Jerrick Media (OTC:JMDA) is still in the process of raising capital to support operating expenses and shore up its balance sheet ahead of its planned uplisting to the Nasdaq capital markets. Per its revised S-1, it now hopes to raise gross proceeds of between $8 – $9 million. Assuming a deal priced at the value of the stock, this would result in the issuance of 1.2 to 1.4 million new shares. The company currently has 10.1 million shares outstanding and, as per the vote conducted at its 2020 annual meeting, Jerrick got approval to raise its authorized to 100 million shares. With the upcoming capital raise, all of the debt and convertible notes will be able to, and are expected to, be converted into common stock with the exception of $660,000 of the 12.5% notes. After the deal, primary shares outstanding should be closer to 12.5 million. These changes would result in approximately $5 million in working capital. Additional items voted on at the company’s annual meeting included the election of three new board members, and the authorization for Jerrick to change its name to Creatd, Inc. upon uplisting. Post uplisting, the company will begin trading on the Nasdaq Capital Markets under the trading symbol “CRTD.”
Q1 2020 Results
Q1 revenues were $293,000, down sequentially from the $320,000 in revenues in Q4 2019, but a significant increase from the $34,000 revenues in Q1 2019. Seller’s Choice, having completed its full integration into Jerrick’s sales infrastructure following its acquisition by Jerrick in September 2019, was the largest contributor to revenues for first quarter 2020, amounting to a total of $192,251 or 66% of the company’s total quarterly revenues. Vocal+ creator subscriptions contributed $35,962, up only $4,000 from Q4 2019. Branded content revenues increased to $56,000 from $49,450. It was during the course of the first quarter 2020 that the effects of the global pandemic began to manifest, which prompted the company to go into cash preservation mode. This may have resulted in lower growth than might have been achieved in a more normal quarter.
Operating expenses for the first quarter were $2.1 million, down significantly from the $2.8 million in Q4 2019. The biggest contributor to this sequential drop was from R&D expenses, which dropped from $765,000 to $135,000 as Jerrick’s Sydney-based development partner, Thinkmill, got a large payment covering more than one quarter in Q4. Jerrick confirmed at its July 8th, 2020 shareholder meeting that Seller’s Choice would again generate approximately $200K in revenues for second quarter, and that, since the acquisition, it had cut its operational expenses by nearly two-thirds, while keeping revenues steady, effectively increasing margins and generating future opportunities for growth. The company also gave guidance at the meeting that its total Q2 revenues would be approximately $350,000, and that, post uplist, it expected revenue growth to be exponential due to the inherent scalability and integration capabilities of the Vocal platform, its flagship product.
Q1 2020 operating loss of $1.8 million was down sequentially from $2.5 million in Q4 2019, but remained similar to the $1.7 million loss in the same period last year.
In other income, there was an Australian tax credit for research and development of $63,556. Typically the company is given a rebate of 40% for R&D expenses during the calendar year. The $63,000 was a catch up from the amount given in Q4 2019. We are expecting this rebate to continue, and be booked in Q4 2020. Interest expense increased from $283,790 in Q4 to $375,530 in Q1, and we expect that to be even higher in Q2 2020.
The greater net loss of $3 million compared to $1.9 million a year ago, and $2.4 million in Q4 2019, is largely attributable to increased spend for R&D and Marketing that contribute to overall growth coupled with additional Professional Services expenditures revolving around the uplist. This resulted in an EPS loss of $0.32 per share compared to a loss of $0.28 per share a year ago. Shares outstanding increased 39% to 9.3 million and currently stand at just over 10.1 million.
Adjusted EBITDA for Q1 2020 was a negative $2.2 million compared to a negative $1.5 million a year ago. In the period the company had negative cash flow and free cash flow of $1.7 million.
On March 31, 2020 the company had $118,361 in cash, a deficit of $12.4 million in working capital, and $10.6 million in debt. The balance sheet is however, much stronger than it appears. The company’s largest asset is the Guccione collection of archival media assets, including acquired artwork, photographs, illustrations and licensing IP, with an appraised value (2016) of $6-8 million, but is not on the balance sheet as the purchase price was deemed immaterial in 2012. The company used this asset as collateral for a loan with two of its largest investors, which has provided some of the liquidity needed over the years.
Subsequent to March 31, 2020 Jerrick entered into five convertible promissory note agreements and received proceeds of $403,000.
On May 5, 2020, Jerrick was granted a loan from PNC Bank of $412,500, pursuant to the Paycheck Protection Program and the company intends to use the entire amount for qualifying expenses.
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