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    CRTD   US2252651078

CREATD, INC.

(CRTD)
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CREATD, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

11/15/2021 | 04:47pm EST

This Form 10-Q and other reports filed by Creatd, Inc. (the "Company"), from time to time with the SEC (collectively, the "Filings") contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company's management as well as estimates and assumptions made by Company's management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the Filings, the words "anticipate," "believe," "estimate," "expect," "future," "intend," "plan," or the negative of these terms and similar expressions as they relate to the Company or the Company's management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks relating to the Company's business, industry, and the Company's operations and results of operations. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management's judgment in its application. There are also areas in which management's judgment in selecting any available alternative would not produce a materially different result. The following discussion should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this Form 10-Q.

We intend for this discussion to provide information that will assist in understanding our financial statements, the changes in certain key items in those financial statements, and the primary factors that accounted for those changes, as well as how certain accounting principles affect our financial statements. This discussion should be read in conjunction with our financial statements and accompanying notes for the year ended December 31, 2020, which are included in the Company's Annual Report on Form 10-K that was filed with the SEC on March 31, 2021.



Overview


Creatd, Inc. ("CRTD," "the Company," or "Creatd") is a holding company focused on providing economic opportunities for creators. We accomplish this through four main business pillars: Creatd Labs, Creatd Partners, Creatd Ventures, and Creatd Studios. Together, Creatd's pillars work together to create multiple flywheel effects and growth drivers, supporting our core vision of creating a viable ecosystem for all stakeholders in the creator economy.

Creatd Labs, our first pillar, is dedicated to building a home base for creators of all kinds. Creatd Labs houses our proprietary technology platforms, including Creatd's flagship product, Vocal and its 40 niche communities. Vocal is an all-in-one platform where creators can share their stories, build an audience, and earn money. To date, over 1.2 million freemium creators, including 100,000 Vocal+ (premium) creators now call Vocal their home, from bloggers to podcasters, makers, musicians, photographers, and more.



                                      42




Creatd Partners, Creatd's second pillar, fosters relationships between creators and brands. This pillar houses Creatd's three primary agency businesses: Vocal for Brands (content marketing), Seller's Choice (performance marketing), and WHE Agency (influencer marketing). Creatd Partners leverages its network of brands and influencers, along with resources from across Creatd, to help direct-to-consumer brands achieve conversions and reach their target audiences, while driving success for all of Creatd's stakeholders.

Creatd Ventures, our third pillar, is focused on building, developing, and scaling e-commerce brands, by providing needed capital, operational support, marketing expertise, and other resources. Creatd Ventures houses Creatd's portfolio of e-commerce businesses, both majority and minority-owned, including Camp, Dune Glow Remedy, and Untamed Photographer, with additional potential transactions under review. The ideal candidate for a Creatd Ventures partnership is an individual that shares in our mission of serving the creator economy and are accretive to our pillars.

Creatd Studios is our fourth pillar and focuses on identifying opportunities to leverage Creatd's stories-including those from Vocal creators and from our owned IP library-for transmedia production and adaptation to print, podcasts, TV, film, digital video, games, comics, and more. Housed under Creatd Studios is Creatd's intellectual property and legacy media assets, including acquired artwork, photographs and media memorabilia. Creatd Studios represents an initiative by Creatd to revitalize and transform this content, by partnering with the entertainment and publishing industries on bespoke productions, while utilizing Vocal's technology, data, and marketing capabilities for optimal distribution.




Creatd Labs

Creatd Labs is building the home base for creators.



Vocal


Vocal, Creatd's flagship product, is a robust, proprietary technology platform that provides best-in-class tools, safe and curated communities, and monetization opportunities that enable creators to find a receptive audience and get rewarded. Creators of all types call Vocal their home, from bloggers to podcasters, makers, musicians, photographers, and more.

Vocal+ is Creatd's premium subscription membership program. Vocal+ members pay a membership fee for premium features, including a higher rate of earnings per read, reduced platform processing fees on tips received, a Vocal+ badge on their creator page, eligibility to participate in exclusive Vocal+ Challenges, access to Vocal's 'Quick Edit' feature for published stories, and more. Creators may sign up for a Vocal+ membership when they create an account, or they can upgrade an existing Vocal Free account to a Vocal+ account at any time. The current cost of a Vocal+ membership is either $9.99 per month or $99 annually. From time to time, the Company offers Vocal+ subscriptions at a discount for a predetermined number of months as a promotion for new subscribers.

Since its initial launch in 2016, Vocal has grown to be one of the fastest growing communities for content creators of all shapes and sizes. As of September 30, 2021, Vocal had reached over 1.1 million freemium creators and over 30,000 Vocal+ paid subscribers across its 39 owned and operated niche communities. Subsequent to the close of the third quarter 2021, Creatd had announced that it reached over 1.2 million freemium creators and over 100,000 Vocal+ paid subscribers, and additionally launched its 40th owned and operated niche community.



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Why Over 1 Million Creators Choose Vocal:



  ? Easy-to-use, Open-Canvas Content Creation Editor: Vocal's storytelling tools
    enable creators to produce beautiful and engaging stories in a simple,
    user-friendly interface, and incorporate rich-media content of all kinds,
    including streaming content, photos, videos, podcasts, product links, written
    text, and more. Vocal's open canvas content creation editor makes it easy to
    create high-quality and engaging stories and is a cost-effective alternative
    to managing a blog content management system (CMS).




  ? Numerous Monetization Features: Both of Vocal's membership tiers-Vocal
    freemium and the Vocal+ premium tier - provide multiple monetization
    opportunities for creators. Creators can earn money i) every time their story
    is read, ii) by competing in Challenges, iii) by receiving Bonuses, iv) by
    collaborating on branded content campaigns through the company's in-house
    agency, Vocal for Brands, v) through 'Subscribe,' which enables creators to
    receive payment directly from their audience via monthly subscriptions and
    one-off microtransactions. vi) through the Vocal Ambassador Program, which
    enables creators to receive additional rewards whenever they refer a new
    Vocal+ member. For freemium members, content 'reads' are monetized at a rate
    of $3.80 per 1,000 reads (calculated based on time on page, scrolling
    behavior, and other internal metrics), whereas Vocal+ members monetize at
    $6.00 per 1,000 reads. These rates are subject to change based on market
    trends or the introduction of additional features and plan tiers.




  ? Brand-safe advertising platform: Vocal was designed to target consumers in an
    authentic, non-interruptive way. Brand partnerships and collaborations allow
    companies tap into the power of Vocal through campaign-optimized stories,
    authored by real Vocal creators, that build brand affinity, trust, and drive
    sales.




  ? Transparent Performance Data: Creators can view their "Stats" at any time to
    view their individual performance data, such as how many Reads a given story
    received, how much money they have earned, and how many Tips, Bonuses, or
    'Likes,' they received. Additionally, Vocal users have the ability to view key
    metrics such as community-specific data and Vocal+ membership data.




  ? Valuable Audience: The nature of Vocal's genre-specific (niche) community
    structure is such that it generates a positively selected audience, a quality
    which makes Vocal an attractive prospect for creators and brands alike. In a
    niche community, audiences are inherently more likely to be interested in the
    particular content housed in that community.   Vocal Moderation and Compliance
      One of the key differentiating factors between Vocal and most other
    user-generated content platforms is the fact that each story submitted to
    Vocal is run through the Company's proprietary moderation process before it
    goes live on the platform. The decision to implement moderation into the
    submission process was in direct response to the rise of misinformation and
    bad actors on many social platforms. In response to these inherent pitfalls
    within the content landscape, Vocal's proprietary moderation system combines
    the algorithmic detection of copyrighted material, hate speech, graphic
    violence, and nudity, and human-led curation to ensure the quality and safety
    of each story published on Vocal, thus fostering a safe and trustworthy
    environment for creators, audiences, and brands. Moderation and compliance are
    more important than ever in a world where ambiguity can systematically damage
    value. Vocal's enforcement of community guidelines and emphasis on content
    moderation protects the platform, its creators, and Creatd shareholders.
    Trust and safety are paramount to the Vocal ecosystem. We follow best
    practices when handling personally identifiable information, with guidance
    from the European Union's General Data Protection Regulation (GDPR), the
    California Consumer Privacy Act (CCPA), and the Digital Millennium Copyright
    Act (DMCA).   Platform Compliance Policies include:




  ? Human-led, technology assisted moderation of every story submitted;

  ? Algorithmic detection of hate speech, nudity, and copyright infringement;

  ? Brand, creator, and audience safety enforced through community watch; and

  ? The rejection of what we consider toxic content, with the understanding that
    diverse opinions are encouraged.




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Creatd Partners

Creatd Partners fosters relationships between brands and creators through its agency services, which encompass content marketing, performance marketing, and influencer marketing.



Vocal for Brands


All brands have a story to tell, and our creator community helps them tell it. Vocal for Brands, Creatd's internal content marketing studio, specializes in pairing leading brands with authentic Vocal creators to produce marketing campaigns that are non-interruptive, engaging, and direct-response driven.



  ? Authentic Storytelling: Our internal data group partners brands with real
    Vocal creators to tell their brand's story in a way that is both engaging and
    trustworthy. In addition, brands can opt to sponsor a Challenge, which
    effectively yields a collection of crowdsourced branded content for brands and
    helps them reach a wider audience.




  ? Valuable Audience: Vocal's first-party data provides an opportunity to create
    highly targeted and segmented audiences to promote branded content. Most
    importantly, Vocal's technology helps brands target the right audience by
    utilizing and applying that first-party data.




  ? Transparent Analytics: For every campaign we produce, our brand clients have
    access to story performance data, engagement data, behavioral data, and
    interest data. Brands can apply this data to further increase awareness and
    optimize audience targeting.



Vocal's first-party data enables our team to create highly targeted and segmented audiences for Vocal for Brands campaigns, and help the brand reach their ideal audience. Brands can access story performance data, engagement data, behavioral data, and sentiment data, all of which is used to further optimize the campaign's success. The combination of Vocal's hyper-engaged audiences, user-generated communities, and brand-safe environment help brands achieve maximum ROAS (return on ad spend).

Vocal for Brands typically collects fixed fees ranging from $30,000 to $50,000, depending on campaign duration and specific client objectives.

Additionally, brands can collaborate with Vocal on a sponsored Challenge, prompting the creation of high-quality stories that are centered around the brand's mission and further disseminated through creators' respective social channels and promotional outlets.



Seller's Choice


In addition to Vocal for Brands, Creatd supports brands by providing managed and performance marketing services through Seller's Choice. an in-house marketing agency for DTC (direct-to-consumer) and e-commerce clients. Acquired by Creatd in September 2019, Seller's Choice provides direct-to-consumer brands with design, development, strategy, and sales optimization services. Its status as an Amazon Solution Provider and its weighty operational structure made it an ideal candidate for acquisition in late 2019. Creatd's business model is built to absorb distressed operational infrastructures, integrate the few best components, and shed the non-essential costs.



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WHE Agency

The WHE Agency ("WHE"), acquired by Creatd in 2021, was founded by Tracy Willis with the goal of supporting top creators and influencers, by connecting them with leading family and lifestyle brands and global audiences. Today, WHE represents a roster of approximately 60 family and lifestyle-focused creators, that collectively reach an audience of nearly 70 million.



Creatd Ventures

Creatd Ventures houses Creatd's portfolio of e-commerce businesses, both majority and minority-owned as well as associated e-commerce technology and infrastructure. The Company supports founders by providing capital, as well as a host of services including design and development, marketing and distribution, and go-to-market strategy. Currently, the Creatd Ventures portfolio includes:

? Camp, previously Plant Camp, a direct-to-consumer (DTC) food brand which

creates healthy upgrades to classic comfort food favorites. Each of Camp's

products are created with hidden servings of vegetables and contain Vitamins A,

C, D, E, B1 + B6. In the fourth quarter of 2021, Camp added two new products to

its expanding line of healthy, veggie-based, family-friendly foods. Currently,

Camp has four flavors available for purchase: Classic Cheddar Mac 'N' Cheese,

White Cheddar Mac 'N' Cheese, Vegan Cheezy Mac, and Twist Veggie Pasta. Camp,

which first launched in 2020, represents the first investment within the Creatd

   Ventures portfolio.



? Launched in second quarter 2021, Untamed Photographer is an online art

marketplace that couples limited-edition, hand-selected wildlife photography,

with the compelling stories behind each shot. Untamed Photographer has

cultivated a network of international environmental artists who preserve the

beauty of the planet through their art, donating a portion of profits back to

   environmental causes.



? In the third quarter of 2021, the Company announced its intent to purchase a

controlling stake in Dune Glow Remedy ("Dune"). The Company subsequently

announced the completion of its purchase of a 50.4% majority stake in the

fourth quarter of 2021. Brought to market in 2021, Dune is a beverage brand

focused on promoting wellness and beauty from within. Each beverage in Dune's

product line is meticulously crafted with functional ingredients that nourish

skin from the inside out and enhance one's natural glow.




Creatd Studios

The goal of Creatd Studios is to elevate creators' stories to TV, film, books, podcasts, video, and more.

? Transmedia Assets: With millions of compelling stories in its midst, Creatd's

technology surfaces the best candidates for transmedia adaptations, through

community and creator data insights. Then, Creatd Studios helps creators tell

their existing stories in new ways, by partnering them with entertainment and

publishing studios to create unique content experiences that accelerate

earnings, discoverability, and open doors.

? OG Gallery: Acquired by Creatd's founders, the OG Collection is an extensive

library of original artwork and imagery from the archives of some of the most

iconic magazines of the 20th century. OG Gallery is an exploratory initiative

aimed at identifying opportunities to propel the OG Collection into a new

technological sphere: the NFT marketplace.




Acquisition Strategy


Creatd's hybrid finance and design culture is key to its acquisition strategy. Acquisition targets are companies that meet a set of opportunistic or financial standards or that are part of specific digital environments that are accretive and can seamlessly integrate into Creatd's existing revenue lines. Creatd will continue to make strategic acquisitions when presented with opportunities that are in the interest of shareholder value.



                                      46





Recent Developments


Board of Directors and Management

Mark Patterson resigned from the Board effective July 31, 2021. Such resignation is not the result of any disagreement with the Company on any matter relating to the Company's operations, policies or practices.

On August 13, 2021, the Board approved the restructuring of the Company's senior management team to be comprised of two Co-Chief Executive Officers and appointed Jeremy Frommer and Laurie Weisberg to such positions (the "Restructuring"). Additionally, Justin Maury was appointed Chief Operating Officer and retains his position as President. Prior to the Restructuring, Mr. Frommer served as the Company's Chief Executive Officer and Ms. Weisberg served as the Company's Chief Operating Officer. Mr. Frommer and Ms. Weisberg continue to serve as members of the Board. The Restructuring did not impact the role or functions of the Company's Chief Financial Officer, Chelsea Pullano.

On October 27, 2021, the Board, upon the recommendation of the Compensation Committee of the Board, approved and authorized certain compensation arrangements with Jeremy Frommer, Co-Chief Executive Officer; Laurie Weisberg, Co-Chief Executive Officer; Justin Maury, President; and Chelsea Pullano, Chief Financial Officer (collectively, the "Compensation Arrangements").

The Compensation Arrangements consist of both base salary and option awards as follows:

? for Mr. Frommer: (i) annual base salary of $500,000, effective retroactive to

October 1, 2021; (ii) 121,000 options, having a strike price of $5.00 per

share, vesting immediately; and (iii) 121,000 options, having a strike price of

$5.00 per share, to vest upon the achievement of certain metrics during the

course of the 2022 fiscal year, to be set by the Board by not later than

   December 31, 2021;



? for Ms. Weisberg: (i) annual base salary of $475,000, effective retroactive to

October 1, 2021; (ii) 121,000 options, having a strike price of $5.00 per

share, vesting immediately; and (iii) 121,000 options, having a strike price of

$5.00 per share, to vest upon the achievement of certain metrics during the

course of the 2022 fiscal year, to be set by the Board by not later than

   December 31, 2021;



? for Mr. Maury: (i) annual base salary of $475,000, effective retroactive to

October 1, 2021; (ii) 81,000 options, having a strike price of $5.00 per share,

vesting immediately; and (iii) 81,000 options, having a strike price of $5.00

per share, to vest upon the achievement of certain metrics during the course of

the 2022 fiscal year, to be set by the Board by not later than December 31,

   2021; and



? for Ms. Pullano: (i) annual base salary of $250,000, effective retroactive to

October 1, 2021; (ii) 37,000 options, having a strike price of $5.00 per share,

vesting immediately; and (iii) 37,000 options, having a strike price of $5.00

per share, to vest upon the achievement of certain metrics during the course of

the 2022 fiscal year, to be set by the Board by not later than December 31,

   2021.




WHE Agency Transaction


On July 20, 2021, the Company entered into, through its wholly owned subsidiary, Creatd Partners, LLC ("Creatd Partners"), a Stock Purchase Agreement (the "Purchase Agreement") with individuals named therein (collectively, the "Sellers"), pursuant to which Creatd Partners acquired from the Sellers, subject to the terms and conditions of the Purchase Agreement and other related agreements (the "Transaction Documents") 1,158,000 shares of common stock of WHE Agency, Inc. ("WHE Agency"), a talent management and public relations agency that primarily focuses on representation and management of family and lifestyle-focused influencers and digital creators. The equity interest acquired in the Transaction (as defined below) along with the Voting Agreements described below equals fifty-five (55%) of the voting power and forty-four (44%) of the ownership of WHE Agency's issued and outstanding shares, determined on a fully diluted basis post-transaction.



                                      47




Pursuant to the Purchase Agreement, the Sellers sold, transferred, assigned, conveyed and delivered to Creatd Partners their respective issued and outstanding shares of common stock in WHE Agency (the "Transaction"). The aggregate closing consideration of the Transaction is $1,038,271, which consists of a combination of cash, in the amount of $144,750 ("Cash Consideration"), and the remaining $893,521 issued to the Sellers in the form of 224,503 shares of the Company's restricted common stock ("Closing Share Consideration").

The Transaction closed on July 23, 2021 (the "Closing"). At the Closing, Sellers received their respective portion of the aggregate closing consideration in the form of a combination of Cash Consideration and Closing Share Consideration, except for 5% of the total Closing Share Consideration that will be subject to a twelve (12) month Indemnification Holdback Period.

The 224,503 shares of the Company's common stock, par value $0.001 per share (the "Common Stock"), were issued as part of the Closing Share Consideration (the "Shares") to the Sellers are "restricted securities," as defined in Rule 144(a)(3) under the Securities Act of 1933, as amended (the "Act"), and accordingly the Shares may not be resold by the Sellers without registration under the Act or an available exemption from registration. Under the Purchase Agreement, the Company will be obligated to file with the Securities and Exchange Commission (the "SEC") within ten business days after the Closing, a registration statement on Form S-1 or Form S-3 registering the resale of the Shares by the Sellers under the Act to cover the resale of the Shares issued to the Sellers.

The Purchase Agreement contain representations and warranties made by and to the parties thereto as of specific dates. The Purchase Agreement includes customary representations, warranties and covenants of the Company, Sellers and WHE Agency. The representations and warranties made by each party were made solely for the benefit of the other parties and (i) were not intended to be treated as categorical statements of fact, but rather as a way of allocating the risk between the parties to the Purchase Agreement if those statements prove to be inaccurate; (ii) may have been qualified in the Purchase Agreement by disclosures that were made to the other party in disclosure schedules to the Purchase Agreement, and (iii) were made only as of the date of the Purchase Agreement or such other date or dates as may be specified in the Purchase Agreement.

In connection with entering into the Purchase Agreement, Creatd Partners entered into a certain Voting Agreement and Proxy (the "Voting Agreement") with certain beneficial owners that collectively own 11% percent of WHE Agency's issued and outstanding restricted common stock ("Restricted Stockholders"). Through the Voting Agreements entered into with the Restricted Stockholders, Creatd Partners effectively controls 55% of the total voting power of the Company in the aggregate. The Voting Agreements generally require that the stockholders who are party to the Voting Agreements vote or cause to be voted their WHE Agency shares, and execute and deliver written consents and otherwise exercise all voting and other rights with respect to the WHE Agency shares at the direction of Creatd Partners. In addition, in connection with the Voting Agreements, the Restricted Stockholders delivered irrevocable proxies to Creatd Partners. The Voting Agreements terminate upon the twenty-year anniversary of executing the Voting Agreements.



Dune Transaction


On October 3, 2021, we, through Creatd Partners, LLC ("Buyer"), entered into a Stock Purchase Agreement (the "Dune Agreement") with Standard Holdings, Inc. ("SHI") and Mark De Luca ("De Luca") (SHI and De Luca, collectively the "Dune Sellers"), and Stephanie Roy Dufault, whereby Buyer purchased a majority stake in Dune, Inc., a Delaware corporation ("Dune"). Pursuant to the Dune Agreement, which closed on October 4, 2021, Buyer acquired a total of 3,905,634 shares of the common stock of Dune (the "Purchased Shares"). The Company issued 163,344 restricted shares of the Company's common stock to the Dune Sellers.

In addition, pursuant to the Dune Agreement, $50,000 worth of the Company's common stock issuable to the Dun Sellers on a pro rata basis, priced in accordance with the terms and conditions set forth in the Dune Agreement (the "Indemnification Escrow Amount"), shall be held in escrow and reserved in each Dune Seller's name by the Company's transfer agent until such time as release is authorized under the Agreement.



                                      48




Each of the Dune Sellers and Buyer have made customary representations and warranties, and covenants in the Agreement.

In connection with the Dune Agreement, Dune, Creatd Partners, Mark De Luca and SHI entered into a Stockholders Agreement dated October 3, 2021, providing for the purchase of the Purchased Shares representing a majority stake in Dune. The Stockholders Agreement contains customary representations and warranties, and covenants.




Registered Direct Offering



On October 25, 2021, we entered into a securities purchase agreement (the "Purchase Agreement") with institutional investors (collectively, the "Purchasers") resulting in the raise of $3,825,000 in gross proceeds to the Company. Pursuant to the terms of the Purchase Agreement, the Company agreed to sell, in a registered direct offering, an aggregate of 850,000 shares (the "Shares") of the Company's common stock, par value $0.001 per share (the "Common Stock"), at a purchase price of $4.50 per Share (the "Offering"). The Offering closed on October 27, 2021, subject to customary closing conditions.

Pursuant to the terms of the Purchase Agreement, each of the Purchasers was granted the right to participate in a subsequent financing in an amount up to 25% of such subsequent financing. Additionally, under the terms of the Purchase Agreement, the Company and its subsidiaries are prohibited from issuing Common Stock or common stock equivalents for a period of 30 days from the date of the closing of the Purchase Agreement, other than with respect to Exempt Issuances (as defined in the Purchase Agreement) and the Company shall not undertake a reverse or forward stock split or reclassification of the Common Stock without the prior written consent of the Purchasers holding a majority in interest of the Shares, except as may be required in connection with the satisfaction of the minimum bid price requirement of the principal Trading Market.

The Benchmark Company, LLC acted as exclusive placement agent (the "Placement Agent") for the Company in connection with the Offering. Pursuant to that certain Placement Agency Agreement, dated as of October 25, 2021, between the Company and the Placement Agent (the "Placement Agency Agreement"), the Placement Agent is entitled to a cash fee equal to $267,750, which represents seven percent (7.0%) of the aggregate gross proceeds raised in the Offering, the reimbursement of certain of the Placement Agent's expenses, and warrants to purchase up to 42,500 shares of Common Stock at an exercise price of $5.40 per share, which represents five percent (5.0%) of the aggregate number of Shares sold in the Offering (the "Placement Agent Warrants"). The Placement Agent Warrants will not be exercisable for a period of six months following the date of the closing and thereafter are exercisable for a period of five years.

The Company estimates that net proceeds to the Company from the Offering will be approximately $3,407,250 after deducting the Placement Agent fees and estimated expenses payable by the Company.

The Shares were issued to the Purchasers in a registered direct offering pursuant to which the Shares will be registered under the Securities Act of 1933, as amended, pursuant to a prospectus supplement to the Company's currently effective registration statement on Form S-3 (File No. 333-250982), which was initially filed with the Securities and Exchange Commission (the "SEC") on November 25, 2020, as amended on April 9, 2021, and was declared effective on April 23, 2021 (the "Shelf Registration Statement"). A Prospectus Supplement for the closing dated October 25, 2021 was filed with the SEC and is available on the SEC's website at http://www.sec.gov.



Results of Operations


Liquidity and Capital Resources

The following table summarizes total current assets, liabilities and working capital at September 30, 2021 compared to December 31, 2020:



                             September 30,       December 31,       Increase /
                                 2021                2020           (Decrease)
Current Assets              $     2,550,911$    8,020,993$ (5,470,082 )
Current Liabilities         $     5,387,223$    4,968,427$    418,796
Working Capital (Deficit)   $    (2,836,312 )$    3,052,566$ (5,888,878 )

At September 30, 2021, we had a working capital (deficit) of $(2,836,312) as compared to a working capital of $3,052,566 at December 31, 2020, a decrease in working capital of $5,888,878. The decrease is primarily attributable to a reduction in cash and an increase in deferred revenue and notes payable. This was offset by an increase in prepaid expense and a decrease in convertible notes payable.



                                      49





Net Cash

Net cash used in operating activities for the nine months ended September 30, 2021, and 2020, was $15,617,065 and $5,032,488, respectively. The net loss for the nine months ended September 30, 2021, and 2020 was $24,942,247 and $23,306,686, respectively. This change is primarily attributable to the net loss for the current period offset by share-based payments in the amount of $5,662,389 to employees and consultants for services rendered, accretion of debt discount and debt issuance costs of $3,028,015 due to incentives given with debentures, and a Change in fair value of derivative liability of $1,096,287, as well as a change in accounts payable and accrued expenses of $160,434.

The increased net cash used in 2021 reflected an extraordinary cash outlay for marketing, which went toward generating a lower creator acquisition cost for paid Vocal subscribers, and an increase in general and administrative expenses.

Net cash used in investing activities for the nine months ended September 30, 2021, was $1,325,155. This is primarily attributable to the purchase of Plant Camp, WHE Agency, property and equipment, deposits on investments related to the Memorandum of Understanding with Dune, Inc., and cash paid for the purchase of investments.

Net cash provided by financing activities for the nine months ended September 30, 2021, and 2020 was $10,560,265 and $8,337,715, respectively. During the nine months ended September 30, 2021, the Company's operations were predominantly financed by net proceeds of $5,472,068 from the exercise of warrants, the proceeds from loans and notes of $3,931,720, and proceeds from the issuance of stock and warrants, which were partially offset by the repayment of notes and loans of $1,345,723. Similarly, the Company's financing activity for the nine months ended September 30, 2020, generated $4,893,893 from loans and note issuances, the proceeds of which were partially offset by repayment of notes of $3,178,777.




Summary of Statements of Operations for the Three Months Ended September 30,
2021, and 2020:



                                                  Three Months Ended
                                                    September 30,
                                                2021             2020
Revenue                                     $  1,179,620$     424,814
Cost of revenue                             $  1,418,213$     731,309
Operating expenses                          $ (6,672,381 )$  (6,717,369 )
Loss from operations                        $ (6,910,974 )$  (7,023,864 )
Other expenses                              $ (2,809,147 )$  (9,154,834 )
Net loss                                    $ (9,736,534 )$ (16,178,698 )

Loss per common share - basic and diluted $ (0.71 )$ (3.81 )




Revenue


Revenue totaled $1,179,620 for the three months ended September 30, 2021, as compared to $424,814 for the comparable three months ended September 30, 2020, an increase of $754,806. The year-over-year increase in quarterly revenue is attributable to the steady growth of Vocal+ memberships as well as the acquisition of WHE and its contribution to growth in the Company's agency businesses.



                                      50





Cost of Revenue



Cost of revenue for the three months ended September 30, 2021, were $1,418,213 as compared to $731,309 for the three months ended September 30, 2020. The increase of $686,904 in cost of revenue is mainly related to R&D efforts and other overhead required to continue to increase Vocal+ memberships as well as the acquisition of WHE and its contribution to growth in the Company's agency businesses. The Company expects the gross margin to improve over time as it continues to grow and improve upon a self-sustaining, organically driven revenue model across its business segments.



Operating Expenses


Operating expenses for the three months ended September 30, 2021, were $6,672,381 as compared to $6,717,369 for the three months ended September 30, 2020. The decrease of $44,988 in operating expenses is mainly related to an by a decrease in stock-based compensation, offset by an increase in marketing and research and development expenditure. We expect marketing expenditure to remain approximately the same over coming quarters as the Company continues to execute on its new organic subscriber growth strategies and works to reduce reliance on third party social media platforms.



Loss from Operations


Loss from operations for the three months ended September 30, 2021, was $6,910,974 as compared to $7,023,864 for the three months ended September 30, 2020. The decrease in the loss from operations this quarter primarily reflects continued revenue growth coupled with increased operating expenses compared to the prior year. Going forward, the Company expects the loss from operations to continue to decrease as revenues continue to grow and expenses remain consistent.




Other Income and Expenses



Other expenses for the three months ended September 30, 2021, were $2,809,147 as compared to $9,154,834 for the three months ended September 30, 2020. The decrease in third quarter 2021 other expenses was predominantly due to an increased gain on extinguishment of debt and a decrease in an accretion of debt discount and issuance cost.



Net Loss


Net loss attributable to common shareholders for the three months ended September 30, 2021, was $9,797,011, or loss per share of $0.71, as compared to a net loss attributable to common shareholders of $16,197,119, or loss per share of $3.81, for the three months ended September 30, 2020.




Summary of Statements of Operations for the Nine Months Ended September 30,
2021, and 2020:



                                                   Nine Months Ended
                                                     September 30,
                                                2021              2020
Revenue                                     $   2,894,390$   1,040,496
Cost of revenue                             $   4,160,743$   1,863,148
Operating expenses                          $ (19,971,413 )$ (11,562,413 )
Loss from operations                        $ (21,237,766 )$ (12,385,065 )
Other expenses                              $  (3,688,068 )$ (10,921,621 )
Net loss                                    $ (24,942,247 )$ (23,306,686 )

Loss per common share - basic and diluted $ (2.20 )$ (6.65 )




Revenue


Revenue was $2,894,390 for the nine months ended September 30, 2021, as compared to $1,040,496 for the comparable nine months ended September 30, 2020, an increase of $1,853,894. The year-over-year increase in quarterly revenue is attributable to the steady growth of Vocal+ memberships as well as consistent growth in the Company's agency businesses.



                                      51





Cost of Revenue


Cost of revenue for the three months ended September 30, 2021, were $4,160,743 as compared to $1,863,148 for the three months ended September 30, 2020. The increase of $2,297,595 in cost of revenue is mainly related to an increase in Vocal+ memberships as well as the acquisition of WHE and its contribution to growth in the Company's agency businesses.



Operating Expenses


Operating expenses for the nine months ended September 30, 2021, were $19,971,413 as compared to $11,562,413 for the nine months ended September 30, 2020. The increase of $8,409,000 in operating expenses is mainly related to a $6.7 million increase in marketing expenditure and $2.2 million increase in general and administrative expenses. Much of the increase in marketing expenditure occurred during the company's second quarter 2021 as it focused significant resources on tactical experimentation utilizing our internal data to generate a lower creator acquisition cost, resulting in significant Vocal+ membership growth, with the Company ending the second quarter 2021 having achieved a new milestone of over 30,000 Vocal+ members. The Company went on to significantly reduce marketing spend in third quarter, 2021 and expects future quarterly spend to reflect levels consistent with third quarter.



Loss from Operations


Loss from operations for the nine months ended September 30, 2021, was $21,237,766 as compared to $12,385,065 for the nine months ended September 30, 2020. The operating loss increase primarily reflects added marketing expenses during the first half of 2021 as the company launched a comprehensive marketing campaign and the need for duplicate expenditures during transition period as new staff hires are trained by the outsourced third-party service providers whom they will be replacing. The majority of these additional costs have been eliminated during third quarter 2021. Going forward, the Company expects the loss from operations to decrease as revenues continue to increase and expenses remain relatively constant.



Other Income and Expenses


Other expenses for the nine months ended September 30, 2021, was $3,688,068 as compared to $10,921,621 for the nine months ended September 30, 2020. The decrease in other expenses was predominantly due to the change in extinguishment of debt and a reduction in interest expense. This was offset by an increase in derivative expense, change in fair value of derivative liability, and the impairment of investments.



Net Loss


Net loss attributable to common shareholders for the nine months ended September 30, 2021, was $25,413,042, or loss per share of $2.20, as compared to a net loss attributable to common shareholders of $23,325,107, or loss per share of $6.65, for the nine months ended September 30, 2020.

Off-Balance Sheet Arrangements

As of September 30, 2021, we had no off-balance sheet arrangements.

Significant Accounting Policies

Our significant accounting policies are described in Note 2 of the Financial Statements. If we complete an acquisition, we will be required to make estimates and assumptions typical of other companies. For example, we will be required to make critical accounting estimates related to valuation and accounting for business combinations. The estimates will require us to rely upon assumptions that were highly uncertain at the time the accounting estimates are made, and changes in them are reasonably likely to occur from period to period. Changes in estimates used in these and other items could have a material impact on our financial statements in the future. Our estimates will be based on our experience and our interpretation of economic, political, regulatory, and other factors that affect our business prospects. Actual results may differ significantly from our estimates. For detailed information regarding our critical accounting policies and estimates, see our financial statements and notes thereto included in this Report and in our Annual Report on Form 10-K for the year ended December 31, 2020. There have been no material changes to our critical accounting policies and estimates from those disclosed in our most recent Annual Report on Form 10-K.




                                      52

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Financials (USD)
Sales 2020 1,21 M - -
Net income 2020 -24,2 M - -
Net cash 2020 5,40 M - -
P/E ratio 2020 -0,73x
Yield 2020 -
Capitalization 25,4 M 25,4 M -
EV / Sales 2019 98,9x
EV / Sales 2020 25,2x
Nbr of Employees 48
Free-Float 87,5%
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Jeremy Phillip Frommer Co-Chief Executive Officer & Director
Laurie Weisberg Co-Chief Executive Officer & Director
Justin Maury President & Chief Operating Officer
Chelsea Pullano Chief Financial Officer
Mark Standish Chairman
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