period; the Company’s efforts continue to result in a steady increase in annual subscriptions. Going forward,the Company anticipates continued momentum as Creatd Ventures continues to grow sales and introduce new product SKUs for its portfolioof brands, continues to expand its retail and wholesale distribution partnerships, and completes additional direct-to-consumer brand acquisitions;as Creatd Partners expands its influencer and content marketing offerings and methodically increases its average revenue per brand campaign;as Creatd Labs increases conversion from freemium to Vocal+ subscriptions, supported by the recent launch of the new Vocal app as wellas the introduction of new and upcoming Vocal features aimed at increasing creator audience growth, engagement, and monetization. In addition,during 2022, Creatd anticipates its first material revenue contribution from its fourth business segment Creatd Studios (Transmedia production).
Cost of Revenue
Cost of revenue for thethree months ended June 30, 2022, were $1,794,419 as compared to $731,309 for the three months ended June 30, 2021. The increase of $1,063,110in cost of revenue is related to an increase in payouts to Vocal creators, whose earnings are generated through content reads, winningChallenges, and other means. Additionally, the increase in cost of revenue is correlated with continued growth within the Creatd Venturesbusiness segment, including sales growth for existing brands as well as the acquisition and integration of additional brands, which resultsin increases in inventory-related and other costs. Going forward, the Company expects the gross margin to continue to improve over timeas Creatd Ventures continues to consolidate operations across its portfolio of e-commerce brands and, more broadly, as the Company continuesto grow and scale a self-sustaining, organically driven revenue model across its business segments.
Operating Expenses
Operating expenses forthe three months ended June 30, 2022, were $7,824,906 as compared to $8,620,343 for the three months ended June 30, 2021. The decreaseof $795,437 in operating expenses is primarily attributable to the Company’s decrease in marketing expenses. This was offset byan increase in research and development, stock-based compensation, and general and administrative accounts, including office rent, employeecompensation and productivity enhancing software & tools.
During the second quarterof 2022, the company’s non-cash charges totaled $2,814,980, a $457,798 increase from second quarter 2021. This increase primarilyrepresents an increase in stock-based compensation to employees and consultants during the quarter.
The Company expects expendituresto decrease over coming quarters, as the Company continues to optimize and reduce its marketing expenditure and scrutinize many of thecontributing expenses within G&A. Already, the Company has, subsequent to the second quarter, taken steps to reduce headcount materiallyto gain efficiencies, integrate acquired operations, reduce future expenses and other market factors.
Loss from Operations
Loss from operationsfor the three months ended June 30, 2022, was $7,993,424 as compared to $8,380,795 for the three months ended June 30, 2021. The $387,371decrease in the loss from operations this quarter primarily reflects the decrease from total operating expenses. This was offset by thedecrease from gross loss.
Other Income and(Expenses)
Other income (expenses)for the three months ended June 30, 2022, were $(711,514) as compared to $(181,681) for the three months ended June 30, 2021. The increasein second quarter 2022 other income was predominantly due to the increase in accretion of debt discount and issuance cost and a decreasefrom the gain on extinguishment of debt. This was offset by a decrease in interest expense and impairment of investment.
Net Loss
Net loss for the threemonths ended June 30, 2022, was $8,704,938, as compared to a net loss of $8,562,476 for the three months ended June 30, 2021.
Net loss attributableto common shareholders for the three months ended June 30, 2022, was $8,337,066, or loss per share of $0.41, as compared to a net lossattributable to common shareholders of $8,972,794, or loss per share of $0.81, for the three months ended June 30, 2021.
Summary of Statementsof Operations for the Six Months Ended June 30, 2022, and 2021:
| | Six Months Ended
June 30, | |
| | 2022 | | | 2021 | |
Revenue | | $ | 2,974,639 | | | $ | 1,714,770 | |
Cost of revenue | | $ | (3,366,589 | ) | | $ | (1,940,715 | |
Operating expenses | | $ | (14,610,758 | ) | | $ | (14,100,847 | ) |
Loss from operations | | $ | (15,002,708 | ) | | $ | (14,326,792 | ) |
Other income (expenses) | | $ | (583,278 | ) | | $ | (878,921 | ) |
Net loss | | $ | (15,585,986 | ) | | $ | (15,205,713 | ) |
Loss per common share - basic and diluted | | $ | (0.77 | ) | | $ | (1.49 | ) |
Revenue
Revenue totaled $2,974,639for the six months ended June 30, 2022, as compared to $1,714,770 for the comparable six months ended June 30, 2021, an increase of $1,259,869.The 73% year-over-year increase in revenue is attributable to overall growth across the Company’s business segments, including growthin creator subscriptions, e-commerce sales, and brand and influencer marketing partnerships.
Cost of Revenue
Cost of revenue for thesix months ended June 30, 2022, were $3,366,589 as compared to $1,940,715 for the six months ended June 30, 2021. The increase of $1,425,874in cost of revenue is related to an increase in challenge- and read-related payouts to Vocal creators, as well as Company’s first-quarter2022 acquisition of Basis and an increase in inventory related cost of revenues correlating with revenue growth within Ventures. The Companyexpects the gross margin to continue to improve over time as it continues to grow and improve upon a self-sustaining, organically drivenrevenue model across its business segments.
Operating Expenses
Operating expenses forthe six months ended June 30, 2022, were $14,610,758 as compared to $14,100,847 for the six months ended June 30, 2021. The increase of$509,911 in operating expenses is mainly related to an increase in general and administrative expenses, including office rent, traveland entertainment, software and tools, and compensation. This increase was partially offset by a decrease in marketing expenses. The Companyexpects expenditures to decrease as the Company normalizes its marketing costs and scrutinizes many of the contributing expenses withinG&A.
Loss from Operations
Loss from operationsfor the six months ended June 30, 2022, was $15,002,708 as compared to $14,326,792 for the six months ended June 30, 2021. The $675,916increase in the loss from operations primarily reflects an increase in general and administrative expenses, including office rent, traveland entertainment, software and tools, and compensation, as well as a decrease in gross margin. Going forward, the Company expects theloss from operations to decrease as revenues continue to increase and expenses achieve normalcy levels.
Other Income and(Expenses)
Other income (expenses)for the six months ended June 30, 2022, were $(583,278) as compared to $(878,921) for the six months ended June 30, 2021. The decreasein other income was predominantly due to a decrease in interest expense, accretion of debt discount and issuance cost, derivative expense,market to market of derivative liability, and Impairment of investment. This was offset by a decrease in gain on forgiveness of debt andgain on settlement of vendor liabilities.
Net Loss
Net loss for the sixmonths ended June 30, 2022, was $15,585,986, as compared to a net loss of $15,205,713 for the six months ended June 30, 2021.
Net loss attributableto common shareholders for the six months ended June 30, 2022, was $14,681,956, or loss per share of $0.77, as compared to a net lossattributable to common shareholders of $15,616,031, or loss per share of $1.49, for the six months ended June 30, 2021.
Off-Balance SheetArrangements
As of June 30, 2022,we had no off-balance sheet arrangements.
Significant AccountingPolicies
Our significant accountingpolicies are described in Note 2 of the Financial Statements. If we complete an acquisition, we will be required to make estimates andassumptions typical of other companies. For example, we will be required to make critical accounting estimates related to valuation andaccounting for business combinations. The estimates will require us to rely upon assumptions that were highly uncertain at the time theaccounting estimates are made, and changes in them are reasonably likely to occur from period to period. Changes in estimates used inthese and other items could have a material impact on our financial statements in the future. Our estimates will be based on our experienceand our interpretation of economic, political, regulatory, and other factors that affect our business prospects. Actual results may differsignificantly from our estimates. For detailed information regarding our critical accounting policies and estimates, see our financialstatements and notes thereto included in this Report and in our Annual Report on Form 10-K for the year ended December 31, 2021. Therehave been no material changes to our critical accounting policies and estimates from those disclosed in our most recent Annual Reporton Form 10-K.
BUSINESS
Overview
Creatd, Inc. is a companywhose mission is to provide economic opportunities to creators and brands by multiplying the impact of platforms, people, and technology.
We operate four mainbusiness segments, or ‘pillars’: Creatd Labs, Creatd Partners, Creatd Ventures, and Creatd Studios. Together, Creatd’spillars work together to create a flywheel effect, supporting our core vision of creating a viable ecosystem for all stakeholders in thecreator economy.
Creator-Centric Strategy
Our purpose is to empowercreators to prosper through exceptional tools, built-in communities, and opportunities for monetization and audience expansion. This creator-firstapproach is the foundation of our culture and mission, and how we choose to allocate our resources.
Creatd Labs
Creatd Labs is dedicatedto the development of technology products that support the creator economy. This pillar houses Creatd’s proprietary technology platforms,including Creatd’s flagship product, Vocal.
Vocal
Vocal was built to serveas a home base for digital creators. This robust, proprietary technology platform provides best-in-class tools, safe and curated communities,and monetization opportunities that enable creators to find a receptive audience and get rewarded. Creators of all types call Vocal theirhome, from bloggers to social media influencers, to podcasters, founders, musicians, photographers, and more.
Since its initial launchin 2016, Vocal has grown to be one of the fastest-growing communities for content creators of all shapes and sizes. Creators can opt touse Vocal for free, or upgrade to the premium membership tier, Vocal+. Upon joining Vocal, either as a freemium or premium member, creatorscan immediately begin to utilize Vocal’s storytelling tools to create and publish their stories, as well as benefit from Vocal’smonetization features. Creatd facilitates creators’ monetization on Vocal in numerous different ways, including i) by rewardingcreators for each ‘read’ their story receives; ii) via Vocal Challenges, or writing contests through which creators can wincash and other rewards; iii) by awarding Bonuses; iv) by connecting creators with brands for opportunities to collaborate on Vocal forBrands branded content campaigns; v) through ‘Subscribe,’ which enables creators to receive payment directly from their audiencevia monthly subscriptions and one-off microtransactions; vi) via Vocal’s Ambassador Program, which enables creators to receive additionalrewards whenever they refer a new Vocal+ member.
In July 2022, Creatdreleased the first iteration of the new Vocal app for iOS, giving its premium Vocal+ members exclusive first access to the app ahead ofits full release, expected in mid-August 2022. The app, which was designed based on Vocal audience insights, is focused on optimizingVocal’s readership; the app works to increase audience’s ability to easily discover curated stories, thereby widening creators'distribution of content, and opening up new opportunities for monetization to creators.
Vocal+
Vocal+ is Vocal’spremium membership program. Subscribers pay a membership fee to access additional premium features on the platform, including: a higherrate of earnings per read, reduced platform processing fees on tips received, eligibility to participate in exclusive Vocal+ Challenges,access to Vocal’s ‘Quick Edit’ feature for published stories, and more. The current cost of a Vocal+ membership is either$9.99 per month or $99 annually.
Moderation and Compliance
One of the key differentiatingfactors between Vocal and most other user-generated content platforms is the fact that each story submitted to Vocal is run through theCompany’s proprietary moderation process before it goes live on the platform. The decision to implement moderation into the submissionprocess was in direct response to the rise of misinformation and bad actors on many social platforms. In response to these inherent pitfallswithin the content landscape, Vocal’s proprietary moderation system combines the algorithmic detection of copyrighted material,hate speech, graphic violence, and nudity, and human-led curation to ensure the quality and safety of each story published on Vocal, thusfostering a safe and trustworthy environment for creators, audiences, and brands. During the second quarter 2022, Creatd announced Vocal’snew integration partnership with Two Hat, a Microsoft acquiree and a leading provider of AI-assisted content moderation and protectionsolutions for digital communities. Through the partnership, the Company further updated its proprietary moderation technology, with theaim of ensuring that the Vocal platform remains a safe place for its creators, brand partners, and audiences.
Trust and safety areparamount to the Vocal ecosystem. We follow best practices when handling personally identifiable information, with guidance from the EuropeanUnion’s General Data Protection Regulation (GDPR), the California Consumer Privacy Act (CCPA), and the Digital Millennium CopyrightAct (DMCA).
Platform Compliance Policiesinclude:
| ● | Human-led, technology-assisted moderation of every story submitted; |
| ● | Algorithmic detection of hate speech, nudity, and copyright infringement; |
| ● | Brand, creator, and audience safety enforced through community watch; and |
| ● | The rejection of what we consider toxic content, with the understanding that diverse opinions are encouraged. |
Technology Development
Vocal’s proprietarytechnology is built on Keystone, the same underlying open-source framework used by industry leaders such as Atlassian, a $43-billion Australiantechnology company. Some of the key differentiating elements of Vocal’s technology are speed, sustainability, and scalability. TheCompany continues to invest heavily in research and development to continuously improve and innovate its platform, with the goal of optimizingthe user experience for creators.
Additionally, the Vocalplatform and its underlying technology allow us to maintain an advantageous capital-light infrastructure. By using cloud service providers,we are able to focus on platform and revenue growth rather than building and maintaining the costly internal infrastructures that havematerially affected so many legacy media platforms.
Vocal’s technologyhas been specifically designed and built to scale without a material corresponding increase in operational costs. While our users canembed rich media, such as video, audio, and product links, into their Vocal stories, the rich media content is hosted elsewhere (suchas YouTube, Instagram, Vimeo, Shopify, Spotify, etc.). Thus, our platform can accommodate rich media content of all kinds without bearingthe financial or operational costs associated with hosting the rich media itself. In addition to the benefits this framework affords tothe Company, it provides the additional benefit to our content creators, in that a creator can increase their monetization; for example,a creator can embed their YouTube video into a Vocal story and thus derive earnings from both platforms when their video is viewed.
Creatd Partners
Creatd Partners housesthe Company’s agency businesses, with the goal of fostering partnerships between creators and brands. Creatd Partners’ offeringsinclude: Vocal for Brands (content marketing), WHE Agency (influencer marketing), and Seller’s Choice (performance marketing).
Vocal for Brands
All brands have a storyto tell, and we leverage Vocal’s creator community to help them tell it. Vocal for Brands, Creatd’s content marketing studio,specializes in pairing leading brands with Vocal creators as well as WHE influencers to produce marketing campaigns that are non-interruptive,engaging, and direct-response driven. Additionally, brands can opt to collaborate with Vocal on a sponsored Challenge, prompting the creationof high-quality stories that are centered around the brand’s mission and further disseminated through creators’ respectivesocial channels and promotional outlets. All Vocal for Brands campaigns leverage Vocal’s first-party audience insights, which enablesthe creation of highly targeted and segmented audiences and optimized campaign results.
WHE Agency
The WHE Agency (“WHE”),acquired by Creatd in 2021, was founded with the goal of supporting top creators and influencers, by connecting them with leading brandsand global audiences. Today, WHE manages a talent roster comprising over 100 creators across numerous verticals, including family andlifestyle, music, entertainment, and celebrity categories. Since acquiring WHE, the Company has helped WHE expand into new verticals,as well as facilitated partnerships on influencers’ behalf with leading brands including CBS, Amazon, Target, Disney, Warby Parker,CVS, Kay Jewelers, Walmart, Gerber, Masterclass, Procter & Gamble, Nike, and NFL, among others.
Seller’sChoice
Seller’s Choiceis Creatd Partners’ performance marketing agency specializing in DTC (direct-to-consumer) and e-commerce clientele. Seller’sChoice provides direct-to-consumer brands with design, development, strategy, and sales optimization services.
Creatd Ventures
Creatd Ventures housesCreatd’s portfolio of e-commerce businesses, both majority and minority-owned as well as associated e-commerce technology and infrastructure.The Company supports founders by providing capital, as well as a host of services including design and development, marketing and distribution,and go-to-market strategy. While working to scale Creatd Ventures’ existing portfolio brands, including through the introductionof new product offerings, Creatd continues to actively explore new potential additions to the Creatd Ventures portfolio. Specifically,the Company expects to broaden Creatd Ventures’ portfolio through the acquisition of brands that are aligned and that can be easilyconsolidated into its supply chain and infrastructure.
Currently, the CreatdVentures portfolio includes:
| ● | Camp, a direct-to-consumer (DTC) food brand which creates healthy upgrades to classic comfort food favorites. Each of Camp’s products are created with hidden servings of vegetables and contain Vitamins A, C, D, E, B1 + B6. Since its launch in 2020, Camp continues to add new products to its line of healthy, veggie-based, family-friendly foods, with flavors including Classic Cheddar Mac ‘N’ Cheese, White Cheddar Mac ‘N’ Cheese, Vegan Cheezy Mac, and Twist Veggie Pasta. |
| ● | Dune Glow Remedy (“Dune”), which the Company purchased and brought to market in 2021, is a beverage brand focused on promoting wellness and beauty from within. Each beverage in Dune’s product line is meticulously crafted with functional ingredients that nourish skin from the inside out and enhance one’s natural glow. During 2022, Dune has continued to advance its retail and wholesale distribution strategy, securing numerous partnerships including with lifestyle retailer Urban Outfitters and the Los Angeles-based Erewhon Market. Further, Creatd Ventures continues to leverage these and other successful partnerships to create similar opportunities for the other brands in its portfolio. |
| ● | Basis, a hydrating electrolyte drink mix formulated using rehydration therapies developed by the World Health Organization. Acquired by the Company in first quarter 2022, Basis has a history of strong sales volume both on the brand’s website as well as through third-party distribution channels such as Amazon. Creatd’s acquisition of 100% ownership in Basis marks its third majority ownership acquisition for Creatd Ventures. |
Creatd Studios
The goal of Creatd Studiosis to partner with creators to produce stories for TV, film, podcasts, and print. With millions of compelling stories in its midst, Creatd’sVocal technology surfaces the best candidates for transmedia adaptations, through a deep analysis of community, creator, and audienceinsights. Then, Creatd Studios helps creators tell their existing stories in new ways, by partnering them with entertainment and publishingstudios to create unique content experiences that accelerate earnings, discoverability, and foster new opportunities.
| ● | In 2022, Creatd Studios announced a series of newly released and upcoming production projects, including: |
“WriteHere, Write Now,” the Company’s first-ever podcast showcasing select Vocal creators and stories; a partnership with UK-basedpublisher, Unbound, for the publication of books featuring stories sourced from Vocal; the formation of a new graphic novel developmentarm which in Fall 2022 will release its first title, Steam Wars, created by artist and independent filmmaker Larry Blamire.
| ● | OG Gallery: The OG Collection is an extensive library of original artwork and imagery from the archives of some of the most iconic magazines of the 20th century. OG Gallery is an exploratory initiative aimed at identifying opportunities to propel the OG Collection into a new technological sphere: the NFT marketplace. |
Application of First-PartyData
Creatd’s businessintelligence and marketing teams identify and target individual creators, communities, and brands, utilizing empirical data harnessedfrom the Vocal platform. The team’s ability to apply its proprietary first-party data works to reduce acquisition costs for newcreators and to help provide brands with conversions and an ideal targeted audience. In this way, our ability to apply first-party datais one of the value-drivers for the Company across its four business pillars.
Importantly, we do notsell the collected data, that being a common monetization opportunity for many other businesses. Instead, we use our collected first partydata for the purposes of bettering the platform. Specifically, our data helps us understand the behaviors and attributes that are commonamong the creators, brands, and audiences within our ecosystem. We then pair our first-party Vocal data with third-party data from distributionplatforms such as Facebook and Snapchat to provide a more granular profile of our creators, brands, and audiences.
It is through generatingthis valuable first-party data that we can continually enrich and refine our targeting capabilities for branded content promotion andcreator acquisition, and specifically, to reduce our creator acquisition costs (CAC) and subscriber acquisition costs (SAC).
Competition
The idea for Vocal cameas a response to what Creatd’s founders recognized as systemic flaws inherent to the digital media industry and its operationalinfrastructures. The depreciating value of digital media business models built on legacy technology platforms created a unique opportunityfor the development of a creator-centric platform that could appeal to a global community and, at the same time, be capable of acquiringundervalued complimentary technology assets.
Creatd’s foundersbuilt the Vocal platform upon the general thesis that a closed and safe ecosystem utilizing first-party data to increase efficienciescould create a sustainable and defensible business model. Vocal was strategically developed to provide value for content creators, readers,and brands, and to serve as a home for the ever-increasing amount of digital content being produced and the libraries of digital assetslying dormant.
Vocal is most commonlydiscussed as a combination of:
| ● | Medium, a platform for writers built by former Twitter founder Ev Williams; |
| ● | Reddit, a social news aggregation, web content rating, and discussion website; and |
| ● | Patreon, a membership platform that provides business tools for content creators to run a subscription service. |
Creatd does not viewVocal as a substitute or competitor to segment-specific content platforms, such as Vimeo, YouTube, Instagram, Pinterest, TikTok, Spotify,or SoundCloud. We don’t want to replace anyone; we built Vocal to be accretive to the entire digital ecosystem. In fact, one ofthe most powerful components of our technology is the fact that Vocal makes it easy for creators to embed their existing published content,including videos, songs, podcasts, photographs, and more, directly into Vocal. We see this as a growth opportunity by building partnershipswith the world’s greatest technology companies and to further spread our roots deeper into the digital landscape
Acquisition Strategy
Creatd’s hybridfinance and design culture is key to its acquisition strategy. Acquisition targets are companies that meet a set of opportunistic or financialstandards or that are part of specific digital environments that are accretive and can seamlessly integrate into Creatd’s existingrevenue lines. Creatd will continue to make strategic acquisitions when presented with opportunities that are in the interest of shareholdervalue.
Revenue Model
Creatd’s revenues are primarily generatedthrough:
| ● | Creator Subscriptions: Vocal+subscription offering provides creators with increased monetization and access to premium tools and features. At approximately $10 permonth, Vocal+ offers creators a strong value proposition for freemium users to upgrade, while providing a scalable source of monthlyrecurring gross revenue for Creatd. |
| ● | Marketing Partnerships: Vocal partners with leading brands and creators through its internal content studio, Vocal for Brands, to produce content marketing campaigns, including sponsored Challenges, that leverage the power of Vocal. Branded stories and Challenges are optimized for conversions, distributed to a targeted audience based on Vocal’s first-party data, and are optimized for conversions to maximize revenue growth. Additionally, marketing partnerships are brokered through the Company’s in-house influencer talent management firm, WHE, which manages and promotes a growing roster of influencer talent who partner with brands on marketing campaigns both inside and outside the Vocal platform. |
| ● | Managed Services: Creatd’s in-house marketing agency for e-commerce, Seller’s Choice, provides direct-to-consumer brands with design, development, strategy, and sales optimization services. |
| ● | Platform Processing Fees and Microtransactions: With Tipping and other types of microtransactions, audiences can engage and support their favorite Vocal creators by actively investing in their creativity. Vocal takes a platform processing fee on all transactions. Each Tip sent on Vocal generates revenue for the Company in the form of platform processing fees. For Vocal Free creators, we retain a 7% platform processing fee for every Tip exchanged. For Vocal+ creators, we retain a 2.9% platform processing fee. |
| ● | Affiliate sales: Vocal generates revenue through affiliate marketing relationships, which pays the Company a percentage of purchases made on our platform. Affiliate relationships include Amazon, Skimlinks, Tune, and more. This represents a unique opportunity in the post-pandemic environment where brands need expansive distribution pipelines such as Vocal to reach broader audiences. |
| ● | E-commerce: Our e-commerce strategy involves revitalizing archival imagery and media content in dormant legacy portfolios. Our curation and data capabilities have helped us create scalable and definable value for our internal collection of media assets through financing, trademarking, licensing, and production opportunities. Creatd has an exclusive license to leverage the stories housed on Vocal, reimagining them for films, episodic shows, games, graphic novels, collectibles, books, and more. |
Acquisition Strategy
Creatd’s hybrid finance and design cultureis key to its acquisition strategy. Acquisition targets are companies that meet a set of opportunistic or financial standards or thatare part of specific digital environments that are accretive and can seamlessly integrate into Creatd’s existing revenue lines.Creatd will continue to make strategic acquisitions when presented with opportunities that are in the interest of shareholder value.
Corporate History and Information
We were originally incorporated under the lawsof the State of Nevada on December 30, 1999 under the name LILM, Inc. The Company changed its name on December 3, 2013 to Great PlainsHoldings, Inc.
On February 5, 2016 (the “Merger ClosingDate”), we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with GPH Merger Sub, Inc., a Nevadacorporation and our wholly-owned subsidiary (“Merger Sub”), and Jerrick Ventures, Inc., a privately-held Nevada corporationheadquartered in New Jersey (“Jerrick”), pursuant to which the Merger Sub was merged with and into Jerrick, with Jerrick survivingas our wholly-owned subsidiary (the “Merger”). Pursuant to the terms of the Merger Agreement, we acquired, through a reversetriangular merger, all of the outstanding capital stock of Jerrick in exchange for issuing Jerrick’s shareholders (the “JerrickShareholders”), 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 ClosingDate, 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. Campbellassumed all of our debts, obligations and liabilities, including any existing prior to the Merger, pursuant to the terms and conditionsof the Spin-Off Agreement.
Effective February 28, 2016, we entered into anAgreement and Plan of Merger (the “Statutory Merger Agreement”), pursuant to which we became the parent company of JerrickVentures, LLC, our wholly-owned operating subsidiary (the “Statutory Merger”).
On February 28, 2016, we changed our name to JerrickMedia Holdings, Inc. to better reflect our new business strategy.
On July 25, 2019, we filed a certificate of amendmentto our articles of incorporation, as amended (the “Amendment”), with the Secretary of State of the State of Nevada to effectuatea one-for-twenty (1:20) reverse stock split (the “Reverse Stock Split”) of our common stock without any change to its parvalue. The Amendment became effective on July 30, 2019. The number of shares of authorized common stock was proportionately reduced asa result of the Reverse Stock Split. The number of shares of authorized preferred stock was not affected by the Reverse Stock Split. Nofractional shares were issued in connection with the Reverse Stock Split as all fractional shares were “rounded up” to thenext whole share.
All share and per share amounts for the commonstock indicated in this prospectus have been retroactively restated to give effect to the Reverse Stock Split.
On September 11, 2019, the Company acquired 100%of the membership interests of Seller’s Choice, LLC, a New Jersey limited liability company (“Seller’s Choice”).Seller’s Choice is digital e-commerce agency based in New Jersey.
On July 13, 2020, upon approval from our boardof directors and stockholders, we filed Second Amended and Restated Articles of Incorporation with the Secretary of State of the Stateof Nevada for the purpose of increasing our authorized shares of Common Stock to 100,000,000.
On August 13, 2020, we filed a certificate ofamendment to our second amended and restated articles of incorporation (the “Amendment”), with the Secretary of State of theState of Nevada to effectuate a one-for-three (1:3) reverse stock split (the “August 2020 Reverse Stock Split”) of our commonstock without any change to its par value. The Amendment became effective on August 17, 2020. No fractional shares were issued in connectionwith the August 2020 Reverse Stock Split as all fractional shares were rounded down to the next whole share. All share and per share amountsof our common stock listed in this prospectus have been adjusted to give effect to the August 2020 Reverse Stock Split.
On September 9, 2020, the Company filed a certificateof amendment with the Secretary of State of the State of Nevada to change our name to “Creatd, Inc.”, which became effectiveon September 10, 2020.
Recent Developments
Resignation of Chief Executive Officer andDirector
On August 9, 2022, Laurie Weisberg, the Company’sChief Executive Officer and a member of the Board, notified the Company of her intention to resign from the positions of Chief ExecutiveOfficer, director, and any other positions held with the Company or any of its subsidiaries, regardless of whether Ms. Weisberg had beenappointed. Such resignations are to become effective on a date to be determined following further discussion with the Board, but in noevent later than August 31, 2022.
Appointment of Chief Executive Officer
Effective upon Ms. Weisberg’s resignationas Chief Executive Officer, Jeremy Frommer, currently the Company’s Executive Chairman, will be appointed as Chief Executive Officer,pursuant to the Board’s approval.
Jeremy Frommer
Mr. Frommer was appointed Executive Chairman inFebruary 2022 and has been a member of our board of directors since February 2016. Previously, he served as our Chief Executive Officerfrom February 2016 to August 2021, and Co-Chief Executive Officer from August 2021 to February 2022. Mr. Frommer has over 20 years ofexperience in the financial technology industry. Previously, Mr. Frommer held key leadership roles in the investment banking and tradingdivisions of large financial institutions. From 2009 to 2012, Mr. Frommer was briefly retired until beginning concept formation for JerrickVentures which he officially founded in 2013. From 2007 to 2009, Mr. Frommer was Managing Director of Global Prime Services at RBC CapitalMarkets, the investment banking arm of the Royal Bank of Canada, the largest financial institution in Canada, after the sale of CarlinFinancial Group, a professional trading firm. From 2004 to 2007, Mr. Frommer was the Chief Executive Officer of Carlin Financial Groupafter the sale of NextGen Trading, a software development company focused on building equity trading platforms. From 2002 to 2004, Mr.Frommer was Founder and Chief Executive Officer of NextGen Trading. From 2000 to 2002, he was Managing Director of Merger Arbitrage Tradingat Bank of America, a financial services firm. Mr. Frommer was also a director of LionEye Capital, a hedge fund from June 2012 to June2014. He holds a B.A. from the University of Albany. We believe Mr. Frommer is qualified to serve on our board of directors due to hisfinancial and leadership experience.
Appointment of Director
Effective upon Ms. Weisberg’s resignationas a director, Justin Maury, currently the Company’s President and Chief Operating Officer, will be appointed to the Board, pursuantto the Board’s approval.
Justin Maury
Mr. Maury has served as our President since January2019 and was appointed Chief Operating Officer in August 2021. A full-stack designer and product developer by training, Mr. Maury partneredwith Jeremy Frommer and founded the Company in 2013, having brought with him 10 years of experience in the creative industry. Since joiningCreatd in 2013, Mr. Maury has been an instrumental force in the Company’s business and revenue expansion, and has overseen the Company’sproduct development since inception, including overseeing the design, development, launch, and ongoing growth of the Company’s flagshipproduct, Vocal, the innovative creator that, under Mr. Maury’s leadership, has grown to a community of over 1.5 million users witha total audience reach of over 175 million.
As a director, we believe Mr. Maury will add considerablevalue, including through by providing a unique perspective into Creatd’s product performance and evolution and by providing invaluabledirect input to help guide the Company’s ongoing refinement of its technology roadmap and maturation of its business model.
Trigger of Price Reset
On July 29, 2022, theCompany announced that it was not moving forward with its previously announced Rights Offering. In doing so, it triggered a price resetin the July 2022 Financing and the May 2022 Securities Purchase Agreement. As a result of this price reset, the May 2022 SecuritiesPurchase Agreement debentures now have a conversion price of $1.00, and both the Series C and Series D warrants have exercise prices of$0.96. As a result of the price reset, the July 2022 Financing debentures now have a conversion price of $1.25, and both the Series Eand Series F warrants have exercise prices of $1.01.
July 2022 Financing
On July 25, 2022 (the“Effective Date”), the Company entered into and closed securities purchase agreements (each, a “Purchase Agreement”)with five accredited investors (the “Investors”), whereby the Investors purchased from the Company for an aggregate of $1,935,019in subscription amount (i) debentures in the principal amount of $2,150,000 (the “Debentures”); (ii) 1,075,000 Series E CommonStock Purchase Warrants to purchase shares of the Common Stock (the “Series E Warrants”); and (iii) 1,075,000 Series F CommonStock Purchase Warrants to purchase shares of Common Stock (the “Series F Warrants”, and collectively with the Series E Warrants,the “Warrants”). The Company and the Investors also entered into registration rights agreements (each, a “RegistrationRights Agreement”) pursuant to the Purchase Agreement.
The Debentures have anoriginal issue discount of 10%, have a maturity date of November 30, 2022, may be extended by six months at the Company’s optionsubject to certain conditions, and are convertible into shares of Common Stock at a conversion price of $2.00 per share, subject to adjustmentupon certain events including a one-time adjustment to the price of the Common Stock offered in the Rights Offering (as defined therein),with such adjusted conversion price not to be lower than $1.25.
The Warrants are immediatelyexercisable for a term of five years until July 25, 2027. The Series E Warrants are exercisable at an exercise price of $3.00, subjectto adjustment upon certain events including a one-time adjustment to the price of the Common Stock offered in the Rights Offering, withsuch adjusted exercise price not to be lower than $1.01. The Series F Warrants are exercisable at an exercise price of $6.00 subject toadjustment upon certain events including a one-time adjustment to the price of the Common Stock offered in the Rights Offering, with suchadjusted exercise price not to be lower than $1.01. The Warrants provide for cashless exercise to the extent that there is no registrationstatement available for the underlying shares of Common Stock. The shares underlying the Debentures, the Series E Warrants and the SeriesF Warrants are to be registered within 90 days of the Effective Date.
The representations andwarranties contained in the Purchase Agreement were made by the parties to, and solely for the benefit of, the other in the context ofall of the terms and conditions of the Purchase Agreement and in the context of the specific relationship between the parties. The provisionsof the Purchase Agreement, including the representations and warranties contained therein, are not for the benefit of any party otherthan the parties to the Purchase Agreement. The Purchase Agreement is not intended for investors and the public to obtain factual informationabout the current state of affairs of the parties.
Additionally, in connectionwith the Purchase Agreements, the subsidiaries of the Company delivered a guarantee (the “Guarantee”) in favor of the Investorswhereby each such subsidiary guaranteed the full payment and performance of all obligations of the Company pursuant to the Purchase Agreement.
Nasdaq - ContinuedListing
On March 1, 2022, theCompany received a letter from the staff of The Nasdaq Capital Market (the “Exchange”) notifying the Company that the Exchangehas determined to delist the Company’s common stock from the Exchange based on the Company’s Market Value of Listed Securitiesfor the 30-consecutive day period between January 15, 2022 and February 25, 2022 falling short of the requirements under Listing Rule5550(b)(2) (the “Rule”). Although a 180-day period is typically allowed for an issuer to regain compliance, the Company wasnot eligible to use such compliance period, as the Exchange had instituted a Panel Monitor through March 9, 2022.
The Company pursued anappeal to the Nasdaq Hearings Panel (the “Panel”) of such determination, in accordance with the Exchange’s rules and,pursuant to such request by the Company to appeal, the delisting of the Company’s securities and the Form 25 Notification of Delistingfiling was stayed pending the Panel’s decision.
On April 22, 2022, theExchange notified the Company that the Panel has determined to continue the listing of the Company on the Exchange, subject to the followingconditions: (i) on or before May 16, 2022, the Company will file its Quarterly Report on Form 10-Q for the period ended March 31, 2022demonstrating compliance with Nasdaq Listing Rule 550(b)(1) requiring shareholders’ equity of $2.5 million and (ii) on or beforeAugust 29, 2022, the Company will file a Form 8-K documenting the successful completion of any fund-raising activity that has taken placesince April 14, 2022 and the Company’s long-term compliance with the continued listing requirements of the Nasdaq Capital Market.
The Panel has advisedthat August 29, 2022 represents the full extent of the Panel’s discretion to grant continued listing during the time the Companyis non-compliant and should the Company fail to demonstrate compliance by such date, the Panel will issue a final delist determinationand the Company will be suspended from trading on the Exchange.
Securities PurchaseAgreement
On May 31, 2022, theCompany entered into and closed securities purchase agreements (each, a “Purchase Agreement”) with eight accredited investors(the “Investors”), whereby the Investors purchased from the Company for an aggregate of $3,600,036 in subscription amount(i) debentures in the principal amount of $4,000,000 (the “Debentures”); (ii) 2,000,000 Series C Common Stock Purchase Warrantsto purchase shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”) (the “SeriesC Warrants”); and (iii) 2,000,000 Series D Common Stock Purchase Warrants to purchase shares of Common Stock (the “SeriesD Warrants”, and collectively with the Series C Warrants, the “Warrants”). The Company and the Investors also enteredinto registration rights agreements (each, a “Registration Rights Agreement”) pursuant to the Purchase Agreement.
The Debentures have anoriginal issue discount of 10%, have a term of six months with a maturity date of November 30, 2022, may be extended by six months atthe Company’s option subject to certain conditions, and are convertible into shares of Common Stock at a conversion price of $2.00per share, subject to adjustment upon certain events including a one-time adjustment to the price of the Common Stock offered in the RightsOffering (as defined therein), with such adjusted conversion price not to be lower than $1.00.
The Warrants are exercisablefor a term of five years from the initial exercise date of November 30, 2022, until November 30, 2027. The Series C Warrants are exercisableat an exercise price of $3.00, subject to adjustment upon certain events including a one-time adjustment to the price of the Common Stockoffered in the Rights Offering, with such adjusted exercise price not to be lower than $0.96. The Series D Warrants are exercisable atan exercise price of $6.00 subject to adjustment upon certain events including a one-time adjustment to the price of the Common Stockoffered in the Rights Offering, with such adjusted exercise price not to be lower than $0.96. The Warrants provide for cashless exerciseto the extent that there is no registration statement available for the underlying shares of Common Stock. The shares underlying the Debentures,the Series C Warrants and the Series D Warrants are to be registered within 90 days of the Effective Date.
Additionally, in connectionwith the Purchase Agreements, the subsidiaries of the Company delivered a guarantee (the “Guarantee”) in favor of the Investorswhereby each such subsidiary guaranteed the full payment and performance of all obligations of the Company pursuant to the PurchaseAgreement.
The Debentures, Warrants,Common Stock underlying the Debentures and the Common Stock underlying the Warrants were not registered under the Securities Act, butqualified for exemption under Section 4(a)(2) and Rule 506 promulgated thereunder. The Company is relying on this exemption from registrationfor private placements based in part on the representations made by Investors, including representations with respect to each Investor’sstatus as an accredited investor, as such term is defined in Rule 501(a) of the Securities Act, and each Investor’s investment intent.
Employees
As of June 30, 2022, we had 45 full-time employeesand 17 part-time employees. None of our employees are subject to a collective bargaining agreement, and we believe our relationship withour employees to be good.
We believe that our future success will dependin part on our continued ability to attract, hire and retain qualified personnel. Our human capital resources objectives include identifying,recruiting, retaining, incentivizing and integrating our existing and new employees, advisors and consultants. The principal purposesof our equity and cash incentive plans are to attract, retain and reward personnel through the granting of stock-based and cash-basedcompensation awards, in order to increase stockholder value and the success of our company by motivating such individuals to perform tothe best of their abilities and achieve our objectives.
Facilities
Our corporate headquarters consists of a totalof approximately 8,000 square feet and is located at 419 Lafayette Street, 6th Floor, New York, NY 10003. The current leaseterm is effective May 1, 2022 through April 30, 2029, with monthly rent of $39,000 for the first year of the leasing period, and an increasein rent of 3% for every year thereafter. Previously in 2022, the Company also had additional office space located at 648 Broadway, Suite200, New York, NY 10012. The lease term was effective September 9, 2021 through September 9, 2022, with monthly rent of $12,955 for theleasing period. During 2021, the Company also had additional office space located at 2050 Center Ave, Suite 640 and Suite 660, Fort Lee,NJ 07024. The lease term was effective June 5, 2018 through July 5, 2023, with monthly rent of $7,693 for the first year and increasesat a rate of 3% for each subsequent year thereafter. Subsequent to December 31, 2021, the Company reached an agreement with the landlordat the New Jersey location to terminate the lease effective February 28, 2022.
Legal Proceedings
From time to time, we may become involved in variouslawsuits and legal proceedings, which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and anadverse result in these or other matters may arise from time to time that may harm our business. Except as set forth below, we are currentlynot aware of any such legal proceedings or claims that will have, individually or in the aggregate, a material adverse effect on our business,financial condition or operating results.
On or about August 30,2021, Robert W. Monster and Anonymize, Inc. (“Monster”) filed a lawsuit in the United States District Court for the WesternDistrict of Washington at Seattle, Robert W. Monster, et al. v. Creatd, Inc., et al. (Western District of Washington at Seattle 2:21-CV-1177).The Complaint alleges, among other things, that action for Declaratory Judgment under 28 U.S.C. § 2201 that Monster’s registrationand use of the internet domain name VOCL.COM (the “Domain Name”) does not violate Creatd’s rights under theAnticybersquatting Consumer Protection Act (“ACPA”), 15 U.S.C. § 1125(d), or otherwise under the Lanham Act, 15 U.S.C.§ 1051 et seq. Creatd claims trademark rights and certain other rights with respect to the term and the domain name VOCL.COM.Monster seeks a determination by the Court that Monster’s registration and/or use of VOCL.COM is not, and has not beenin violation of the ACPA, and that Plaintiffs’ use of VOCL.COM constitutes neither a violation of the ACPA nor trademarkinfringement or dilution under the Lanham Act. Creatd believes the lawsuit lacks merit and will vigorously challenge the action. At thistime, we are unable to estimate potential damage exposure, if any, related to the litigation.
Corporate Information
The Company’s address is 419 Lafayette Street,6th Floor, New York, NY 10003. The Company’s telephone number is (201) 258-3770. Our website is https://creatd.com. Theinformation on, or that can be accessed through, this website is not part of this prospectus, and you should not rely on any such informationin making the decision whether to purchase the securities.
MANAGEMENT
The following table and biographical summariesset forth information, including principal occupation and business experience, about our directors and executive officers as of the dateof this prospectus:
Name | | Age | | Positions |
Laurie Weisberg | | 53 | | Chief Executive Officer, Director |
Jeremy Frommer | | 53 | | Executive Chairman of the Board of Directors |
Joanna Bloor | | 52 | | Director |
Brad Justus | | 61 | | Director |
Lorraine Hendrickson | | 56 | | Director |
Justin Maury | | 33 | | Chief Operating Officer & President |
Chelsea Pullano | | 31 | | Chief Financial Officer |
Laurie Weisberg – ChiefExecutive Officer and Director
Ms. Weisberg was elected to our board ofdirectors in July 2020 and has been our Chief Executive Officer since 2022. Previously, she held the position of Co-Chief ExecutiveOfficer from August 2021 to February 2022, and Chief Operating Officer from September 2020 to August 2021. Weisberg, who has served asthe Chief Sales Officer at Intent since February 2019, has spent over 25 years at the forefront of sales and marketing innovationin the technology space, having held leadership positions at various technology companies including Thrive Global, Curalate, and OracleData Cloud. From October 2010 to April 2015, Ms. Weisberg was a member of the executive leadership team at Datalogix, leadingup to its acquisition by Oracle in 2015, at which point she assumed the role of VP of Oracle Data Cloud. Additionally, Ms. Weisberghas served on the Advisory Board at Crowdsmart, an intelligent data-driven investment prediction platform since April 2019.Ms. Weisberg was born and educated in England. We believe Ms. Weisberg is qualified to serve on our board of directors due toher extensive global sales and brand marketing expertise as well as her leadership experience working within the technology space.
Jeremy Frommer – ExecutiveChairman and Co-Founder
Mr. Frommer was appointed Executive Chairman inFebruary 2022 and has been a member of our board of directors since February 2016. Previously, he served as our Chief Executive Officerfrom February 2016 to August 2021, and Co-Chief Executive Officer from August 2021 to February 2022. Mr. Frommer has over 20 years ofexperience in the financial technology industry. Previously, Mr. Frommer held key leadership roles in the investment banking and tradingdivisions of large financial institutions. From 2009 to 2012, Mr. Frommer was briefly retired until beginning concept formation for JerrickVentures which he officially founded in 2013. From 2007 to 2009, Mr. Frommer was Managing Director of Global Prime Services at RBC CapitalMarkets, the investment banking arm of the Royal Bank of Canada, the largest financial institution in Canada, after the sale of CarlinFinancial Group, a professional trading firm. From 2004 to 2007, Mr. Frommer was the Chief Executive Officer of Carlin Financial Groupafter the sale of NextGen Trading, a software development company focused on building equity trading platforms. From 2002 to 2004, Mr.Frommer was Founder and Chief Executive Officer of NextGen Trading. From 2000 to 2002, he was Managing Director of Merger Arbitrage Tradingat Bank of America, a financial services firm. Mr. Frommer was also a director of LionEye Capital, a hedge fund from June 2012 to June2014. He holds a B.A. from the University of Albany. We believe Mr. Frommer is qualified to serve on our board of directors due to hisfinancial and leadership experience.
Joanna Bloor – Director
Ms. Bloor, age 52, Founder and CEO of The AmplifyLab, combines over 7 years of experience in Technology senior management following a 15-year career as a Senior Executive in Operationsand Marketing. Previously, she had been involved in three companies in the Technology and Media industry, holding positions includingVP of Sales Operations, AVP of Sales Operations and Director of Sales Operations, and board member. From 2010 through 2015, she held theposition of VP of Sales Operations at Pandora, a technology and entertainment company. From 2000 to 2010, Ms. Bloor was the AVP of SalesOperations for CBS Interactive, Inc., a Digital Media and News organization. From 2000 to 2001, she was the Director of Sales Operationsfor OpenTable.com, an online restaurant reservation company. Joanna is also currently the Founder and CEO of The Amplify Lab., a careercoaching company rooted in technology, data, and human experiences. We believe Joanna will be invaluable assisting Creatd shape and implementcompany culture transformation, overall operations, and human capital management. She has also had specific and deep experience in scalingrevenue and implementing teams for numerous public and private companies, including leading technology companies and consumer brands thatgenerate multi-million to hundreds of millions in annual revenue.
Brad Justus – Director
Mr. Justus, age 61, most recently Director ofInternational Publishing at Riot Games, combines over 13 years of executive management experience in the game development and publishingindustries with more than 10 years in multiple C-Suite officer roles. Previously, he had been involved in 3 companies in the technologyand gaming industry, holding positions including Vice President of Marketing and Brand Experience, Chief Marketing Officer, Chief ExecutiveOfficer, and Senior Vice President. From 2015 to 2016, he served as Chief Experience Officer at Radiant Entertainment, a gaming companythat was acquired by Riot Games in 2016. From 2012 to 2014, Mr. Justus was VP of Marketing and Brand Experience at ROBLOX Corporation,a digital community, and gaming company. From 2009 to 2012, he was Chief Marketing Officer at ClearStreet, Inc., a fintech startup company.From 2006 through 2007, Mr. Justus was the Senior Vice President for Art.com, an online art marketplace. From 2004 to 2005, he was Presidentand CEO for Informative, Inc., an online technology survey company. Previously, he was Senior Vice President at LEGO, an industry-leadingtoy company from 1999 to 2004. Since 2016 Mr. Justus held titles including Director, Brand Marketing and Director, InternationalPublishing at Riot Games, a video game company where he also led the creator-driven global launch of the blockbuster game VALORANT in2020. Mr. Justus holds a Bachelor of Arts cum laude in Political Science from Amherst College. We believe Mr. Justuswill be a strong addition to Creatd’s board of directors because of his experience leading branding, marketing, and product developmentteams at numerous direct to consumer companies. Many of these companies are tech- and community-focused, just like Creatd. He will alsoadvise on overall online strategy and revenue growth.
Lorraine Hendrickson – Director
Lorraine Hendrickson, age 56, combines over 20years of experience in the investment banking industry, having held numerous senior management and executive positions including ChiefAdministration Officer, Vice President of Business Development, Corporate Relations, and Investment Strategy as well as various Directorpositions. From 2004 to 2006, Ms. Hendrickson served as Vice President Investment Strategy & Corporate Relations at Merrill LynchInvestment Management. From 2006 to 2011, Ms. Hendrickson was Director at BNY Mellon. An investment management firm. From 2011 to 2012,she moved to Hong Kong with BNY Mellon to become their Chief Administration Officer, Global Distribution. From 20014 to 2015, Ms. Hendricksonmoved to become a Director, within the Investment Management Advisory division of Deloitte UK, the leading London-based internationalconsulting firm. She was subsequently recruited by a client and, from 2015-2018, served as the Program Director of London CIV (CollectiveInvestment Vehicle), the City of London’s first alternative asset management company owned and operated by the local government. She holds a Bachelor of Science in Finance from Rider University. We believe Ms. Hendrickson will add considerable value, including throughher comprehensive and diverse investment management experience, deep knowledge of governance and regulatory frameworks, and broad experiencewith business development, operations, and executive leadership.
Justin Maury – Chief OperatingOfficer and Co-Founder
Mr. Maury has served as our President since January2019, and was appointed Chief Operating Officer in August 2021. He is a full stack design director with an expertise in product development.With over ten years of design and product management experience in the creative industry, Mr. Maury’s passion for the creative artsand technology ultimately resulted in the vision for Vocal. Since joining Creatd in 2013, Maury has overseen the development and launchof the company’s flagship product, Vocal, an innovative platform that provides storytelling tools and engaged communities for creatorsand brands to get discovered while funding their creativity. Under Maury’s supervision, Vocal has achieved growth to over 380,000creators across 34 genre-specific communities in its first two years since launch.
Chelsea Pullano – Chief FinancialOfficer
Ms. Pullano has been our Chief Financial Officersince June 2020. She has a long history of leadership at Creatd, serving as a member of the Company’s Management Committee for fouryears. Prior to her current role, Ms. Pullano was an integral member of our finance department since 2017, most recently serving as ourHead of Corporate Finance, a role in which she coordinated our periodic reports under the Exchange Act and other financial matters. Priorto joining the Finance Department, Ms. Pullano was a member of our operations team from 2015 to 2017. She holds a B.A. from the StateUniversity of New York College at Geneseo.
Director Terms; Qualifications
Members of our board of directors serve untilthe next annual meeting of stockholders, or until their successors have been duly elected.
When considering whether directors and nomineeshave the experience, qualifications, attributes and skills to enable the board of directors to satisfy its oversight responsibilitieseffectively in light of the Company’s business and structure, the board of directors focuses primarily on the industry and transactionalexperience, and other background, in addition to any unique skills or attributes associated with a director.
Director or Officer Involvement in CertainLegal Proceedings
There are no material proceedings to which anydirector or officer, or any associate of any such director or officer, is a party that is adverse to our Company or any of our subsidiariesor has a material interest adverse to our Company or any of our subsidiaries. No director or executive officer has been a director orexecutive officer of any business which has filed a bankruptcy petition or had a bankruptcy petition filed against it during the pastten years. No director or executive officer has been convicted of a criminal offense or is the subject of a pending criminal proceedingduring the past ten years. No director or executive officer has been the subject of any order, judgment or decree of any court permanentlyor temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activitiesduring the past ten years. No director or officer has been found by a court to have violated a federal or state securities or commoditieslaw during the past ten years.
Directors and Officers Liability Insurance
The Company has directors’ and officers’liability insurance insuring its directors and officers against liability for acts or omissions in their capacities as directors or officers,subject to certain exclusions. Such insurance also insures the Company against losses, which it may incur in indemnifying its officersand directors. In addition, officers and directors also have indemnification rights under applicable laws, and the Company’s SecondAmended and Restated Articles of Incorporation and Amended and Restated Bylaws.
Director Independence
The listing rules of The Nasdaq Stock Market LLC(“Nasdaq”) require that independent directors must comprise a majority of a listed company’s board of directors. Inaddition, the rules of Nasdaq require that, subject to specified exceptions, each member of a listed company’s audit, compensation,and nominating and governance committees be independent. Audit committee members must also satisfy the independence criteria set forthin Rule 10A-3 under the Exchange Act. Under the rules of Nasdaq, a director will only qualify as an “independent director”if, in the opinion of that company’s board of directors, that person does not have a relationship that would interfere with theexercise of independent judgment in carrying out the responsibilities of a director.
Our board of directors has undertaken a reviewof the independence of our directors and considered whether any director has a material relationship with it that could compromise hisor her ability to exercise independent judgment in carrying out his or her responsibilities. Based upon information requested from andprovided by each director concerning his background, employment and affiliations, including family relationships, the board of directorshas determined that Joanna Bloor, Brad Justus and Lorraine Hendrickson are “independent” as that term is defined under theapplicable rules and regulations of the SEC and the listing standards of Nasdaq. In making these determinations, our board of directorsconsidered the current and prior relationships that each non-employee director has with the Company and all other facts andcircumstances our board of directors deemed relevant in determining their independence, including the beneficial ownership of the Company’scapital stock by each non-employee director, and any transactions involving them described in the section captioned “—Certainrelationships and related transactions and director independence.”
Board Committees
The Company’s Board has established threestanding committees: Audit, Compensation, and Nominating and Corporate Governance. Each of the committees operates pursuant to its charter.The committee charters will be reviewed annually by the Nominating and Corporate Governance Committee. If appropriate, and in consultationwith the chairs of the other committees, the Nominating and Corporate Governance Committee may propose revisions to the charters. Theresponsibilities of each committee are described in more detail below.
Nasdaq permits a phase-in period of up to oneyear for an issuer registering securities in an initial public offering to meet the Audit Committee, Compensation Committee and Nominatingand Corporate Governance Committee independence requirements. Under the initial public offering phase-in period, only one member of eachcommittee is required to satisfy the heightened independence requirements at the time our registration statement becomes effective, amajority of the members of each committee must satisfy the heightened independence requirements within 90 days following the effectivenessof our registration statement, and all members of each committee must satisfy the heightened independence requirements within one yearfrom the effectiveness of our registration statement.
Audit Committee
The Audit Committee, among other things, willbe responsible for:
| ● | Appointing; approving the compensation of; overseeing the work of; and assessing the independence, qualifications, and performance of the independent auditor; |
| ● | Reviewing the internal audit function, including its independence, plans, and budget; |
| ● | Approving, in advance, audit and any permissible non-audit services performed by our independent auditor; |
| ● | Reviewing our internal controls with the independent auditor, the internal auditor, and management; |
| ● | Reviewing the adequacy of our accounting and financial controls as reported by the independent auditor, the internal auditor, and management; |
| ● | Overseeing our financial compliance system; and |
| ● | Overseeing our major risk exposures regarding the Company’s accounting and financial reporting policies, the activities of our internal audit function, and information technology. |
The board of directors has affirmatively determinedthat each member of the Audit Committee meets the additional independence criteria applicable to audit committee members under SEC rulesand Nasdaq listing rules. The board of directors has adopted a written charter setting forth the authority and responsibilities of theAudit Committee. The Board has affirmatively determined that each member of the Audit Committee is financially literate, and that Ms.Hendrickson meets the qualifications of an Audit Committee financial expert.
The Audit Committee consists of Ms. Bloor, Mr.Justus and Ms. Hendrickson. Ms. Hendrickson chairs the Audit Committee. We believe that the functioning of the Audit Committee complieswith the applicable requirements of the rules and regulations of the Nasdaq listing rules and the SEC.
Compensation Committee
The Compensation Committee will be responsiblefor:
| ● | Reviewing and making recommendations to the Board with respect to the compensation of our officers and directors, including the CEO; |
| ● | Overseeing and administering the Company’s executive compensation plans, including equity-based awards; |
| ● | Negotiating and overseeing employment agreements with officers and directors; and |
| ● | Overseeing how the Company’s compensation policies and practices may affect the Company’s risk management practices and/or risk-taking incentives. |
The board of directors has adopted a written chartersetting forth the authority and responsibilities of the Compensation Committee.
The Compensation Committee consists of Ms. Bloor,Mr. Justus and Ms. Hendrickson. Ms. Bloor serves as chairman of the Compensation Committee. The board of directors has affirmatively determinedthat each member of the Compensation Committee meets the independence criteria applicable to compensation committee members under SECrules and Nasdaq listing rules. The Company believes that the composition of the Compensation Committee meets the requirements for independenceunder, and the functioning of such Compensation Committee will comply with, any applicable requirements of the rules and regulations ofNasdaq listing rules and the SEC.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee,among other things, is responsible for:
| ● | Reviewing and assessing the development of the executive officers and considering and making recommendations to the Board regarding promotion and succession issues; |
| | |
| ● | Evaluating and reporting to the Board on the performance and effectiveness of the directors, committees and the Board as a whole; |
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| ● | Working with the Board to determine the appropriate and desirable mix of characteristics, skills, expertise and experience, including diversity considerations, for the full Board and each committee; |
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| ● | Annually presenting to the Board a list of individuals recommended to be nominated for election to the Board; |
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| ● | Reviewing, evaluating, and recommending changes to the Company’s Corporate Governance Principles and Committee Charters; |
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| ● | Recommending to the Board individuals to be elected to fill vacancies and newly created directorships; |
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| ● | Overseeing the Company’s compliance program, including the Code of Conduct; and |
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| ● | Overseeing and evaluating how the Company’s corporate governance and legal and regulatory compliance policies and practices, including leadership, structure, and succession planning, may affect the Company’s major risk exposures. |
The board of directors has adopted a written chartersetting forth the authority and responsibilities of the Corporate Governance/Nominating Committee.
The Nominating and Corporate Governance Committeeconsists of Ms. Bloor, Mr. Justus and Ms. Hendrickson. Mr. Justus serves as chair. The Company’s board of directors has determinedthat each member of the Nominating and Corporate Governance Committee is independent within the meaning of the independent director guidelinesof Nasdaq listing rules.
Compensation Committee Interlocks and InsiderParticipation
None of the Company’s executive officersserves, or in the past has served, as a member of the board of directors or compensation committee, or other committee serving an equivalentfunction, of any entity that has one or more executive officers who serve as members of the Company’s board of directors or itscompensation committee. None of the members of the Company’s compensation committee is, or has ever been, an officer or employeeof the company.
Code of Business Conduct and Ethics
The Company’s Board of Directors has adopteda code of business conduct and ethics applicable to its employees, directors and officers, in accordance with applicable U.S. federalsecurities laws and the corporate governance rules of Nasdaq. The code of business conduct and ethics will be publicly available on theCompany’s website. Any substantive amendments or waivers of the code of business conduct and ethics or code of ethics for seniorfinancial officers may be made only by the Company’s board of directors and will be promptly disclosed as required by applicableU.S. federal securities laws and the corporate governance rules of Nasdaq.
Corporate Governance Guidelines
The Company’s board of directors has adoptedcorporate governance guidelines in accordance with the corporate governance rules of Nasdaq.
Delinquent Section 16(A) Reports.
Section 16(a) of the Exchange Act requires theCompany’s officers and directors, and persons who beneficially own more than 10% of a registered class of the Company’s equitysecurities, to file reports of ownership and changes in ownership with the SEC and are required to furnish copies to the Company. Basedsolely on the review of the Changes of Beneficial Ownership disclosures on Forms 3, 4 and 5 filed with the Securities and Exchange Commission,the following persons filed the following number of transactions on Section 16 beneficial ownership disclosure filings late for transactions:
| ● | Mr. Mark Standish filed one Form 4 late with respect to one transaction; |
| ● | Mr. Arthur Rosen filed one Form 5 for late filings with respect to five transactions; and |
| ● | Mr. Eric Ellis Goldberg filed one Form 4 for late filings with respect to two transactions, and one Form 3 late with respect to two transactions. |
EXECUTIVE COMPENSATION
The following information is related to the compensationpaid, distributed or accrued by us for the years ended December 31, 2021 and December 31, 2020 for our Chief Executive Officer (principalexecutive officer) serving during the year ended December 31, 2021 and the three other executive officers serving at December 31, 2021whose total compensation exceeded $100,000 (the “Named Executive Officers”).
Name and Principal Position | | Year | | | Salary ($) | | | Bonus ($) | | | Stock Awards ($) | | | Option Awards ($) | | | Non-Equity Incentive Plan Compensation ($) | | | Nonqualified Deferred Compensation Earnings ($) | | | All Other Compensation ($) | | | Total ($) | |
Laurie Weisberg | | | 2021 | | | $ | 313,750 | | | $ | 25,000 | | | $ | 20,226 | | | $ | 763,894 | | | | - | | | | - | | | $ | 24,925 | (1) | | $ | 1,147,795 | |
Chief Executive Officer | | | 2020 | | | $ | 60,577 | | | $ | - | | | | - | | | | - | | | | - | | | | - | | | $ | 7,875 | (2) | | $ | 68,452 | |
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Justin Maury | | | 2021 | | | $ | 306,923 | | | $ | 5,000 | | | | - | | | $ | 1,479,328 | | | | - | | | | - | | | $ | 7,919 | (3) | | $ | 1,799,170 | |
President & Chief Operating Officer | | | 2020 | | | $ | 147,009 | | | | - | | | $ | 412,204 | (9) | | $ | 713,563 | | | | - | | | | - | | | $ | 7,920 | (4) | | $ | 1,280,696 | |
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Chelsea Pullano | | | 2021 | | | $ | 207,616 | | | $ | - | | | | - | | | $ | 610,052 | | | | - | | | | - | | | $ | 7,632 | (5) | | $ | 825,300 | |
Chief Financial Officer | | | 2020 | | | $ | 123,500 | | | | - | | | $ | 38,050 | (10) | | $ | 522,121 | | | | - | | | | - | | | $ | 1,908 | (6) | | $ | 685,579 | |
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Jeremy Frommer | | | 2021 | | | $ | 665,433 | | | $ | 200,000 | | | | - | | | $ | 1,709,628 | | | | - | | | | - | | | $ | 98,237 | (7) | | $ | 2,673,298 | |
Executive Chairman | | | 2020 | | | $ | 234,231 | | | $ | 182,000 | | | $ | 469,255 | (11) | | $ | 931,339 | | | | - | | | | - | | | $ | 86,686 | (8) | | $ | 1,903,511 | |
(1) | The $24,925 includes payment to Ms. Weisberg for health insurance. |
(2) | The $7,875 includes payment to Ms. Weisberg for health insurance. |
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(3) | The $7,919 includes payment to Mr. Maury for health insurance. |
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(4) | The $7,920 includes payment to Mr. Maury for health insurance. |
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(5) | The $7,632 includes payment to Ms. Pullano for health insurance. |
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(6) | The $1,908 includes payment to Ms. Pullano for health insurance. |
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(7) | The $98,237 includes payment to Mr. Frommer for living expenses, health insurance and a vehicle allowance. |
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(8) | The $86,686 includes payment to Mr. Frommer for living expenses, health insurance and a vehicle allowance. |
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(9) | On May 13, 2020, the Company exchanged 167,955 stock options for 251,933 shares of Common Stock. $403,604 is attributable to this exchange. $8,660 of this amount is attributable to the issuance of shares in lieu of wages. |
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(10) | On May 13, 2020, the Company exchanged 14,205 stock options for 21,308 shares of Common Stock. |
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(11) | On May 13, 2020, the Company exchanged 200,000 stock options for 300,000 shares of Common Stock. $456,134 is attributable to this exchange. $12,121 of this amount is attributable to the issuance of shares in lieu of wages. |
Employment Agreements
As of December 31, 2021, the Company had not enteredinto any employment agreements, but has entered into such agreements with its Chief Executive Officer, Executive Chairman, President&Chief Operating Officer, and Chief Financial Officer subsequent to December 31, 2021.
2020 Equity Incentive Plan
Our 2020 Equity Incentive Plan (the “2020Plan”) provides for the issuance of incentive stock options, non-statutory stock options, stock appreciation rights (“SARs”),restricted stock, restricted stock units (“RSUs”), and other stock-based awards and there are 2,500,000 shares originallyreserved under the 2020 Plan.
No further awards may be issued under the JerrickVentures 2015 Incentive and Award Plan (the “2015 Plan”), but all awards under the 2015 Plan that are outstanding as of theEffective Date will continue to be governed by the terms, conditions and procedures set forth in the 2015 Plan and any applicable awardagreement.
Outstanding Equity Awards at Fiscal Year-End2021
At December 31, 2021, we had outstandingequity awards as follows:
Name | | Number of Securities Underlying Unexercised Options Exercisable | | | Number of Securities Underlying Unexercised Options Unexercisable | | | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options | | | Weighted Average Exercise Price | | | Expiration Date | | Number of Shares or Units of Stock That Have Not Vested | | | Market Value of Shares or Units of Stock That Have Not Vested | | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested | | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested | |
Jeremy Frommer (1) | | | 210,188 | | | | 400,000 | | | | - | | | $ | 5.94 | | | February 19, 2028 (5) | | | - | | | $ | - | | | | - | | | | - | |
Laurie Weisberg (2) | | | 137,667 | | | | 87,083 | | | | - | | | $ | 7.13 | | | February 19, 2028(6) | | | - | | | $ | - | | | | - | | | | - | |
JustinMaury (3) | | | 149,333 | | | | 374,000 | | | | - | | | $ | 5.93 | | | February 19, 2028 (7) | | | - | | | $ | - | | | | - | | | | - | |
Chelsea Pullano (4) | | | 87,000 | | | | 150,000 | | | | - | | | $ | 4.37 | | | February 19, 2028(8) | | | - | | | $ | - | | | | - | | | | - | |
(1) | Effective February 5, 2016, to August 13, 2021, Jeremy Frommer was appointed as our Chief Executive Officer. Starting August 13, 2021, Jeremy Frommer was appointed Co-Chief Executive Officer with Laurie Weisberg. |
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(2) | Effective September 28, 2020, to August 13, 2021, Laurie Weisberg was appointed as our Chief Operating Officer. Starting August 13, 2021, Laurie Weisberg Co-Chief Executive Officer with Jeremy Frommer. |
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(3) | Effective January 31, 2019, to August 13, 2021, Justin Maury was appointed as our President. Starting August 13, 2021, Justin Maury was appointed Chief Operating Officer in addition to President. |
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(4) | Effective June 29, 2020, Chelsea Pullano was appointed Chief Financial Officer. |
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(5) | 121,000 options expire on October 28, 2026, 200,000 options expire on February 19, 2027, 200,000 options expire on February 19, 2028. |
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(6) | 53,750 options expire on February 4, 2026, 121,000 options expire on October 28, 2026, 25,000 options expire on February 19, 2027, 25,000 options expire on February 19, 2028. |
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(7) | 81,000 options expire on October 28, 2026, 187,000 options expire on February 19, 2027, 187,000 options expire on February 19, 2028. |
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(8) | 37,000 options expire on October 28, 2026, 75,000 options expire on February 19, 2027, 75,000 options expire on February 19, 2028. |
Director Compensation
The following table presents the total compensationfor each person who served as a non-employee member of our board of directors and received compensation for such service during the fiscalyear ended December 31, 2021. Other than as set forth in the table and described more fully below, we did not pay any compensation, makeany equity awards or non-equity awards to, or pay any other compensation to any of the non-employee members of our board of directorsin 2021.
Director | | Option Awards (1) | | | Fees Earned or Paid in Cash | | | Total | |
Mark Standish (4) | | $ | 340,414 | | | $ | - | | | $ | 340,414 | |
Mark Patterson (2) | | $ | 131,845 | | | $ | - | | | $ | 131,845 | |
Leonard Schiller (4) | | $ | 171,453 | | | $ | - | | | $ | 171,453 | |
LaBrena Martin (4) | | $ | 169,078 | | | $ | - | | | $ | 169,078 | |
Laurie Weisberg (3) | | $ | 763,894 | | | $ | - | | | $ | 763,894 | |
(1) | Amounts shown in this column do not reflect dollar amounts actually received by our non-employee directors. Instead, these amounts represent the aggregate grant date fair value of stock option awards determined in accordance with FASB ASC Topic 718. |
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(2) | Mark Patterson resigned from the board of directors effective July 31, 2021. |
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(3) | Laurie Weisberg was appointed the Company’s Chief Operating Officer on September 28, 2020. |
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(4) | Mark Standish, Leonard Schiller, and LaBrena Martin resigned from the board of directors subsequent to December 31, 2021. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following includes a summary of transactionsduring our fiscal years ended December 31, 2021 and December 31, 2020 to which we have been a party, including transactions in whichthe amount involved in the transaction exceeds the lesser of $120,000 or 1% of the average of our total assets at year-end forthe last two completed fiscal years, and in which any of our directors, executive officers or, to our knowledge, beneficial ownersof more than 5% of our capital stock or any member of the immediate family of any of the foregoing persons had or will have a direct orindirect material interest, other than equity and other compensation, termination, change in control and other arrangements, which aredescribed elsewhere in this Annual Report. We are not otherwise a party to a current related party transaction, and no transaction iscurrently proposed, in which the amount of the transaction exceeds the lesser of $120,000 or 1% of the average of our total assets atyear-end for the last two completed fiscal years and in which a related person had or will have a direct or indirect material interest.
Revenue
During the year ended December 31, 2021 the Companyreceived revenue of $80,000 from Dune for branded content services prior to consolidation but after recognition as an equity method investee.
The July 2020 Convertible Note Offering
From July 2020 to September 2020, the Companyconducted multiple closings of a private placement offering to accredited investors (the “July 2020 Convertible Note Offering”)of units of the Company’s securities by entering into subscription agreements with “accredited investors” (the “July2020 Investors”) for aggregate gross proceeds of $50,000. The July 2020 Convertible Note Offering accrues interest at a rate oftwelve percent per annum (12%). The July 2020 Convertible Note Offering mature on the six (6th) month anniversary of theirissuance dates.
The July 2020 Note Offering is convertible intoshares of the Company’s common stock, par value $.001 per share (“Conversion Shares”) at the lesser of (i) a fixed conversionprice equal to $12.75 per share after the maturity date or (ii) any private placement offerings or one or more registered public offeringsby the Company under the Securities Act in connection with its listing onto a national securities exchange (a “Qualified Offering”).
Upon default the July 2020 Convertible Note Offeringis convertible into shares of the Company’s common stock, par value $.001 per share (“Conversion Shares”) equal to 61%multiplied by the lowest trade of the common stock during the twenty (15) consecutive trading day period immediately preceding the dateof the respective conversion.
The conversion feature of the July 2020 ConvertibleNote Offering provides for an effective conversion price that is below market value on the date of issuance. Such feature is normallycharacterized as a beneficial conversion feature. When the Company records a BCF the relative fair value of the BCF is recorded as a debtdiscount against the face amount of the respective debt instrument. The Company recorded a BCF and related debt discount of $9,812, thediscount is being accreted over the life of the Debenture to accretion of debt discount and issuance cost.
The Company recorded a $21,577 debt discount relatingto 3,922 July 2020 Convertible Note Offering issued to investors based on the relative fair value of each equity instrument on the datesof issuance. The debt discount is being accreted over the life of these notes to accretion of debt discount and issuance cost.
During the year ended December 31, 2020, the Companyconverted $50,000 of principal and $630 of unpaid interest into the September 2020 Equity Raise.
The January 2020 Rosen Loan Agreement
On January 14, 2020, the Company entered intoa loan agreement (the “January 2020 Rosen Loan Agreement”), whereby the Company issued a promissory note in the principalamount of $150,000 (the “January 2020 Rosen Note”). Pursuant to the January 2020 Rosen Loan Agreement, the January 2020 RosenNote accrues interest at a fixed amount of $2,500 for the duration of the note.
During the year ended December 31, 2020 the Companyrepaid $150,000 in principal and $15,273 in interest.
The February Banner 2020 Loan Agreement
On February 15, 2020, the Company entered intoa loan agreement (the “February 2020 Banner Loan Agreement”), whereby the Company issued a promissory note in the principalamount of $9,900 (the “February 2020 Note”) for expenses paid on behalf of the Company by an employee. Pursuant to the February2020 Loan Agreement, the February 2020 Note bears interest at a rate of $495. As additional consideration for entering in the February2020 Loan Agreement, the Company issued a five-year warrant to purchase 49 shares of the Company’s common stock at a purchase priceof $18.00 per share.
During the year ended December 31, 2020 the Companyrepaid $9,900 in principal and $495 in interest.
The February 2020 Frommer Loan Agreement
On February 18, 2020, the Company entered intoa loan agreement (the “February 2020 Frommer Loan Agreement”) with Jeremy Frommer, an officer of the Company, whereby theCompany issued Frommer a promissory note in the principal amount of $2,989 (the “February 2020 Frommer Note”). As additionalconsideration for entering in the June 2018 Frommer Note Loan Agreement, the Company issued Frommer a five-year warrant to purchase 15shares of the Company’s common stock at a purchase price of $18.00 per share. Pursuant to the February 2020 Frommer Loan Agreement,the note is payable on the maturity date of February 28, 2020 (the “February 2020 Frommer Maturity Date”).
During the year ended December 31, 2020 the Companyrepaid $2,989 in principal and $160 in interest.
The September 2020 Goldberg Loan Agreement
On September 15, 2020, the Company entered intoa loan agreement (the “September 2020 Goldberg Loan Agreement”) with Goldberg whereby the Company issued a promissory noteof $16,705 (the “September 2020 Goldberg Note”). Pursuant to the September 2020 Goldberg Loan Agreement, the September 2020Goldberg Note has an interest rate of 7%. The maturity date of the September 2020 Goldberg Note is September 15, 2022 (the “September2020 Goldberg Maturity Date”), at which time all outstanding principal, accrued and unpaid interest and other amounts due undernote are due. The September 2020 Goldberg Loan is secured by the tangible and intangible property of the Company.
Since the September 2020 Goldberg Note has a make-wholeprovision if the share price of the Company’s common stock is below 2.92 on September 14, 2020, they are subject to derivative liabilitytreatment. The Company has applied ASC 815, due to the potential for settlement in a variable quantity of shares. The make-whole featureof gave rise to a derivative liability of $2,557,275 which was recorded as a loss on extinguishment of debt.
During the year ended December 31, 2020 the Companyaccrued interest of $347.
The September 2020 Rosen Loan Agreement
On September 15, 2020, the Company entered intoa loan agreement (the “September 2020 Rosen Loan Agreement”) with Rosen whereby the Company issued a promissory note of $3,295(the “September 2020 Rosen Note”). Pursuant to the September 2020 Rosen Loan Agreement, the September 2020 Rosen Note hasan interest rate of 7%. The maturity date of the September 2020 Rosen Note is September 15, 2022 (the “September 2020 Rosen MaturityDate”), at which time all outstanding principal, accrued and unpaid interest and other amounts due under the note are due. The September2020 Rosen Loan is secured by the tangible and intangible property of the Company.
Since the September 2020 Rosen Note has a make-wholeprovision if the share price of the Company’s common stock is below 2.92 on September 14, 2020, they are subject to derivative liabilitytreatment. The Company has applied ASC 815, due to the potential for settlement in a variable quantity of shares. The make-whole featureof gave rise to a derivative liability of $504,413 which was recorded as a loss on extinguishment of debt.
During the year ended December 31, 2020 the Companyaccrued interest of $67.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information,as of August 25, 2022, with respect to the beneficial ownership of the outstanding common stock by (i) any holder of more than five (5%) percent;(ii) each of the Company’s executive officers and directors; and (iii) the Company’s directors and executive officers as agroup. Except as otherwise indicated, each of the stockholders listed below has sole voting and investment power over the shares beneficiallyowned. Except as otherwise indicated, each of the stockholders listed below has sole voting and investment power over the sharesbeneficially owned. The address for each person is 419 Lafayette Street, 6th Floor, New York, NY 10003.
| | Shares Beneficially Owned (1) | | | Percentage Ownership | |
Executive Officers and Directors | | | | | | |
Jeremy Frommer | | | 2,000,520 | (2) | | | 9.23 | % |
Justin Maury | | | 1,160,536 | (3) | | | 5.43 | % |
Chelsea Pullano | | | 420,818 | (4) | | | 2.03 | % |
Joanna Bloor | | | 25,039 | (7) | | | 0.12 | % |
Brad Justus | | | 33,059 | (5) | | | 0.16 | % |
Lorraine Hendrickson | | | 26,519 | (6) | | | 0.13 | % |
Laurie Weisberg | | | 888,206 | (8) | | | 4.20 | % |
All current directors and officers as a group | | | 4,554,697 | | | | 21.31 | % |
(1) | The securities “beneficially owned” by a person are determined in accordance with the definition of “beneficial ownership” set forth in the regulations of the SEC and accordingly, may include securities owned by or for, among others, the spouse, children or certain other relatives of such person, as well as other securities over which the person has or shares voting or investment power or securities which the person has the right to acquire within 60 days. |
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(2) | Includes 685,046 shares of common stock, 1,121,188 shares of common stock underlying stock options, and 194,286 shares of common stock underlying warrants. |
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(3) | Includes 159,060 shares of common stock, 994,333 shares of common stock underlying stock options, and 7,143 shares of common stock underlying warrants. |
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(4) | Includes 44,818 shares of common stock and 374,000 shares of common stock underlying stock options and 2,000 shares of common stock underlying warrants |
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(5) | Includes 28,059 shares of common stock and 5,000 shares of common stockunderlying warrants. |
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(6) | Includes 26,519 shares of common stock. |
(7) | Includes 25,039 shares of common stock. |
(8) | Includes 114,249 shares of common stock and 735,750 shares of common stock underlying stock options and 38,207 shares of common stock underlying warrants. |
Securities Authorized for Issuance Under EquityCompensation Plans
As of December 31, 2021, we had awards outstandingunder our 2020 Equity Incentive Plan:
| | Number of securities to be issued upon exercise of outstanding options and warrants | | | Weighted- average exercise price of outstanding options, warrants and rights | | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a) | |
Plan Category | | (a) | | | (b) | | | (c) | |
Equity compensation plans approved by security holders | | | 2,950,402 | (1) | | $ | 7.07 | | | | 351,515 | |
Equity compensation plans not approved by stockholders | | | N/A | | | | N/A | | | | N/A | |
Total | | | 2,950,402 | | | $ | 7.07 | | | | 351,515 | |
(1) | During the year ended December 31, 2021, we had awards outstanding under the 2020 Plan. As of the end of fiscal year 2021, we had 3,039,308 shares of our common stock issuable upon the exercise of outstanding options granted pursuant to the 2020 Plan. The securities available under the Plan for issuance and issuable pursuant to exercises of outstanding options may be adjusted in the event of a change in outstanding stock by reason of stock dividend, stock splits, reverse stock splits, etc. Pursuant to the terms of the 2020 Plan we can grant stock options, restricted stock unit awards, and other awards at levels determined appropriate by our Board and/or compensation committee. The 2020 Plan also allows us to utilize a broad array of equity incentives and performance cash incentives in order to secure and retain the services of our employees, |
THE RIGHTS OFFERING
Before deciding whether to exercise your subscriptionrights, you should carefully read this prospectus, including the information set forth under the heading “Risk Factors” andthe information set forth in this prospectus.
Reasons for this Offering
In accordance with our strategic plan, we areconducting this offering primarily for sales and marketing and general working capital purposes. Our board of directors has approved thisoffering. Based on information available to the board, the board believes that this offering is in the best interests of our company andshareholders. Our board is not, however, making any recommendation regarding your exercise of the subscription rights.
Our board considered and evaluated a number offactors relating to this offering, including:
| ● | our current capital resources and indebtedness, and our future need for additional liquidity and capital; |
| ● | our need for increased financial flexibility in order to enable us to achieve our business plan; |
| ● | the size and timing of the offering and alternative securities to be offered; |
| ● | the potential dilution to our current shareholders if they choose not to participate in the offering; |
| ● | the non-transferability of the subscription rights; |
| ● | alternatives available for raising capital; |
| ● | the potential impact of the offering on the public float for the common stock if the Series A warrants are exercised; and |
| ● | the fact that existing shareholders would have the opportunity to purchase additional units. |
Terms of this Offering
We are issuing, at no charge, non-transferablesubscription rights entitling holders of common stock as of the record date and holders of the Preferred Shares, Eligible Warrants and/orEligible Options, whom we refer to as rights holders or you. Your subscription rights will consist of:
| ● | your basic right, which will entitle you to purchase a number of units equal to two times the number of (i) shares of common stock you held as of the record date and (ii) the number of shares of common stock issuable upon conversion or exercise of the Preferred Shares, Eligible Warrants, Eligible Options, and/or Eligible Convertible Notes you held as of the record date; and |
| ● | your over-subscription privilege, which will be exercisable only if you exercise your basic right in full and will entitle you to purchase additional units for which other rights holders do not subscribe, subject to the pro rata allocations and ownership limitation described in “-Over-Subscription Privilege.” |
All units are being offered and sold at a subscriptionprice of $ per unit.
Each unit will consist of:
| ● | one share of common stock; and |
| ● | a Series A warrant exercisable for one share of common stock at an exercise price of $1.00. |
The shares of common stock and Series Awarrants comprising a unit may only be purchased as a unit, but will be issued separately. Subscription rights will not be transferrable.The subscription rights may only be exercised in aggregate for whole numbers of units.
Subscription rights may be exercised at any timeduring the subscription period, which commences on , 2022, and ends at 5:00 p.m. (Eastern time) on , 2022, the expiration date, unlessextended by us.
The shares of common stock issued upon the exerciseof subscription rights are expected to be listed on The Nasdaq Capital Market under the symbol “CRTD.” The subscription rightswill be evidenced by subscription certificates that will be mailed to shareholders, except as discussed below under “ForeignShareholders.”
For purposes of determining the number of unitsa rights holder may acquire in this offering, broker-dealers, trust companies, banks or others whose shares are held of record by Cede&Co. or by any other depository or nominee will be deemed to be the holders of the subscription rights that are issued to Cede & Co.or the other depository or nominee on their behalf.
There is no minimum number of subscription rightsthat must be exercised in order for this offering to close.
Over-Subscription Privilege
If you exercise your basic rights in full, youmay also choose to exercise your over-subscription privilege.
Allocation of Units Available for Over-SubscriptionPrivileges
Subject to the ownership limitation describedbelow, we will seek to honor the over-subscription requests in full. If over-subscription requests exceed the number of units available,however, we will allocate the available units pro rata among the rights holders in proportion to the product (rounded down to the nearestwhole number so that the aggregate number of units does not exceed the aggregate number offered) obtained by multiplying the number ofunits such rights holder subscribed for pursuant to the over-subscription privilege by a fraction (A) the numerator of which is the numberof unsubscribed units and (B) the denominator of which is the total number of units sought to be subscribed for pursuant to the over-subscriptionprivilege by all rights holders participating in such over-subscription. Continental Stock Transfer & Trust, which will act as thesubscription agent in connection with this offering and which we refer to as the subscription agent, will determine the over-subscriptionallocation based on the formula described above and will notify rights holders of the number of units allocated to each holder exercisingthe over-subscription privilege as promptly as may be practicable after the allocations are completed.
To the extent your aggregate subscription paymentfor the actual number of unsubscribed units available to you pursuant to the over-subscription privilege is less than the amount you actuallypaid in connection with the exercise of the over-subscription privilege, you will be allocated only the number of unsubscribed units availableto you, and any excess subscription payment will be promptly returned to you, without interest or deduction, after the expiration of thisoffering.
To the extent your aggregate subscription paymentfor the actual number of unsubscribed units available to you pursuant to the over-subscription privilege is less than the amount you actuallypaid in connection with the exercise of the over-subscription privilege, you will be allocated only the number of unsubscribed units availableto you, and any excess subscription payment will be promptly returned to you, without interest or deduction, after the expiration of thisoffering.
We can provide no assurances that you will actuallybe entitled to purchase the number of units issuable upon the exercise of your over-subscription privilege in full at the expiration ofthis offering.
Expiration of Offer
This offering will expire at 5:00 p.m. (Easterntime) on , 2022, unless extended or terminated by us, and subscription rights may not be exercised thereafter.
Our board of directors may determine to extendthe subscription period, and thereby postpone the expiration date, not to exceed 45 days from the initial expiration date, to the extentit determines that doing so is in the best interest of our shareholders.
Any extension of this offering will be followedas promptly as practicable by announcement thereof, and in no event later than 9:00 a.m. (Eastern time) on the next business day followingthe previously scheduled expiration date. Without limiting the manner in which we may choose to make such announcement, we will not, unlessotherwise required by law, have any obligation to publish, advertise or otherwise communicate any such announcement other than by issuinga press release or such other means of announcement as we deem appropriate.
Placement Period
If this offering is not fully subscribed followingthe expiration date of the offering, we will use commercially reasonable efforts to place any unsubscribed units at the subscription pricefor an additional period of up to 45 days. The number of units that may be sold by us during this period will depend upon the number ofunits that are subscribed for pursuant to the exercise of subscription rights by our shareholders and other rights holders. No assurancecan be given that any unsubscribed units will be sold during this period.
Determination of the Subscription Price
The $ subscription price was set by managementand approved by our board of directors considering. In approving the subscription price, our board considered, among other things, thefollowing factors:
| ● | the market price of common stock prior to public announcement of the subscription price; |
| ● | the fact that the subscription rights will be non-transferable; |
| ● | the fact that holders of rights will have an over-subscription privilege; |
| ● | the terms and expenses of this offering relative to other alternatives for raising capital and our ability to access capital through such alternatives; |
| ● | comparable precedent transactions, including the range of discounts to market value represented by the subscription prices in other rights offerings; |
| ● | the size of this offering; and |
| ● | the general condition of the securities market. |
No Recombination of Units
The shares of common stock and Series A warrantscomprising the units will be issued separately upon the exercise of subscription rights, and the units will not trade as a separate security.Rights holders may not recombine shares of common stock and Series A warrants to receive a unit.
Subscription Agent
Continental Stock Transfer & Trust, the subscriptionagent, will receive for its administrative, processing, invoicing and other services a fee estimated to be approximately $30,000, plusreimbursement for all out-of-pocket expenses related to the offering.
A completed subscription certificate, togetherwith full payment of the subscription price, must be sent to the subscription agent for all whole numbers of units subscribed for throughthe exercise of a basic right and the over-subscription privilege by one of the methods described below. We will accept only properlycompleted and duly executed subscription certificates actually received at any of the addresses listed below, at or prior to 5:00 p.m.(Eastern time) on the expiration date of this offering or by the close of business on the second business day after the expiration dateof the offering following timely receipt of a notice of guaranteed delivery. See “Payment for Securities” below. Inthis prospectus, close of business means 5:00 p.m. (Eastern time) on the relevant date.
Subscription Certificate Delivery Method | | Address/Number |
By Notice of Guaranteed Delivery: | | Contact an Eligible Guarantor Institution, which may include a commercial bank or trust company, a member firm of a domestic stock exchange or a savings bank or credit union, to notify us of your intent to exercise the subscription rights. |
| | |
By Mail: | | Continental Stock Transfer & Trust Attn: Corporate Actions 1 State Street, 30th Floor New York, NY 10004 |
| | |
By Hand or Overnight Courier: | | Continental Stock Transfer & Trust Attn: Corporate Actions 1 State Street, 30th Floor New York, NY 10004 |
Delivery to an address other than one of the addresseslisted above may not constitute valid delivery and, accordingly, may be rejected by us.
Information Agent
Any questions or requests for assistance concerningthe method of subscribing for units or for additional copies of this prospectus or subscription certificates or notices of guaranteeddelivery may be directed to D.F. King & Co., Inc., the information agent, by telephone at (212) 269-5550 (bankers and brokers) or(877) 283-0323 (all others) or by email at creatd@dfking.com.
Rights holders may also contact their broker-dealersor nominees (including any mobile investment platform) for information with respect to this offering.
Warrant Agent
The warrant agent for the Series A warrants isPacific Stock Transfer.
Methods for Exercising Subscription Rights
Exercise of the Subscription Right
Subscription rights are evidenced by subscriptioncertificates that, except as described below under “Foreign Shareholders,” will be mailed to record date shareholdersand record date holders of Preferred Shares, Eligible Warrants, Eligible Options, and/or Eligible Convertible Notes or, if a record dateshareholder’s shares are held by a depository or nominee (including any mobile investment platform) on his, her or its behalf, tosuch depository or nominee. Subscription rights may be exercised by completing and signing the subscription certificate that accompaniesthis prospectus and mailing it in the envelope provided, or otherwise delivering the completed and duly executed subscription certificateto the subscription agent, together with payment in full for the units at the estimated subscription price by the expiration date of thisoffering. Subscription rights may also be exercised by contacting your broker, trustee or other nominee (including any mobile investmentplatform), who can arrange, on your behalf, to guarantee delivery of payment and delivery of a properly completed and duly executed subscriptioncertificate pursuant to a notice of guaranteed delivery by the close of business on the second business day after the expiration date.A fee may be charged by your broker, trustee or other nominee (including any mobile investment platform) for this service. Completed subscriptioncertificates and related payments must be received by the subscription agent prior to 5:00 p.m. (Eastern time) on or before the expirationdate (unless payment is effected by means of a notice of guaranteed delivery as described below under “Payment for Securities”)at the offices of the subscription agent at the address set forth above.
Exercise of the Over-Subscription Privilege
Rights holders who fully exercise all of theirbasic rights may purchase additional shares in accordance with the over-subscription privilege by indicating on their subscription certificatethe number of additional units they are willing to acquire. If sufficient units are available after all exercises of basic rights, wewill seek to honor over-subscriptions requests in full, subject to the pro rata allocations and ownership limitation described in “-Over-SubscriptionPrivilege.”
Record Date Shareholders Whose Shares areHeld by a Nominee
Record date shareholders whose shares are heldby a nominee, such as a bank, broker-dealer, trustee, depositories or mobile investment platform, must contact that nominee to exercisetheir subscription rights. In that case, the nominee will complete the subscription certificate on behalf of the record date shareholderand arrange for proper payment by one of the methods set forth under “Payment for Securities” below.
Nominees
Nominees, such as brokers, trustees, depositoriesor mobile investment platforms for securities, who hold shares of common stock for the account of others, should notify the respectivebeneficial owners of the shares as soon as possible to ascertain the beneficial owners’ intentions and to obtain instructions withrespect to the subscription rights. If the beneficial owner so instructs, the nominee should complete the subscription certificate andsubmit it to the subscription agent with the proper payment as described under “Payment for Securities” below.
Guaranteed Delivery Procedures
If you wish to exercise subscription rights, butyou do not have sufficient time to deliver the rights certificate evidencing your subscription rights to the subscription agent priorto the expiration of the rights offering, you may exercise your subscription rights by the following guaranteed delivery procedures:
deliver to the subscription agent prior to theexpiration of the rights offering the subscription payment for each share you elected to purchase pursuant to the exercise of subscriptionrights in the manner set forth below under “Payment for Securities;”
deliver to the subscription agent prior to theexpiration of the rights offering the form entitled “Notice of Guaranteed Delivery;” and
deliver the properly completed rights certificateevidencing your subscription rights being exercised and the related Nominee Holder Certification, if applicable, with any required signaturesguaranteed, to the subscription agent within three (3) business days following the date you submit your Notice of Guaranteed Delivery.
Your Notice of Guaranteed Delivery must be deliveredin substantially the same form provided with the “Instructions for Use of Non-Transferable Subscription Rights Certificates,”which will be distributed to you with your rights certificate. Your Notice of Guaranteed Delivery must include a signature guarantee froman eligible institution acceptable to the subscription agent. A form of that guarantee is included with the Notice of Guaranteed Delivery.
In your Notice of Guaranteed Delivery, you mustprovide:
| ● | the number of subscriptionrights represented by your rights certificate, the number of shares of units for which you are subscribing under your basic rights, andthe number of units for which you are subscribing under your over-subscription privilege, if any; and |
| ● | your guarantee that you will deliver to the subscription agent a rights certificate evidencing the subscription rights you are exercising within three (3) business days following the date the subscription agent receives your Notice of Guaranteed Delivery. |
General
All questions as to the validity, form, eligibility(including times of receipt and matters pertaining to beneficial ownership) and the acceptance of subscription forms and the subscriptionprice will be determined by us, which determinations will be final and binding. No alternative, conditional or contingent subscriptionswill be accepted. We reserve the right to reject any or all subscriptions not properly submitted or the acceptance of which would, inthe opinion of our counsel, be unlawful.
We reserve the right to reject any exercise ofrights if such exercise is not in accordance with the terms of this offering or not in proper form or if the acceptance thereof or theissuance of units thereto could be deemed unlawful. We reserve the right to waive any deficiency or irregularity with respect to any subscriptioncertificate. Subscriptions will not be deemed to have been received or accepted until all irregularities have been waived or cured withinsuch time as we determine in our sole discretion. We will not be under any duty to give notification of any defect or irregularity inconnection with the submission of subscription certificates or incur any liability for failure to give such notification.
No Revocation or Change
Once you submit the subscription certificate orhave instructed your nominee of your subscription request, you are not allowed to revoke or change the exercise or request a refund ofmonies paid. All exercises of subscription rights are irrevocable, even if you learn information about us that you consider to be unfavorable.You should not exercise your subscription rights unless you are certain that you wish to purchase units at the subscription price.
Transferability
Subscription Rights. The subscription rightsare evidenced by a subscription certificate and are non-transferable. The subscription rights will not be listed for trading on The NasdaqCapital Market or any other securities exchange or trading system.
Units. The common stock and Series A warrantscomprising the units will be issued separately. The units will not be issued as a separate security and will not be transferable.
Common Stock. The shares of common stockincluded in units will be separately transferable following their issuance. All of the shares of common stock issued in this offeringare expected to be listed on The Nasdaq Capital Market.
Series A warrants. We do not intent toapply to list the Series A warrants on any national securities exchange or other nationally recognized trading system. Subject to applicablelaws, the Series A warrants may be transferred at the option of the holder upon surrender of the Series A warrant to us together withthe appropriate instruments of transfer.
Foreign Shareholders
Subscription certificates will not be mailed toforeign shareholders. Foreign shareholders will receive written notice of this offering. The subscription agent will hold the subscriptionrights to which those subscription certificates relate for these shareholders’ accounts until instructions are received to exercisethe subscription rights, subject to applicable law.
Payment for Securities
Participating rights holders may choose betweenthe following methods of payment:
(1) A participating rights holder may send tothe subscription agent (a) payment of the subscription price for units acquired in the basic right and any additional units subscribedfor pursuant to the over-subscription privilege and (b) a properly completed and duly executed subscription certificate, which must bereceived by the subscription agent at the subscription agent’s offices set forth above (see “-Subscription Agent”),at or prior to 5:00 p.m. (Eastern time) on the expiration date. A properly completed and duly executed subscription certificate and fullpayment for the units must be received by the subscription agent at or prior to 5:00 p.m. (Eastern time) on , 2022, unless thisoffering is extended by us.
(2) A participating rights holder may requestan Eligible Guarantor Institution as that term is defined in Rule 17Ad-15 under the Exchange Act to send a notice of guaranteed deliveryor otherwise guaranteeing delivery of (a) payment of the full subscription price for the units subscribed for in the basic right and anyadditional units subscribed for pursuant to the over-subscription privilege, and (b) a properly completed and duly executed subscriptioncertificate. The subscription agent will not honor a notice of guaranteed delivery unless a properly completed and duly executed subscriptioncertificate and full payment for the units is received by the subscription agent at or prior to 5:00 p.m. (Eastern time) on , 2022, unlessthis offering is extended by us.
All payments by a participating rights holdermust be in U.S. dollars by money order or check or bank draft drawn on a bank or branch located in the United States and payable to theorder of “Continental Stock Transfer & Trust, as Subscription Agent for Creatd, Inc.” Payment also may be made by wiretransfer to the account maintained by Continental Stock Transfer & Trust, as subscription agent, for purposes of accepting subscriptionsin this offering at JPMorgan Chase Bank, 4 Metrotech Center, 14th Floor Brooklyn, NY 11245, ABA # 021000021, Account # 475-466-845,with reference to the rights holder’s name. The subscription agent will deposit all funds received by it prior to the finalpayment date into a segregated account pending pro-ration and distribution of the units.
The method of delivery of subscription certificatesand payment of the subscription price to us will be at the election and risk of the participating rights holders, but if sent by mailit is recommended that such certificates and payments be sent by registered mail, properly insured, with return receipt requested, andthat a sufficient number of days be allowed to ensure delivery to the subscription agent and clearance of payment prior to 5:00 p.m. (Easterntime) on the expiration date or the date guaranteed payments are due under a notice of guaranteed delivery (as applicable). Because uncertifiedpersonal checks may take at least five business days to clear, you are strongly urged to pay, or arrange for payment, by means of certifiedor cashier’s check or money order.
Whichever of the two methods described aboveis used, subscription rights will not be successfully exercised unless the subscription agent actually receives checks and actual payment.If a participating rights holder who subscribes for units as part of the basic right or over-subscription privilege does not makepayment of any amounts due by the expiration date, the date guaranteed payments are due under a notice of guaranteed delivery or as promptlyas practicable of the confirmation date, as applicable, the subscription agent reserves the right to take any or all of the followingactions: (i) reallocate the units to other participating rights holders in accordance with the over-subscription privilege; (ii) applyany payment actually received by it from the participating rights holder toward the purchase of the greatest whole number of units thatcould be acquired by such participating rights holder upon exercise of the basic right and/or the over-subscription privilege; and/or(iii) exercise any and all other rights or remedies to which it may be entitled, including the right to set off against payments actuallyreceived by it with respect to such subscribed for units.
All questions concerning the timeliness, validity,form and eligibility of any exercise of subscription rights will be determined by us, whose determinations will be final and binding.We may waive any defect or irregularity, or permit a defect or irregularity to be corrected within such time as we may determine, or rejectthe purported exercise of any right. Subscriptions will not be deemed to have been received or accepted until all irregularities havebeen waived or cured within such time as we determine. The subscription agent will not be under any duty to give notification of any defector irregularity in connection with the submission of subscription certificates or incur any liability for failure to give such notification.
Escrow Arrangements; Return of Funds
An escrow agent retained by the subscription agentwill hold funds received in payment for units in a segregated escrow account pending completion of the rights offering. An escrow agentretained by the subscription agent will hold this money in escrow until the rights offering is completed or is terminated. If the rightsoffering is terminated for any reason, all subscription payments received by the subscription agent will be promptly returned, withoutinterest or penalty.
Delivery of Securities
Shareholders whose shares are held of record byCede & Co. or by any other depository or nominee on their behalf or their broker-dealers’ behalf will have any shares of commonstock and Series A warrants comprising units that they acquire credited to the account of Cede & Co. or the other depository or nominee.With respect to all other shareholders, certificates for all common stock or Series A warrants acquired will be mailed after payment forall the units subscribed for has cleared, which may take up to 15 business days from the expiration date.
Termination
We reserve the right to terminate the rights offeringbefore its expiration for any reason. In particular, we may terminate the rights offering, in whole or in part, if at any time beforecompletion of the rights offering there is any judgment, order, decree, injunction, statute, law or regulation entered, enacted, amendedor held to be applicable to the rights offering that in the sole judgment of the board would or might make the rights offering or itscompletion, whether in whole or in part, illegal or otherwise restrict or prohibit completion of the rights offering. We may choose toproceed with the rights offering even if one or more of these events occur. If we terminate the rights offering in whole or in part, wewill issue a press release notifying the shareholders of such event, all affected subscription rights will expire without value, and allexcess subscription payments received by the subscription agent will be promptly returned, without interest or penalty, following suchtermination.
If this offering is terminated, all rights willexpire without value and we will promptly arrange for the refund, without interest or deduction, of all funds received from rights holders.All monies received by the subscription agent in connection with this offering will be held in escrow by an escrow agent retained by thesubscription agent, on our behalf, in a segregated account. Any interest earned on such account shall be payable to us even if we determineto terminate this offering and return your subscription payment.
No Recommendation to Rights Holders
Our board of directors has not made, nor willit make, any recommendation to rights holders regarding the exercise of subscription rights under this offering. We cannot predict theprice at which shares of our outstanding common stock will trade after this offering. You should consult with your legal, tax and financialadvisors prior to making your independent investment decision about whether or not to exercise your subscription rights.
Holders who exercise subscription rights riskinvestment loss on new money invested. We cannot assure you that the market price for common stock will ever be above the subscriptionprice or above the exercise price of the Series A warrants, or that anyone purchasing units, or exercising the Series A warrants to purchaseshares, will be able to sell those shares in the future at the same price or a higher price. If you do not exercise your subscriptionrights, you will lose any value represented by your subscription rights, and if you do not exercise your basic rights in full, your percentageownership interest in our company will be diluted. For more information on the risks of participating in this offering, see “RiskFactors.”
Effect of the Rights Offering on Existing Shareholders;Interests of Certain Shareholders, Directors and Officers
Based on shares outstanding as of , 2022, aftergiving effect to this offering (assuming that it is fully subscribed and that the Series A warrants issued in the offering are exercisedin full), we would have approximately 60,361,758 shares of common stock outstanding, representing an increase in outstanding shares ofapproximately 196%. If you fully exercise the basic rights that we distribute to you, your proportional interest in our company will remainthe same. If you do not exercise any subscription rights, or you exercise less than all of your basic rights, your interest in our companywill be diluted, as you will own a smaller proportional interest in our company compared to your interest prior to this offering.
The number of shares of common stock outstandinglisted in each case above assumes that (a) all of the other shares of common stock issued and outstanding on the record date will remainissued and outstanding and owned by the same persons as of the closing of this offering, and (b) we will not issue any shares of commonstock in the period between the record date and the closing of the offering.
Material U.S. Federal Income Tax Treatmentof Rights Distribution
The receipt and exercise of subscription rightsby shareholders should generally not be taxable for U.S. federal income tax purposes. You should seek specific tax advice from your taxadvisor in light of your particular circumstances and as to the applicability and effect of any other tax laws. See “MaterialU.S. Federal Income Tax Consequences.”
Fees and Expenses
We will pay all fees charged by the subscriptionagent, the information agent and the warrant agent. See “Plan of Distribution.” You are responsible for paying anycommissions, fees, taxes or other expenses incurred in connection with the exercise of your subscription rights.
Other Matters
We are not making this offering in any state orother jurisdiction in which it is unlawful to do so, nor are we distributing or accepting any offers to purchase any shares of commonstock from rights holders who are residents of those states or other jurisdictions or who are otherwise prohibited by federal or statelaws or regulations to accept or exercise the subscription rights. We may delay the commencement of this offering in those states or otherjurisdictions, or change the terms of the offering, in whole or in part, in order to comply with the securities laws or other legal requirementsof those states or other jurisdictions. Subject to state securities laws and regulations, we also have the discretion to delay allocationand distribution of any units you may elect to purchase by exercise of your subscription rights in order to comply with state securitieslaws. We may decline to make modifications to the terms of this offering requested by those states or other jurisdictions, in which case,if you are a resident in those states or jurisdictions or if you are otherwise prohibited by federal or state laws or regulations fromaccepting or exercising the subscription rights, you will not be eligible to participate in the offering. However, we are not currentlyaware of any states or jurisdictions that would preclude participation in this offering.
DESCRIPTION OF SECURITIES
We are issuing non-transferable subscription rights,at no charge, to each holder of common stock as of a record date of 5:00 p.m. (Eastern time) on , 2022 and holders of the Preferred Shares,Eligible Warrants and/or Eligible Options, whom we refer to as a “holder” or “you.” For each share of common stockyou hold as of the record date or each share of common stock issuable upon conversion or exercise of the Preferred Shares, Eligible Warrants,Eligible Options, and/or Eligible Convertible Notes you held as of the record date, we will issue to you two subscription rights, eachof which includes (a) a basic right entitling you to purchase one unit at a subscription price of $ per unit and (b) an over-subscriptionprivilege which will entitle you to purchase additional units for which other rights holders do not subscribe, subject to you exercisingyour basic right in full and other limitations. Each unit will consist of one share of common stock and a Series A warrant exercisableto acquire one share of common stock at an exercise price of $1.00. The subscription rights may only be exercised in aggregate for wholenumbers of units. The common stock and Series A warrants comprising the units may only be purchased as a unit, but will be issued separately.
The following description of the Company’scapital stock and provisions of its Second Amended and Restated Articles of Incorporation and Amended and Restated Bylaws are summariesand are qualified by reference to the Company’s Second Amended and Restated Articles of Incorporation and Amended and Restated Bylaws.
Description of Common Stock
The Company is authorized to issue 120,000,000shares of capital stock, par value $0.001 per share, of which 100,000,000 are shares of common stock and 20,000,000 are shares of “blankcheck” preferred stock. As of August 25, 2022, there were 20,361,758 shares of common stock issued and outstanding. There were 500shares of Preferred Series E Stock issued or outstanding as of August 25, 2022.
On August 13, 2020, we filed a certificate ofamendment to our Second Amended and Restated Articles of Incorporation (the “Amendment”), with the Secretary of State of theState of Nevada to effectuate a one-for-three (1:3) reverse stock split (the “August 2020 Reverse Stock Split”) of our commonstock without any change to its par value. The Amendment became effective on August 17, 2020. No fractional shares were issued in connectionwith the August 2020 Reverse Stock Split as all fractional shares were rounded down to the next whole share.
The holders of the Common Stock are entitled toone vote per share. In addition, the holders of the Company’s common stock will be entitled to receive dividends ratably, if any,declared by the Company’s board of directors out of legally available funds; however, the current policy of the board of directorsis to retain earnings, if any, for operations and growth. Upon liquidation, dissolution or winding-up, the holders of the Company’scommon stock are entitled to share ratably in all assets that are legally available for distribution. The holders of the Company’scommon stock have no preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of theCompany’s common stock are subject to, and may be adversely affected by, the rights of the holders of any series of preferred stock,which may be designated solely by action of the board of directors and issued in the future.
The Common Stock is listed on The Nasdaq CapitalMarket under the trading symbol “CRTD.”
The Company’s transfer agent is Pacific Stock Transfer.
Series A Warrants Included in Units Issuablein this Offering
The warrants to be issued as a part of this offeringwill be designated as Series A warrants. Subject to applicable laws, these Series A warrants may be transferred at the option of the holderupon surrender of the Series A warrant to us together with the appropriate instruments of transfer. The common stock underlying the SeriesA warrants, upon issuance, is expected to be listed for trading on The Nasdaq Capital Market under the symbol “CRTD.”
Exercisability. Each warrant will be exercisableat any time and from time to time after the date of issuance and will expire on , 2027. The Series A warrants will be exercisable, atthe option of each holder, in whole or in part by delivering to us the warrant certificate or warrant, as applicable a duly executed exercisenotice and payment in full for the number of shares of common stock purchased upon such exercise, except in the case of a cashless exerciseas discussed below.
Cashless Exercise. If at the time of exerciseof the Series A warrants there is no effective registration statement registering, or the prospectus contained therein is not availablefor issuance of, the shares issuable upon exercise of the warrant, the holder may exercise the warrant on a cashless basis. When exercisedon a cashless basis, a portion of the warrant is cancelled in payment of the purchase price payable in respect of the number of sharesof common stock purchasable upon such exercise.
Exercise Price. Each Series A warrant representsthe right to purchase one share of common stock at an exercise price of $1.00 per share. In addition, the exercise price per share issubject to adjustment for stock dividends, distributions, subdivisions, combinations, reclassifications or certain similar transactions.
Transferability. Subject to applicablelaws and restrictions, a holder may transfer a warrant upon surrender of the warrant to us with a completed and signed assignment in theform attached to the warrant. The transferring holder will be responsible for any tax that liability that may arise as a result of thetransfer.
Rights as Shareholder. The holder of aSeries A warrant, solely in such holder’s capacity as a holder of a Series A warrant, will not be entitled to vote or to any ofthe other rights of our shareholders.
Amendments and Waivers. The provisionsof each Series A warrant may be modified or amended or the provisions thereof waived with the written consent of us and the holders ofa majority of the outstanding Series A warrant.
The Series A warrants will be issued pursuantto a warrant agreement by and between us and Pacific Stock Transfer, the warrant agent.
Applicable Anti-Takeover Law
Set forth below is a summary of provisions inour Articles of Incorporation and the Bylaws that could have the effect of delaying or preventing a change in control of the Company.The following description is only a summary and it is qualified by refence our Articles of Incorporation, Bylaws and relevant provisionsof the Nevada Revised Statutes.
No Cumulative Voting
Our Articles of Incorporation and the Bylaws donot provide holders of our common stock cumulative voting rights in the election of directors. The absence of cumulative voting couldhave the effect of preventing stockholders holding a minority of our shares of common stock from obtaining representation on our boardof directors. The absence of cumulative voting might also, under certain circumstances, render more difficult or discourage a merger,tender offer or proxy contest favored by a majority of our stockholders, the assumption of control by a holder of a large block of ourstock or the removal of incumbent management.
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of the materialU.S. federal income tax considerations with respect to the receipt and exercise (or expiration) of the subscription rights acquired throughthis offering, the ownership and disposition of shares of common stock, Series A warrants received upon exercise of the subscription rights,but does not purport to be a complete analysis of all potential tax effects. The effects of other U.S. federal tax laws, such as estateand gift tax laws, and any applicable state, local or non-U.S. tax laws are not discussed. This discussion is based on the U.S. InternalRevenue Code of 1986, as amended, or Code, Treasury Regulations promulgated thereunder, judicial decisions, and published rulings andadministrative pronouncements of the U.S. Internal Revenue Service, or IRS, in each case in effect as of the date hereof. These authoritiesmay change or be subject to differing interpretations. Any such change or differing interpretation may be applied retroactively in a mannerthat could adversely affect a holder of the subscription rights, Series A warrants, or shares of common stock. We have not sought andwill not seek any rulings from the IRS regarding the matters discussed below. There can be no assurance the IRS or a court will not takea contrary position to that discussed below regarding the tax consequences of the receipt of subscription rights acquired through thisoffering by persons holding shares of common stock, the exercise (or expiration) of the subscription rights, the acquisition, ownershipand disposition (or expiration) of Series A warrants acquired upon exercise of the subscription rights, and the acquisition, ownershipand disposition of shares of common stock acquired upon exercise of the Series A warrants.
This discussion is limited to rights holders thathold the subscription rights, Series A warrants and shares of common stock, in each case, as a “capital asset” within themeaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all U.S. federal incometax consequences relevant to a rights holder’s particular circumstances, including the impact of the alternative minimum tax orthe unearned income Medicare contribution tax. In addition, it does not address consequences relevant to rights holders subject to particularrules, including:
| ● | U.S. expatriates and formercitizens or long-term residents of the United States; |
| ● | persons holding the subscription rights, Series A warrants, or shares of common stock as part of a hedge, straddle or other risk reduction strategy or as part of a conversion transaction or other integrated investment; |
| ● | banks, insurance companies,and other financial institutions; |
| ● | brokers, dealers or tradersin securities; |
| ● | “controlled foreign corporations,”“passive foreign investment companies,” and corporations that accumulate earnings to avoid U.S. federal income tax; |
| ● | entities or arrangements treatedas partnerships for U.S. federal income tax purposes (and investors therein); |
| ● | tax-exempt organizations orgovernmental organizations; |
| ● | persons deemed to sell SeriesA warrants, or shares of common stock under the constructive sale provisions of the Code; |
| ● | persons subject to specialtax accounting rules as a result of any item of gross income with respect to the subscription rights, Series A warrants, or shares ofcommon stock being considered in an “applicable financial statement” (as defined in the Code); |
| ● | persons for whom our capital stock constitutes “qualified small business stock” within the meaning of Section 1202 of the Code; |
| ● | persons who hold or receivethe subscription rights, Series A warrants, or shares of common stock pursuant to the exercise of any employee stock option or otherwiseas compensation; and |
| ● | tax-qualified retirement plans. |
If an entity treated as a partnership for U.S.federal income tax purposes holds subscription rights, shares of common stock, and Series A warrants acquired upon exercise of subscriptionrights or shares of common stock acquired upon exercise of the Series A warrants, as the case may be, the tax treatment of a partner inthe partnership will depend on the status of the partner, the activities of the partnership and certain determinations made at the partnerlevel. Accordingly, partnerships and the partners in such partnerships should consult their tax advisors regarding the U.S. federal incometax consequences to them.
THIS DISCUSSION IS FOR INFORMATION PURPOSESONLY AND IS NOT TAX ADVICE. INVESTORS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAXLAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES OF THE RECEIPT, OWNERSHIP AND EXERCISE OF SUBSCRIPTION RIGHTS ANDTHE ACQUISITION, OWNERSHIP, AND DISPOSITION OF SHARES OF COMMON STOCK AND SERIES A WARRANTS ACQUIRED UPON EXERCISE OF SUBSCRIPTION RIGHTSAND SHARES OF COMMON STOCK ACQUIRED UPON EXERCISE OF THE SERIES A WARRANTS ARISING UNDER THE U.S. FEDERAL ESTATE OR GIFT TAX LAWS OR UNDERTHE LAWS OF ANY STATE, LOCAL OR NON-U.S. TAXING JURISDICTION OR UNDER ANY APPLICABLE INCOME TAX TREATY.
Tax Considerations Applicable to U.S. Holders
Definition of a U.S. Holder
For purposes of this discussion, a “U.S.holder” is any beneficial owner of subscription rights, shares of common stock and Series A warrants acquired upon exercise of subscriptionrights, or shares of common stock acquired upon exercise of Series A warrants as the case may be, that, for U.S. federal income tax purposes,is:
| ● | an individual who is a citizen or resident of the United States; |
| ● | a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States, any state thereof, or the District of Columbia; |
| ● | an estate, the income of which is subject to U.S. federal income tax regardless of its source; or |
| ● | a trust that (a) is subject to the primary supervision of a U.S. court and the control of one or more United States persons (within the meaning of Section 7701(a)(30) of the Code), or (b) has made a valid election under applicable Treasury Regulations to continue to be treated as a United States person. |
Receipt of Subscription Rights
Section 305(a) of the Code states that a shareholder’staxable income does not include in-kind stock dividends. The general non-recognition rule in Section 305(a) of the Code is, however, subjectto exceptions described in Section 305(b) of the Code, which include “disproportionate distributions” and certain distributionswith respect to certain preferred stock. A disproportionate distribution is a distribution or a series of distributions, including deemeddistributions, that has the effect of the receipt of cash or other property by some shareholders or holders of debt instruments convertibleinto stock and an increase in the proportionate interest of other shareholders in a corporation’s assets or earnings and profits.
Although the authorities governing transactionssuch as this offering are complex and do not speak directly to the consequences of certain aspects of the offering, including the effectsof the over-subscription privilege, we do not believe a U.S. holder’s receipt of subscription rights pursuant to the offering shouldbe treated as a taxable distribution with respect to their existing shares of common stock for U.S. federal income tax purposes. Our positionregarding the tax-free treatment of the receipt of subscription rights with respect to existing shares of common stock is not bindingon the IRS or the courts. If this position were finally determined by the IRS or a court to be incorrect, whether on the basis that theissuance of the subscription rights is a “disproportionate distribution” or otherwise, the fair market value of the subscriptionrights would be taxable to U.S. rights in the manner described under “-Tax Consequences Applicable to U.S. Holders- Distributionson Common Stock” below. If our position were incorrect, the U.S. federal income tax consequences applicable to the rights holdersmay also be materially different than as described below.
The following discussion is based upon the treatmentof the subscription right issuance as a non-taxable distribution with respect to a U.S. holder’s existing shares of common stockfor U.S. federal income tax purposes.
Tax Basis and Holding Period in the SubscriptionRights
If the fair market value of the subscription rightsa U.S. holder receives with respect to existing shares of common stock is less than 15% of the fair market value of the U.S. holder’sexisting shares of common stock (with respect to which the subscription rights are distributed) on the date the U.S. holder receives thesubscription rights, the subscription rights will be allocated a zero tax basis for U.S. federal income tax purposes, unless the U.S.holder elects to allocate its tax basis in its existing shares of common stock between its existing shares of common stock and the subscriptionrights in proportion to the relative fair market values of the existing shares of common stock and the subscription rights determinedon the date of receipt of the subscription rights. If a U.S. holder chooses to allocate tax basis between its existing shares of commonstock and the subscription rights, the U.S. holder must make this election on a statement included with its timely filed tax return (includingextensions) for the taxable year in which the U.S. holder receives the subscription rights. Such an election is irrevocable. If the fairmarket value of the subscription rights a U.S. holder receives is 15% or more of the fair market value of their existing shares of commonstock on the date the U.S. holder receives the subscription rights, however, then the U.S. holder must allocate its tax basis in its existingshares of common stock between those shares and the subscription rights the U.S. holder receives in proportion to their fair market valuesdetermined on the date the U.S. holder receives the subscription rights. The holding period of subscription rights received will includea holder’s holding period in shares of common stock with respect to which the subscription rights were distributed. Please referto discussion below regarding the U.S. tax treatment of a U.S. holder that, at the time of the receipt of the subscription right, no longerholds the common stock with respect to which the subscription right was distributed.
The fair market value of the subscription rightson the date that the subscription rights are distributed is uncertain, and we have not obtained, and do not intend to obtain, an appraisalof the fair market value of the subscription rights on that date. In determining the fair market value of the subscription rights, U.S.holders should consider all relevant facts and circumstances, including any difference between the subscription price of the subscriptionrights and the trading price of common stock on the date that the subscription rights are distributed, the exercise price of the SeriesA warrants, the length of the period during which the subscription rights may be exercised and the fact that the subscription rights arenon-transferable.
Exercise of Subscription Rights
Generally, a U.S. holder will not recognize gainor loss upon the exercise of a subscription right received in this offering. A U.S. holder’s adjusted tax basis, if any, in thesubscription right plus the subscription price should be allocated between the new shares of common stock and the warrants acquired uponexercise of the subscription right in proportion to their relative fair market values on the exercise date. This allocation will establishthe U.S. holder’s initial tax basis for U.S. federal income tax purposes in the new shares of common stock and warrants receivedupon exercise. The holding period of a share of common stock or a warrant acquired upon exercise of a subscription right in this offeringwill begin on the date of exercise.
If, at the time of the receipt or exercise ofthe subscription right, the U.S. holder no longer holds the common stock with respect to which the subscription right was distributed,then certain aspects of the tax treatment of the receipt and exercise of the subscription right are unclear, including (1) the allocationof the tax basis between the shares of common stock previously sold and the subscription right, (2) the impact of such allocation on theamount and timing of gain or loss recognized with respect to the shares of common stock previously sold, and (3) the impact of such allocationon the tax basis of the shares of common stock and the Series A warrants acquired upon exercise of the subscription right. If a U.S. holderexercises a subscription right received in this offering after disposing of shares of common stock with respect to which the subscriptionright is received, the U.S. holder should consult its tax advisor.
Expiration of Subscription Rights
If a U.S. holder that receives subscription rightswith respect to their common stock allows such subscription rights received in this offering to expire, the U.S. holder should not recognizeany gain or loss for U.S. federal income tax purposes, and the U.S. holder should re-allocate any portion of the tax basis in its existingshares of common stock previously allocated to the subscription rights that have expired to the existing shares of common stock.
Sale or Other Disposition, Exercise or Expirationof the Series A warrants
Upon the sale or other disposition of a SeriesA warrants (other than by exercise), a U.S. holder will generally recognize capital gain or loss equal to the difference between the amountrealized on the sale or other disposition and the U.S. holder’s tax basis in the warrant. This capital gain or loss will be long-termcapital gain or loss if the U.S. holder’s holding period in such warrant is more than one year at the time of the sale or otherdisposition. The deductibility of capital losses is subject to certain limitations.
In general, a U.S. holder will not be requiredto recognize income, gain or loss upon exercise of a warrant for its exercise price. A U.S. holder’s tax basis in a share of commonstock received upon exercise of the Series A warrants will be equal to the sum of (1) the U.S. holder’s tax basis in the warrantsexchanged therefor and (2) the exercise price of such Series A warrants. A U.S. holder’s holding period in the shares of commonstock received upon exercise will commence on the day after such U.S. holder exercises the Series A warrants. Although there is no directlegal authority as to the U.S. federal income tax treatment of an exercise of a warrant on a cashless basis, we intend to take the positionthat such exercise will not be taxable, either because the exercise is not a gain realization event or because it qualifies as a tax-freerecapitalization. In the former case, the holding period of the shares of common stock received upon exercise of warrants should commenceon the day after the warrants are exercised. In the latter case, the holding period of the shares of common stock received upon exerciseof warrants would include the holding period of the exercised warrants. However, our position is not binding on the IRS and the IRS maytreat a cashless exercise of a warrant as a taxable exchange. U.S. holders are urged to consult their tax advisors as to the consequencesof an exercise of a warrant on a cashless basis, including with respect to their holding period and tax basis in the common stock received.
If a Series A warrant expires without being exercised,a U.S. holder will recognize a capital loss in an amount equal to such holder’s tax basis in the warrant. Such loss will be long-termcapital loss if, at the time of the expiration, the U.S. holder’s holding period in such warrant is more than one year. The deductibilityof capital losses is subject to certain limitations.
Constructive Dividends on Series A Warrants
If at any time during the period in which a U.S.holder holds the Series A warrants, we were to pay a taxable dividend to our shareholders and, in accordance with the anti-dilution provisionsof the Series A warrants, if any, the exercise price of the Series A warrants were decreased, that decrease would be deemed to be thepayment of a taxable dividend to a U.S. holder of the Series A warrants to the extent of our earnings and profits, notwithstanding thefact that such U.S. holder will not receive a cash payment. If the exercise price is adjusted in certain other circumstances (or in certaincircumstances, there is a failure to make an adjustment), such adjustments may also result in the deemed payment of a taxable dividendto a U.S. holder. U.S. holders should consult their tax advisors regarding the proper treatment of any adjustments to the exercise priceof the Series A warrants.
Distributions on Common Stock
If we make distributions of cash or property oncommon stock, such distributions will constitute dividends to the extent paid out of our current or accumulated earnings and profits,as determined for U.S. federal income tax purposes. Dividends received by a corporate U.S. holder may be eligible for a dividends receiveddeduction, subject to applicable limitations. Dividends received by certain non-corporate U.S. holders, including individuals, are generallytaxed at the lower applicable capital gains rate provided certain holding period and other requirements are satisfied. Distributions inexcess of our current and accumulated earnings and profits will constitute a return of capital and first be applied against and reducea U.S. holder’s adjusted tax basis in its common stock, but not below zero. Any excess will be treated as capital gain and willbe treated as described below in the section relating to the sale or disposition of common stock.
Sale, Exchange or Other Disposition of CommonStock
Upon a sale, exchange, or other disposition ofcommon stock, a U.S. holder generally will recognize capital gain or loss equal to the difference between the amount realized (not includingany amount attributable to declared and unpaid dividends, which will be taxable as described above to U.S. holders of record who havenot previously included such dividends in income) and the U.S. holder’s adjusted tax basis in common stock. A U.S. holder’sadjusted tax basis in common stock generally will equal its initial tax basis in common stock reduced by the amount of any cash distributionstreated as a return of capital as described above. Such capital gain or loss generally will be long-term capital gain or loss if the U.S.holder’s holding period for common stock exceeded one year at the time of disposition). Long-term capital gains recognized by certainnon-corporate U.S. holders, including individuals, generally are subject to reduced rates of taxation. The deductibility of capital lossesis subject to limitations.
Information Reporting and Backup Withholding
A U.S. holder may be subject to information reportingand backup withholding when such holder receives dividend payments or receives proceeds from the sale or other taxable disposition ofthe Series A warrants or shares of common stock acquired through exercise of the Series A warrants. Certain U.S. holders are exempt frombackup withholding, including corporations and certain tax-exempt organizations. A U.S. holder will be subject to backup withholding ifsuch holder is not otherwise exempt and such U.S. holder:
| ● | fails to furnish such U.S.holder’s taxpayer identification number; |
| ● | furnishes an incorrect taxpayeridentification number; |
| ● | is notified by the IRS thatsuch U.S. holder previously failed to properly report payments of interest or dividends; or |
| ● | fails to certify under penaltiesof perjury that such U.S. holder has furnished a correct taxpayer identification number and that the IRS has not notified the holderthat such U.S. holder is subject to backup withholding. |
Backup withholding is not an additional tax. Anyamounts withheld under the backup withholding rules may be allowed as a refund or a credit against a U.S. holder’s U.S. federalincome tax liability, provided the required information is timely furnished to the IRS. U.S. holders should consult their tax advisorsregarding their qualification for an exemption from backup withholding and the procedures for obtaining such an exemption.
Tax Considerations Applicable to Non-U.S.Holders
For purposes of this discussion, a “non-U.S.holder” is any beneficial owner of subscription rights, shares of common stock and Series A warrants acquired upon exercise of subscriptionrights, or shares of common stock acquired upon exercise of the Series A warrants, as the case may be, that is neither a U.S. holder noran entity treated as a partnership for U.S. federal income tax purposes.
Receipt, Exercise and Expiration of theSubscription Rights
The discussion assumes that the receipt of subscriptionrights with respect to existing shares of common stock will be treated as a nontaxable distribution. See “-Tax Consequences Applicableto U.S. Holders-Receipt of Subscription Rights” above. Non-U.S. holders that receive subscription rights with respect to existingshares of common stock will generally not be subject to U.S. federal income tax (or any withholding thereof) on the receipt, exerciseor expiration of the subscription rights.
Exercise of the Series A warrants
A non-U.S. holder generally will not be subjectto U.S. federal income tax on the exercise of Series A warrants into shares of common stock. If a cashless exercise of the Series A warrantsresults in a taxable exchange, however, as described in “-Tax Considerations Applicable to U.S. holders-Sale or Other Disposition,Exercise or Expiration of Warrants,” the rules described below under “Sale or Other Disposition of Common Stock or SeriesA warrants” would apply.
Constructive Dividends on Series A Warrants
If at any time during the period in which a non-U.S.holder holds Series A warrants we were to pay a taxable dividend to our shareholders and, in accordance with the anti-dilution provisionsof the Series A warrants, the exercise price of the Series A warrants were decreased, that decrease would be deemed to be the paymentof a taxable dividend to a non-U.S. holder to the extent of our earnings and profits, notwithstanding the fact that such non-U.S. holderwill not receive a cash payment. If the exercise price is adjusted in certain other circumstances (or in certain circumstances, thereis a failure to make an adjustment), such adjustments may also result in the deemed payment of a taxable dividend to a non-U.S. holder.Any resulting withholding tax attributable to deemed dividends may be collected from other amounts payable or distributable to, or otherassets of, the non-U.S. holder. Non-U.S. holders should consult their tax advisors regarding the proper treatment of any adjustments tothe warrants.
Distributions on Common Stock
If we make distributions of cash or property oncommon stock, such distributions will constitute dividends for U.S. federal income tax purposes to the extent paid from our current oraccumulated earnings and profits, as determined under U.S. federal income tax principles. Amounts not treated as dividends for U.S. federalincome tax purposes will constitute a return of capital and first be applied against and reduce a non-U.S. holder’s adjusted taxbasis in its common stock, as the case may be, but not below zero. Any excess will be treated as capital gain and will be treated as describedbelow in the section relating to the sale or disposition of common stock or the Series A warrants. Because we may not know the extentto which a distribution is a dividend for U.S. federal income tax purposes at the time it is made, for purposes of the withholding rulesdiscussed below we or the applicable withholding agent may treat the entire distribution as a dividend.
Subject to the discussion below on backup withholdingand foreign accounts, dividends paid to a non- U.S. holder of common stock that are not effectively connected with the non-U.S. holder’sconduct of a trade or business within the United States will be subject to U.S. federal withholding tax at a rate of 30% of the grossamount of the dividends (or such lower rate specified by an applicable income tax treaty).
Non-U.S. holders will be entitled to a reductionin or an exemption from withholding on dividends as a result of either (a) an applicable income tax treaty or (b) the non-U.S. holderholding common stock in connection with the conduct of a trade or business within the United States and dividends being effectively connectedwith that trade or business. To claim such a reduction in or exemption from withholding, the non-U.S. holder must provide the applicablewithholding agent with a properly executed (a) IRS Form W-8BEN or W-8BEN-E (or other applicable documentation) claiming an exemption fromor reduction of the withholding tax under the benefit of an income tax treaty between the United States and the country in which the non-U.S.holder resides or is established, or (b) IRS Form W-8ECI stating that the dividends are not subject to withholding tax because they areeffectively connected with the conduct by the non-U.S. holder of a trade or business within the United States, as may be applicable. Thesecertifications must be provided to the applicable withholding agent prior to the payment of dividends and must be updated periodically.Non-U.S. holders that do not timely provide the applicable withholding agent with the required certification, but that qualify for a reducedrate under an applicable income tax treaty, may obtain a refund of any excess amounts withheld by timely filing an appropriate claim forrefund with the IRS.
If dividends paid to a non-U.S. holder are effectivelyconnected with the non-U.S. holder’s conduct of a trade or business within the United States (and, if required by an applicableincome tax treaty, the non-U.S. holder maintains a permanent establishment in the United States to which such dividends are attributable),then, although exempt from U.S. federal withholding tax (provided the non-U.S. holder provides appropriate certification, as describedabove), the non-U.S. holder will be subject to U.S. federal income tax on such dividends on a net income basis at the regular graduatedU.S. federal income tax rates. In addition, a non-U.S. holder that is a corporation may be subject to a branch profits tax at a rate of30% (or such lower rate specified by an applicable income tax treaty) on its effectively connected earnings and profits for the taxableyear that are attributable to such dividends, as adjusted for certain items. Non-U.S. holders should consult their tax advisors regardingtheir entitlement to benefits under any applicable income tax treaty.
Sale or Other Disposition of Common Stockor Series A warrants
Subject to the discussions below on backup withholdingand foreign accounts, a non-U.S. holder will not be subject to U.S. federal income tax on any gain realized upon the sale or other taxabledisposition of the Series A warrants or common stock unless:
| ● | the gain is effectively connected with the non-U.S. holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, the non-U.S. holder maintains a permanent establishment in the United States to which such gain is attributable); |
| ● | the non-U.S. holder is a nonresident alien individual present in the United States for 183 days or more during the taxable year of the disposition and certain other requirements are met; or |
| ● | The Series A warrants or common stock constitutes a U.S. real property interest, or USRPI, by reason of our status as a U.S. real property holding corporation, or USRPHC, for U.S. federal income tax purposes. |
Gain described in the first bullet point abovegenerally will be subject to U.S. federal income tax on a net income basis at the regular graduated rates. A Non-U.S. holder that is acorporation also may be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty)on such effectively connected gain, as adjusted for certain items.
Gain described in the second bullet point abovewill be subject to U.S. federal income tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on any gainderived from the disposition, which may be offset by U.S. source capital losses of the non-U.S. holder (even though the individual isnot considered a resident of the United States), provided the non-U.S. holder has timely filed U.S. federal income tax returns with respectto such losses.
With respect to the third bullet point above,we believe we are not currently and do not anticipate becoming a USRPHC. Because the determination of whether we are a USRPHC dependson the fair market value of our USRPIs relative to the fair market value of our other business assets and our non- U.S. real propertyinterests, however, there can be no assurance we are not a USRPHC or will not become one in the future.
Non-U.S. holders should consult their tax advisorsregarding potentially applicable income tax treaties that may provide for different rules.
Information Reporting and Backup Withholding
Subject to the discussion below on foreign accounts,a non-U.S. holder will not be subject to backup withholding with respect to distributions on common stock we make to the non-U.S. holder,provided the applicable withholding agent does not have actual knowledge or reason to know such non-U.S. holder is a United States personand such non-U.S. holder certifies its non-U.S. status, such as by providing a valid IRS Form W-8BEN, W-8BEN-E or W-8ECI, or other applicablecertification. Information returns generally will be filed with the IRS, however, in connection with any distributions (including deemeddistributions) made on Series A warrants and common stock to the non-U.S. holder, regardless of whether any tax was actually withheld.Copies of these information returns may also be made available under the provisions of a specific treaty or agreement to the tax authoritiesof the country in which the non-U.S. holder resides or is established.
Information reporting and backup withholding mayapply to the proceeds of a sale or other taxable disposition of Series A warrants or common stock within the United States, and informationreporting may (although backup withholding generally will not) apply to the proceeds of a sale or other taxable disposition of the SeriesA warrants or common stock outside the United States conducted through certain U.S.-related financial intermediaries, in each case, unlessthe beneficial owner certifies under penalty of perjury that it is a non-U.S. holder on IRS Form W-8BEN or W-8BEN-E, or other applicableform (and the payor does not have actual knowledge or reason to know that the beneficial owner is a U.S. person) or such owner otherwiseestablishes an exemption. Proceeds of a disposition of the Series A warrants or common stock conducted through a non-U.S. office of anon-U.S. broker generally will not be subject to backup withholding or information reporting.
Backup withholding is not an additional tax. Anyamounts withheld under the backup withholding rules may be allowed as a refund or a credit against a non-U.S. holder’s U.S. federalincome tax liability, provided the required information is timely furnished to the IRS.
Additional Withholding Tax on Payments Madeto Foreign Accounts
Withholding taxes may be imposed under the ForeignAccount Tax Compliance Act, or FATCA, on certain types of payments made to non-U.S. financial institutions and certain other non-U.S.entities. Specifically, a 30% withholding tax may be imposed on dividends (including deemed dividends) or gross proceeds from the saleor other disposition of the Series A warrants or common stock paid to a “foreign financial institution” or a “non-financialforeign entity” (each as defined in the Code), unless (1) the foreign financial institution undertakes certain diligence and reportingobligations, (2) the non-financial foreign entity either certifies it does not have any “substantial United States owners”(as defined in the Code) or furnishes identifying information regarding each substantial United States owner, or (3) the foreign financialinstitution or non-financial foreign entity otherwise qualifies for an exemption from these rules. If the payee is a foreign financialinstitution and is subject to the diligence and reporting requirements in (1) above, it must enter into an agreement with the U.S. Departmentof the Treasury requiring, among other things, that it undertake to identify accounts held by certain “specified United States persons”or “United States-owned foreign entities” (each as defined in the Code), annually report certain information about such accounts,and withhold 30% on certain payments to non-compliant foreign financial institutions and certain other account holders. Foreign financialinstitutions located in jurisdictions that have an intergovernmental agreement with the United States governing FATCA may be subject todifferent rules.
Under the applicable Treasury Regulations andadministrative guidance, withholding under FATCA generally applies to payments of dividends (including deemed dividends), and will applyto payments of gross proceeds from the sale or other disposition of Series warrants or common stock on or after January 1, 2019. Becausewe may not know the extent to which a distribution is a dividend for U.S. federal income tax purposes at the time it is made, for purposesof these withholding rules we or the applicable withholding agent may treat the entire distribution as a dividend. Prospective investorsshould consult their tax advisors regarding the potential application of these withholding provisions.
PLAN OF DISTRIBUTION
As soon as practicable after 5:00 p.m. (Easterntime) on , 2022, the record date for this offering, we will distribute the subscription rights and subscription certificates topersons who owned settled shares of common stock at 5:00 p.m. (Eastern time) on the record date or held the Preferred Shares, EligibleWarrants, Eligible Options, and/or Eligible Convertible Notes as of the record date. If you wish to exercise your subscription rightsand purchase units, you should complete the subscription certificate and return it with the subscription payment to Continental StockTransfer & Trust, the subscription agent.
See “The Rights Offering-Methods forExercising Subscription Rights.” If you have any questions or need further information about this offering, please contact D.F.King & Co., Inc., the information agent, by telephone at (212) 269-5550 (bankers and brokers) or (877) 283-0323 (all others) or byemail at creatd@dfking.com.
Dealer-Manager
We do not know of any existing agreements betweenor among any shareholder, broker, dealer, underwriter or agent relating to the sale or distribution of the underlying shares of commonstock.
Some of our officers, employees and directorsmay solicit responses from holders of subscription rights. None of our officers, directors or employees will be compensated in connectionwith these actions by the payment of commissions or other remuneration based either directly or indirectly on the subscriptions, but willbe reimbursed for reasonable expenses.
We have agreed to pay the subscription agent andthe information agent customary fees plus certain expenses in connection with the offering. Except as described in this section, we arenot paying any commissions, underwriting fees or discounts in connection with this offering.
Electronic Distribution
This prospectus may be made available in electronicformat on websites or via email or through other online services maintained by us. Other than this prospectus in electronic format, theinformation on our websites is not part of this prospectus or the registration statement of which this prospectus forms a part, has notbeen approved or endorsed by us, and should not be relied upon by investors.
Price Stabilization
We have not authorized any person to engage inany form of price stabilization in connection with this offering.
LEGAL MATTERS
The validity of the securities offered herebywill be passed upon for us by Lucosky Brookman LLP.
EXPERTS
The financial statements as of the fiscal yearended December 31, 2021 and 2020 have been audited by Rosenberg Rich Baker Berman, P.A., an independent registered public accounting firm,as stated in their reports. Such financial statements have been so included in reliance upon the reports of such firm given upon theirauthority as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
Available Information
We file reports, proxy statements and other informationwith the SEC. Information filed with the SEC by us can be inspected and copied at the Public Reference Room maintained by the SEC at 100F Street, N.E., Washington, D.C. 20549. You may also obtain copies of this information by mail from the Public Reference Room of the SECat prescribed rates. Further information on the operation of the SEC’s Public Reference Room in Washington, D.C. can be obtainedby calling the SEC at 1-800-SEC-0330. The SEC also maintains a web site that contains reports, proxy and information statements and otherinformation about issuers, such as us, who file electronically with the SEC. The address of that website is http://www.sec.gov.
Our website address is https://creatd.com.The information on our website, however, is not, and should not be deemed to be, a part of this prospectus.
This prospectus and any prospectus supplementare part of a registration statement that we filed with the SEC and do not contain all of the information in the registration statement.The full registration statement may be obtained from the SEC or us, as provided below. Forms of the documents establishing the terms ofthe offered securities are or may be filed as exhibits to the registration statement. Statements in this prospectus or any prospectussupplement about these documents are summaries and each statement is qualified in all respects by reference to the document to which itrefers. You should refer to the actual documents for a more complete description of the relevant matters. You may inspect a copy of theregistration statement at the SEC’s Public Reference Room in Washington, D.C. or through the SEC’s website, as provided above.
Creatd, Inc.
June 30, 2022
Index to the Condensed Consolidated FinancialStatements
Creatd, Inc.
Condensed Consolidated Balance Sheets
| | June 30, 2022 | | | December 31, 2021 | |
| | (Unaudited) | | | | |
| | | | | | |
Assets | | | | | | |
| | | | | | |
Current Assets | | | | | | |
Cash | | $ | 1,556,663 | | | $ | 3,794,734 | |
Accounts receivable, net | | | 379,312 | | | | 337,440 | |
Inventory | | | 429,754 | | | | 106,403 | |
Marketable securities | | | 48,646 | | | | - | |
Prepaid expenses and other current assets | | | 186,883 | | | | 236,665 | |
Total Current Assets | | | 2,601,258 | | | | 4,475,242 | |
| | | | | | | | |
Property and equipment, net | | | 250,915 | | | | 102,939 | |
Intangible assets | | | 2,526,763 | | | | 2,432,841 | |
Goodwill | | | 1,383,785 | | | | 1,374,835 | |
Deposits and other assets | | | 1,169,329 | | | | 718,951 | |
Minority investment in businesses | | | - | | | | 50,000 | |
Operating lease right of use asset | | | 2,197,394 | | | | 18,451 | |
| | | | | | | | |
Total Assets | | $ | 10,129,444 | | | $ | 9,173,259 | |
| | | | | | | | |
Liabilities and Stockholders’ Deficit | | | | | | | | |
| | | | | | | | |
Current Liabilities | | | | | | | | |
Accounts payable and accrued liabilities | | $ | 4,899,108 | | | $ | 3,730,540 | |
Share liability | | | 31,080 | | | | - | |
Convertible Notes, net of debt discount and issuance costs | | | 2,291,010 | | | | 159,193 | |
Current portion of operating lease payable | | | 149,830 | | | | 18,451 | |
Note payable, net of debt discount and issuance costs | | | 1,863,831 | | | | 1,278,672 | |
Deferred revenue | | | 262,583 | | | | 234,159 | |
| | | | | | | | |
Total Current Liabilities | | | 9,497,442 | | | | 5,421,015 | |
| | | | | | | | |
Non-current Liabilities: | | | | | | | | |
Note payable | | | 31,417 | | | | 63,992 | |
Operating lease payable | | | 2,100,818 | | | | - | |
| | | | | | | | |
Total Non-current Liabilities | | | 2,132,235 | | | | 63,992 | |
| | | | | | | | |
Total Liabilities | | | 11,629,677 | | | | 5,485,007 | |
| | | | | | | | |
Commitments and contingencies | | | | | | | | |
| | | | | | | | |
Stockholders’ Equity (Deficit) | | | | | | | | |
Preferred stock, $0.001 par value: 20,000,000 shares authorized | | | | | | | | |
Series E Preferred stock, $0.001 par value: 8,000 shares authorized; 500 and 500shares issued and outstanding, respectively | | | - | | | | - | |
Common stock par value $0.001: 100,000,000 shares authorized; 20,254,839 issued and 20,249,182 outstanding as of June 30, 2022 and 16,691,170 Outstanding 16,685,513 outstanding as of December 31, 2021 | | | 20,255 | | | | 16,691 | |
Additional paid in capital | | | 122,068,892 | | | | 111,563,618 | |
Less: Treasury stock, 5,657 and 5,657 shares, respectively | | | (62,406 | ) | | | (62,406 | ) |
Accumulated deficit | | | (124,314,530 | ) | | | (109,632,574 | ) |
Accumulated other comprehensive income | | | (107,881 | ) | | | (78,272 | ) |
Total Creatd, Inc. Stockholders’ Equity | | | (2,395,670 | ) | | | 1,807,057 | |
Non-controlling interest in consolidated subsidiaries | | | 895,437 | | | | 1,881,195 | |
| | | (1,500,233 | ) | | | 3,688,252 | |
| | | | | | | | |
Total Liabilities and Stockholders’ Equity (Deficit) | | $ | 10,129,444 | | | $ | 9,173,259 | |
The accompanying notes are an integral part of these condensed consolidatedfinancial statements.
Creatd, Inc.
Condensed Consolidated Statements ofOperations and Comprehensive Loss
(Unaudited)
| | For the Three Months Ended | | | For the Three Months Ended | | | For the Six Months Ended | | | For the Six Months Ended | |
| | June 30, 2022 | | | June 30, 2021 | | | June 30, 2022 | | | June 30, 2021 | |
Net revenue | | $ | 1,625,901 | | | $ | 970,857 | | | $ | 2,974,639 | | | $ | 1,714,770 | |
| | | | | | | | | | | | | | | | |
Cost of revenue | | | 1,794,419 | | | | 731,309 | | | | 3,366,589 | | | | 1,940,715 | |
| | | | | | | | | | | | | | | | |
Gross margin (loss) | | | (168,518 | ) | | | 239,548 | | | | (391,950 | ) | | | (225,945 | ) |
| | | | | | | | | | | | | | | | |
Operating expenses | | | | | | | | | | | | | | | | |
Research and development | | | 224,512 | | | | 56,598 | | | | 451,166 | | | | 385,450 | |
Marketing | | | 1,277,510 | | | | 4,194,524 | | | | 3,369,531 | | | | 6,237,179 | |
Stock based compensation | | | 2,141,218 | | | | 1,940,250 | | | | 3,222,010 | | | | 3,510,489 | |
General and administrative | | | 4,181,666 | | | | 2,428,971 | | | | 7,568,051 | | | | 3,967,729 | |
| | | | | | | | | | | | | | | | |
Total operating expenses | | | 7,824,906 | | | | 8,620,343 | | | | 14,610,758 | | | | 14,100,847 | |
| | | | | | | | | | | | | | | | |
Loss from operations | | | (7,993,424 | ) | | | (8,380,795 | ) | | | (15,002,708 | ) | | | (14,326,792 | ) |
| | | | | | | | | | | | | | | | |
Other income (expenses) | | | | | | | | | | | | | | | | |
Other income | | | - | | | | - | | | | 99 | | | | - | |
Interest expense | | | (20,360 | ) | | | (60,760 | ) | | | (34,256 | ) | | | (259,431 | ) |
Accretion of debt discount and issuance cost | | | (623,531 | ) | | | (354,199 | ) | | | (647,008 | ) | | | (851,364 | ) |
Derivative expense | | | - | | | | - | | | | - | | | | (100,502 | ) |
Change in derivative liability | | | - | | | | (65,442 | ) | | | 3,729 | | | | (262,831 | ) |
Impairment of investment | | | (50,000 | ) | | | (62,733 | ) | | | (50,000 | ) | | | (62,733 | ) |
Settlement of vendor liabilities | | | (17,392 | ) | | | - | | | | (2,867 | ) | | | 92,909 | |
Gain on extinguishment of debt | | | - | | | | 82,431 | | | | - | | | | 286,009 | |
Loss on marketable securities | | | (231 | ) | | | - | | | | (231 | ) | | | - | |
Gain on extinguishment of debt | | | - | | | | - | | | | 147,256 | | | | - | |
Gain on forgiveness of debt | | | - | | | | 279,022 | | | | - | | | | 279,022 | |
| | | | | | | | | | | | | | | | |
Other income (expenses), net | | | (711,514 | ) | | | (181,681 | ) | | | (583,278 | ) | | | (878,921 | ) |
| | | | | | | | | | | | | | | | |
Loss before income tax provision | | | (8,704,938 | ) | | | (8,562,476 | ) | | | (15,585,986 | ) | | | (15,205,713 | ) |
| | | | | | | | | | | | | | | | |
Income tax provision | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | |
Net loss | | | (8,704,938 | ) | | | (8,562,476 | ) | | | (15,585,986 | ) | | | (15,205,713 | ) |
| | | | | | | | | | | | | | | | |
Non-controlling interest in net loss | | | 367,872 | | | | 432 | | | | 985,758 | | | | 432 | |
| | | | | | | | | | | | | | | | |
Net Loss attributable to Creatd, Inc. | | | (8,337,066 | ) | | | (8,562,044 | ) | | | (14,600,228 | ) | | | (15,205,281 | ) |
| | | | | | | | | | | | | | | | |
Deemed dividend | | | - | | | | (410,750 | ) | | | (81,728 | ) | | | (410,750 | ) |
| | | | | | | | | | | | | | | | |
Net loss attributable to common shareholders | | $ | (8,337,066 | ) | | $ | (8,972,794 | ) | | $ | (14,681,956 | ) | | $ | (15,616,031 | ) |
| | | | | | | | | | | | | | | | |
Comprehensive loss | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Net loss | | | (8,704,938 | ) | | | (8,562,476 | ) | | | (15,585,986 | ) | | | (15,205,713 | ) |
| | | | | | | | | | | | | | | | |
Currency translation gain (loss) | | | (24,659 | ) | | | (552 | ) | | | (29,609 | ) | | | (7,863 | ) |
| | | | | | | | | | | | | | | | |
Comprehensive loss | | $ | (8,729,597 | ) | | $ | (8,563,028 | ) | | $ | (15,615,595 | ) | | $ | (15,213,576 | ) |
| | | | | | | | | | | | | | | | |
Per-share data | | | | | | | | | | | | | | | | |
Basic and diluted loss per share | | $ | (0.41 | ) | | $ | (0.81 | ) | | $ | (0.77 | ) | | $ | (1.49 | ) |
| | | | | | | | | | | | | | | | |
Weighted average number of common shares outstanding | | | 20,233,585 | | | | 11,081,354 | | | | 18,977,745 | | | | 10,465,815 | |
The accompanying notes are an integral part of these condensed consolidatedfinancial statements.
Creatd, Inc.
Condensed Consolidated Statement of Changesin Stockholders’ Equity (Deficit)
For the Three Months Ended June 30, 2022
(Unaudited)
| | Series E Preferred Stock | | | Common Stock | | | Treasury stock | | | Additional Paid In | | | Accumulated | | | Non-Controlling | | | Other Comprehensive | | | Stockholders’ Equity | |
| | Shares | | | Amount | | | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | Deficit | | | Interest | | | Income | | | (Deficit) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, April 1, 2022 | | | 500 | | | $ | - | | | | 19,915,090 | | | $ | 19,915 | | | | (5,657 | ) | | $ | (62,406 | ) | | $ | 117,949,487 | | | $ | (115,977,464 | ) | | $ | 1,263,309 | | | $ | (83,222 | ) | | $ | 3,109,619 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock based compensation | | | - | | | | - | | | | 289,749 | | | | 290 | | | | - | | | | - | | | | 2,186,865 | | | | - | | | | - | | | | - | | | | 2,187,155 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Shares issued for prepaid services | | | - | | | | - | | | | 50,000 | | | | 50 | | | | - | | | | - | | | | 37,150 | | | | - | | | | - | | | | - | | | | 37,200 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock warrants issued with note payable | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1,895,390 | | | | - | | | | - | | | | - | | | | 1,895,390 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustments | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (24,659 | ) | | | (24,659 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss for the three months ended June 30, 2022 | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (8,337,066 | ) | | | (367,872 | ) | | | - | | | | (8,704,938 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, June 30, 2022 | | | 500 | | | $ | - | | | | 20,254,839 | | | $ | 20,255 | | | | (5,657 | ) | | $ | (62,406 | ) | | $ | 122,068,892 | | | $ | (124,314,530 | ) | | $ | 895,437 | | | $ | (107,881 | ) | | $ | (1,500,233 | ) |
The accompanying notes are an integral partof these consolidated financial statements.
Creatd, Inc.
Condensed Consolidated Statement of Changesin Stockholders’ Equity (Deficit)
For the Six Months Ended June 30, 2022
(Unaudited)
| | Series E Preferred Stock | | | Common Stock | | | Treasury stock | | | Additional Paid In | | | Accumulated | | | Non-Controlling | | | Other Comprehensive | | | Stockholders’ Equity | |
| | Shares | | | Amount | | | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | Deficit | | | Interest | | | Income | | | (Deficit) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, January 1, 2022 | | | 500 | | | $ | - | | | | 16,691,170 | | | $ | 16,691 | | | | (5,657 | ) | | $ | (62,406 | ) | | $ | 111,563,618 | | | $ | (109,632,574 | ) | | $ | 1,881,195 | | | $ | (78,272 | ) | | $ | 3,688,252 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock based compensation | | | - | | | | - | | | | 307,920 | | | | 308 | | | | - | | | | - | | | | 3,254,456 | | | | - | | | | - | | | | - | | | | 3,254,764 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Shares issued for prepaid services | | | - | | | | - | | | | 100,000 | | | | 100 | | | | - | | | | - | | | | 106,100 | | | | - | | | | - | | | | - | | | | 106,200 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock warrants issued with note payable | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1,895,390 | | | | - | | | | - | | | | - | | | | 1,895,390 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash received for common stock and warrants, net of $115,000 of issuance costs | | | - | | | | - | | | | 3,046,314 | | | | 3,046 | | | | - | | | | - | | | | 4,994,254 | | | | - | | | | - | | | | - | | | | 4,997,300 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued upon conversion of notes payable | | | - | | | | - | | | | 109,435 | | | | 110 | | | | - | | | | - | | | | 173,346 | | | | - | | | | - | | | | - | | | | 173,456 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustments | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (29,609 | ) | | | (29,609 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Dividends | |