This Form 10-Q and other reports filed by Creatd, Inc. (the "Company"), from
time to time with the SEC (collectively, the "Filings") contain or may contain
forward-looking statements and information that are based upon beliefs of, and
information currently available to, the Company's management as well as
estimates and assumptions made by Company's management. Readers are cautioned
not to place undue reliance on these forward-looking statements, which are only
predictions and speak only as of the date hereof. When used in the Filings, the
words "anticipate," "believe," "estimate," "expect," "future," "intend," "plan,"
or the negative of these terms and similar expressions as they relate to the
Company or the Company's management identify forward-looking statements. Such
statements reflect the current view of the Company with respect to future events
and are subject to risks, uncertainties, assumptions, and other factors,
including the risks relating to the Company's business, industry, and the
Company's operations and results of operations. Should one or more of these
risks or uncertainties materialize, or should the underlying assumptions prove
incorrect, actual results may differ significantly from those anticipated,
believed, estimated, expected, intended, or planned.
Although the Company believes that the expectations reflected in the
forward-looking statements are reasonable, the Company cannot guarantee future
results, levels of activity, performance, or achievements. Except as required by
applicable law, including the securities laws of the United States, the Company
does not intend to update any of the forward-looking statements to conform these
statements to actual results.
Our financial statements are prepared in accordance with accounting principles
generally accepted in the United States ("GAAP"). These accounting principles
require us to make certain estimates, judgments and assumptions. We believe that
the estimates, judgments and assumptions upon which we rely are reasonable based
upon information available to us at the time that these estimates, judgments and
assumptions are made. These estimates, judgments and assumptions can affect the
reported amounts of assets and liabilities as of the date of the financial
statements as well as the reported amounts of revenues and expenses during the
periods presented. Our financial statements would be affected to the extent
there are material differences between these estimates and actual results. In
many cases, the accounting treatment of a particular transaction is specifically
dictated by GAAP and does not require management's judgment in its application.
There are also areas in which management's judgment in selecting any available
alternative would not produce a materially different result. The following
discussion should be read in conjunction with our financial statements and notes
thereto appearing elsewhere in this Form 10-Q.
We intend for this discussion to provide information that will assist in
understanding our financial statements, the changes in certain key items in
those financial statements, and the primary factors that accounted for those
changes, as well as how certain accounting principles affect our financial
statements. This discussion should be read in conjunction with our financial
statements and accompanying notes for the year ended December 31, 2020, which
are included in the Company's Annual Report on Form 10-K that was filed with the
SEC on March 31, 2021.
Overview
Creatd, Inc. ("CRTD," "the Company," or "Creatd") is a holding company focused
on providing economic opportunities for creators. We accomplish this through
four main business pillars: Creatd Labs, Creatd Partners, Creatd Ventures, and
Creatd Studios. Together, Creatd's pillars work together to create multiple
flywheel effects and growth drivers, supporting our core vision of creating a
viable ecosystem for all stakeholders in the creator economy.
Creatd Labs, our first pillar, is dedicated to building a home base for creators
of all kinds. Creatd Labs houses our proprietary technology platforms, including
Creatd's flagship product, Vocal and its 40 niche communities. Vocal is an
all-in-one platform where creators can share their stories, build an audience,
and earn money. To date, over 1.2 million freemium creators, including 100,000
Vocal+ (premium) creators now call Vocal their home, from bloggers to
podcasters, makers, musicians, photographers, and more.
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Creatd Partners, Creatd's second pillar, fosters relationships between creators
and brands. This pillar houses Creatd's three primary agency businesses: Vocal
for Brands (content marketing), Seller's Choice (performance marketing), and WHE
Agency (influencer marketing). Creatd Partners leverages its network of brands
and influencers, along with resources from across Creatd, to help
direct-to-consumer brands achieve conversions and reach their target audiences,
while driving success for all of Creatd's stakeholders.
Creatd Ventures, our third pillar, is focused on building, developing, and
scaling e-commerce brands, by providing needed capital, operational support,
marketing expertise, and other resources. Creatd Ventures houses Creatd's
portfolio of e-commerce businesses, both majority and minority-owned, including
Camp, Dune Glow Remedy, and Untamed Photographer, with additional potential
transactions under review. The ideal candidate for a Creatd Ventures partnership
is an individual that shares in our mission of serving the creator economy and
are accretive to our pillars.
Creatd Studios is our fourth pillar and focuses on identifying opportunities to
leverage Creatd's stories-including those from Vocal creators and from our owned
IP library-for transmedia production and adaptation to print, podcasts, TV,
film, digital video, games, comics, and more. Housed under Creatd Studios is
Creatd's intellectual property and legacy media assets, including acquired
artwork, photographs and media memorabilia. Creatd Studios represents an
initiative by Creatd to revitalize and transform this content, by partnering
with the entertainment and publishing industries on bespoke productions, while
utilizing Vocal's technology, data, and marketing capabilities for optimal
distribution.
Creatd Labs
Creatd Labs is building the home base for creators.
Vocal
Vocal, Creatd's flagship product, is a robust, proprietary technology platform
that 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 their home, from bloggers to
podcasters, makers, musicians, photographers, and more.
Vocal+ is Creatd's premium subscription membership program. Vocal+ members pay a
membership fee for premium features, including a higher rate of earnings per
read, reduced platform processing fees on tips received, a Vocal+ badge on their
creator page, eligibility to participate in exclusive Vocal+ Challenges, access
to Vocal's 'Quick Edit' feature for published stories, and more. Creators may
sign up for a Vocal+ membership when they create an account, or they can upgrade
an existing Vocal Free account to a Vocal+ account at any time. The current cost
of a Vocal+ membership is either $9.99 per month or $99 annually. From time to
time, the Company offers Vocal+ subscriptions at a discount for a predetermined
number of months as a promotion for new subscribers.
Since its initial launch in 2016, Vocal has grown to be one of the fastest
growing communities for content creators of all shapes and sizes. As of
September 30, 2021, Vocal had reached over 1.1 million freemium creators and
over 30,000 Vocal+ paid subscribers across its 39 owned and operated niche
communities. Subsequent to the close of the third quarter 2021, Creatd had
announced that it reached over 1.2 million freemium creators and over 100,000
Vocal+ paid subscribers, and additionally launched its 40th owned and operated
niche community.
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Why Over 1 Million Creators Choose Vocal:
? Easy-to-use, Open-Canvas Content Creation Editor: Vocal's storytelling tools
enable creators to produce beautiful and engaging stories in a simple,
user-friendly interface, and incorporate rich-media content of all kinds,
including streaming content, photos, videos, podcasts, product links, written
text, and more. Vocal's open canvas content creation editor makes it easy to
create high-quality and engaging stories and is a cost-effective alternative
to managing a blog content management system (CMS).
? Numerous Monetization Features: Both of Vocal's membership tiers-Vocal
freemium and the Vocal+ premium tier - provide multiple monetization
opportunities for creators. Creators can earn money i) every time their story
is read, ii) by competing in Challenges, iii) by receiving Bonuses, iv) by
collaborating on branded content campaigns through the company's in-house
agency, Vocal for Brands, v) through 'Subscribe,' which enables creators to
receive payment directly from their audience via monthly subscriptions and
one-off microtransactions. vi) through the Vocal Ambassador Program, which
enables creators to receive additional rewards whenever they refer a new
Vocal+ member. For freemium members, content 'reads' are monetized at a rate
of $3.80 per 1,000 reads (calculated based on time on page, scrolling
behavior, and other internal metrics), whereas Vocal+ members monetize at
$6.00 per 1,000 reads. These rates are subject to change based on market
trends or the introduction of additional features and plan tiers.
? Brand-safe advertising platform: Vocal was designed to target consumers in an
authentic, non-interruptive way. Brand partnerships and collaborations allow
companies tap into the power of Vocal through campaign-optimized stories,
authored by real Vocal creators, that build brand affinity, trust, and drive
sales.
? Transparent Performance Data: Creators can view their "Stats" at any time to
view their individual performance data, such as how many Reads a given story
received, how much money they have earned, and how many Tips, Bonuses, or
'Likes,' they received. Additionally, Vocal users have the ability to view key
metrics such as community-specific data and Vocal+ membership data.
? Valuable Audience: The nature of Vocal's genre-specific (niche) community
structure is such that it generates a positively selected audience, a quality
which makes Vocal an attractive prospect for creators and brands alike. In a
niche community, audiences are inherently more likely to be interested in the
particular content housed in that community. Vocal Moderation and Compliance
One of the key differentiating factors between Vocal and most other
user-generated content platforms is the fact that each story submitted to
Vocal is run through the Company's proprietary moderation process before it
goes live on the platform. The decision to implement moderation into the
submission process was in direct response to the rise of misinformation and
bad actors on many social platforms. In response to these inherent pitfalls
within 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, thus fostering a safe and trustworthy
environment for creators, audiences, and brands. Moderation and compliance are
more important than ever in a world where ambiguity can systematically damage
value. Vocal's enforcement of community guidelines and emphasis on content
moderation protects the platform, its creators, and Creatd shareholders.
Trust and safety are paramount to the Vocal ecosystem. We follow best
practices when handling personally identifiable information, with guidance
from the European Union's General Data Protection Regulation (GDPR), the
California Consumer Privacy Act (CCPA), and the Digital Millennium Copyright
Act (DMCA). Platform Compliance Policies include:
? 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.
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Creatd PartnersCreatd Partners fosters relationships between brands and creators through its
agency services, which encompass content marketing, performance marketing, and
influencer marketing.
Vocal for Brands
All brands have a story to tell, and our creator community helps them tell it.
Vocal for Brands, Creatd's internal content marketing studio, specializes in
pairing leading brands with authentic Vocal creators to produce marketing
campaigns that are non-interruptive, engaging, and direct-response driven.
? Authentic Storytelling: Our internal data group partners brands with real
Vocal creators to tell their brand's story in a way that is both engaging and
trustworthy. In addition, brands can opt to sponsor a Challenge, which
effectively yields a collection of crowdsourced branded content for brands and
helps them reach a wider audience.
? Valuable Audience: Vocal's first-party data provides an opportunity to create
highly targeted and segmented audiences to promote branded content. Most
importantly, Vocal's technology helps brands target the right audience by
utilizing and applying that first-party data.
? Transparent Analytics: For every campaign we produce, our brand clients have
access to story performance data, engagement data, behavioral data, and
interest data. Brands can apply this data to further increase awareness and
optimize audience targeting.
Vocal's first-party data enables our team to create highly targeted and
segmented audiences for Vocal for Brands campaigns, and help the brand reach
their ideal audience. Brands can access story performance data, engagement data,
behavioral data, and sentiment data, all of which is used to further optimize
the campaign's success. The combination of Vocal's hyper-engaged audiences,
user-generated communities, and brand-safe environment help brands achieve
maximum ROAS (return on ad spend).
Vocal for Brands typically collects fixed fees ranging from $30,000 to $50,000,
depending on campaign duration and specific client objectives.
Additionally, brands can collaborate with Vocal on a sponsored Challenge,
prompting the creation of high-quality stories that are centered around the
brand's mission and further disseminated through creators' respective social
channels and promotional outlets.
Seller's Choice
In addition to Vocal for Brands, Creatd supports brands by providing managed and
performance marketing services through Seller's Choice. an in-house marketing
agency for DTC (direct-to-consumer) and e-commerce clients. Acquired by Creatd
in September 2019, Seller's Choice provides direct-to-consumer brands with
design, development, strategy, and sales optimization services. Its status as an
Amazon Solution Provider and its weighty operational structure made it an ideal
candidate for acquisition in late 2019. Creatd's business model is built to
absorb distressed operational infrastructures, integrate the few best
components, and shed the non-essential costs.
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WHE AgencyThe WHE Agency ("WHE"), acquired by Creatd in 2021, was founded by Tracy Willis
with the goal of supporting top creators and influencers, by connecting them
with leading family and lifestyle brands and global audiences. Today, WHE
represents a roster of approximately 60 family and lifestyle-focused creators,
that collectively reach an audience of nearly 70 million.
Creatd Ventures
Creatd Ventures houses Creatd'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. Currently, the Creatd Ventures portfolio includes:
? Camp, previously Plant 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. In the fourth quarter of 2021, Camp added two new products to
its expanding line of healthy, veggie-based, family-friendly foods. Currently,
Camp has four flavors available for purchase: Classic Cheddar Mac 'N' Cheese,
White Cheddar Mac 'N' Cheese, Vegan Cheezy Mac, and Twist Veggie Pasta. Camp,
which first launched in 2020, represents the first investment within the Creatd
Ventures portfolio.
? Launched in second quarter 2021, Untamed Photographer is an online art
marketplace that couples limited-edition, hand-selected wildlife photography,
with the compelling stories behind each shot. Untamed Photographer has
cultivated a network of international environmental artists who preserve the
beauty of the planet through their art, donating a portion of profits back to
environmental causes.
? In the third quarter of 2021, the Company announced its intent to purchase a
controlling stake in Dune Glow Remedy ("Dune"). The Company subsequently
announced the completion of its purchase of a 50.4% majority stake in the
fourth quarter of 2021. Brought to market in 2021, Dune 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.
Creatd Studios
The goal of Creatd Studios is to elevate creators' stories to TV, film, books,
podcasts, video, and more.
? Transmedia Assets: With millions of compelling stories in its midst, Creatd's
technology surfaces the best candidates for transmedia adaptations, through
community and creator data insights. Then, Creatd Studios helps creators tell
their existing stories in new ways, by partnering them with entertainment and
publishing studios to create unique content experiences that accelerate
earnings, discoverability, and open doors.
? OG Gallery: Acquired by Creatd's founders, 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.
Acquisition Strategy
Creatd's hybrid finance and design culture is key to its acquisition strategy.
Acquisition targets are companies that meet a set of opportunistic or financial
standards or that are 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.
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Recent Developments
Board of Directors and Management
Mark Patterson resigned from the Board effective July 31, 2021. Such resignation
is not the result of any disagreement with the Company on any matter relating to
the Company's operations, policies or practices.
On August 13, 2021, the Board approved the restructuring of the Company's senior
management team to be comprised of two Co-Chief Executive Officers and appointed
Jeremy Frommer and Laurie Weisberg to such positions (the "Restructuring").
Additionally, Justin Maury was appointed Chief Operating Officer and retains his
position as President. Prior to the Restructuring, Mr. Frommer served as the
Company's Chief Executive Officer and Ms. Weisberg served as the Company's Chief
Operating Officer. Mr. Frommer and Ms. Weisberg continue to serve as members of
the Board. The Restructuring did not impact the role or functions of the
Company's Chief Financial Officer, Chelsea Pullano.
On October 27, 2021, the Board, upon the recommendation of the Compensation
Committee of the Board, approved and authorized certain compensation
arrangements with Jeremy Frommer, Co-Chief Executive Officer; Laurie Weisberg,
Co-Chief Executive Officer; Justin Maury, President; and Chelsea Pullano, Chief
Financial Officer (collectively, the "Compensation Arrangements").
The Compensation Arrangements consist of both base salary and option awards as
follows:
? for Mr. Frommer: (i) annual base salary of $500,000, effective retroactive to
October 1, 2021; (ii) 121,000 options, having a strike price of $5.00 per
share, vesting immediately; and (iii) 121,000 options, having a strike price of
$5.00 per share, to vest upon the achievement of certain metrics during the
course of the 2022 fiscal year, to be set by the Board by not later than
December 31, 2021;
? for Ms. Weisberg: (i) annual base salary of $475,000, effective retroactive to
October 1, 2021; (ii) 121,000 options, having a strike price of $5.00 per
share, vesting immediately; and (iii) 121,000 options, having a strike price of
$5.00 per share, to vest upon the achievement of certain metrics during the
course of the 2022 fiscal year, to be set by the Board by not later than
December 31, 2021;
? for Mr. Maury: (i) annual base salary of $475,000, effective retroactive to
October 1, 2021; (ii) 81,000 options, having a strike price of $5.00 per share,
vesting immediately; and (iii) 81,000 options, having a strike price of $5.00
per share, to vest upon the achievement of certain metrics during the course of
the 2022 fiscal year, to be set by the Board by not later than December 31,
2021; and
? for Ms. Pullano: (i) annual base salary of $250,000, effective retroactive to
October 1, 2021; (ii) 37,000 options, having a strike price of $5.00 per share,
vesting immediately; and (iii) 37,000 options, having a strike price of $5.00
per share, to vest upon the achievement of certain metrics during the course of
the 2022 fiscal year, to be set by the Board by not later than December 31,
2021.
WHE Agency Transaction
On July 20, 2021, the Company entered into, through its wholly owned subsidiary,
Creatd Partners, LLC ("Creatd Partners"), a Stock Purchase Agreement (the
"Purchase Agreement") with individuals named therein (collectively, the
"Sellers"), pursuant to which Creatd Partners acquired from the Sellers, subject
to the terms and conditions of the Purchase Agreement and other related
agreements (the "Transaction Documents") 1,158,000 shares of common stock of WHE
Agency, Inc. ("WHE Agency"), a talent management and public relations agency
that primarily focuses on representation and management of family and
lifestyle-focused influencers and digital creators. The equity interest acquired
in the Transaction (as defined below) along with the Voting Agreements described
below equals fifty-five (55%) of the voting power and forty-four (44%) of the
ownership of WHE Agency's issued and outstanding shares, determined on a fully
diluted basis post-transaction.
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Pursuant to the Purchase Agreement, the Sellers sold, transferred, assigned,
conveyed and delivered to Creatd Partners their respective issued and
outstanding shares of common stock in WHE Agency (the "Transaction"). The
aggregate closing consideration of the Transaction is $1,038,271, which consists
of a combination of cash, in the amount of $144,750 ("Cash Consideration"), and
the remaining $893,521 issued to the Sellers in the form of 224,503 shares of
the Company's restricted common stock ("Closing Share Consideration").
The Transaction closed on July 23, 2021 (the "Closing"). At the Closing, Sellers
received their respective portion of the aggregate closing consideration in the
form of a combination of Cash Consideration and Closing Share Consideration,
except for 5% of the total Closing Share Consideration that will be subject to a
twelve (12) month Indemnification Holdback Period.
The 224,503 shares of the Company's common stock, par value $0.001 per share
(the "Common Stock"), were issued as part of the Closing Share Consideration
(the "Shares") to the Sellers are "restricted securities," as defined in Rule
144(a)(3) under the Securities Act of 1933, as amended (the "Act"), and
accordingly the Shares may not be resold by the Sellers without registration
under the Act or an available exemption from registration. Under the Purchase
Agreement, the Company will be obligated to file with the Securities and
Exchange Commission (the "SEC") within ten business days after the Closing, a
registration statement on Form S-1 or Form S-3 registering the resale of the
Shares by the Sellers under the Act to cover the resale of the Shares issued to
the Sellers.
The Purchase Agreement contain representations and warranties made by and to the
parties thereto as of specific dates. The Purchase Agreement includes customary
representations, warranties and covenants of the Company, Sellers and WHE
Agency. The representations and warranties made by each party were made solely
for the benefit of the other parties and (i) were not intended to be treated as
categorical statements of fact, but rather as a way of allocating the risk
between the parties to the Purchase Agreement if those statements prove to be
inaccurate; (ii) may have been qualified in the Purchase Agreement by
disclosures that were made to the other party in disclosure schedules to the
Purchase Agreement, and (iii) were made only as of the date of the Purchase
Agreement or such other date or dates as may be specified in the Purchase
Agreement.
In connection with entering into the Purchase Agreement, Creatd Partners entered
into a certain Voting Agreement and Proxy (the "Voting Agreement") with certain
beneficial owners that collectively own 11% percent of WHE Agency's issued and
outstanding restricted common stock ("Restricted Stockholders"). Through the
Voting Agreements entered into with the Restricted Stockholders, Creatd Partners
effectively controls 55% of the total voting power of the Company in the
aggregate. The Voting Agreements generally require that the stockholders who are
party to the Voting Agreements vote or cause to be voted their WHE Agency
shares, and execute and deliver written consents and otherwise exercise all
voting and other rights with respect to the WHE Agency shares at the direction
of Creatd Partners. In addition, in connection with the Voting Agreements, the
Restricted Stockholders delivered irrevocable proxies to Creatd Partners. The
Voting Agreements terminate upon the twenty-year anniversary of executing the
Voting Agreements.
Dune Transaction
On October 3, 2021, we, through Creatd Partners, LLC ("Buyer"), entered into a
Stock Purchase Agreement (the "Dune Agreement") with Standard Holdings, Inc.
("SHI") and Mark De Luca ("De Luca") (SHI and De Luca, collectively the "Dune
Sellers"), and Stephanie Roy Dufault, whereby Buyer purchased a majority stake
in Dune, Inc., a Delaware corporation ("Dune"). Pursuant to the Dune Agreement,
which closed on October 4, 2021, Buyer acquired a total of 3,905,634 shares of
the common stock of Dune (the "Purchased Shares"). The Company issued 163,344
restricted shares of the Company's common stock to the Dune Sellers.
In addition, pursuant to the Dune Agreement, $50,000 worth of the Company's
common stock issuable to the Dun Sellers on a pro rata basis, priced in
accordance with the terms and conditions set forth in the Dune Agreement (the
"Indemnification Escrow Amount"), shall be held in escrow and reserved in each
Dune Seller's name by the Company's transfer agent until such time as release is
authorized under the Agreement.
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Each of the Dune Sellers and Buyer have made customary representations and
warranties, and covenants in the Agreement.
In connection with the Dune Agreement, Dune, Creatd Partners, Mark De Luca and
SHI entered into a Stockholders Agreement dated October 3, 2021, providing for
the purchase of the Purchased Shares representing a majority stake in Dune. The
Stockholders Agreement contains customary representations and warranties, and
covenants.
Registered Direct Offering
On October 25, 2021, we entered into a securities purchase agreement (the
"Purchase Agreement") with institutional investors (collectively, the
"Purchasers") resulting in the raise of $3,825,000 in gross proceeds to the
Company. Pursuant to the terms of the Purchase Agreement, the Company agreed to
sell, in a registered direct offering, an aggregate of 850,000 shares (the
"Shares") of the Company's common stock, par value $0.001 per share (the "Common
Stock"), at a purchase price of $4.50 per Share (the "Offering"). The Offering
closed on October 27, 2021, subject to customary closing conditions.
Pursuant to the terms of the Purchase Agreement, each of the Purchasers was
granted the right to participate in a subsequent financing in an amount up to
25% of such subsequent financing. Additionally, under the terms of the Purchase
Agreement, the Company and its subsidiaries are prohibited from issuing Common
Stock or common stock equivalents for a period of 30 days from the date of the
closing of the Purchase Agreement, other than with respect to Exempt Issuances
(as defined in the Purchase Agreement) and the Company shall not undertake a
reverse or forward stock split or reclassification of the Common Stock without
the prior written consent of the Purchasers holding a majority in interest of
the Shares, except as may be required in connection with the satisfaction of the
minimum bid price requirement of the principal Trading Market.
The Benchmark Company, LLC acted as exclusive placement agent (the "Placement
Agent") for the Company in connection with the Offering. Pursuant to that
certain Placement Agency Agreement, dated as of October 25, 2021, between the
Company and the Placement Agent (the "Placement Agency Agreement"), the
Placement Agent is entitled to a cash fee equal to $267,750, which represents
seven percent (7.0%) of the aggregate gross proceeds raised in the Offering, the
reimbursement of certain of the Placement Agent's expenses, and warrants to
purchase up to 42,500 shares of Common Stock at an exercise price of $5.40 per
share, which represents five percent (5.0%) of the aggregate number of Shares
sold in the Offering (the "Placement Agent Warrants"). The Placement Agent
Warrants will not be exercisable for a period of six months following the date
of the closing and thereafter are exercisable for a period of five years.
The Company estimates that net proceeds to the Company from the Offering will be
approximately $3,407,250 after deducting the Placement Agent fees and estimated
expenses payable by the Company.
The Shares were issued to the Purchasers in a registered direct offering
pursuant to which the Shares will be registered under the Securities Act of
1933, as amended, pursuant to a prospectus supplement to the Company's currently
effective registration statement on Form S-3 (File No. 333-250982), which was
initially filed with the Securities and Exchange Commission (the "SEC") on
November 25, 2020, as amended on April 9, 2021, and was declared effective on
April 23, 2021 (the "Shelf Registration Statement"). A Prospectus Supplement for
the closing dated October 25, 2021 was filed with the SEC and is available on
the SEC's website at http://www.sec.gov.
Results of Operations
Liquidity and Capital Resources
The following table summarizes total current assets, liabilities and working
capital at September 30, 2021 compared to December 31, 2020:
September 30, December 31, Increase /
2021 2020 (Decrease)
Current Assets $ 2,550,911 $ 8,020,993 $ (5,470,082 )
Current Liabilities $ 5,387,223 $ 4,968,427 $ 418,796
Working Capital (Deficit) $ (2,836,312 ) $ 3,052,566 $ (5,888,878 )At September 30, 2021, we had a working capital (deficit) of $(2,836,312) as
compared to a working capital of $3,052,566 at December 31, 2020, a decrease in
working capital of $5,888,878. The decrease is primarily attributable to a
reduction in cash and an increase in deferred revenue and notes payable. This
was offset by an increase in prepaid expense and a decrease in convertible notes
payable.
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Net CashNet cash used in operating activities for the nine months ended September 30,
2021, and 2020, was $15,617,065 and $5,032,488, respectively. The net loss for
the nine months ended September 30, 2021, and 2020 was $24,942,247 and
$23,306,686, respectively. This change is primarily attributable to the net loss
for the current period offset by share-based payments in the amount of
$5,662,389 to employees and consultants for services rendered, accretion of debt
discount and debt issuance costs of $3,028,015 due to incentives given with
debentures, and a Change in fair value of derivative liability of $1,096,287, as
well as a change in accounts payable and accrued expenses of $160,434.
The increased net cash used in 2021 reflected an extraordinary cash outlay for
marketing, which went toward generating a lower creator acquisition cost for
paid Vocal subscribers, and an increase in general and administrative expenses.
Net cash used in investing activities for the nine months ended September 30,
2021, was $1,325,155. This is primarily attributable to the purchase of Plant
Camp, WHE Agency, property and equipment, deposits on investments related to the
Memorandum of Understanding with Dune, Inc., and cash paid for the purchase of
investments.
Net cash provided by financing activities for the nine months ended September
30, 2021, and 2020 was $10,560,265 and $8,337,715, respectively. During the nine
months ended September 30, 2021, the Company's operations were predominantly
financed by net proceeds of $5,472,068 from the exercise of warrants, the
proceeds from loans and notes of $3,931,720, and proceeds from the issuance of
stock and warrants, which were partially offset by the repayment of notes and
loans of $1,345,723. Similarly, the Company's financing activity for the nine
months ended September 30, 2020, generated $4,893,893 from loans and note
issuances, the proceeds of which were partially offset by repayment of notes of
$3,178,777.
Summary of Statements of Operations for the Three Months Ended September 30,
2021, and 2020:
Three Months Ended
September 30,
2021 2020
Revenue $ 1,179,620 $ 424,814
Cost of revenue $ 1,418,213 $ 731,309
Operating expenses $ (6,672,381 ) $ (6,717,369 )
Loss from operations $ (6,910,974 ) $ (7,023,864 )
Other expenses $ (2,809,147 ) $ (9,154,834 )
Net loss $ (9,736,534 ) $ (16,178,698 )
Loss per common share - basic and diluted $ (0.71 ) $ (3.81 )
Revenue
Revenue totaled $1,179,620 for the three months ended September 30, 2021, as
compared to $424,814 for the comparable three months ended September 30, 2020,
an increase of $754,806. The year-over-year increase in quarterly revenue is
attributable to the steady growth of Vocal+ memberships as well as the
acquisition of WHE and its contribution to growth in the Company's agency
businesses.
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Cost of Revenue
Cost of revenue for the three months ended September 30, 2021, were $1,418,213
as compared to $731,309 for the three months ended September 30, 2020. The
increase of $686,904 in cost of revenue is mainly related to R&D efforts and
other overhead required to continue to increase Vocal+ memberships as well as
the acquisition of WHE and its contribution to growth in the Company's agency
businesses. The Company expects the gross margin to improve over time as it
continues to grow and improve upon a self-sustaining, organically driven revenue
model across its business segments.
Operating Expenses
Operating expenses for the three months ended September 30, 2021, were
$6,672,381 as compared to $6,717,369 for the three months ended September 30,
2020. The decrease of $44,988 in operating expenses is mainly related to an by a
decrease in stock-based compensation, offset by an increase in marketing and
research and development expenditure. We expect marketing expenditure to remain
approximately the same over coming quarters as the Company continues to execute
on its new organic subscriber growth strategies and works to reduce reliance on
third party social media platforms.
Loss from Operations
Loss from operations for the three months ended September 30, 2021, was
$6,910,974 as compared to $7,023,864 for the three months ended September 30,
2020. The decrease in the loss from operations this quarter primarily reflects
continued revenue growth coupled with increased operating expenses compared to
the prior year. Going forward, the Company expects the loss from operations to
continue to decrease as revenues continue to grow and expenses remain
consistent.
Other Income and Expenses
Other expenses for the three months ended September 30, 2021, were $2,809,147 as
compared to $9,154,834 for the three months ended September 30, 2020. The
decrease in third quarter 2021 other expenses was predominantly due to an
increased gain on extinguishment of debt and a decrease in an accretion of debt
discount and issuance cost.
Net Loss
Net loss attributable to common shareholders for the three months ended
September 30, 2021, was $9,797,011, or loss per share of $0.71, as compared to a
net loss attributable to common shareholders of $16,197,119, or loss per share
of $3.81, for the three months ended September 30, 2020.
Summary of Statements of Operations for the Nine Months Ended September 30,
2021, and 2020:
Nine Months Ended
September 30,
2021 2020
Revenue $ 2,894,390 $ 1,040,496
Cost of revenue $ 4,160,743 $ 1,863,148
Operating expenses $ (19,971,413 ) $ (11,562,413 )
Loss from operations $ (21,237,766 ) $ (12,385,065 )
Other expenses $ (3,688,068 ) $ (10,921,621 )
Net loss $ (24,942,247 ) $ (23,306,686 )
Loss per common share - basic and diluted $ (2.20 ) $ (6.65 )
Revenue
Revenue was $2,894,390 for the nine months ended September 30, 2021, as compared
to $1,040,496 for the comparable nine months ended September 30, 2020, an
increase of $1,853,894. The year-over-year increase in quarterly revenue is
attributable to the steady growth of Vocal+ memberships as well as consistent
growth in the Company's agency businesses.
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Cost of Revenue
Cost of revenue for the three months ended September 30, 2021, were $4,160,743
as compared to $1,863,148 for the three months ended September 30, 2020. The
increase of $2,297,595 in cost of revenue is mainly related to an increase in
Vocal+ memberships as well as the acquisition of WHE and its contribution to
growth in the Company's agency businesses.
Operating Expenses
Operating expenses for the nine months ended September 30, 2021, were
$19,971,413 as compared to $11,562,413 for the nine months ended September 30,
2020. The increase of $8,409,000 in operating expenses is mainly related to a
$6.7 million increase in marketing expenditure and $2.2 million increase in
general and administrative expenses. Much of the increase in marketing
expenditure occurred during the company's second quarter 2021 as it focused
significant resources on tactical experimentation utilizing our internal data to
generate a lower creator acquisition cost, resulting in significant Vocal+
membership growth, with the Company ending the second quarter 2021 having
achieved a new milestone of over 30,000 Vocal+ members. The Company went on to
significantly reduce marketing spend in third quarter, 2021 and expects future
quarterly spend to reflect levels consistent with third quarter.
Loss from Operations
Loss from operations for the nine months ended September 30, 2021, was
$21,237,766 as compared to $12,385,065 for the nine months ended September 30,
2020. The operating loss increase primarily reflects added marketing expenses
during the first half of 2021 as the company launched a comprehensive marketing
campaign and the need for duplicate expenditures during transition period as new
staff hires are trained by the outsourced third-party service providers whom
they will be replacing. The majority of these additional costs have been
eliminated during third quarter 2021. Going forward, the Company expects the
loss from operations to decrease as revenues continue to increase and expenses
remain relatively constant.
Other Income and Expenses
Other expenses for the nine months ended September 30, 2021, was $3,688,068 as
compared to $10,921,621 for the nine months ended September 30, 2020. The
decrease in other expenses was predominantly due to the change in extinguishment
of debt and a reduction in interest expense. This was offset by an increase in
derivative expense, change in fair value of derivative liability, and the
impairment of investments.
Net Loss
Net loss attributable to common shareholders for the nine months ended September
30, 2021, was $25,413,042, or loss per share of $2.20, as compared to a net loss
attributable to common shareholders of $23,325,107, or loss per share of $6.65,
for the nine months ended September 30, 2020.
Off-Balance Sheet Arrangements
As of September 30, 2021, we had no off-balance sheet arrangements.
Significant Accounting Policies
Our significant accounting policies are described in Note 2 of the Financial
Statements. If we complete an acquisition, we will be required to make estimates
and assumptions typical of other companies. For example, we will be required to
make critical accounting estimates related to valuation and accounting for
business combinations. The estimates will require us to rely upon assumptions
that were highly uncertain at the time the accounting estimates are made, and
changes in them are reasonably likely to occur from period to period. Changes in
estimates used in these and other items could have a material impact on our
financial statements in the future. Our estimates will be based on our
experience and our interpretation of economic, political, regulatory, and other
factors that affect our business prospects. Actual results may differ
significantly from our estimates. For detailed information regarding our
critical accounting policies and estimates, see our financial statements and
notes thereto included in this Report and in our Annual Report on Form 10-K for
the year ended December 31, 2020. There have been no material changes to our
critical accounting policies and estimates from those disclosed in our most
recent Annual Report on Form 10-K.
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