UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended:
or
For the transition period from __________ to __________
Commission File No.
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Common Stock Purchase Warrants | CRTDW | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of a “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 | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes ☐
No
As of August 15, 2022, the registrant had
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2022
TABLE OF CONTENTS
| Page | ||
| Special Note Regarding Forward-Looking Statements and Other Information Contained in this Report | ii | |
| PART I - FINANCIAL INFORMATION | 1 | |
| Item 1. | Financial Statements | 1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 40 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 49 |
| Item 4. | Controls and Procedures | 49 |
| PART II - OTHER INFORMATION | 50 | |
| Item 1. | Legal Proceedings | 50 |
| Item 1A. | Risk Factors | 50 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 50 |
| Item 3. | Defaults Upon Senior Securities | 50 |
| Item 4. | Mine Safety Disclosures | 50 |
| Item 5. | Other Information | 50 |
| Item 6. | Exhibits | 52 |
i
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
AND
OTHER INFORMATION CONTAINED IN THIS REPORT
This Quarterly Report on Form 10-Q (this “Form 10-Q”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. You can find many (but not all) of these statements by looking for words such as “approximates,” “believes,” “hopes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,” “plans,” “would,” “should,” “could,” “may” or other similar expressions in this Form 10-Q. In particular, these include statements relating to future actions; prospective products, applications, customers and technologies; future performance or results of anticipated products; anticipated expenses; and projected financial results. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:
| ● | our ability to continue as a going concern; |
| ● | our operating expenses exceed our revenues and will likely continue to do so for the foreseeable future; |
| ● | our ability to obtain additional capital, which may be difficult to raise as a result of our limited operating history or any number of other reasons; |
| ● | our ability to provide digital content that is useful to users; |
| ● | our ability to retain existing users or add new users; |
| ● | competition from traditional media companies; |
| ● | general economic conditions and events and the impact they may have on us and our users; and |
| ● | other factors discussed in this Form 10-Q. |
We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Form 10-Q, particularly in the “Risk Factors” section, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make or collaborations or strategic partnerships we may enter into.
You should read this Form 10-Q and the documents that we have filed as exhibits to this Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Unless otherwise stated or the context otherwise requires, the terms “Creatd,” “we,” “us,” “our” and the “Company” refer collectively to Creatd, Inc. and its subsidiaries.
ii
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Creatd, Inc.
June 30, 2022
Index to the Condensed Consolidated Financial Statements
1
Creatd, Inc.
Condensed Consolidated Balance Sheets
| June 30, 2022 | December 31, 2021 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory | ||||||||
| Marketable securities | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total Current Assets | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets | ||||||||
| Goodwill | ||||||||
| Deposits and other assets | ||||||||
| Minority investment in businesses | ||||||||
| Operating lease right of use asset | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Deficit | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Share liability | - | |||||||
| Convertible Notes, net of debt discount and issuance costs | ||||||||
| Current portion of operating lease payable | ||||||||
| Note payable, net of debt discount and issuance costs | ||||||||
| Deferred revenue | ||||||||
| Total Current Liabilities | ||||||||
| Non-current Liabilities: | ||||||||
| Note payable | ||||||||
| Operating lease payable | - | |||||||
| Total Non-current Liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ Equity (Deficit) | ||||||||
| Preferred stock, $ | ||||||||
| Series E Preferred stock, $ | ||||||||
| Common stock par value $ | ||||||||
| Additional paid in capital | ||||||||
| Less: Treasury stock, | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ( | ) | ( | ) | ||||
| Total Creatd, Inc. Stockholders’ Equity | ( | ) | ||||||
| Non-controlling interest in consolidated subsidiaries | ||||||||
| ( | ) | |||||||
| Total Liabilities and Stockholders’ Equity (Deficit) | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
Creatd, Inc.
Condensed Consolidated Statements of Operations 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 | $ | $ | $ | $ | ||||||||||||
| Cost of revenue | ||||||||||||||||
| Gross margin (loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| Operating expenses | ||||||||||||||||
| Research and development | ||||||||||||||||
| Marketing | ||||||||||||||||
| Stock based compensation | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expenses) | ||||||||||||||||
| Other income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Accretion of debt discount and issuance cost | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Derivative expense | - | - | ( | ) | ||||||||||||
| Change in derivative liability | ( | ) | ( | ) | ||||||||||||
| Impairment of investment | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Settlement of vendor liabilities | ( | ) | - | ( | ) | |||||||||||
| Gain on extinguishment of debt | ||||||||||||||||
| Loss on marketable securities | ( | ) | ( | ) | ||||||||||||
| Gain on extinguishment of debt | ||||||||||||||||
| Gain on forgiveness of debt | ||||||||||||||||
| Other income (expenses), net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss before income tax provision | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax provision | ||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Non-controlling interest in net loss | ||||||||||||||||
| Net Loss attributable to Creatd, Inc. | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Deemed dividend | ( | ) | ( | ) | ( | ) | ||||||||||
| Net loss attributable to common shareholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Comprehensive loss | ||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Currency translation gain (loss) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Per-share data | ||||||||||||||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| Weighted average number of common shares outstanding | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Creatd, Inc.
Condensed Consolidated Statement of Changes in 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 | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
| Stock based compensation | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Shares issued for prepaid services | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Stock warrants issued with note payable | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Net loss for the three months ended June 30, 2022 | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
Creatd, Inc.
Condensed Consolidated Statement of Changes in 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 | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
| Stock based compensation | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Shares issued for prepaid services | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Stock warrants issued with note payable | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Cash received for common stock and warrants, net of $115,000 of issuance costs | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued upon conversion of notes payable | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Dividends | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Net loss for the six months ended June 30, 2022 | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
Creatd, Inc.
Condensed Consolidated Statement of Changes in Stockholders’ Equity (Deficit)
For the Three Months Ended June 30, 2021
(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, 2021 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||
| Stock based compensation | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Conversion of warrants to stock | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Stock warrants issued with note payable | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Cash received for common stock | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Shares issued for prepaid services | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued upon conversion of notes payable | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Conversion of preferred series E to stock | ( | ) | - | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Non-controlling interest in consolidated subsidiary from acquisition | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Dividends | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Net loss for the three months ended June 30, 2021 | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
Creatd, Inc.
Condensed Consolidated Statement of Changes in Stockholders’ Equity (Deficit)
For the Six Months Ended June 30, 2021
(Unaudited)
| Series
E Preferred Stock | Common Stock | Treasury stock | Additional Paid In | Subscription | Accumulated | Non-Controlling | Other Comprehensive | Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Receivable | Deficit | Interest | Income | (Deficit) | |||||||||||||||||||||||||||||||||||||
| Balance, January 1, 2021 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||
| Stock based compensation | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for prepaid services | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued to settle vendor liabilities | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued upon conversion of notes payable | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of warrants to stock | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Cash received for common | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Cash received for preferred series E and warrants | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Conversion of preferred series E to stock | ( | ) | ( | ) | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Stock warrants issued with note payable | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Non-controlling interest in consolidated subsidiary from acquisition | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Dividends | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Net loss for the six months ended June 30, 2021 | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
Creatd, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| For the Six Months Ended | For the Six Months Ended | |||||||
| June 30, 2022 | June 30, 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Impairment of investment | ||||||||
| Impairment of intangible assets | ||||||||
| Accretion of debt discount and issuance cost | ||||||||
| Share-based compensation | ||||||||
| Bad debt expense | ||||||||
| Gain on Forgiveness of debt | ( | ) | ( | ) | ||||
| Settlement of vendor liabilities | ( | ) | ||||||
| Change in fair value of derivative liability | ( | ) | ||||||
| Derivative Expense | ||||||||
| Loss on marketable securities | ||||||||
| Gain on extinguishment of debt | ( | ) | ||||||
| Non cash lease expense | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Deposits and other assets | ( | ) | ||||||
| Deferred revenue | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Operating lease liability | ( | ) | ( | ) | ||||
| Net Cash Used In Operating Activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Cash paid for property and equipment | ( | ) | ( | ) | ||||
| Deposits | ( | ) | ||||||
| Cash paid for minority investment in business | ( | ) | ||||||
| Cash paid for investments in marketable securities | ( | ) | ||||||
| Cash consideration for acquisition | ( | ) | ||||||
| Purchases of digital assets | ( | ) | ||||||
| Net Cash Used In Investing Activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from the exercise of warrant | ||||||||
| Net proceeds from issuance of notes | ||||||||
| Repayment of notes | ( | ) | ( | ) | ||||
| Proceeds from issuance of convertible note | ||||||||
| Repayment of convertible notes | ( | ) | ( | ) | ||||
| Proceeds from issuance of common stock and warrants | ||||||||
| Net Cash Provided By Financing Activities | ||||||||
| Effect of exchange rate changes on cash | ( | ) | ( | ) | ||||
| Net Change in Cash | ( | ) | ( | ) | ||||
| Cash - Beginning of period | ||||||||
| Cash - End of period | $ | $ | ||||||
| SUPPLEMENTARY CASH FLOW INFORMATION: | ||||||||
| Cash Paid During the Year for: | ||||||||
| Income taxes | $ | $ | ||||||
| Interest | $ | $ | ||||||
| SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Settlement of vendor liabilities | $ | $ | ||||||
| Warrants issued with debt | $ | $ | ||||||
| Issuance of common stock for prepaid services | $ | $ | ||||||
| Operating Lease liability incurred for right-of-use asset | $ | $ | ||||||
| Deferred offering costs | $ | $ | ||||||
| Common stock and warrants issued upon conversion of notes payable | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
Creatd, Inc.
June 30, 2022
Notes to the Condensed Consolidated Financial Statements
Note 1 – Organization and Operations
Creatd, Inc., formerly Jerrick Media Holdings, Inc. (“we,” “us,” the “Company,” or “Creatd”), is a technology company focused on providing economic opportunities for creators, which it accomplishes through its four main business pillars: Creatd Labs, Creatd Partners, Creatd Ventures, and Creatd Studios. Creatd’s flagship product, Vocal, delivers a robust long-form, digital publishing platform organized into highly engaged niche-communities capable of hosting all forms of rich media content. Through Creatd’s proprietary algorithm dynamics, Vocal enhances the visibility of content and maximizes viewership, providing advertisers access to target markets that most closely match their interests.
The Company was originally incorporated under the laws of the State of Nevada on December 30, 1999 under the name LILM, Inc. The Company changed its name on December 3, 2013 to Great Plains Holdings, Inc. as part of its plan to diversify its business.
On February 5, 2016 (the “Closing Date”),
GTPH, GPH Merger Sub, Inc., a Nevada corporation and wholly-owned subsidiary of GTPH (“Merger Sub”), and Jerrick Ventures,
Inc., a privately-held Nevada corporation headquartered in New Jersey (“Jerrick”), entered into an Agreement and Plan of Merger
(the “Merger”) pursuant to which the Merger Sub was merged with and into Jerrick, with Jerrick surviving as a wholly-owned
subsidiary of GTPH (the “Merger”). GTPH acquired, pursuant to the Merger, all of the outstanding capital stock of Jerrick
in exchange for issuing Jerrick’s shareholders (the “Jerrick Shareholders”), pro-rata, a total of
In connection with the Merger, on the Closing
Date, GTPH and Kent Campbell entered into a Spin-Off Agreement (the “Spin-Off Agreement”), pursuant to which Mr. Campbell
purchased from GTPH (i) all of GTPH’s interest in Ashland Holdings, LLC, a Florida limited liability company, and (ii) all of GTPH’s
interest in Lil Marc, Inc., a Utah corporation, in exchange for the cancellation of
Upon closing of the Merger on February 5, 2016, the Company changed its business plan to that of Jerrick.
Effective February 28, 2016, GTPH entered into an Agreement and Plan of Merger (the “Statutory Merger Agreement”) with Jerrick, pursuant to which GTPH became the parent company of Jerrick Ventures, LLC, a wholly-owned operating subsidiary of Jerrick (the “Statutory Merger”) and GTPH changed its name to Jerrick Media Holdings, Inc. to better reflect its new business strategy.
On September 11, 2019, the Company acquired
On September 9, 2020, the Company filed a certificate of amendment with the Secretary of State of the State of Nevada to change our name to “Creatd, Inc.”, which became effective on September 10, 2020.
9
On June 4, 2021, the Company acquired
On July 20, 2021, the
Company acquired
On August 16, 2021, the Company acquired
On October 3, 2021, the Company acquired
On March 7, 2022, the Company acquired
Note 2 – Significant Accounting Policies and Practices
Management of the Company is responsible for the selection and use of appropriate accounting policies and the appropriateness of accounting policies and their application. Critical accounting policies and practices are those that are both most important to the portrayal of the Company’s financial condition and results and require management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain. The Company’s significant and critical accounting policies and practices are disclosed below as required by the accounting principles generally accepted in the United States of America.
Basis of Presentation
The Company’s condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and following the requirements of the U.S. Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. These interim financial statements have been prepared on the same basis as the Company’s annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair statement of the Company’s financial information. These interim results are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or any other interim period or for any other future year. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2021, included in the Company’s 2021 Annual Report on Form 10-K filed with the SEC. The balance sheet as of December 31, 2021 has been derived from audited financial statements at that date but does not include all of the information required by U.S. GAAP for complete financial statements.
Use of Estimates and Critical Accounting Estimates and Assumptions
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
10
These significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to these estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.
Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly. The Company uses estimates in accounting for, among other items, revenue recognition, allowance for doubtful accounts, stock-based compensation, income tax provisions, excess and obsolete inventory reserve, and impairment of intellectual property.
Actual results could differ from those estimates.
Presentation
During 2021, we adopted a change in presentation on our Condensed Consolidated Statements of Comprehensive Loss in order to present a gross profit line and allocate certain overhead expenses, the presentation of which is consistent with our peers. Under the new presentation, we began allocating overhead expenses related to cost of goods sold. Prior periods have been revised to reflect this change in presentation.
Principles of consolidation
The Company consolidates all majority-owned subsidiaries, if any, in which the parent’s power to control exists.
As of June 30, 2022, the Company’s consolidated subsidiaries and/or entities are as follows:
| Name of combined affiliate | State or other jurisdiction of incorporation or organization | Company Ownership Interest | ||||
| Jerrick Ventures LLC | % | |||||
| Abacus Tech Pty Ltd | % | |||||
| Seller’s Choice, LLC | % | |||||
| Creatd Studios, LLC | % | |||||
| Give, LLC | % | |||||
| Creatd Partners LLC | % | |||||
| Denver Bodega, LLC | % | |||||
| Dune Inc. | % | |||||
| Plant Camp LLC | % | |||||
| Sci-Fi.com, LLC | % | |||||
| OG Collection LLC | % | |||||
| OG Gallery, Inc. | % | |||||
| VMENA LLC | % | |||||
| Vocal For Brands, LLC | % | |||||
| Vocal Ventures LLC | % | |||||
| What to Buy, LLC | % | |||||
| WHE Agency, Inc. | % | |||||
All inter-company balances and transactions have been eliminated. The condensed consolidated financial statements include Denver Bodega, LLC activity since March 7, 2022.
Variable Interest Entities
Management performs an ongoing assessment of its noncontrolling interests from investments in unrelated entities to determine if those entities are variable interest entities (VIEs), and if so, whether the Company is the primary beneficiary. If an entity in such a transaction, by design, meets the definition of a VIE and the Company determines that it, or a condensed consolidated subsidiary is the primary beneficiary, the Company will include the VIE in its condensed consolidated financial statements. If such an entity is deemed to not be condensed consolidated, the Company records only its investment in equity securities as a marketable security or investment under the equity method, as applicable
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Fair Value of Financial Instruments
The fair value measurement disclosures are grouped into three levels based on valuation factors:
| ● | Level 1 – quoted prices in active markets for identical investments |
| ● | Level 2 – other significant observable inputs (including quoted prices for similar investments and market corroborated inputs) |
| ● | Level 3 – significant unobservable inputs (including our own assumptions in determining the fair value of investments) |
The Company’s Level 1 assets/liabilities include cash, accounts receivable, marketable trading securities, accounts payable, marketable trading securities, prepaid and other current assets, line of credit and due to related parties. Management believes the estimated fair value of these accounts at June 30, 2022 approximate their carrying value as reflected in the balance sheets due to the short-term nature of these instruments or the use of market interest rates for debt instruments.
The Company’s Level 2 assets/liabilities include certain of the Company’s notes payable. Their carrying value approximates their fair values based upon a comparison of the interest rate and terms of such debt given the level of risk to the rates and terms of similar debt currently available to the Company in the marketplace.
The Company’s Level 3 assets/liabilities include goodwill, intangible assets, equity investments at cost, and derivative liabilities. Inputs to determine fair value are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models. Unobservable inputs used in the models are significant to the fair values of the assets and liabilities.
The following tables provides a summary of the relevant assets that are measured at fair value on a recurring basis:
Fair Value Measurements as of
June 30, 2022
| Total | Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) | Quoted Prices for Similar Assets or Liabilities in Active Markets (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
| Assets: | ||||||||||||||||
| Marketable securities - equity securities | $ | $ | $ | $ | ||||||||||||
| Total assets | $ | $ | $ | $ | ||||||||||||
Our marketable equity securities are publicly
traded stocks measured at fair value using quoted prices for identical assets in active markets and classified as Level 1 within the
fair value hierarchy. Marketable equity securities as of June 30, 2022 are $
The change in net realized depreciation on equity
trading securities that has been included in other expenses for the six months ended June 30, 2022 and 2021 was $(
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Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
At times, cash balances may exceed the Federal
Deposit Insurance Corporation (“FDIC”) or Financial Claims Scheme (“FCS”) insurable limits. The Company has never
experienced any losses related to these balances. As of June 30, 2022, cash amounts in excess of $
Concentration of Credit Risk and Other Risks and Uncertainties
The Company provides credit in the normal course of business. The Company maintains allowances for credit losses on factors surrounding the credit risk of specific customers, historical trends, and other information.
The Company operates in Australia and holds total
assets of $
Property and Equipment
Property and equipment are recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation is computed by the straight-line method (after taking into account their respective estimated residual values) over the estimated useful lives of the respective assets as follows:
| Estimated Useful Life (Years) | |||
| Computer equipment and software | |||
| Furniture and fixtures |
Upon sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the condensed consolidated statements of operations.
Long-lived Assets Including Goodwill and Other Acquired Intangible Assets
We evaluate the recoverability of property and
equipment, acquired finite-lived intangible assets and, purchased infinite life digital assets for possible impairment whenever events
or circumstances indicate that the carrying amount of such assets may not be recoverable. The evaluation is performed at the lowest level
for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Recoverability of these assets
is measured by a comparison of the carrying amounts to the future undiscounted cash flows the assets are expected to generate from the
use and eventual disposition. Digital assets accounted for as intangible assets are subject to impairment losses if the fair value of
digital assets decreases other than temporary below the carrying value. The fair value is measured using the quoted price of the crypto
asset at the time its fair value is being measured. If such review indicates that the carrying amount of property and equipment and intangible
assets is not recoverable, the carrying amount of such assets is reduced to fair value. During the three and six months ended June 30,
2022, the Company recorded an impairment charge of $
Acquired finite-lived intangible assets are amortized
on a straight-line basis over the estimated useful lives of the assets. We routinely review the remaining estimated useful lives of property
and equipment and finite-lived intangible assets. If we change the estimated useful life assumption for any asset, the remaining unamortized
balance is amortized or depreciated over the revised estimated useful life. The remaining weighted average life of the intangible assets
are
| Scheduled amortization over the next five years are as follows: |
| Twelve months ending June 30, | ||||
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total | ||||
| Intangible assets not subject to amortization | ||||
| Total Intangible Assets | $ | |||
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Goodwill is not amortized but is subject to periodic testing for impairment in accordance with ASC Topic 350 “Intangibles – Goodwill and Other – Testing Indefinite-Lived Intangible Assets for Impairment” (“ASC Topic 350”). The Company tests goodwill for impairment on an annual basis as of the last day of the Company’s fiscal December each year or more frequently if events occur or circumstances change indicating that the fair value of the goodwill may be below its carrying amount. The Company has four reporting units. The Company uses an income-based approach to determine the fair value of the reporting units. This approach uses a discounted cash flow methodology and the ability of our reporting units to generate cash flows as measures of fair value of our reporting units.
During the year ended December 31, 2021, the Company
completed its annual impairment test of goodwill. The Company performed the qualitative assessment as permitted by ASC 350-20 and determined
for three of its reporting units that the fair value of those reporting units was more likely than not greater than their carrying value,
including Goodwill. However, based on this qualitative assessment, the Company determined that the carrying value of the Seller’s
Choice reporting unit was more likely than not greater than its carrying value, including Goodwill. Based on completion of the annual
impairment test, the Company recorded an impairment charge of $
The following table sets forth a summary of the changes in goodwill for the six months ended June 30, 2022.
| For the six months ended June 30, 2022 | ||||
| Total | ||||
| As of January 1, 2022 | $ | |||
| Goodwill acquired in a business combination | ||||
| Impairment of goodwill | ||||
| As of June 30, 2022 | $ | |||
Commitments and Contingencies
The Company follows subtopic 450-20 of the FASB ASC to report accounting for contingencies. Certain conditions may exist as of the date the condensed consolidated financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or un-asserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or un-asserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s condensed consolidated financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.
Foreign Currency
Foreign currency denominated assets and liabilities are translated into U.S. dollars using the exchange rates in effect at our Condensed Consolidated Balance Sheet dates. Results of operations and cash flows are translated using the average exchange rates throughout the periods. The effect of exchange rate fluctuations on the translation of assets and liabilities is included as a component of stockholders’ equity in accumulated other comprehensive income. Gains and losses from foreign currency transactions, which are included in operating expenses, have not been significant in any period presented.
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Derivative Liability
The Company evaluates its debt and equity issuances to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with paragraph 815-10-05-4 and Section 815-40-25 of the FASB Accounting Standards Codification. The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet date and recorded as either an asset or a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the condensed consolidated statement of operations as other income or expense. Upon conversion, exercise or cancellation of a derivative instrument, the instrument is marked to fair value at the date of conversion, exercise or cancellation and then the related fair value is reclassified to equity.
In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.
The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to liability at the fair value of the instrument on the reclassification date. Derivative instrument liabilities will be classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument is expected within 12 months of the balance sheet date.
The Company adopted Section 815-40-15 of the FASB Accounting Standards Codification (“Section 815-40-15”) to determine whether an instrument (or an embedded feature) is indexed to the Company’s own stock. Section 815-40-15 provides that an entity should use a two-step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument’s contingent exercise and settlement provisions.
The Company utilizes a binomial option model for convertible notes that have an option to convert at a variable number of shares to compute the fair value of the derivative and to mark to market the fair value of the derivative at each balance sheet date. The inputs utilized in the application of the Binomial model included a stock price on valuation date, an expected term of each debenture remaining from the valuation date to maturity, an estimated volatility, and a risk-free rate. The Company records the change in the fair value of the derivative as other income or expense in the condensed consolidated statements of operations.
Shipping and Handling Costs
The Company classifies freight billed to customers as sales revenue and the related freight costs as cost of revenue.
Revenue Recognition
Under Topic 606, revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
We determine revenue recognition through the following steps:
| ● | identification of the contract, or contracts, with a customer; |
| ● | identification of the performance obligations in the contract; |
| ● | determination of the transaction price. The transaction price for any given subscriber could decrease based on any payments made to that subscriber. A subscriber may be eligible for payment through one or more of the monetization features offered to Vocal creators, including earnings through reads (on a cost per mile basis) and cash prizes offered to Challenge winners; |
| ● | allocation of the transaction price to the performance obligations in the contract; and |
| ● | recognition of revenue when, or as, we satisfy a performance obligation. |
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Revenue disaggregated by revenue source for the three and six months ended June 30, 2022 and 2021 consists of the following:
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Agency (Managed Services, Branded Content, & Talent Management Services) | $ | $ | $ | $ | ||||||||||||
| Platform (Creator Subscriptions) | ||||||||||||||||
| Ecommerce | ||||||||||||||||
| Affiliate Sales | ||||||||||||||||
| Other Revenue | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
The Company utilizes the output method to measures the results achieved and value transferred to a customer over time. Timing of revenue recognition for the three and six months ended June 30, 2022 and 2021 consists of the following:
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Products and services transferred over time | $ | $ | $ | $ | ||||||||||||
| Products transferred at a point in time | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
Agency Revenue
Managed Services
The Company provides Studio/Agency Service offerings
to business-to-business (B2B) and business-to-consumer (B2C) product and service brands which encompasses a full range of digital marketing
and e-commerce solutions. The Company’s services include the setup and ongoing management of clients’ websites, Amazon and
Shopify storefronts and listings, social media pages, search engine marketing, and other various tools and sales channels utilized by
e-commerce sellers for sales and growth optimization. Contracts are broken into three categories: Partners, Monthly Services, and Projects.
Contract amounts for Partner and Monthly Services clients range from approximately $
Branded Content
Branded content represents the revenue recognized from the Company’s obligation to create and publish branded articles and/or branded challenges for clients on the Vocal platform and promote said stories, tracking engagement for the client. In the case of branded articles, the performance obligation is satisfied when the Company successfully publishes the articles on its platform and meets any required promotional milestones as per the contract. In the case of branded challenges, the performance obligation is satisfied when the Company successfully closes the challenge and winners have been announced. The Company utilizes the completed contract method when revenue is recognized over time as the services are performed and any required milestones are met. Certain contracts contain separate milestones whereas the Company separates its performance obligations and utilizes the stand-alone selling price method and residual method to determine the estimate of the allocation of the transaction price.
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Below are the significant components of a typical agreement pertaining to branded content revenue:
| ● | The Company collects fixed fees ranging from $ | |
| ● | Branded articles are created and published, and challenges are completed, within three months of the signed agreement, or as previously negotiated with the client. |
| ● | Branded articles and challenges are promoted per the contract and engagement reports are provided to the client. | |
| ● | Most contracts include provisions for clients to acquire content rights at the end of the campaign for a flat fee. |
Talent Management Services
Talent Management represents the revenue recognized
by WHE Agency, Inc. (“WHE”) from the Company’s obligation to manage and oversee influencer-led campaigns from the contract
negotiation stage through content creation and publication. WHE acts in an agent capacity for influencers and collects a management fee
of
Below are the significant components of a typical agreement pertaining to talent management revenue:
| ● | Total gross contracts range from $ |
| ● | The Company collects fixed fees in the amount of |
| ● | The campaign is created and made live by the influencer within one month of the signed agreement, or as previously negotiated with the client. |
| ● | Campaigns are promoted per the contract and the customer is provided a link to the live deliverables on the influencer’s social media channels. |
| ● | Most billing for contracts occur |
Platform Revenue
Creator Subscriptions
Vocal+ is a premium subscription offering for
Vocal creators. In addition to joining for free, Vocal creators now have the option to sign up for a Vocal+ membership for either $
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The transaction price for any given subscriber could decrease based on any payments made to that subscriber. A subscriber may be eligible for payment through one or more of the monetization features offered to Vocal creators, including earnings through reads (on a cost per mille basis) and cash prizes offered to Challenge winners. Estimates are utilized for payments made for earnings through reads, by establishing the lifetime a subscriber has had a Vocal account, determining the percentage of that lifetime that the subscriber has been a paying customer, and applying that percentage to payments for earnings through reads in the relevant reporting period.
Affiliate Sales Revenue
Affiliate sales represents the commission the
Company receives when a purchase is made through affiliate links placed within content hosted on the Vocal platform. Affiliate revenue
is earned on a “click through” basis, upon referring visitors, via said links, to an affiliate’s site and having them
complete a specific outcome, most commonly a product purchase. The Company uses multiple affiliate platforms, such as Skimlinks, Amazon,
and Tune, to form and maintain thousands of vendor relationships. Each vendor establishes their own commission percentage, which typically
range from
E-Commerce Revenue
The Company’s e-commerce businesses are housed under Creatd Ventures, and currently consists of three majority-owned e-commerce companies, Camp (previously Plant Camp), Dune Glow Remedy (“Dune”), and Basis. The Company generates revenue through the sale of Camp, Dune, and Basis’ consumer products through its e-commerce distribution channels. The Company satisfies its performance obligation upon shipment of product to its customers and recognizes shipping and handling costs as a fulfillment cost. Customers have 30 days from receipt of an item to return unopened, unused, or damaged items for a full refund. All returns are processed within the relevant recording period and accounted for as a reduction in revenue. The Company runs discounts from time to time to promote sales, improve market penetration, and increase customer retention. Any discounts are run as coupon codes applied at the time of transaction and accounted for as a reduction in gross revenue. The Company assesses variable consideration using the most likely amount method.
Deferred Revenue
Deferred revenue consists of billings and payments
from clients in advance of revenue recognition. The Company has two types of deferred revenue, subscription revenue whereas the revenue
is recognized over the subscription period and contract liabilities where the performance obligation was not satisfied. The Company will
recognize the deferred revenue within the next twelve months. As of June 30, 2022, the Company had deferred revenue of $
Accounts Receivable and Allowances
Accounts receivable are recorded and carried when
the Company has performed the work in accordance with managed services, project, partner, consulting and branded content agreements. For
example, we bill a managed service client monthly when we have updated their Amazon store, modified SEO or completed the other services
listed in the agreement. For projects and branded content, we will bill the client and record the receivable once milestones are reached
that are set in the agreement. We make estimates for the allowance for doubtful accounts and allowance for unbilled receivables based
upon our assessment of various factors, including historical experience, the age of the accounts receivable balances, credit quality of
our customers, current economic conditions, and other factors that may affect our ability to collect from customers. During the six months
ended June 30, 2022, the Company recorded $
Inventory
Inventories are stated at the lower of cost (first-in, first-out basis) or net realizable value. Inventories are periodically evaluated to identify obsolete or otherwise impaired products and are written off when management determines usage is not probable. The Company estimates the balance of excess and obsolete inventory by analyzing inventory by age using last used and original purchase date and existing sales pipeline for which the inventory could be used. As of June 30, 2022, the Company has no valuation allowance.
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Stock-Based Compensation
The Company recognizes compensation expense for all equity–based payments granted in accordance with Accounting Standards Codification (“ASC”) 718 “Compensation – Stock Compensation”. Under fair value recognition provisions, the Company recognizes equity–based compensation over the requisite service period of the award. The company has a relatively low forfeiture rate of stock based compensation and forfeitures are recognized as they occur.
Restricted stock awards are granted at the discretion of the Company. These awards are restricted as to the transfer of ownership and generally vest over the requisite service periods.
The fair value of an option award is estimated on the date of grant using the Black–Scholes option valuation model. The Black–Scholes option valuation model requires the development of assumptions that are inputs into the model. These assumptions are the value of the underlying share, the expected stock volatility, the risk–free interest rate, the expected life of the option, the dividend yield on the underlying stock and the expected forfeiture rate. Expected volatility is volatility is derived from the Company’s historical data over the expected option life and other appropriate factors. Risk–free interest rates are calculated based on continuously compounded risk–free rates for the appropriate term. The dividend yield is assumed to be zero as the Company has never paid or declared any cash dividends on its Common stock and does not intend to pay dividends on its Common stock in the foreseeable future. Forfeitures are recognized as they occur.
Determining the appropriate fair value model and calculating the fair value of equity–based payment awards requires the input of the subjective assumptions described above. The assumptions used in calculating the fair value of equity–based payment awards represent management’s best estimates, which involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and the Company uses different assumptions, our equity–based compensation could be materially different in the future. The Company issues awards of equity instruments, such as stock options and restricted stock units, to employees and certain non-employee directors. Compensation expense related to these awards is based on the fair value of the underlying stock on the award date and is amortized over the service period, defined as the vesting period. The vesting period is generally one to three years. A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Company’s common stock at the date of grant is used for restricted stock units. Compensation expense is reduced for actual forfeitures as they occur.
Loss Per Share
Basic net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net loss per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. In periods when losses are reported, which is the case for the three and six months ended June 30, 2022 and 2021 presented in these condensed consolidated financial statements, the weighted-average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive.
The Company had the following common stock equivalents at June 30, 2022 and 2021:
| June 30, | ||||||||
| 2022 | 2021 | |||||||
| Series E preferred | ||||||||
| Options | ||||||||
| Warrants | ||||||||
| Convertible notes | ||||||||
| Totals | ||||||||
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Reclassifications
Certain prior year amounts in the condensed consolidated financial statements and the notes thereto have been reclassified where necessary to conform to the current year’s presentation. These reclassifications did not affect the prior period’s total assets, total liabilities, stockholders’ deficit, net loss or net cash used in operating activities. During the year ended December 31, 2021, we adopted a change in presentation on our condensed consolidated statements of operations and comprehensive loss in order to present a gross profit line, the presentation of which is consistent with our peers. Under the new presentation, we began allocating payroll and related expenses, professional services and creator payouts. Prior periods have been revised to reflect this change in presentation.
Recently Adopted Accounting Guidance
Recent Accounting Guidance Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments (“ASU-2016-13”). ASU 2016-13 affects loans, debt securities, trade receivables, and any other financial assets that have the contractual right to receive cash. The ASU requires an entity to recognize expected credit losses rather than incurred losses for financial assets. On October 16, 2019, FASB approved a final ASU delaying the effective date of ASU 2016-13 for small reporting companies to interim and annual periods beginning after December 15, 2022. The Company is currently evaluating the impact of these amendments to the Company’s financial position and results of operations and currently does not know or cannot reasonably quantify the impact of the adoption of the amendments as a result of the complexity and extensive changes from the amendments. The Company does not believe the adoption will have a material impact on the Company’s condensed consolidated financial statements. The adoption of the guidance will affect disclosers and estimates around accounts receivable.
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity’s own equity, and also improves and amends the related EPS guidance for both Subtopics. ASU 2020-06 is effective for the fiscal year beginning after December 15, 2022, including interim periods within that fiscal year. The Company is currently evaluating the impact of the new guidance on its condensed consolidated financial statements.
In July 2021, the FASB issued ASU No. 2021-05, Lessors—Certain Leases with Variable Lease Payments (Topic 842), Which requires a lessor to classify a lease with variable lease payments that do not depend on an index or rate (hereafter referred to as “variable payments”) as an operating lease on the commencement date of the lease if specified criteria are met. ASU 2021-05 is effective for the fiscal year beginning after December 15, 2022, including interim periods within that fiscal year. The Company expects that there would be no material impact on the Company’s condensed consolidated financial statements upon the adoption of this ASU.
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations — Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805), Which aims to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in recognition and payment terms that effect subsequent revenue recognition. ASU 2021-08 is effective for the fiscal year beginning after December 15, 2022, including interim periods within that fiscal year. The Company expects that there would be no material impact on the Company’s condensed consolidated financial statements upon the adoption of this ASU.
Management does not believe that any recently issued, but not yet effective accounting pronouncements, when adopted, will have a material effect on the accompanying condensed consolidated financial statements.
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Note 3 – Going Concern
The Company’s condensed consolidated financial statements have been prepared assuming that it will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
As reflected in the condensed consolidated financial
statements, as of June 30, 2022, the Company had an accumulated deficit of $
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.
The Company is attempting to further implement its business plan and generate sufficient revenues; however, its cash position may not be sufficient to support its daily operations. While the Company believes in the viability of its strategy to further implement its business plan and generate sufficient revenues and in its ability to raise additional funds by way of a public or private offering of its debt or equity securities, there can be no assurance that it will be able to do so on reasonable terms, or at all. The ability of the Company to continue as a going concern is dependent upon its ability to further implement its business plan and generate sufficient revenues and its ability to raise additional funds by way of a public or private offering.
The condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Note 4 – Inventory
Inventory was comprised of the following at June 30, 2022 and December 31, 2021:
| June 30, 2022 | December 31, 2021 | |||||||
| Raw Materials | $ | $ | ||||||
| Packaging | ||||||||
| Finished goods | ||||||||
| $ | $ | |||||||
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Note 5 – Property and Equipment
Property and equipment stated at cost, less accumulated depreciation and amortization, consisted of the following:
| June 30, 2022 | December 31, 2021 | |||||||
| Computer Equipment | $ | $ | ||||||
| Furniture and Fixtures | ||||||||
| Leasehold Improvements | ||||||||
| Less: Accumulated Depreciation | ( | ) | ( | ) | ||||
| $ | $ | |||||||
Depreciation expense was $
Note 6 – Notes Payable
Notes payable as of June 30, 2022 and December 31, 2021 is as follows:
| Outstanding Principal as of | ||||||||||||||
| June 30, 2022 | December 31, 2021 | Interest Rate | Maturity Date | |||||||||||
| Seller’s Choice Note | $ | - | $ | % | ||||||||||
| The April 2020 PPP Loan Agreement | % | |||||||||||||
| The First December 2021 Loan Agreement | % | |||||||||||||
| The Second December 2021 Loan Agreement | % | |||||||||||||
| The First February 2022 Loan Agreement | % | |||||||||||||
| First Denver Bodega LLC Loan | ||||||||||||||
| The First May 2022 Loan Agreement | ||||||||||||||
| The Second May 2022 Loan Agreement | ||||||||||||||
| The Third May 2022 Loan Agreement | ||||||||||||||
| The Fourth May 2022 Loan Agreement | ||||||||||||||
| The June 2022 Loan Agreement | ||||||||||||||
| ( | ) | |||||||||||||
| Less: Debt Discount | ( | ) | ( | ) | ||||||||||
| Less: Debt Issuance Costs | ||||||||||||||
| Less: Current Debt | ( | ) | ( | ) | ||||||||||
| Total Long-Term Debt | $ | $ | ||||||||||||
Seller’s Choice Note
On September 11, 2019, the Company entered into
Seller’s Choice Purchase Agreement with Home Revolution LLC. As a part of the consideration provided pursuant to the Seller’s
Choice Acquisition, the Company issued the Seller’s Choice Note to the Seller in the principal amount of $
On March 3, 2022, after substantial motion practice,
Creatd successfully settled the dispute with Home Revolution, LLC for a total of $
The April 2020 PPP Loan Agreement
On April 30, 2020, the Company was granted a loan
with a principal amount of $
22
During the six months ended June 30, 2022, the
Company accrued interest of $
The Company is in the process of returning the funds received from the Loan.
As of June 30, 2022, the Loan is in default, and the lender may require immediate payment of all amounts owed under the Loan or file suit and obtain judgment.
The First December 2021 Loan Agreement
On December 3, 2021, the Company entered
into a loan agreement (the “First December 2021 Loan Agreement”) with a lender (the “First December 2021 Lender”)
whereby the First December 2021 Lender issued the Company a promissory note of $
During the six months ended June 30, 2022, the
Company repaid $
The Second December 2021 Loan Agreement
On December 14, 2021, the Company entered into
a secured loan agreement (the “Second December 2021 Loan Agreement”) with a lender (the “Second December 2021 Lender”),
whereby the Second December 2021 Lender issued the Company a secured promissory note of $
During the six months ended June 30, 2022, the
Company accrued $
As of the date of this filing the Company has exercised its option to extend the maturity date to August 29, 2022.
The First February 2022 Loan Agreement
On February 22, 2022, the Company entered into
a secured loan agreement (the “First February 2022 Loan Agreement”) with a lender (the “First February 2022 Lender”),
whereby the First February 2022 Lender issued the Company a secured promissory note of $
During the six months ended June 30, 2022, the
Company accrued $
As of the date of this filing the Company has exercised its option to extend the maturity date to August 29, 2022.
Denver Bodega LLC Notes payable
On March 7, 2022, The Company acquired five note
payable agreements from the acquisition of Denver Bodega LLC. See note 12. The total liabilities of these notes amounted to $
23
The First May 2022 Loan Agreement
On May 9, 2022, the Company entered into a loan
agreement (the “First May 2022 Loan Agreement”) with a lender (the “First May 2022 Lender”), whereby the First
May 2022 Lender issued the Company a promissory note of $
The Company recorded a $
During the six months ended June 30, 2022, the
Company repaid $
The Second May 2022 Loan Agreement
On May 9, 2022, the Company entered into a loan
agreement (the “Second May 2022 Loan Agreement”) with a lender (the “Second May 2022 Lender”), whereby the Second
May 2022 Lender issued the Company a promissory note of $
The Company recorded a $
During the six months ended June 30, 2022, the
Company repaid $
The Third May 2022 Loan Agreement
On May 25, 2022, the Company entered into a loan
agreement (the “Third May 2022 Loan Agreement”) with a lender (the “Third May 2022 Lender”), whereby the Third
May 2022 Lender issued the Company a promissory note of $
During the six months ended June 30, 2022, the
Company repaid $
The Fourth May 2022 Loan Agreement
On May 26, 2022, the Company entered into a loan
agreement (the “Fourth May 2022 Loan Agreement”) with a lender (the “Fourth May 2022 Lender”), whereby the Fourth
May 2022 Lender issued the Company a promissory note of $
During the six months ended June 30, 2022, the
Company repaid $
The June 2022 Loan Agreement
On June 17, 2022, the Company entered into a loan
agreement (the “June 2022 Loan Agreement”) with a lender (the “June 2022 Lender”), whereby the June 2022 Lender
issued the Company a promissory note of $
The Company recorded a $
During the six months ended June 30, 2022, the
Company repaid $
24
Note 7 – Convertible Notes Payable
Convertible notes payable as of June 30, 2022, is as follows:
| Outstanding Principal as of | Warrants granted | ||||||||||||||||||||||
June 30, 2022 | Interest Rate | Conversion Price |
Maturity Date | Quantity | Exercise Price | ||||||||||||||||||
| The Second February 2022 Loan Agreement | $ | % | (*) | ||||||||||||||||||||
| The May 2022 Convertible Loan Agreement | % | (*) | |||||||||||||||||||||
| The May 2022 Convertible Note Offering | % | (*) | $ | ||||||||||||||||||||
| Less: Debt Discount | ( | ) | |||||||||||||||||||||
| Less: Debt Issuance Costs | ( | ) | |||||||||||||||||||||
| (*) | As subject to adjustment as further outlined in the notes |
The July 2021 Convertible Loan Agreement
On July 6, 2021, the Company entered into a loan
agreement (the “July 2021 Loan Agreement”) with an individual (the “July 2021 Lender”), whereby the July 2021
Lender issued the Company a promissory note of $
Upon default or 180 days after issuance the July
2021 Note is convertible into shares of the Company’s common stock, par value $
The Company recorded a $
During the six months ended June 30, 2022, the
July 2021 Note became convertible. Due to the fact that these convertible notes have an option to convert at a variable amount, they are
subject to derivative liability treatment. The Company has applied ASC 815, due to the potential for settlement in a variable quantity
of shares. The conversion feature has been measured at fair value using a Binomial model at the conversion date. The conversion feature
of July 2021 Note gave rise to a derivative liability of $
During the six months ended June 30, 2022, the
note holder converted $
The Second February 2022 Loan Agreement
On February 22, 2022, the Company entered into
a loan agreement (the “Second February 2022 Loan Agreement”) with a lender (the “Second February 2022 Lender”),
whereby the Second February 2022 Lender issued the Company a promissory note of $
25
Upon default the May 2022 Note is convertible
into shares of the Company’s common stock, par value $
The Company recorded a $
During the six months ended June 30, 2022, the
Company repaid $
The May 2022 Convertible Loan Agreement
On May 20, 2022, the Company entered into a loan
agreement (the “May 2022 Loan Agreement”) with an individual (the “May 2022 Lender”), whereby the May 2022 Lender
issued the Company a promissory note of $
Upon default the May 2022 Note is convertible
into shares of the Company’s common stock, par value $
The Company recorded a $
The May 2022 Convertible Note Offering
During May
of 2022, the Company conducted multiple closings of a private placement offering to accredited investors (the “May 2022 Convertible
Note Offering”) of units of the Company’s securities by entering into subscription agreements with “accredited investors”
(the “May 2022 Investors”) for aggregate gross proceeds of $
The Company
recorded a $
The Company
recorded a $
26
Note 8 – Related Party
Equity raises
During the six months ended June 30, 2022, the
company conducted two equity raises in which officers, directors, employees, and an affiliate of an officer cumulatively invested $
Officer compensation
During the six months ended June 30, 2022 and
2021, the Company paid $
Note 9 – Derivative Liabilities
The Company has identified derivative instruments arising from convertible notes that have an option to convert at a variable number of shares in the Company’s convertible notes payable during the six months ended June 30, 2022. For the terms of the conversion features see Note 7. The Company had no derivative assets measured at fair value on a recurring basis as of June 30, 2022.
The Company utilizes a binomial option model for convertible notes that have an option to convert at a variable number of shares to compute the fair value of the derivative and to mark to market the fair value of the derivative at each balance sheet date. The inputs utilized in the application of the Binomial model included a stock price on valuation date, an expected term of each debenture remaining from the valuation date to maturity, an estimated volatility, and a risk-free rate. The Company records the change in the fair value of the derivative as other income or expense in the condensed consolidated statements of operations.
Risk-free interest rate: The Company uses the risk-free interest rate of a U.S. Treasury Note adjusted to be on a continuous return basis to align with the Monte Carlo simulation model and binomial model.
Dividend yield: The Company uses a
Volatility: The Company calculates the expected volatility based on the company’s historical stock prices with a look back period commensurate with the period to maturity.
Expected term: The Company’s remaining term is based on the remaining contractual maturity of the convertible notes.
The following are the changes in the derivative liabilities during the six months ended June 30, 2022.
| Six Months Ended June 30, 2022 | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Derivative liabilities as January 1, 2022 | $ | $ | $ | |||||||||
| Addition | ||||||||||||
| Changes in fair value | ( | ) | ||||||||||
| Extinguishment | ( | ) | ||||||||||
| Derivative liabilities as June 30, 2022 | $ | $ | $ | |||||||||
27
Note 10 – Stockholders’ Equity
Shares Authorized
The Company is authorized to issue up to one hundred
and twenty million (
Preferred Stock
Series E Convertible Preferred Stock
The Company has designated
The shares of Series E Preferred Stock have a
stated value of $
The holders of Series E Preferred Stock shall be paid pari passu with the holders of Common Stock with respect to payment of dividends and rights upon liquidation and shall have no voting rights. In addition, as further described in the Series E Designation, as long as any of the shares of Series E Preferred Stock are outstanding, the Company shall not, without the affirmative vote of the holders of a majority of the then outstanding shares of Series E Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the Series E Preferred Stock or alter or amend this Series E Designation, (b) amend its certificate of incorporation or other charter documents in any manner that adversely affects any rights of the holders of the Series E Preferred Stock, (c) increase the number of authorized shares of Series E Preferred Stock, or (d) enter into any agreement with respect to any of the foregoing.
Each share of Series E Preferred Stock shall be convertible, at any time and from time to time at the option of the holder of such shares, into that number of shares of Common Stock determined by dividing the Series E Stated Value by the Conversion Price, subject to certain beneficial ownership limitations.
Common Stock
During the six months ended June 30, 2022, the
Company issued
On January 6, 2022, the Company issued
On February 24, 2022, the Company issued
On March 1, 2022,
28
On March 7, 2022, the Company entered into
a securities purchase agreement (the “Purchase Agreement”) with thirteen accredited investors resulting in the raise of $
During the
On April 5, 2022 the Company issued
On June 24, 2022, the Company issued
During the three months ended June 30, 2022, the
Company issued
Stock Options
The following is a summary of the Company’s stock option activity:
| Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (in years) | ||||||||||
| Balance – January 1, 2022 – outstanding | ||||||||||||
| Granted | ||||||||||||
| Exercised | ||||||||||||
| Forfeited/Cancelled | ( | ) | ||||||||||
| Balance – June 30, 2022 – outstanding | ||||||||||||
| Balance – June 30, 2022 – exercisable | ||||||||||||
29
| Option Outstanding | Option Exercisable | |||||||||||||||||||||
| Exercise price | Number Outstanding | Weighted Average Remaining Contractual Life (in years) | Weighted Average Exercise Price | Number Exercisable | Weighted Average Remaining Contractual Life (in years) | |||||||||||||||||
| $ | ||||||||||||||||||||||
During the year ended December 31, 2018 the Company
granted options of
Stock-based compensation for stock options has
been recorded in the condensed consolidated statements of operations and totaled $
As of June 30, 2022, there was $1,806,860 of total unrecognized compensation expense related to unvested employee options granted under the Company’s share-based compensation plans that is expected to be recognized over a weighted average period of approximately 1.37 years.
Warrants
The Company applied fair value accounting for all share-based payments awards. The fair value of each warrant granted is estimated on the date of grant using the Black-Scholes option-pricing model.
The assumptions used for warrants granted during the six months ended June 30, 2022 are as follows:
| June 30, 2022 | ||||
| Exercise price | $ | |||
| Expected dividends | % | |||
| Expected volatility | % | |||
| Risk free interest rate | % | |||
| Expected life of warrant | ||||
Warrant Activities
The following is a summary of the Company’s warrant activity:
| Warrant | Weighted Average Exercise Price | |||||||
| Balance – January 1, 2022 – outstanding | ||||||||
| Granted | ||||||||
| Exercised | ||||||||
| Forfeited/Cancelled | ( | ) | ||||||
| Balance – June 30, 2021 – outstanding | ||||||||
| Balance – June 30, 2021 – exercisable | $ | |||||||
| Warrants Outstanding | Warrants Exercisable | |||||||||||||||||||||
| Exercise price | Number Outstanding | Weighted Average Remaining Contractual Life (in years) | Weighted Average Exercise Price | Number Exercisable | Weighted Average Exercise Price | |||||||||||||||||
| $ | ||||||||||||||||||||||
30
During the six months ended June 30, 2022, some
of the Company’s warrants had a down-round provision triggered that also resulted in an additional
During the
six months ended June 30, 2022, a total of
Note 11 – Commitments and Contingencies
Litigation
On or about
June 25, 2020, Home Revolution, LLC (“Home Revolution”) filed a lawsuit in the United States District Court for the District
of New Jersey, Home Revolution, LLC, et al. v. Jerrick Media Holdings, Inc. et al., Case No. 2:20-cv-07775-JMV-MF. The Complaint alleges,
among other things, that Creatd, Inc. breached the Membership Interest Purchase Agreement, as modified, and ancillary transaction documents
in connection with the acquisition of Seller’s Choice, LLC, from Home Revolution in September 2019. The Complaint additionally alleges
violation of the New Jersey Uniform Securities Law, violations of the Exchange Act and Rule 10b-5 thereunder, fraud, equitable accounting,
breach of fiduciary duty, conversion and unjust enrichment. Plaintiff also sought to have a receiver appointed by the Court to take
over Creatd’s operations. After substantial motion practice, Creatd successfully settled this dispute from June 2020 for a
total of $
On or about August 30, 2021, Robert W. Monster and Anonymize, Inc. (“Monster”) filed a lawsuit in the United States District Court for the Western District 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 registration and use of the internet domain name VOCL.COM (the “Domain Name”) does not violate Creatd’s rights under the Anticybersquatting 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 been in violation of the ACPA, and that Plaintiffs’ use of VOCL.COM constitutes neither a violation of the ACPA nor trademark infringement or dilution under the Lanham Act. Creatd believes the lawsuit lacks merit and will vigorously challenge the action. At this time, we are unable to estimate potential damage exposure, if any, related to the litigation.
Lease Agreements
The components of lease expense were as follows:
| Three Months Ended June 30, 2022 | ||||
| Operating lease cost | $ | |||
| Short term lease cost | ||||
| Total net lease cost | $ | |||
| Six Months Ended June 30, 2022 | ||||
| Operating lease cost | $ | |||
| Short term lease cost | ||||
| Total net lease cost | $ | |||
31
Supplemental cash flow and other information related to leases was as follows:
| Six Months Ended June 30, 2022 | ||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||
| Operating lease payments | ||||
| Weighted average remaining lease term (in years): | ||||
| Weighted average discount rate: | % | |||
Total future minimum payments required under the lease as of June 30, are as follows:
| For the Twelve Months Ended June 30, | Operating Leases | ||||
| 2023 | $ | ||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| Thereafter | |||||
| Total lease payments | |||||
| Less: Amounts representing interest | ( | ) | |||
| Total lease obligations | |||||
| Less: Current | ( | ) | |||
| $ | |||||
Rent expense
for the six months ended June 30, 2022 and 2021 was $
Market price risk of crypto (“digital”) assets
The Company holds crypto and digital assets in third-party wallets. Crypto asset price risk could adversely affect its operating results and will depend upon the market price of Bitcoin, ETH, as well as other crypto assets. Crypto asset prices have fluctuated significantly from quarter to quarter. There is no assurance that crypto asset prices will reflect historical trends. A decline in the market price of Bitcoin, ETH, and Other crypto assets could have an adverse effect on our earnings, the carrying value of the crypto assets, and future cash flows. This may also affect the liquidity and the ability to meet our ongoing obligations.
Appointment of New Directors
On February 17, 2022, the Board of Directors (the “Board”) of the Company appointed Joanna Bloor, Brad Justus, and Lorraine Hendrickson to serve as members of the Board. Ms. Bloor has been nominated to, and will serve as, chair of the Compensation Committee, and to be a member of the Audit Committee and Nominating & Corporate Governance Committee. Mr. Justus has been nominated, and will serve as, chair of the Nominating & Corporate Governance Committee, and to be a member of the Compensation Committee and Audit Committee. Ms. Hendrickson has been nominated to, and will serve as, chair of the Audit Committee and to be a member of the Compensation and Nominating & Corporate Governance Committee.
Departure of Directors
On February 17, 2022, the Board received notice that effective immediately, Mark Standish resigned as Chair of the Board, Chair of the Audit Committee and as a member of the Compensation Committee and Nominating & Corporate Governance Committee; Leonard Schiller resigned as member of the Board, Chair of the Compensation Committee and as a member of the Audit Committee and Nominating & Corporate Governance Committee; and LaBrena Martin resigned as a member of the Board, Chair of the Nominating & Corporate Governance Committee and as a member of the Audit Committee and Compensation Committee. Such resignations are not the result of any disagreement with the Company on any matter relating to the Company’s operations, policies or practices.
Management Restructuring
On February 17, 2022, the Board of the Company approved the restructuring of the Company’s senior management team to eliminate the Co-Chief Executive Officer role, appointing Jeremy Frommer as Executive Chairman and Founder, and appointing Laurie Weisberg as Chief Executive Officer (the “Second Restructuring”). Prior to the Second Restructuring, Mr. Frommer and Ms. Weisberg served as the Company’s co-Chief Executive Officers and Ms. Weisberg served as the Company’s Chief Operating Officer. The Second Restructuring does not impact the role or functions of the Company’s Chief Financial Officer, Chelsea Pullano, or the role or functions of the Company’s President and Chief Operating Officer, Justin Maury.
32
Nasdaq Notice of Delisting
On January 4, 2021, the Company received a letter from the staff of The Nasdaq Capital Market (the “Exchange”) notifying the Company that the Exchange had determined to delist the Company’s common stock and warrants from the Exchange based on the Company’s non-compliance with the Exchange’s (i) $5 million stockholders’ equity requirement for initial listing pursuant to Nasdaq Listing Rule 5505(b), (ii) the $2.5 million stockholders’ equity requirement or any of the alternatives for continued listing pursuant to Nasdaq Listing Rule 5550(b), and (iii) the Company’s failure to provide material information to the Exchange pursuant to Nasdaq Listing Rule 5250(a)(1).
On February 11, 2021, the Company met with the Exchange’s Hearings Panel (the “Panel”) with respect to 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 March 9, 2021, the Exchange notified the Company that the Panel had determined to continue the listing of the Company on the Exchange. Notwithstanding the Panel’s determination to continue the listing of the Company’s securities on the Exchange, the Panel issued a public reprimand letter to the Company, pursuant to Listing Rule 5815(c)(1)(D), based on its finding “that the Company failed to meet the initial listing criteria with respect to stockholders’ equity and failed to provide Nasdaq with material information with respect to that deficiency.” Specifically, the Panel found that the Company failed to comply with Listing Rule 5250(a)(1), requiring it to notify Nasdaq of certain significant developments that led to the Company’s prior representations about its ability to satisfy the initial listing requirements being inaccurate. In reaching its determination to continue the listing of the Company on Nasdaq, the Panel acknowledged that the Company has since demonstrated compliance with the initial listing requirement for stockholders’ equity and all other applicable initial listing requirements. The Panel also determined that the violations were inadvertent and that the Company had relied on advice of counsel at the time in its interactions with the Nasdaq staff (“Staff”). The Panel also acknowledged the Company’s efforts to implement structural changes within the Company to avoid similar misstatements in the future and that would allow for proper accounting and disclosure on an ongoing basis.
On March 1, 2022, the Company received a letter (the “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 is 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 $
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.
33
Employment Agreements
On April 5, 2022, upon the recommendation of the Compensation Committee of the Board, the Board approved employment agreements with, and equity issuances for, (i) Jeremy Frommer, Executive Chairman, who will receive (a) an signing award of $80,000, (b) an annual salary of $420,000; (c) 121,000 options, to vest immediately with a strike price of $1.75, and (d) 50,000 shares of the Company’s restricted common stock; (ii) Laurie Weisberg, Chief Executive Officer, who will receive (a) an annual salary of $475,000; (b) 121,000 options, to vest immediately with a strike price of $1.75, and (c) 50,000 shares of the Company’s restricted common stock; (iii) Justin Maury, Chief Operating Officer & President, who will receive (a) an annual salary of $475,000 (b) 81,000 options, to vest immediately with a strike price of $1.75, and (c) 50,000 shares of the Company’s restricted common stock; and (iv) Chelsea Pullano, Chief Financial Officer, who will receive (a) an annual salary of $250,000; (b) 37,000 options, to vest immediately with a strike price of $1.75, and (c) 35,000 shares of the Company’s restricted common stock (collectively, the “Executive Employment Arrangements”).
Pursuant to the Executive Employment Arrangements, the Company entered into executive employment agreements with each of the respective executives as of April 5, 2022 (the “Executive Employment Agreements”). The Executive Employment Agreements contain customary terms, conditions and rights.
Note 12 – Acquisitions
Denver Bodega, LLC d/b/a Basis
On March
7, 2022, the Company entered into a Membership Interest Purchase (the “Agreement”) with Henry Springer and Kyle Nowak (collectively
the “Sellers”), whereby the Company purchased a majority stake in Denver Bodega, LLC, a Colorado limited liability company
whose product is Basis, a direct-to-consumer functional beverage brand that makes high-electrolyte mixes meant to aid hydration. Pursuant
to the Agreement, Creatd acquired all of the issued and outstanding membership interests of Denver Bodega, LLC for consideration of one
dollar ($
The following sets forth the components of the purchase price:
| Purchase price: | ||||
| Cash paid to seller | $ | |||
| Total purchase price | ||||
| Assets acquired: | ||||
| Cash | ||||
| Accounts Receivable | ||||
| Inventory | ||||
| Total assets acquired | ||||
| Liabilities assumed: | ||||
| Accounts payable and accrued expenses | ||||
| Notes payable | ||||
| Total liabilities assumed | ||||
| Net liabilities acquired | ( | ) | ||
| Excess purchase price | $ | |||
34
The excess purchase price amounts are provisional and may be adjusted during the one-year measurement period as required by U.S. GAAP. The following table provides a summary of the preliminary allocation of the excess purchase price.
| Goodwill | $ | |||
| Trade Names & Trademarks | ||||
| Know-How and Intellectual Property | ||||
| Website | ||||
| Customer Relationships | ||||
| Excess purchase price | $ |
The goodwill represents the assembled workforce, acquired capabilities, and future economic benefits resulting from the acquisition.
The following presents the unaudited pro-forma combined results of operations of the Company with Plant Camp, WHE, Dune, and Denver Bodega as if the entities were combined on January 1, 2021.
| Three Months Ended | ||||
| June 30, | ||||
| 2021 | ||||
| Revenues | $ | |||
| Net loss attributable to common shareholders | $ | ( | ) | |
| Net loss per share | $ | ( | ) | |
| Weighted average number of shares outstanding | ||||
| Six Months Ended | ||||
| June 30, | ||||
| 2022 | ||||
| Revenues | $ | |||
| Net loss attributable to common shareholders | $ | ( | ) | |
| Net loss per share | $ | ( | ) | |
| Weighted average number of shares outstanding | ||||
| Six Months | ||||
| Ended | ||||
| 2021 | ||||
| Revenues | $ | |||
| Net loss attributable to common shareholders | $ | ( | ) | |
| Net loss per share | $ | ( | ) | |
| Weighted average number of shares outstanding | ||||
35
Note 13 – Segment Information
We operate in three reportable segments: Creatd Labs, Creatd Ventures, and Creatd Partners. Our segments were determined based on the economic characteristics of our products and services, our internal organizational structure, the manner in which our operations are managed and the criteria used by our Chief Operating Decision Maker (CODM) to evaluate performance, which is generally the segment’s operating losses.
| Operations of: | Products and services provided: | |
| Creatd Labs |
Creatd Labs is the segment focused on development initiatives. Creatd Labs houses the Company’s proprietary technology, including its flagship platform, Vocal, as well as oversees the Company’s content creation framework, and management of its digital communities. Creatd Labs derives revenues from Vocal creator subscriptions, platform processing fees and technology licensing fees.
| |
| Creatd Ventures |
Creatd Ventures builds, develops, and scales e-commerce brands. This segment generates revenues through product sales of its two majority-owned direct-to-consumer brands, Camp and Dune Glow Remedy.
| |
| Creatd Partners | Creatd Partners fosters relationships between brands and creators through its suite of agency services, including content marketing (Vocal for Brands), performance marketing (Seller’s Choice), and influencer marketing (WHE Agency). Creatd Partners derives revenues in the form of brand fees and talent management commissions. |
The following tables present certain financial information related to our reportable segments and Corporate:
| As of June 30, 2022 | ||||||||||||||||||||
| Creatd Labs | Creatd Ventures | Creatd Partners | Corporate | Total | ||||||||||||||||
| Accounts receivable, net | $ | $ | $ | $ | $ | |||||||||||||||
| Prepaid expenses and other current assets | ||||||||||||||||||||
| Deposits and other assets | ||||||||||||||||||||
| Intangible assets | ||||||||||||||||||||
| Goodwill | ||||||||||||||||||||
| Inventory | ||||||||||||||||||||
| All other assets | ||||||||||||||||||||
| Total Assets | $ | $ | $ | $ | $ | |||||||||||||||
| Accounts payable and accrued liabilities | $ | $ | $ | $ | $ | |||||||||||||||
| Note payable, net of debt discount and issuance costs | ||||||||||||||||||||
| Deferred revenue | - | |||||||||||||||||||
| All other Liabilities | ||||||||||||||||||||
| Total Liabilities | $ | $ | $ | $ | $ | |||||||||||||||
36
| As of December 31, 2021 | ||||||||||||||||||||
| Creatd Labs | Creatd Ventures | Creatd Partners | Corporate | Total | ||||||||||||||||
| Accounts receivable, net | $ | $ | $ | $ | $ | |||||||||||||||
| Prepaid expenses and other current assets | ||||||||||||||||||||
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| Total Assets | $ | $ | $ | $ | $ | |||||||||||||||
| Accounts payable and accrued liabilities | $ | $ | $ | $ | $ | |||||||||||||||
| Note payable, net of debt discount and issuance costs | ||||||||||||||||||||
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| Total Liabilities | $ | $ | $ | $ | $ | |||||||||||||||
| For the three months ended June 30, 2022 | ||||||||||||||||||||
| Creatd Labs | Creatd Ventures | Creatd Partners | Corporate | Total | ||||||||||||||||
| Net revenue | $ | $ | $ | $ | $ | |||||||||||||||
| Cost of revenue | ||||||||||||||||||||
| Gross margin (loss) | ( | ) | ( | ) | ( | ) | ||||||||||||||
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| General and administrative not including depreciation, amortization, or Impairment | ||||||||||||||||||||
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| Total operating expenses | $ | $ | $ | $ | $ | |||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ||||||||||||||
| All other expenses | ( | ) | ( | ) | ||||||||||||||||
| Other expenses, net | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Loss before income tax provision | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
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| For the three months ended June 30, 2021 | ||||||||||||||||
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| Total operating expenses | $ | $ | $ | $ | ||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ||||||||||
| All other expenses | ( | ) | ( | ) | ||||||||||||
| Other expenses, net | ( | ) | ( | ) | ( | ) | ||||||||||
| Loss before income tax provision | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| For the six months ended June 30, 2022 | ||||||||||||||||||||
| Creatd Labs |
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| Loss before income tax provision | $ | ( |
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) | $ | ( |
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| For the six months ended June 30, 2021 | ||||||||||||||||
| Creatd Labs |
Creatd Partners | Corporate | Total | |||||||||||||
| Net revenue | $ | |
$ | |
$ | $ | |
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) | ( |
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| Loss before income tax provision | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
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Note 14 – Subsequent Events
Securities Purchase Agreement
On July 25, 2022, the Company entered into and closed
securities purchase agreements with five accredited investors for debentures in the principal amount of $
The debentures have an original issue discount of 10%, have 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 $1.25.
The Warrants are immediately exercisable for a term of five years until July 25, 2027. The Series E 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 $1.01. The Series F 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 $1.01. 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 E Warrants and the Series F Warrants are to be registered within 90 days of the Effective Date.
Trigger of Price Reset
On July 29, 2022, the
Company announced that it was not moving forward with its previously announced Rights Offering. In doing so, it triggered a price reset
in the Securities Purchase Agreements entered into on May 31, 2022 and the Securities Purchase Agreements entered into on July 25, 2022.
As a result of this price reset, the May 31, 2022 debentures now have a conversion price of $
Acquisition of Orbit
On August 1, 2022
Consultant Shares
Subsequent to June 30, 2022,
the Company issued
39
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This Form 10-Q and other reports filed by Creatd, Inc. (the “Company”), from time to time with the SEC (collectively, the “Filings”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the Filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks relating to the Company’s business, industry, and the Company’s operations and results of operations. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.
Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. The following discussion should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this Form 10-Q.
We intend for this discussion to provide information that will assist in understanding our financial statements, the changes in certain key items in those financial statements, and the primary factors that accounted for those changes, as well as how certain accounting principles affect our financial statements. This discussion should be read in conjunction with our financial statements and accompanying notes for the year ended December 31, 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 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 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, 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 $6,896,184as 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.
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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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no material changes in our exposures to market risk since December 31, 2021. For details on the Company’s interest rate, foreign currency exchange, and credit risks, see “Item 7A. Quantitative and Qualitative Information About Market Risks” in our 2021 Annual Report.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report (the “Evaluation Date”). Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures are not effective.
Changes in Internal Control Over Financial Reporting
There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. However, throughout 2021 and into 2022, the Company continues the complete review of all of its financial procedures and controls and is continuing the process of updating and optimizing its infrastructure around these controls. Over the past year, the Company has hired additional finance and accounting personnel, significantly improving the segregation of duties within that department and providing additional bandwidth for management to focus on improving controls and procedures. This review is ongoing, and the Company believes that this process will continue to positively affect our internal control over financial reporting in the future.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.
On or about August 30, 2021, Robert W. Monster and Anonymize, Inc. (“Monster”) filed a lawsuit in the United States District Court for the Western District 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 registration and use of the internet domain name VOCL.COM (the “Domain Name”) does not violate Creatd’s rights under the Anticybersquatting 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 been in violation of the ACPA, and that Plaintiffs’ use of VOCL.COM constitutes neither a violation of the ACPA nor trademark infringement or dilution under the Lanham Act. Creatd believes the lawsuit lacks merit and will vigorously challenge the action. At this time, we are unable to estimate potential damage exposure, if any, related to the litigation.
Item 1A. Risk Factors.
Our business, financial condition, results of operations, and cash flows may be impacted by a number of factors, many of which are beyond our control, including those set forth in our most recent Annual Report on Form 10-K for the year ended December 31, 2021, the occurrence of any one of which could have a material adverse effect on our actual results.
There have been no material changes to the Risk Factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the three months ended June 30, 2022, we issued securities that were not registered under the Securities Act and were not previously disclosed in a Current Report on Form 8-K or Quarterly Report on Form 10-Q as listed below. All of the securities discussed in this Item 2 were issued in reliance on the exemption under Section 4(a)(2) of the Securities Act.
Consultant Shares
During the three months ended June 30, 2022, the Company issued 157,094 shares of Common Stock to consultants and employees.
Item 3. Defaults Upon Senior Securities.
There has been no default in the payment of principal, interest, sinking or purchase fund installment, or any other material default, with respect to any indebtedness of the Company.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
Resignation of Chief Executive Officer and Director
On August 9, 2022, Laurie Weisberg, the Company’s Chief Executive Officer and a member of the Board, notified the Company of her intention to resign from the positions of Chief Executive Officer, director, and any other positions held with the Company or any of its subsidiaries, regardless of whether Ms. Weisberg had been appointed. Such resignations are to become effective on a date to be determined following further discussion with the Board, but in no event later than August 31, 2022.
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Appointment of Chief Executive Officer
Effective upon Ms. Weisberg’s resignation as 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 in February 2022 and has been a member of our board of directors since February 2016. Previously, he served as our Chief Executive Officer from February 2016 to August 2021, and Co-Chief Executive Officer from August 2021 to February 2022. Mr. Frommer has over 20 years of experience in the financial technology industry. Previously, Mr. Frommer held key leadership roles in the investment banking and trading divisions of large financial institutions. From 2009 to 2012, Mr. Frommer was briefly retired until beginning concept formation for Jerrick Ventures which he officially founded in 2013. From 2007 to 2009, Mr. Frommer was Managing Director of Global Prime Services at RBC Capital Markets, the investment banking arm of the Royal Bank of Canada, the largest financial institution in Canada, after the sale of Carlin Financial Group, a professional trading firm. From 2004 to 2007, Mr. Frommer was the Chief Executive Officer of Carlin Financial Group after 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 Trading at Bank of America, a financial services firm. Mr. Frommer was also a director of LionEye Capital, a hedge fund from June 2012 to June 2014. 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 his financial and leadership experience.
Appointment of Director
Effective upon Ms. Weisberg’s resignation as a director, Justin Maury, currently the Company’s President and Chief Operating Officer, will be appointed to the Board, pursuant to the Board’s approval.
Justin Maury
Mr. Maury has served as our President since January 2019 and was appointed Chief Operating Officer in August 2021. A full-stack designer and product developer by training, Mr. Maury partnered with Jeremy Frommer and founded the Company in 2013, having brought with him 10 years of experience in the creative industry. Since joining Creatd in 2013, Mr. Maury has been an instrumental force in the Company’s business and revenue expansion, and has overseen the Company’s product development since inception, including overseeing the design, development, launch, and ongoing growth of the Company’sflagship product, Vocal, the innovative creator that, under Mr. Maury’s leadership, has grown to a community of over 1.5 million users with a total audience reach of over 175 million.h of over 175 million.
As a director, we believe Mr. Maury will add considerable value, including through by providing a unique perspective into Creatd’s product performance and evolution and by providing invaluable direct input to help guide the Company’s ongoing refinement of its technology roadmap and maturation of its business model.
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Item 6. Exhibits.
| * | Filed herewith |
| # | This certification is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act. |
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SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| CREATD, INC. | ||
| Date: August 15, 2022 | By: | /s/ Laurie Weisberg |
| Name: | Laurie Weisberg | |
| Title: | Chief Executive Officer | |
| (Principal Executive Officer) | ||
| Date: August 15, 2022 | By: | /s/ Chelsea Pullano |
| Name: | Chelsea Pullano | |
| Title: | Chief Financial Officer | |
| (Principal Financial and Accounting Officer) |
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