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, 2021, which
are included in the Company's Annual Report on Form 10-K that was filed with the
SEC on April 6, 2022.
Overview
Creatd, Inc. is a company whose mission is to provide economic opportunities to
creators and brands by multiplying the impact of platforms, people, and
technology.
We operate four main business segments, or 'pillars': Creatd Labs, Creatd
Partners, Creatd Ventures, and Creatd Studios. Together, Creatd's pillars work
together to create a flywheel effect, supporting our core vision of creating a
viable ecosystem for all stakeholders in the creator economy.
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Creator-Centric Strategy
Our purpose is to empower creators to prosper through exceptional tools,
built-in communities, and opportunities for monetization and audience expansion.
This creator-first approach is the foundation of our culture and mission, and
how we choose to allocate our resources.
Creatd Labs
Creatd Labs is dedicated to 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 serve as 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 their
home, from bloggers to social media influencers, to podcasters, founders,
musicians, photographers, and more.
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.
Creators can opt to use Vocal for free, or upgrade to the premium membership
tier, Vocal+. Upon joining Vocal, either as a freemium or premium member,
creators can immediately begin to utilize Vocal's storytelling tools to create
and publish their stories, as well as benefit from Vocal's monetization
features. Creatd facilitates creators' monetization on Vocal in numerous
different ways, including i) by rewarding creators for each 'read' their story
receives; ii) via Vocal Challenges, or writing contests through which creators
can win cash and other rewards; iii) by awarding Bonuses; iv) by connecting
creators with brands for opportunities to collaborate on Vocal for Brands
branded content campaigns; v) through 'Subscribe,' which enables creators to
receive payment directly from their audience via monthly subscriptions and
one-off microtransactions; vi) via Vocal's Ambassador Program, which enables
creators to receive additional rewards whenever they refer a new Vocal+ member.
In July 2022, Creatd released the first iteration of the new Vocal app for iOS,
giving its premium Vocal+ members exclusive first access to the app ahead of its
full release, expected 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's premium membership program. Subscribers pay a membership fee
to access additional premium features on the platform, including: a higher rate
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 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. During the second quarter 2022, Creatd announced Vocal's
new integration partnership with Two Hat, a Microsoft acquiree and a leading
provider of AI-assisted content moderation and protection solutions for digital
communities. Through the partnership, the Company further updated its
proprietary moderation technology, with the aim of ensuring that the Vocal
platform remains a safe place for its creators, brand partners, and audiences.
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).
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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.
Technology Development
Vocal's proprietary technology is built on Keystone, the same underlying
open-source framework used by industry leaders such as Atlassian, a $43-billion
Australian technology company. Some of the key differentiating elements of
Vocal's technology are speed, sustainability, and scalability. The Company
continues to invest heavily in research and development to continuously improve
and innovate its platform, with the goal of optimizing the user experience for
creators.
Additionally, the Vocal platform 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 have
materially affected so many legacy media platforms.
Vocal's technology has been specifically designed and built to scale without a
material corresponding increase in operational costs. While our users can embed
rich media, such as video, audio, and product links, into their Vocal stories,
the rich media content is hosted elsewhere (such as YouTube, Instagram, Vimeo,
Shopify, Spotify, etc.). Thus, our platform can accommodate rich media content
of all kinds without bearing the financial or operational costs associated with
hosting the rich media itself. In addition to the benefits this framework
affords to the 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 houses the Company's agency businesses, with the goal of
fostering partnerships between creators and brands. Creatd Partners' offerings
include: Vocal for Brands (content marketing), WHE Agency (influencer
marketing), and Seller's Choice (performance marketing).
Vocal for Brands
All brands have a story to 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 creation of high-quality stories
that are centered around the brand's mission and further disseminated through
creators' respective social channels and promotional outlets. All Vocal for
Brands campaigns leverage Vocal's first-party audience insights, which enables
the creation of highly targeted and segmented audiences and optimized campaign
results.
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WHE AgencyThe WHE Agency ("WHE"), acquired by Creatd in 2021, was founded with the goal of
supporting top creators and influencers, by connecting them with leading brands
and global audiences. Today, WHE manages a talent roster comprising over 100
creators across numerous verticals, including family and lifestyle, 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's Choice
Seller's Choice is Creatd Partners' performance marketing agency specializing in
DTC (direct-to-consumer) and e-commerce clientele. Seller's Choice provides
direct-to-consumer brands with design, development, strategy, and sales
optimization services.
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. While working to scale Creatd Ventures' existing
portfolio brands, including through the introduction of 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 easily consolidated into its supply chain and infrastructure.
Currently, the Creatd Ventures 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 Studios is to partner with creators to produce stories for
TV, film, podcasts, and print. With millions of compelling stories in its midst,
Creatd's Vocal technology surfaces the best candidates for transmedia
adaptations, through a deep analysis of community, creator, and audience
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 foster
new opportunities.
? In 2022, Creatd Studios announced a series of newly released and upcoming
production projects, including:
"Write Here, Write Now," the Company's first-ever podcast showcasing select
Vocal creators and stories; a partnership with UK-based publisher, Unbound, for
the publication of books featuring stories sourced from Vocal; the formation of
a new graphic novel development arm 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.
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Application of First-Party Data
Creatd's business intelligence and marketing teams identify and target
individual creators, communities, and brands, utilizing empirical data harnessed
from the Vocal platform. The team's ability to apply its proprietary first-party
data works to reduce acquisition costs for new creators and to help provide
brands with conversions and an ideal targeted audience. In this way, our ability
to apply first-party data is one of the value-drivers for the Company across its
four business pillars.
Importantly, we do not sell the collected data, that being a common monetization
opportunity for many other businesses. Instead, we use our collected first party
data for the purposes of bettering the platform. Specifically, our data helps us
understand the behaviors and attributes that are common among the creators,
brands, and audiences within our ecosystem. We then pair our first-party Vocal
data with third-party data from distribution platforms such as Facebook and
Snapchat to provide a more granular profile of our creators, brands, and
audiences.
It is through generating this valuable first-party data that we can continually
enrich and refine our targeting capabilities for branded content promotion and
creator acquisition, and specifically, to reduce our creator acquisition costs
(CAC) and subscriber acquisition costs (SAC).
Competition
The idea for Vocal came as a response to what Creatd's founders recognized as
systemic flaws inherent to the digital media industry and its operational
infrastructures. The depreciating value of digital media business models built
on legacy technology platforms created a unique opportunity for the development
of a creator-centric platform that could appeal to a global community and, at
the same time, be capable of acquiring undervalued complimentary technology
assets.
Creatd's founders built the Vocal platform upon the general thesis that a closed
and safe ecosystem utilizing first-party data to increase efficiencies could
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 assets lying dormant.
Vocal is most commonly discussed 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 view Vocal 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 of the 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 partnerships with the world's greatest technology companies and to
further spread our roots deeper into the digital landscape
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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.
Recent Developments
Nasdaq - Continued Listing
On March 1, 2022, the Company received a letter from the staff of The Nasdaq
Capital Market (the "Exchange") notifying the Company that the Exchange has
determined to delist the Company's common stock from the Exchange based on the
Company's Market Value of Listed Securities for the 30-consecutive day period
between January 15, 2022 and February 25, 2022 falling short of the requirements
under Listing Rule 5550(b)(2) (the "Rule"). Although a 180-day period is
typically allowed for an issuer to regain compliance, the Company was not
eligible to use such compliance period, as the Exchange had instituted a Panel
Monitor through March 9, 2022.
The Company pursued an appeal 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 Delisting filing was stayed pending the Panel's
decision.
On April 22, 2022, the Exchange notified the Company that the Panel has
determined to continue the listing of the Company on the Exchange, subject to
the following conditions: (i) on or before May 16, 2022, the Company will file
its Quarterly Report on Form 10-Q for the period ended March 31, 2022
demonstrating compliance with Nasdaq Listing Rule 550(b)(1) requiring
shareholders' equity of $2.5 million and (ii) on or before August 29, 2022, the
Company will file a Form 8-K documenting the successful completion of any
fund-raising activity that has taken place since April 14, 2022 and the
Company's long-term compliance with the continued listing requirements of the
Nasdaq Capital Market.
The Panel has advised that August 29, 2022 represents the full extent of the
Panel's discretion to grant continued listing during the time the Company is
non-compliant and should the Company fail to demonstrate compliance by such
date, the Panel will issue a final delist determination and the Company will be
suspended from trading on the Exchange.
Securities Purchase Agreement
On May 31, 2022, the Company 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
Warrants to purchase shares of the Company's common stock, par value $0.001 per
share (the "Common Stock") (the "Series C Warrants"); and (iii) 2,000,000 Series
D Common Stock Purchase Warrants to purchase shares of Common Stock (the "Series
D Warrants", and collectively with the Series C Warrants, the "Warrants"). The
Company and the Investors also entered into registration rights agreements
(each, a "Registration Rights Agreement") pursuant to the Purchase Agreement.
The Debentures have an original issue discount of 10%, have a term of six months
with a maturity date of November 30, 2022, may be extended by six months at the
Company's option subject to certain conditions, and are convertible into shares
of Common Stock at a conversion price of $2.00 per share, subject to adjustment
upon 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 $1.00.
The Warrants are exercisable for a term of five years from the initial exercise
date of November 30, 2022, until November 30, 2027. The Series C Warrants are
exercisable at an exercise price of $3.00, subject to adjustment upon certain
events including a one-time adjustment to the price of the Common Stock offered
in the Rights Offering, with such adjusted exercise price not to be lower than
$0.96. The Series D Warrants are exercisable at an exercise price of $6.00
subject to adjustment upon certain events including a one-time adjustment to the
price of the Common Stock offered in the Rights Offering, with such adjusted
exercise price not to be lower than $0.96. The Warrants provide for cashless
exercise to 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 connection with the Purchase Agreements, the subsidiaries of
the Company delivered a guarantee (the "Guarantee") in favor of the Investors
whereby each such subsidiary guaranteed the full payment and performance of all
obligations of the Company pursuant to the Purchase Agreement.
The Debentures, Warrants, Common Stock underlying the Debentures and the Common
Stock underlying the Warrants were not registered under the Securities Act, but
qualified for exemption under Section 4(a)(2) and Rule 506 promulgated
thereunder. The Company is relying on this exemption from registration for
private placements based in part on the representations made by Investors,
including representations with respect to each Investor's status as an
accredited investor, as such term is defined in Rule 501(a) of the Securities
Act, and each Investor's investment intent.
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Results of Operations
Liquidity and Capital Resources
The following table summarizes total current assets, liabilities and working
capital at June 30, 2022 compared to December 31, 2021:
June 30, December 31,
2022 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 $6,896,184as compared to a
working capital deficit of $945,773 at December 31, 2021, an increase in working
capital deficit of $5,950,411. The increase is primarily attributable to a
reduction in cash, prepaid expenses and other current assets, an increase in
accounts payable and notes payable, as well as an increase in deferred revenue
resulting primarily 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 include restrictions on travel, and
quarantines in certain areas, and forced closures for certain types of public
places and businesses. The COVID-19 coronavirus and actions taken to mitigate it
have had and are expected to continue to have an adverse impact on the economies
and financial markets of many countries, including the geographical area in
which the Company operates. While it is unknown how long these conditions will
last and what the complete financial impact will be to the Company, capital
raising efforts and our operations may be negatively affected.
Net Cash
Net cash used in operating activities for the six months ended June 30, 2022,
and 2021, was $(10,620,156) and $(10,996,578), respectively. The net loss for
the six months ended June 30, 2022, and 2021 was $(15,585,986) and
$(15,205,713), respectively. The decrease in net cash used in operating
activities reflects a decrease in cash paid for marketing expenditures, research
and development, legal fees, and accounting & audit fees.
Net cash used in investing activities for the six months ended June 30, 2022,
was $367,240. This is primarily attributable to the purchase of digital assets,
including Metaverse plots in Decentraland, the OG Gallery NFT portfolio and
cryptocurrencies Ethereum, Polygon and Mana, as well as physical property and
equipment.
Net cash provided by financing activities for the six months ended June 30,
2022, and 2021 was $8,778,934 and $5,967,733, respectively. During the six
months ended June 30, 2022, the Company's operations were predominantly financed
by net proceeds of $4,997,301 from the sale of common stock 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 Statements of 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 )
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Revenue
Revenue totaled $1,625,901 for 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) which increased 19%
year-over-year, as well as Creatd Ventures (e-Commerce), which generated sales
totaling $634,966 across its portfolio of CPG brands, including Basis, which the
Company acquired in the previous quarter, and continues to demonstrate revenue
momentum. This growth was offset by a decrease in total revenues generated from
Creatd Labs (Vocal and technology development), which comes as a result of the
Company's strategic shift in Vocal+ marketing toward driving annual versyus
monthly subscriptions, with annual subscriptions being amortized 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
portfolio of 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 well as 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 the three 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
$1,063,110 in cost of revenue is related to an increase in payouts to Vocal
creators, whose earnings are generated through content reads, winning
Challenges, and other means. Additionally, the increase in cost of revenue is
correlated with continued growth within the Creatd Ventures business segment,
including sales growth for existing brands as well as the acquisition and
integration of additional brands, which results in increases in
inventory-related and other costs. Going forward, the Company expects the gross
margin to continue to improve over time as Creatd Ventures continues to
consolidate operations across its portfolio of e-commerce brands and, more
broadly, as the Company continues to grow and scale a self-sustaining,
organically driven revenue model across its business segments.
Operating Expenses
Operating expenses for the 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 decrease of
$795,437 in operating expenses is primarily attributable to the Company's
decrease in marketing expenses. This was offset by an increase in research and
development, stock-based compensation, and general and administrative accounts,
including office rent, employee compensation and productivity enhancing software
& tools.
During the second quarter of 2022, the company's non-cash charges totaled
$2,814,980, a $457,798 increase from second quarter 2021. This increase
primarily represents an increase in stock-based compensation to employees and
consultants during the quarter.
The Company expects expenditures to decrease over coming quarters, as the
Company continues to optimize and reduce its marketing expenditure and
scrutinize many of the contributing expenses within G&A. Already, the Company
has, subsequent to the second quarter, taken steps to reduce headcount
materially to gain efficiencies, integrate acquired operations, reduce future
expenses and other market factors.
Loss from Operations
Loss from operations for 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 $387,371
decrease in the loss from operations this quarter primarily reflects the
decrease from total operating expenses. This was offset by the decrease 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 increase in second quarter 2022 other income was predominantly due to the
increase in accretion of debt discount and issuance cost and a decrease from the
gain on extinguishment of debt. This was offset by a decrease in interest
expense and impairment of investment.
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Net Loss
Net loss for the three months 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 attributable to 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 loss
attributable to common shareholders of $8,972,794, or loss per share of $0.81,
for the three months ended June 30, 2021.
Summary of Statements of 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 $2,974,639 for 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 growth in
creator subscriptions, e-commerce sales, and brand and influencer marketing
partnerships.
Cost of Revenue
Cost of revenue for the six 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
$1,425,874 in cost of revenue is related to an increase in challenge- and
read-related payouts to Vocal creators, as well as Company's first-quarter 2022
acquisition of Basis and an increase in inventory related cost of revenues
correlating with revenue growth within Ventures. The Company expects the gross
margin to continue 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 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, travel and entertainment,
software and tools, and compensation. This increase was partially offset by a
decrease in marketing expenses. The Company expects expenditures to decrease as
the Company normalizes its marketing costs and scrutinizes many of the
contributing expenses within G&A.
48
Loss from Operations
Loss from operations for 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 $675,916
increase in the loss from operations primarily reflects an increase in general
and administrative expenses, including office rent, travel and entertainment,
software and tools, and compensation, as well as a decrease in gross margin.
Going forward, the Company expects the loss 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 decrease
in 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 and gain on settlement of vendor
liabilities.
Net Loss
Net loss for the six months 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 attributable to 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 loss
attributable to common shareholders of $15,616,031, or loss per share of $1.49,
for the six months ended June 30, 2021.
Off-Balance Sheet Arrangements
As of June 30, 2022, 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, 2021. 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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CREATD, INC. 
