CRTD 10-K & 10-Q changes, risk factors and insider trading
Creatd, Inc. · OTC · Air Transportation, Nonscheduled · CIK 1357671 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
New heading “Dual listing on OTCQB and Upstream may lead to additional stock price volatility and heightened regulation.”
New heading “There are risks associated with issuing NFTs, including a potential finding of a violation of securities laws by a regulatory authority.”
Removed heading “Although our shares and warrants have been approved for listing on The Nasdaq Capital Market, our shares and warrants may be subject to potential delisting if we do not meet or continue to maintain the listing requirements of The Nasdaq Capital Market, and we recently received a notice of determination of delisting.”
Removed heading “Unfavorable global economic, business, or political conditions could adversely affect our business, financial condition or results of operations.”
Largest changes
“Although our shares and warrants have been approved for listing on The Nasdaq Capital Market, our shares and warrants may be subject to potential delisting if we do not meet or continue to maintain the listing requirements of The Nasdaq Capital Market, and we recently received a notice of determination of delisting.”see in full comparison
“Dual listing on OTCQB and Upstream may lead to additional stock price volatility and heightened regulation.”see in full comparison
“On January 4, 2021, we were notified by Nasdaq that it had determined to delist our common stock and warrants from Nasdaq based on our non-compliance with Nasdaq’s (i) $5 million stockholders’ equity requirement for initial listing, (ii) the $2.5 million stockholders’ equity requirement or any of the alternatives for continued listing, and (iii) our failure to provide material information to Nasdaq. …”see in full comparison
“A Panel Monitor has been implemented under Listing Rule 5815(d)(4)(A) for a period of one year from the date of the Letter. In the event that the Company becomes deficient with respect to any continued listing requirement, the Company will not be afforded the opportunity to submit a compliance plan for Staff’s consideration and Staff will issue a Delist Determination Letter and promptly schedule a new hearing under Listing Rule 5810(c)(2), at which the Company may present a compliance plan for the Panel’s consideration. …”see in full comparison
“On March 1, 2022, we 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”). …”see in full comparison
“Unfavorable global economic, business, or political conditions could adversely affect our business, financial condition or results of operations.”see in full comparison
Full comparison: every changed paragraph (25)
Our
current line of business has a limited operating history and our
business is subject to all of the risks inherent in the establishment
of a new business enterprise. Our likelihood of success must be
considered in light of the problems, expenses, difficulties, complications
and delays frequently encountered in connection with development
and expansion of a new business enterprise. We have incurred losses and
may continue to operate at a net loss for at least the next several
years as we execute our business plan. We had a net loss of approximately
$37.0 $35.6 million for the year ended December 31, 2021,2022, and a working
capital deficit and an accumulated deficit of approximately $0.9$13.7 million
and approximately $109.6$146.1 million, respectively.
BasedThe on the report from
our independent auditors dated April 6, 2022,Company’s management statedhas determine that our financial statements for the year ended December 31,there
2021, were prepared assumingexists substantial doubt about the Company’s ability to continue as a going concern for a period of one year
from the issuance of
these financial statements. The Company’s 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.
Although our shares
and warrants have been approved for listing on The Nasdaq Capital Market, our shares and warrants may be subject to potential delisting
if we do not meet or continue to maintain the listing requirements of The Nasdaq Capital Market, and we recently received a notice of
determination of delisting.
Our shares and warrants have been approved for
listing on The Nasdaq Capital Market (“Nasdaq”) ; however, to keep our listing on Nasdaq, we are required to maintain:
(i) a minimum bid price of $1.00 per share, (ii) a certain public float, (iii) a certain number of round lot shareholders and (iv) one
of the following: a net income from continuing operations (in the latest fiscal year or two of the three last fiscal years) of at least
$500,000, a market value of listed securities of at least $35 million or a stockholders’ equity of at least $2.5 million.
On January 4, 2021, we were notified by Nasdaq
that it had determined to delist our common stock and warrants from Nasdaq based on our non-compliance with Nasdaq’s (i) $5 million
stockholders’ equity requirement for initial listing, (ii) the $2.5 million stockholders’ equity requirement or any of the
alternatives for continued listing, and (iii) our failure to provide material information to Nasdaq. We appealed Nasdaq’s determination
and submitted such appeal to the Exchange’s Hearings Panel (the “Panel”), which request stayed any suspension or delisting action
by Nasdaq at least until the hearing process concludes and any extension granted by the Panel expires. In an oral hearing that
took place on February 11, 2021, we presented to the Panel a detailed plan to evidence stockholders’ equity of $5 million and addressed
the other matters raised by Nasdaq. On March 9, 2021, Nasdaq notified us that our securities would continue to be listed on Nasdaq; however,
a letter of reprimand was issued and a Panel Monitor has been implemented under Listing Rule 5815(d)(4)(A) for the period ending on March
9, 2022.
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.
A Panel Monitor has been implemented under Listing
Rule 5815(d)(4)(A) for a period of one year from the date of the Letter. In the event that the Company becomes deficient with respect
to any continued listing requirement, the Company will not be afforded the opportunity to submit a compliance plan for Staff’s
consideration and Staff will issue a Delist Determination Letter and promptly schedule a new hearing under Listing Rule 5810(c)(2), at
which the Company may present a compliance plan for the Panel’s consideration. In the event of a new hearing, any suspension or
delisting action would be stayed pending the completion of the hearings process and the expiration of any additional extension period
granted by the Panel following the hearing.
On March 1, 2022, we
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 is pursuing
an appeal to 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 will be stayed pending the
Panel’s decision.
The Company intends
to present to the Panel evidence that the Company has regained compliance with the Rule; however, there can be no assurance that the
Panel will grant the Company’s request for continued listing.
We place substantial reliance upon the efforts
and abilities of Jeremy Frommer, our Chairman of the Board of Directors, and our other executive officers and directors. Though no individual
is indispensable, the loss of the services of these executive
officers could have a material adverse effect on our business, operations,
revenues or prospects. We do not currently maintain key man
life insurance on the lives of these individuals.
Customers view our content online, using third-party
platforms and networks and on mobile devices. We collect and store significant amounts of information about our customers—bothcustomers-both personally
personally identifying and non-personally identifying information. We are subject to laws from a variety of jurisdictions regarding privacy
and the
protection of this player information. For example, the European Union (EU) has traditionally taken a broader view than the United States
States and certain other jurisdictions as to what is considered personal information and has imposed greater obligations under data privacy regulations.
regulations. The U.S. Children’s Online Privacy Protection Act (COPPA) also regulates the collection, use and disclosure of personal information
information from children under 13 years of age. While none of our content is directed at children under 13 years of age, if COPPA were
to apply to
us, failure to comply with COPPA may increase our costs, subject us to expensive and distracting government investigations
and could result
in substantial fines.
Unfavorable global economic, business, or political conditions
could adversely affect our business, financial condition or results of operations.
Our results of operations could be adversely
affected by general conditions in the global economy and in the global financial markets, including conditions that are outside of our
control, including the impact of health and safety concerns, such as those relating to the current COVID-19 coronavirus (“COVID-19”)
pandemic.
The continuing global COVID-19 pandemic has created
significant volatility, uncertainty and economic disruption. The extent to which the COVID-19 pandemic continues to impact our business,
operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict, including: the
duration and scope of the pandemic; governmental, business and individuals’ actions, including vaccination requirements, that have
been and continue to be taken in response to the pandemic; the impact of the pandemic on economic activity and actions taken in response;
and any future variants that may arise and its effects on the overall response to the pandemic. 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.
Our direct-to-consumer brands
experienced supply-chain issues as a direct result of the COVID-19 pandemic, resulting in delayed growth within these business lines.
Additionally, the global financial crisis in connection with the COVID-19 pandemic has caused extreme volatility and disruptions in the
capital and credit markets. A severe or prolonged economic downturn could result in a variety of risks to our business, including weakened
demand for our Vocal platform and our ability to raise additional capital when needed on acceptable terms, if at all. Any of the foregoing
could harm our business and we cannot anticipate all the ways in which the current economic climate and financial market conditions could
adversely impact our business.
Even though we have our shares listed with The
Nasdaq Capital Market, the market price of our Common Stock may be highly
volatile and subject to wide fluctuations in response to a
variety of factors and risks, many of which are beyond our control. In addition
to the risks noted elsewhere in this Form 10-K, some
of the other factors affecting our stock price may include:
Our Second Amended and Restated Articles of Incorporation
authorize authorize
the issuance of 100,000,0001,500,000,000 shares of common stock, and 20,000,000 shares of preferred stock. Currently the Company has 500 450
shares of
Preferred Series E stock outstanding. Additionally, as of MarchApril 31,19, 20222023 there are outstanding (i) warrants to purchase 8,580,14435,665,533
shares shares
of our common stock; (ii) options exercisable into 2,902,6194,408,267 shares of our common stock; and (iii) 121,359109,223 shares underlying the
conversion conversion
of Preferred Series E shares.
Pursuant to our Second Amended and Restated Articles
of Incorporation, the aggregate number of shares of capital stock which we are authorized to issue is 120,000,0001,520,000,000 shares, of which 100,000,0001,500,000,000
shares are common stock, and 20,000,000 shares are “blank check” preferred stock with such designations, rights and preferences
as may be determined from time to time by our board of directors. Our board of directors is empowered, without stockholder approval, to
issue one or more series of preferred stock with dividend, liquidation, conversion, voting or other rights which could dilute the interest
of, or impair the voting power of, our common stockholders. As of the date of this Form 10-K, we do have 500450 shares of Preferred Series E
E stock outstanding.
Dual listing on OTCQB and Upstream may lead to additional stock price volatility and heightened regulation.
Dual listing on two stock exchanges has the risk of the additional regulatory and compliance requirements that come with operating on multiple exchanges. We will need to comply with the rules and regulations of each of OTCQB and Upstream, which may include different reporting requirements, disclosure obligations, and accounting standards. Dual listing may increase the exposure of the Company to market risks, including currency fluctuations and geopolitical events, as it may be subject to different economic conditions and political environments in each exchange, which could potentially lead to greater volatility in the Company’s stock price and may negatively impact investor sentiment. There also is a risk that the additional scrutiny and regulatory requirements associated with dual listing may discourage some investors from investing in the Company, or make it more difficult for the Company to attract new investors. This could potentially limit the Company’s access to capital and its ability to fund its growth and expansion plans.
There are risks associated with issuing NFTs, including a potential finding of a violation of securities laws by a regulatory authority.
In connection with its listing on Upstream, the Company issued NFTs to shareholders who transferred their shares to the Upstream platform. The NFTs traded on Upstream are issued by the Company and convey no ownership interest in the Company, nor do they provide any dividends, royalties, or other equity interests or rights that would indicate an expectation of profit. The NFTs are issued only on Upstream and can only be traded on Upstream.
The Commission evaluates whether a particular digital asset, including an NFT, is a security based on what is commonly referred to as the Howey Test. The Howey Test looks at four factors: (i) an investment of money (ii) in a common enterprise (iii) with the expectation of profit (iv) to be derived from the efforts of others. We believe the commemorative NFTs issued by Creatd do not meet the definition for securities under the Howey Test. Such NFTs, issued to investors who deposited shares of Creatd with Upstream, are commemorative in nature, memorializing the listing on Upstream, as a novelty item, being akin to a tombstone, plaque, sticker, poster or t-shirt commemorating the listing, similar to what NASDAQ and the NYSE may provide to its issuers. The NFT issued by Creatd conveys no ownership interest in Creatd, nor does it provide any dividends, royalties, or other equity interests or rights that would indicate an expectation of profit. The NFTs are issued only on Upstream and can only be traded on Upstream. No consideration was paid for the NFTs, and such investors are still able to transfer such shares back to Pacific Stock Transfer following receipt of the NFTs.
Although we believe that these NFTs are not securities, there is risk that the issuance of NFTs may be considered a public offering in violation of the federal securities laws, and perhaps certain state securities laws. For issuances that are deemed to be public offerings under federal securities laws or in violation of certain state securities laws, purchasers of such products might be granted the right to rescind the sale of these products and demand that we return the purchase price of these products. We did not receive a purchase price for these NFTs; however, there is risk that the Company may be subject to other penalties or that other remedies may apply.
Management's Discussion & Analysis (MD&A)
Removed heading “Equity Method Investments”
Removed heading “Recently Adopted Accounting Guidance”
Largest changes
“Operating expenses for the year ended December 31, 2021, were $32,368,400 as compared to $16,001,163 for the year ended December 31, 2020. The increase of $16,367,237 in operating expenses is mainly related to a $6.8 million increase in marketing expenditure, a $1.0 million increase from the impairment of goodwill, a $5.0 million increase in general and administrative expenses resulting from a near-doubling in headcount and related personnel expenses, and a $2.8 million increase in non-cash charges relating to the issuance of equity to management and employees. …”see in full comparison
“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 uses an income-based approach to determine the fair value of the reporting units. …”see in full comparison
“The Company follows FASB ASC 320-10-35 to assess whether an investment in debt securities is impaired in each reporting period. An investment in debt securities is impaired if the fair value of the investment is less than its amortized cost. If the Company intends to sell the debt security (that is, it has decided to sell the security), an other-than-temporary impairment shall be considered to have occurred. …”see in full comparison
“Investments in unconsolidated entities over which we have significant influence are accounted for under the equity method of accounting. Under the equity method of accounting, the Company does not consolidate the investment’s financial statements within its consolidated financial statements. Equity method investments are initially recorded at cost, then our proportional share of the underlying net income or loss is recorded as equity in net loss from equity method investments in our statement of operations, with a corresponding increase or decrease to the carrying value of the investment. …”see in full comparison
“Operating expenses for the year ended December 31, 2022, were $27,718,380 as compared to $32,368,400 for the year ended December 31, 2021. The decrease of $4,650,020 is primarily attributable to a significant reduction in overhead, including an almost $5 million reduction in marketing spend and reductions in research and development. In addition, there was a reduction in stock-based compensation from $9.7 million in 2021 to $4.2 million in 2022. These decreases were partially offset by an increase in impairment of intangible assets, legal and consulting fees, as well as office rent.”see in full comparison
Full comparison: every changed paragraph (43)
The following discussion and analysis should
be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Annual Report. In addition
to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions.
Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including
but not limited to those set forth in “Part I –- Item 1A. Risk Factors.”
The creator economy is well establishedwell-established and thriving, consisting of
overhundreds 50of millionmillions contentof creators and a valuationbillions of over $100 billion, and growing.viewers. Creatd plays a crucial role within this ecosystem,
with a range of businesses
established to help creators realize their potential both creatively and monetarily, partnering with peers
in their community and brands
when the opportunity arises. At the center of our businesses lies Vocal, our core technology platform that hosts our creator community
and generates the first-party data that powers our revenue generation.
Specifically, our role within the creator
economy and ecosystem is to provide creators with economic opportunities. 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. 2021 was a positioning year for Creatd, during which the Company established a solid business foundation, fortified its
infrastructure, rationalized costs to accelerate cashflow breakeven, and effectively eliminated impediments to rapid growth which we
believe will continue to drive revenues.
At December 31, 2021,2022, wethe Company had a working
capital capital
(deficit) of $(945,773)$13,728,152 as compared to a working capital deficit of $3,052,566$945,773 at December 31, 2020,2021, aan decreaseincrease in working capital
deficit of $3,998,339.
$12,782,379. The decreaseincrease is primarily attributable to athe reductiondecrease in cashcash, and prepaids and other current assets, as well
as an increase in deferred revenue, accounts payable, notes payable and accrueddeferred liabilities.
revenue. This was offset by an increase in prepaid expense, accounts receivable,receivable and a decrease in debt obligations.inventory.
Net cash used in operating activities for the
year ended December 31,
2022, and 2021, and 2020, was $20,518,807$16,805,429 and $7,340,487,$20,518,807, respectively. The net loss for the year ended December 31, 2021,2022, and 2021 was $35,676,315
and 2020 was $37,379,153 and $24,162,783,$37,379,153, respectively. This change is primarily attributable to the net loss for the current period offset
by share-based payments
in the amount of $9,661,174$4,183,844 to employees and consultants for services rendered, accretion of debt discount and
debt issuance costs of $3,612,669
$4,668,039, 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 $1,714,902.$4,773,551.
The increaseddecreased net cash used in 20212022 reflected
an extraordinary cash outlay for marketing,marketing whichin 2021 that went toward generating a lower creator acquisition cost for paid Vocal subscribers,subscribers
and anwas increasenot repeated in general2022, andas administrativewell expenses.as a decrease in payroll expenses from 2021 to 2022.
Net cash usedprovided inby investing activities for
the the
year ended December 31, 2021,2022, was $1,168,123.$373,206. This is primarily attributable to the purchasesale of Plantminority Camp,interest WHEin Agency,OG DuneCollection, Inc.,Inc.
This property
andwas equipment,offset by the sale and cash paid for the purchase of investments.digital assets.
Net cash provided by financing activities for
for the year ended December 31, 2021,2022, and 20202021 was $17,615,915$13,405,624 and $15,814,083,$17,615,915, respectively. During the year ended December 31, 2021,2022, the
the Company’s operations were predominantly financed by net proceeds of $9,487,223$1,781,947 from the exercise of warrants, the proceeds from
sale of common stock and warrants of $5,666,951,$5,722,300, and the proceeds from loans and notes of $4,358,428, and proceeds from the issuance of stock
and warrants,$10,611,124, which were partially offset by
the repayment of notes and loans of $1,398,113.$4,693,967. Similarly, the Company’s financing
activity for the year ended December 31, 2020, 2021,
generated $5,745,485$4,358,428 from loans and note issuances, the proceeds of which were partially
offset by repayment of notes of $3,224,418.$1,398,113.
Revenue was $4,796,474 for the year ended December 31, 2022, as compared to $4,299,717 for the year ended December 31, 2021. The increase of $496,757 was attributable to our ecommerce business, which grew from $90,433 in revenue in 2021 to $1,456,593 in 2022. This growth in ecommerce revenues was partially offset by a decrease in agency revenues in a slowing market for influencer-based sales. Vocal revenues were stable though down year over year as the company transitioned from a pay-to-play marketing model to an organic growth framework.
Revenue was $4,299,717 for the year ended December
31, 2021, as compared to $1,212,870 for the comparable year ended December 31, 2020, an increase of $3,086,847. The year-over-year increase
in revenue is primarily attributable to year-over-year growth in Vocal+ memberships as well as consistent growth in the Company’s
agency businesses, which was further accelerated by the immediate and growing impact of the acquisition of the WHE Agency, which was successfully
integrated during third quarter into Creatd Partners’ growing business lines, as well as the start of material contributions
from Creatd Ventures following the launches of Camp and Dune.
Cost of revenue for the year ended December 31, 2022, was $6,109,206 as compared to $5,300,037 for the year ended December 31, 2021, an increase of $809,169 attributable to increased supply side costs in our direct-to-consumer product business, a portion of which were due to our increased revenue in our direct-to-consumer businesses.
Cost of revenue for the year ended December 31,
2021, were $5,300,037 as compared to $1,495,042 for the year ended December 31, 2020. The increase of $3,804,995 in cost of revenue is
mainly related to an increase personnel costs and creator costs around the moderation and content development associated with increasing
Vocal+ memberships, as well as the acquisition of WHE, the growth of which requires additional sales and talent management personnel to
sustain.
Operating expenses for the year ended December 31, 2022, were $27,718,380 as compared to $32,368,400 for the year ended December 31, 2021. The decrease of $4,650,020 is primarily attributable to a significant reduction in overhead, including an almost $5 million reduction in marketing spend and reductions in research and development. In addition, there was a reduction in stock-based compensation from $9.7 million in 2021 to $4.2 million in 2022. These decreases were partially offset by an increase in impairment of intangible assets, legal and consulting fees, as well as office rent.
Operating expenses for the year ended December
31, 2021, were $32,368,400 as compared to $16,001,163 for the year ended December 31, 2020. The increase of $16,367,237 in operating expenses
is mainly related to a $6.8 million increase in marketing expenditure, a $1.0 million increase from the impairment of goodwill, a $5.0
million increase in general and administrative expenses resulting from a near-doubling in headcount and related personnel expenses, and
a $2.8 million increase in non-cash charges relating to the issuance of equity to management and employees. 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 then further reduce marketing for fourth quarter 2021 and expects future quarterly spend to reflect levels
consistent with fourth quarter going forward. During 2021, the company’s non-cash charges totaled $9.7 million, representing past
performance-based stock option grants to senior management and board members, which vest over multiple years, year-end employee performance
based-stock grants, as well as extraordinary and non-recurring cash charges totaling approximately $2.5 million related to the acquisition
audit mainly from WHE, legal expenses, consulting, banking and recruiting fees.
Loss from operations for the year ended December 31, 2022, was $29,031,112 as compared to $33,368,720 for the year ended December 31, 2021.
Loss from operations for the year ended December
31, 2021, was $33,368,720 as compared to $16,283,335 for the year ended December 31, 2020. The operating loss increase primarily reflects
added marketing expenses during the first half of 2021 as the company launched a comprehensive marketing campaign to support Vocal+ membership
growth. Additionally, the Company nearly doubled its headcount during the year to support growth in numerous of its business lines, including
the launch of two Creatd Ventures e-commerce brands. During this transition period, the Company experienced the need for duplicate expenditures
to maintain operations while training its new hires, though their addition will ultimately reduce the need for outsourced third-party
service providers. 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 year ended December 31,
2021,2022, were $4,010,433$6,645,203 as compared to $7,929,448$4,010,433 for the year ended December 31, 2020.2021. The decreaseincrease in other expenses was predominantly
due to thean changeincrease in gainaccretion vs.of debt discount and issuance cost, interest expense, loss of extinguishment of debtdebt, and aloss reductionfrom insettlement
of interestvendor expense.liabilities. This was offset by anthe increasedecrease in derivative
expense, change in fair value of derivative liability, andfrom the impairment of investments.investment and change in derivative liability.
The Company’s Level 1 assets/liabilities
include cash, accounts receivable, marketable trading securities, accounts payable, prepaid and other current assets, lineand of credit and
due to related
parties. Management believes the estimated fair value of these accounts at December 31, 20212022 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.
Long-lived Assets Including Goodwill and
Other Acquired Intangible
Assets
We evaluate the recoverability of property and
equipment andequipment, 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 temporarily 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 year ended December 31, 20212022, the Company
recorded an impairment charge of $2,043,011 for intangible assets. During the year ended December 31, 2021, the Company recorded an impairment
charge of $688,127 for intangible
assets.
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 is 8.06 years.
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 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, 2022 and 2021,
the Company
completed its annual impairment testtests of goodwill. The Company performed the qualitative assessment as permitted by ASC 350-20
and determined
for one of its reporting units that the fair value of the Seller's Choicethat reporting unit was more likely than not lessgreater than its carrying
value, including Goodwill. However, based on this qualitative assessment, the Company determined that the carrying value of the Denver
Bodega, Dune, Plant Camp and, WHE Agency reporting units was more likely than not greater than their carrying value, including Goodwill.
Based Based
on the completion of thisthe annual impairment test,tests, the Company recorded an impairment charge of $$1,433,815 1,035,795and $1,035,795 for
goodwill for goodwill.the years ended December 31 2022 and 2021, respectively.
Investments
Marketable securities that are bought and held
principally for the purpose of selling them in the near term are classified as trading securities and are reported at fair value, with
unrealized gains and losses recognized in earnings. Debt securities not classified as held-to-maturity or as trading are classified as
available-for-sale, and are carried at fair market value, with the unrealized gains and losses, net of tax, included in the determination
of comprehensive income and reported in stockholders’ equity.
The Company accounts for its investments in available-for-sale
debt securities, in accordance with sub-topic 320-10 of the FASB ASC (“Sub-Topic 320-10”). Accrued interest on these securities
is included in fair value and amortized cost.
Pursuant to Paragraph 320-10-35, investments in
debt securities that are classified as available for sale shall be measured subsequently at fair value in the statement of financial position.
Unrealized holding gains and losses for available-for-sale securities (including those classified as current assets) shall be excluded
from earnings and reported in other comprehensive income until realized.
The Company follows FASB ASC 320-10-35 to assess
whether an investment in debt securities is impaired in each reporting period. An investment in debt securities is impaired if the fair
value of the investment is less than its amortized cost. If the Company intends to sell the debt security (that is, it has decided to
sell the security), an other-than-temporary impairment shall be considered to have occurred. If the Company more likely than not will
be required to sell the security before recovery of its amortized cost basis or it otherwise does not expect to recover the entire amortized
cost basis of the security, an other-than-temporary impairment shall be considered to have occurred. The Company considers the expected
cash flows from the investment based on reasonable and supportable forecasts as well as several other factors to estimate whether a credit
loss exists. If the Company intends to sell the security or more likely than not will be required to sell the security before recovery
of its amortized cost basis less any current-period credit loss, the other-than-temporary impairment shall be recognized in earnings equal
to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. During the
year ended December 31, 2021, the Company recorded an impairment charge of $102,096 for investments.
Equity Method Investments
Investments in unconsolidated entities over which
we have significant influence are accounted for under the equity method of accounting. Under the equity method of accounting, the Company
does not consolidate the investment’s financial statements within its consolidated financial statements. Equity method investments
are initially recorded at cost, then our proportional share of the underlying net income or loss is recorded as equity in net loss from
equity method investments in our statement of operations, with a corresponding increase or decrease to the carrying value of the investment.
Distributions received from the investee reduce our carrying value of the investment and are recorded in the consolidated statements of
cash flows using the cumulative earnings approach. These investments are evaluated for impairment if events or circumstances arise that
indicate that the carrying amount of such assets may not be recoverable. There were indicators of impairment related to our equity method
investments for the year ended December 31, 2021. During the year ended December 31, 2021, the Company recorded an impairment charge
of $487,365 for investments.
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 December 31, 2021,2022 and December 31, 2020,2021, the Company had deferred revenue of $299,409
ofand $234,159 and $88,637, respectively.
The Company recognizes compensation expense for all
all equity–basedequity-based payments granted in accordance with Accounting Standards Codification (“ASC”) 718 “Compensation
– - Stock
Compensation”. Under fair value recognition provisions, the Company recognizes equity–basedequity-based compensation
over the requisite
service period of the award. The company has a relatively low forfeiture rate of stock basedstock-based compensation and
forfeitures are recognized
as they occur.
The fair value of an option award is estimated
on the date of grant using the Black–ScholesBlack-Scholes option valuation model. The Black–ScholesBlack-Scholes option valuation model requires the development
development of assumptions that are inputs into the model. These assumptions are the value of the underlying share, the expected stock volatility,
volatility, the risk–freerisk-free interest rate, the expected life of the option, the dividend yield on the underlying stock and theforfeitures expectedare recognized
forfeitureas rate.they occur.. Expected volatility is derived from the Company’s historical data over the expected option life and other appropriate
factors. Risk–freeRisk-free interest rates are calculated based on continuously compounded risk–freerisk-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–basedequity-based payment awards requires the input of the subjective assumptions described above. The assumptions
assumptions used in calculating the fair value of equity–basedequity-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–basedequity-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.
Recently Adopted Accounting Guidance
In December 2019, the FASB issued authoritative
guidance intended to simplify the accounting for income taxes (ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting
for Income Taxes”). This guidance eliminates certain exceptions to the general approach to the income tax accounting model and adds
new guidance to reduce the complexity in accounting for income taxes. This guidance is effective for annual periods after December 15,
2020, including interim periods within those annual periods. The updated guidance, which became effective for fiscal years beginning after
December 15, 2020, did not have a material impact on the Company’s consolidated financial statements.
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 is
effective for thesmall fiscalreporting yearcompanies to interim and annual periods
beginning after December 15, 2022, including interim periods within that fiscal year.2022. The Company is currently evaluating the impact of these amendments to the Company’s financial
evaluatingposition and results of operations and currently does not know or cannot reasonably quantify the impact of the newadoption of the amendments
as a result of the complexity and extensive changes from the amendments. The adoption of the guidance onwill itsaffect consolidateddisclosures financialand statements.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. The ASU will2020-06 beis effective for annualthe reportingfiscal periodsyear beginning after December 15, 2021,2022, andincluding interim periods
within within
thosethat annualfiscal periodsyear. andUpon earlyadoption, adoption is permitted. Thethe Company iswould currentlyno evaluatinglonger recognize the impactintrinsic value of beneficial conversion features underlying
convertible debt. During the newyear guidanceended onDecember its31, condensed2022, the company recognized approximately $2.0 million relating to a beneficial
consolidatedconversion financial statements.feature.
In May 2021, the FASB issued authoritative guidance
intended to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified
written call options that remain equity classified after modification or exchange. (ASU 2021-04), “Derivatives and Hedging Contracts
in Entity’s Own Equity (Topic 815). This guidance amendments provide measurement, recognition, and disclosure guidance for an issuer’s
accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification
or exchange. This guidance is effective for annual periods after December 15, 2021, including interim periods within those annual periods.
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.
What changed in the latest 10-Q
Risk Factors
New heading “Risks Related to our Business”
New heading “The Company is a development stage business and subject to the many risks associated with new businesses.”
New heading “Our financial situation creates doubt whether we will continue as a going concern.”
New heading “We are not profitable and may never be profitable.”
New heading “Our operating expenses exceed our revenues and will likely continue to do so for the foreseeable future.”
New heading “We will need additional capital, which may be difficult to raise as a result of our limited operating history or any number of other reasons.”
New heading “We face intense competition. If we do not provide services that are useful to users, we may not remain competitive, and our potential revenues and operating results could be adversely affected.”
New heading “If we fail to retain existing users or add new users, or if our users decrease their level of engagement with our products, our revenue, financial results, and business may be significantly harmed.”
New heading “We face competition from traditional media companies, and we may not be included in the advertising budgets of large advertisers, which could harm our operating results.”
New heading “Acquisitions may disrupt growth.”
New heading “Our business depends on strong brands and relationships, and if we are not able to maintain our relationships and enhance our brands, our ability to expand our base of users, advertisers and affiliates will be impaired and our business and operating results could be harmed.”
New heading “We depend on our key management personnel and the loss of their services could adversely affect our business.”
New heading “If we are unable to protect our intellectual property, the value of our brands and other intangible assets may be diminished, and our business may be adversely affected.”
New heading “We are subject to payment processing risk.”
New heading “We are subject to risk as it relates to software that we license from third parties.”
New heading “Failures or reduced accessibility of third-party software on which we rely could impair the availability of our platform and applications and adversely affect our business.”
New heading “We need to manage growth in operations to maximize our potential growth and achieve our expected revenues and our failure to manage growth will cause a disruption of our operations, resulting in the failure to generate revenue.”
New heading “We plan to generate a significant portion of our revenues from advertising and affiliate sales relationships, and a reduction in spending by or loss of advertisers and general decrease in online spending could adversely harm our business.”
New heading “Security breaches could harm our business.”
New heading “The laws and regulations concerning data privacy and data security are continually evolving; our or our platform providers’ actual or perceived failure to comply with these laws and regulations could harm our business.”
New heading “Changes to federal, state or international laws or regulations applicable to our company could adversely affect our business.”
New heading “Our business involves risks of liability claims arising from our media content, which could adversely affect our ability to generate revenue and could increase our operating expenses.”
New heading “Intellectual property litigation could expose us to significant costs and liabilities and thus negatively affect our business, financial condition and results of operations.”
New heading “If we are unable to obtain or maintain key website addresses, our ability to operate and grow our business may be impaired.”
New heading “We may have difficulty scaling and adapting our existing network infrastructure to accommodate increased traffic and technology advances or changing business requirements, which could cause us to incur significant expenses and lead to the loss of users and advertisers.”
New heading “Operating a network open to all internet users may result in legal consequences.”
New heading “Risks Related to Our Financial Reporting, Internal Controls, and Public Company Obligations”
New heading “We identified errors in previously issued interim financial statements, and although the errors were not material and have been corrected, they may raise concerns regarding the effectiveness of our financial reporting processes and internal controls.”
New heading “Risks Relating to our Common Stock and the Offering”
New heading “Future sales or potential sales of our common stock in the public market could cause our share price to decline.”
New heading “Because we will not pay dividends on our common stock in the foreseeable future, stockholders will only benefit from owning common stock if it appreciates.”
New heading “We are a smaller reporting company within the meaning of the Securities Act, and if we take advantage of certain exemptions from disclosure requirements available to smaller reporting companies, this could make our securities less attractive to investors and may make it more difficult to compare our performance with other public companies.”
New heading “Because our shares of common stock are subject to the penny stock rules, it is more difficult to trade our shares.”
New heading “The price of our common stock may be subject to wide fluctuations.”
New heading “You may lose all of your investment.”
New heading “We may, in the future, issue additional shares of common stock, which would reduce investors’ percent of ownership and dilute our share value”
New heading “Liability of directors for breach of duty is limited under Nevada law.”
New heading “We do not anticipate paying any cash dividends on our common stock in the foreseeable future and, as such, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.”
New heading “Sales of a substantial number of shares of our common stock in the public market by certain of our stockholders could cause our stock price to fall.”
New heading “The issuance of a large number of shares of our common stock could significantly dilute existing stockholders and negatively impact the market price of our common stock.”
New heading “We may issue additional shares of preferred stock in the future that may adversely impact your rights as holders of our common stock.”
New heading “Each of our Second Amended and Restated Articles of Incorporation and our Amended and Restated Bylaws provide that the Eighth Judicial District Court of Clark County, Nevada will be the sole and exclusive forum for certain disputes which could limit stockholders’ ability to obtain a favorable judicial forum for disputes with the Company or its directors, officers, employees or agents.”
Largest changes
“If an actual or perceived security breach occurs, the market perception of our security measures could be harmed, and we could lose sales and customers and/or suffer other negative consequences to our business. A security breach could adversely affect the digital content experience and cause the loss or corruption of data, which could harm our business, financial condition and operating results. …”see in full comparison
“In the area of information security and data protection, many jurisdictions have passed laws requiring notification when there is a security breach for personal data or requiring the adoption of minimum information security standards that are often vaguely defined and difficult to implement. Our security measures and standards may not be sufficient to protect personal information and we cannot guarantee that our security measures will prevent security breaches. …”see in full comparison
“Our financial situation creates doubt whether we will continue as a going concern.”see in full comparison
“Customers view our content online, using third-party platforms and networks and on mobile devices. We collect and store significant amounts of information about our customers—both personally identifying and non-personally identifying information. We are subject to laws from a variety of jurisdictions regarding privacy and the protection of this player information. …”see in full comparison
“Customer interaction with our content is subject to our privacy policy and terms of service. If we fail to comply with our posted privacy policy or terms of service or if we fail to comply with existing privacy-related or data protection laws and regulations, it could result in proceedings or litigation against us by governmental authorities or others, which could result in fines or judgments against us, damage our reputation, impact our financial condition and harm our business. …”see in full comparison
“Intellectual property litigation could expose us to significant costs and liabilities and thus negatively affect our business, financial condition and results of operations.”see in full comparison
Full comparison: every changed paragraph (142)
Investing in our securities involves a high degree of risk. You should consider and read carefully all of the risks and uncertainties described below, as well as other information contained in this prospectus, before making an investment decision with respect to our securities. The occurrence of any of the following risks or those incorporated by reference, or additional risks and uncertainties not presently known to us or that we currently believe to be immaterial could materially and adversely affect our business, financial condition, results of operations or cash flows. In any such case, the trading price of common stock and the trading price of Series A warrants, if any, could decline, and you may lose all or part of your investment. This prospectus also contains forward-looking statements and estimates that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of specific factors, including the risks and uncertainties described below and those incorporated by reference.
Risks Related to our Business
The Company is a development stage business and subject to the many risks associated with new businesses.
Our current line of business has a limited operating history and our business is subject to all of the risks inherent in the establishment of a new business enterprise. Our likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with development and expansion of a new business enterprise. We have incurred losses and may continue to operate at a net loss for at least the next several years as we execute our business plan. We had a net loss of approximately $17.31 million for the six months ended June 30, 2026, working capital of approximately $1.12 million and accumulated deficit of approximately $280.22 million.
Our financial situation creates doubt whether we will continue as a going concern.
There can be no assurances that we will be able to achieve a level of revenues adequate to generate sufficient cash flow from operations or obtain funding or additional financing through private placements, public offerings and/or bank financing necessary to support our working capital requirements. To the extent that funds generated from any private placements, public offerings and/or bank financing are insufficient, we will have to raise additional working capital and no assurance can be given that additional financing will be available, or if available, will be on acceptable terms. These conditions raise substantial doubt about our ability to continue as a going concern. If adequate working capital is not available, we may be forced to discontinue operations, which would cause investors to lose their entire investment.
Based on the report from our independent auditors dated May 3, 2026, except for Note 13, as to which the date is July 17, 2026, management stated that our financial statements for the year ended December 31, 2025, were prepared assuming substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial statements. The Company’s 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.
We are not profitable and may never be profitable.
Since inception through the present, we have been dependent on raising capital to support our working capital needs. During this same period, we have recorded net accumulated losses and are yet to achieve profitability. Our ability to achieve profitability depends upon many factors, including our ability to develop and commercialize our websites. There can be no assurance that we will ever achieve any significant revenues or profitable operations.
Our operating expenses exceed our revenues and will likely continue to do so for the foreseeable future.
We are in an early stage of our development and we have not generated sufficient revenues to offset our operating expenses. Our operating expenses will likely continue to exceed our operating income for the foreseeable future, until such time as we are able to monetize our brands and generate substantial revenues, particularly as we undertake payment of the increased costs of operating as a public company.
We will need additional capital, which may be difficult to raise as a result of our limited operating history or any number of other reasons.
We expect that we will need to raise additional capital within the next 12 months. However, in the event that we exceed our expected growth, we would need to raise additional capital. There is no assurance that additional equity or debt financing will be available to us when needed, on acceptable terms, or even at all. Our limited operating history makes investor evaluation and an estimation of our future performance substantially more difficult. As a result, investors may be unwilling to invest in us or such investment may be offered on terms or conditions that are not acceptable. In the event that we are not able to secure financing, we may have to scale back our growth plans or cease operations.
We face intense competition. If we do not provide services that are useful to users, we may not remain competitive, and our potential revenues and operating results could be adversely affected.
Our business is rapidly evolving and intensely competitive, and is subject to changing technologies, shifting user needs, and frequent introductions of new products and services. Our ability to compete successfully depends heavily on providing services that are useful and enjoyable for our users.
We face competition from other companies in all of our business segments. Our current and potential competitors range from large and established companies to emerging start-ups. Established companies have longer operating histories and more established relationships with customers and users, and they can use their experience and resources in ways that could affect our competitive position, including by making acquisitions, investing aggressively in research and development, aggressively initiating intellectual property claims (whether or not meritorious) and competing aggressively for users and customers. Emerging start-ups may be able to innovate and provide products and services faster than we can.
As technology continues to develop, our competitors may be able to offer user experiences that are, or that are seen to be, substantially similar to or better than, ours. This may force us to compete in different ways and expend significant resources in order to remain competitive. If our competitors are more successful than we are in attracting and retaining users, customers, and advertisers, our revenues and operating results could be adversely affected.
If we fail to retain existing users or add new users, or if our users decrease their level of engagement with our products, our revenue, financial results, and business may be significantly harmed.
The size of our user base and our user’s level of engagement are critical to our success. Our financial performance will be significantly determined by our success in adding, retaining, and engaging active users of our products, particularly Vocal. We anticipate that our active user growth rate will generally decline over time as the size of our active user base increases, and it is possible that the size of our active user base may fluctuate or decline in one or more markets, particularly in markets where we have achieved higher penetration rates. If people do not perceive Vocal to be useful, reliable, and trustworthy, we may not be able to attract or retain users or otherwise maintain or increase the frequency and duration of their engagement. A number of other content management systems and publishing platforms that achieved early popularity have since seen their active user bases or levels of engagement decline, in some cases precipitously. There is no guarantee that we will not experience a similar erosion of our active user base or engagement levels. Our user engagement patterns have changed over time, and user engagement can be difficult to measure, particularly as we introduce new and different products and services. Any number of factors could potentially negatively affect user retention, growth, and engagement, including if:
•Users increasingly engage with other competitive products or services;
•We fail to introduce new features, products or services that users find engaging or if we introduce new products or services, or make changes to existing products and services, that are not favorably received;
•User behavior on any of our products changes, including decreases in the quality and frequency of content shared on our products and services;
•There are decreases in user sentiment due to questions about the quality or usefulness of our products or our user data practices, or concerns related to privacy and sharing, safety, security, well-being, or other factors;
•We are unable to manage and prioritize information to ensure users are presented with content that is appropriate, interesting, useful, and relevant to them;
•We are unable to obtain or attract engaging third-party content;
•Users adopt new technologies where our products may be displaced in favor of other products or services, or may not be featured or otherwise available;
•There are changes mandated by legislation, regulatory authorities, or litigation that adversely affect our products or users;
•Technical or other problems prevent us from delivering our products in a rapid and reliable manner or otherwise affect the user experience, such as security breaches or failure to prevent or limit spam or similar content;
•We adopt terms, policies, or procedures related to areas such as sharing, content, user data, or advertising that are perceived negatively by our users or the general public;
•We elect to focus our product decisions on longer-term initiatives that do not prioritize near-term user growth and engagement;
•We make changes in how we promote different products and services across our family of apps;
•Initiatives designed to attract and retain users and engagement are unsuccessful or discontinued, whether as a result of actions by us, third parties, or otherwise;
•We fail to provide adequate customer service to users, marketers, developers, or other partners;
•We, developers whose products are integrated with our products, or other partners and companies in our industry are the subject of adverse media reports or other negative publicity, including as a result of our or their user data practices; or
•Our current or future products, such as our development tools and application programming interfaces that enable developers to build, grow, and monetize mobile and web applications, reduce user activity on our products by making it easier for our users to interact and share on third-party mobile and web applications.
If we are unable to maintain or increase our user base and user engagement, our revenue and financial results may be adversely affected. Any decrease in user retention, growth, or engagement could render our products less attractive to users, marketers, and developers, which is likely to have a material and adverse impact on our revenue, business, financial condition, and results of operations. If our active user growth rate continues to slow, we will become increasingly dependent on our ability to maintain or increase levels of user engagement and monetization in order to drive revenue growth.
We face competition from traditional media companies, and we may not be included in the advertising budgets of large advertisers, which could harm our operating results.
In addition to internet companies, we face competition from companies that offer traditional media advertising opportunities. Most large advertisers have set advertising budgets, a very small portion of which is allocated to Internet advertising. We expect that large advertisers will continue to focus most of their advertising efforts on traditional media. If we fail to convince these companies to spend a portion of their advertising budgets with us, or if our existing advertisers reduce the amount they spend on our programs, our operating results would be harmed.
Acquisitions may disrupt growth.
We may pursue strategic acquisitions in the future. Risks in acquisition transactions include difficulties in the integration of acquired businesses into our operations and control environment, difficulties in assimilating and retaining employees and intermediaries, difficulties in retaining the existing clients of the acquired entities, assumed or unforeseen liabilities that arise in connection with the acquired businesses, the failure of counterparties to satisfy any obligations to indemnify us against liabilities arising from the acquired businesses, and unfavorable market conditions that could negatively impact our growth expectations for the acquired businesses. Fully integrating an acquired company or business into our operations may take a significant amount of time. We cannot assure you that we will be successful in overcoming these risks or any other problems encountered with acquisitions and other strategic transactions. These risks may prevent us from realizing the expected benefits from acquisitions and could result in the failure to realize the full economic value of a strategic transaction or the impairment of goodwill and/or intangible assets recognized at the time of an acquisition. These risks could be heightened if we complete a large acquisition or multiple acquisitions within a short period of time.
Our business depends on strong brands and relationships, and if we are not able to maintain our relationships and enhance our brands, our ability to expand our base of users, advertisers and affiliates will be impaired and our business and operating results could be harmed.
Maintaining and enhancing our brands’ profiles may require us to make substantial investments and these investments may not be successful. If we fail to promote and maintain the brands’ profiles, or if we incur excessive expenses in this effort, our business and operating results could be harmed. We anticipate that, as our market becomes increasingly competitive, maintaining and enhancing our brands’ profiles may become increasingly difficult and expensive. Maintaining and enhancing our brands will depend largely on our ability to be a technology leader and to continue to provide attractive products and services, which we may not do successfully.
We depend on our key management personnel and the loss of their services could adversely affect our business.
We place substantial reliance upon the efforts and abilities of Jeremy Frommer, our Chief Executive Officer, and our other executive officers and directors. Though no individual is indispensable, the loss of the services of these executive officers could have a material adverse effect on our business, operations, revenues or prospects. We do not currently maintain key man life insurance on the lives of these individuals.
If we are unable to protect our intellectual property, the value of our brands and other intangible assets may be diminished, and our business may be adversely affected.
We rely and expect to continue to rely on a combination of confidentiality, assignment, and license agreements with our employees, consultants, and third parties with whom we have relationships, as well as trademark, copyright, patent, trade secret, and domain name protection laws, to protect our proprietary rights. In the United States and internationally, we have filed various applications for protection of certain aspects of our intellectual property, and we currently hold a number of registered trademarks and issued patents in multiple jurisdictions and have acquired patents and patent applications from third parties. Third parties may knowingly or unknowingly infringe our proprietary rights, third parties may challenge proprietary rights held by us, and pending and future trademark and patent applications may not be approved. In addition, effective intellectual property protection may not be available in every country in which we operate or intend to operate our business. In any or all of these cases, we may be required to expend significant time and expense in order to prevent infringement or to enforce our rights. Although we have generally taken measures to protect our proprietary rights, there can be no assurance that others will not offer products or concepts that are substantially similar to ours and compete with our business. In addition, we regularly contribute software source code under open source licenses and have made other technology we developed available under other open licenses, and we include open source software in our products. If the protection of our proprietary rights is inadequate to prevent unauthorized use or appropriation by third parties, the value of our brands and other intangible assets may be diminished and competitors may be able to more effectively mimic our products, services, and methods of operations. Any of these events could have an adverse effect on our business and financial results.
We are subject to payment processing risk.
We accept payments using a variety of different payment methods, including credit and debit cards and direct debit. We rely on third parties to process payments. Acceptance and processing of these payment methods are subject to certain certifications, rules and regulations. To the extent there are disruptions in our or third-party payment processing systems, material changes in the payment ecosystem, failure to recertify and/or changes to rules or regulations concerning payment processing, we could be subject to fines and/or civil liability, or lose our ability to accept credit and debit card payments, which would harm our reputation and adversely impact our results of operations.
We are subject to risk as it relates to software that we license from third parties.
We license software from third parties, much of which is integral to our systems and our business. The licenses are generally terminable if we breach our obligations under the license agreements. If any of these relationships were terminated or if any of these parties were to cease doing business or cease to support the applications we currently utilize, we may be forced to spend significant time and money to replace the licensed software.
Failures or reduced accessibility of third-party software on which we rely could impair the availability of our platform and applications and adversely affect our business.
We license software from third parties for integration into our Vocal platform, including open source software. These licenses might not continue to be available to us on acceptable terms, or at all. While we are not substantially dependent upon any third-party software, the loss of the right to use all or a significant portion of our third-party software required for the development, maintenance and delivery of our applications could result in delays in the provision of our applications until we develop or identify, obtain and integrate equivalent technology, which could harm our business.
Any errors or defects in the hardware or software we use could result in errors, interruptions, cyber incidents or a failure of our applications. Any significant interruption in the availability of all or a significant portion of such software could have an adverse impact on our business unless and until we can replace the functionality provided by these applications at a similar cost. Furthermore, this software may not be available on commercially reasonable terms, or at all. The loss of the right to use all or a significant portion of this software could limit access to our platform and applications. Additionally, we rely upon third parties’ abilities to enhance their current applications, develop new applications on a timely and cost-effective basis and respond to emerging industry standards and other technological changes. We may be unable to effect changes to such third-party technologies, which may prevent us from rapidly responding to evolving customer requirements. We also may be unable to replace the functionality provided by the third-party software currently offered in conjunction with our applications in the event that such software becomes obsolete or incompatible with future versions of our platform and applications or is otherwise not adequately maintained or updated.
We need to manage growth in operations to maximize our potential growth and achieve our expected revenues and our failure to manage growth will cause a disruption of our operations, resulting in the failure to generate revenue.
In order to maximize potential growth in our current and potential markets, we believe that we must expand our marketing operations. This expansion will place a significant strain on our management and our operational, accounting, and information systems. We expect that we will need to continue to improve our financial controls, operating procedures, and management information systems. We will also need to effectively train, motivate, and manage our employees. Our failure to manage our growth could disrupt our operations and ultimately prevent us from generating the revenues we expect.
In order to achieve the general strategies of our company we need to maintain and search for hard-working employees who have innovative initiatives, while at the same time, keep a close eye on any and all expanding opportunities in our marketplace.
We plan to generate a significant portion of our revenues from advertising and affiliate sales relationships, and a reduction in spending by or loss of advertisers and general decrease in online spending could adversely harm our business.
We plan to generate a substantial portion of our revenues from advertisers. Our advertisers may be able to terminate prospective contracts with us at any time. Advertisers will not continue to do business with us if their investment in advertising with us does not generate sales leads, and ultimately customers, or if we do not deliver their advertisements in an appropriate and effective manner. If we are unable to remain competitive and provide value to our advertisers, they may stop placing ads with us, which would adversely affect our revenues and business. In addition, expenditures by advertisers tend to be cyclical, reflecting overall economic conditions and budgeting and buying patterns. Adverse macroeconomic conditions can also have a material negative impact on the demand for advertising and cause our advertisers to reduce the amounts they spend on advertising, which could adversely affect our revenues and business.
Security breaches could harm our business.
Security breaches have become more prevalent in the technology industry. We believe that we take reasonable steps to protect the security, integrity and confidentiality of the information we collect, use, store and disclose, but there is no guarantee that inadvertent (e.g., software bugs or other technical malfunctions, employee error or malfeasance, or other factors) or unauthorized data access or use will not occur despite our efforts. Although we have not experienced any material security breaches to date, we may in the future experience attempts to disable our systems or to breach the security of our systems. Techniques used to obtain unauthorized access to personal information, confidential information and/or the systems on which such information are stored and/or to sabotage systems change frequently and generally are not recognized until launched against a target. As a result, we may be unable to anticipate these techniques or to implement adequate preventative measures.
Management's Discussion & Analysis (MD&A)
New heading “The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to those set forth in “Part I - Item 1A. Risk Factors” of the Company’s most recent Annual Report.”
New heading “We believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating this “Management’s Discussion and Analysis of Financial Condition and Results of Operation.””
New heading “Use of Estimates and Critical Accounting Estimates and Assumptions”
New heading “Fair Value of Financial Instruments”
New heading “Long-lived Assets Including Acquired Intangible Assets”
New heading “Minority equity investments”
New heading “Derivative Liability”
New heading “Revenue Recognition”
New heading “Deferred Revenue”
New heading “Stock-Based Compensation”
New heading “Recently Adopted Accounting Guidance”
New heading “Recently Issued Accounting Standards Not Yet Adopted”
Removed heading “Creator-Centric Strategy”
Removed heading “Branded Content”
Removed heading “Consumer Products Group”
Removed heading “IP Development and Production”
Removed heading “Application of First-Party Data”
Removed heading “Competitive Advantage”
Removed heading “Acquisition Strategy”
Removed heading “Corporate History and Information”
Removed heading “Recent Developments”
Removed heading “Dorado Goose Transaction”
Removed heading “Quotation on OTCQB”
Removed heading “Board of Directors and Management”
Removed heading “Common Stock Purchase Agreement, Securities Purchase Agreement and Promissory Note”
Removed heading “The February 2023 Securities Purchase Agreement”
Removed heading “Appointment of new Chief Financial Officer”
Largest changes
“The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to those set forth in “Part I - Item 1A. Risk Factors” of the Company’s most recent Annual Report.”see in full comparison
“We believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating this “Management’s Discussion and Analysis of Financial Condition and Results of Operation.””see in full comparison
“Common Stock Purchase Agreement, Securities Purchase Agreement and Promissory Note”see in full comparison
“Use of Estimates and Critical Accounting Estimates and Assumptions”see in full comparison
“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. …”see in full comparison
Full comparison: every changed paragraph (194)
The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to those set forth in “Part I - Item 1A. Risk Factors” of the Company’s most recent Annual Report.
ThisThese Formcondensed 10-Qconsolidated financial statements and other reports filed by Creatd,
Inc. Inc., (the “Company”), from time to time with the SECOTC or otherwise provided to current and prospective stakeholders (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.
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 condensed consolidated financial statements as well as the reported
amounts of revenues and expenses during the periods presented. Our condensed consolidated 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.report.
We intend for this discussion to provide information
that will assist in understanding our condensed consolidated financial statements, the changes in certain key items in those condensed consolidated financial statements, and the primary
factors that accounted for those changes, as well as how certain accounting principles affect our condensed consolidated financial statements. This discussion
should be read in conjunction with our financial statements and accompanying notes for the year ended December 31, 2022, which are included
in the Company’s Annual Report on Form 10-K that was filed with the SEC on April 19, 2023.
Creatd operates a diversified portfolio of businesses generating revenue across media, publishing, and aviation. Our operations include direct-to-consumer product sales, subscription memberships, advertising, licensing, and strategic investments. These businesses are supported by a shared operational infrastructure and a focus on monetizing first-party data, intellectual property, and scalable creative assets.
Creatd, Inc. provides economic opportunities for
creators through access to its curated social platform called Vocal, enabling creators to share their stories, build an audience, and
be rewarded. In addition to revenues generated directly from the platform from subscribers and microtransactions, the existence of Vocal,
and the first-party data it produces, has resulted in the creation of numerous derivative business opportunities for the Company. Secondary
opportunities with the potential to eventually exceed the core Vocal revenues include well-known brands activating through the Vocal platform
under Creatd’s “Vocal for Brands” business unit. In addition to this branded content production, the establishment of
a portfolio of consumer brands owned and operated in-house, will similarly leverage the core data and intelligence derived from the Company’s
core Vocal platform.
Creator-Centric Strategy
Creatd exists to support the boundless capacity
of creators. Our mission is to empower creators by providing best-in-class tools, supportive audience communities, and avenues for monetization.
Our creator-first approach is the cornerstone of our culture and purpose and is what drives every decision we make. We are committed to
channeling our resources toward fueling the dreams and ambitions of creators and helping them to unleash their full potential.
That’s why we built our flagship proprietary
technology platform, Vocal-a home base for creators offering an unparalleled suite of digital tools and resources, curated communities,
and monetization opportunities.
Vocal
Our flagship technology, Vocal, provides the Company
with a core platform that is highly scalable on its own but also provides the foundation upon which other revenue sources rely. The first
direct core business of Vocal has proven to be a scalable revenue source-Creator Subscriptions. The core will be augmented in the near
term with the introduction of the ability for writers and creators to monetize their followings further by directly charging for premium
content such as newsletters. Vocal will charge a recurring commission on these new premium content subscriptions. As discussed above,
the core Vocal platform underlies numerous derivative revenue sources for the Company.
Since its launch in 2016, Vocal has quickly become
the go-to platform for content creators of all kinds, with over 1.5 million registered creators and counting. Whether you’re a blogger,
social media influencer, podcaster, founder, musician, photographer, or anything in between, Vocal has everything you need to unleash
your creativity and monetize your content.
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.
At Creatd, we believe in rewarding creators for
their hard work and dedication. That’s why we offer a range of monetization features on Vocal, whereby creators earn in numerous
ways including i) the number of ‘reads’ their story receives; ii) via Vocal Challenges, or writing contests with cash prizes;
iii) receiving Bonuses; iv) by participating in Vocal for Brands marketing 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 be compensated for referring new premium members. But what sets Vocal apart from other platforms
is our commitment to innovation and scalability. Built on Keystone, the same open-source framework used by industry leaders in the SaaS
space, Vocal’s technology is designed for speed, sustainability, and scalability. And with our capital-light infrastructure and
focus on research and development, we are able to continuously improve and enhance the platform, without incurring the operational costs
that have weighed down legacy media platforms.
Creatd firmly believes that the future belongs
to creators. And with Vocal, we’re proud to be leading the charge in providing them with the tools, resources, and opportunities
they need to succeed.
Branded Content
In developing our creator ecosystem, we came to
understand that like individual creators, all brands have a unique story to tell. That’s why we’ve developed Vocal for Brands,
our in-house content studio that specializes in creating best-in-class organic marketing campaigns. Our approach combines the production
of branded content influencer and performance marketing initiatives that work together to increase sales, revenue, visibility, and brand
affinity for our clients.
We work with leading brands to pair them with
our network of creators, tapping into their communities to help share their stories in a way that is engaging, direct-response driven,
and non-interruptive. Similarly, through Sponsored Challenges, we prompt the creation of thousands of high-quality stories that are centered
around the brand’s mission, further disseminated through creators’ respective social channels and promotional outlets.
Our campaigns are amplified with the help of Vocal’s
first-party data insights, allowing us to create highly targeted, segmented audiences for brands with optimal results.
Consumer Products Group
At Creatd, we are proud of our internally owned
and operated e-commerce businesses and associated technology and infrastructure. Our Consumer Products Group has grown to become a significant
revenue contributor and we continue to invest in our portfolio to support direct-to-consumer brands with a wide range of services including
design and development, marketing and distribution, and go-to-market strategies. We additionally remain on the lookout for up-and-coming
brands that can potentially be acquired and easily consolidated into our shared supply chain, resources, and infrastructure to further
broaden our portfolio.
The Company’s Consumer Products portfolio
currently includes:
Camp, a direct-to-consumer (DTC) food brand
which creates healthy upgrades to classic comfort food favorites. Each of Camp’s products is created with servings of vegetables
and contains Vitamins A, C, D, E, B1, and 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, Equinox, and the Los Angeles-based Erewhon Market.
Basis is a hydrating electrolyte drink
mix that was acquired in the first quarter of 2022. This brand has a history of strong sales volume both on the brand’s website
as well as through third-party distribution channels such as Amazon.
Brave is a plant-based food company
that provides convenient and healthy breakfast food products. Our Company acquired 100% of the membership interests of Brave Foods, LLC
in September 2022. What started as a search for a better morning routine evolved into a business serving thousands of go-getters of every
type. We are thrilled to have these amazing brands as part of our portfolio and we are excited to continue expanding our Consumer Products
portfolio.
IP Development and Production
At Creatd, we’re always looking for ways
to bring our creators’ stories to new audiences across different media. Our IP Development and Production efforts involve partnering
with our top creators to develop their content for television, film, podcasts, and print. With our cutting-edge Vocal platform, we have
access to a wealth of intellectual property that’s constantly being curated by a blend of human moderation and advanced machine
learning models. Our Vocal technology allows us to analyze community, creator, and audience insights to surface the best candidates for
transmedia adaptations. We’re committed to leveraging our vast library of compelling stories to create engaging and impactful content
across multiple platforms. As of early 2023, Creatd announced a series of newly released and production projects. They include podcasts,
books, and Web 3.0 opportunities.
Application of First-Party Data
First-party data is information that a creator
platform collects directly from its users, such as their demographics, interests, and behaviors. By utilizing this data, Vocal’s
creator platform can gain insights into its users’ preferences and tailor marketing campaigns accordingly.
For example, a large segment of Vocal users is
interested in health and fitness, as evidenced through the Longevity community. This information can additionally be used not only to
create more personalized experiences for Vocal audiences, but additionally to help fitness-oriented brands create targeted campaigns for
workout equipment, supplements, or fitness apparel. With our ability to understand users’ niche interests and behaviors, the platform
can create campaigns that resonate with its audience and drive better engagement and conversions.
The use of first-party data also helps the creator
platform maintain a closer relationship with its users, as it enables a more personalized experience of content consumption and engagement
for Vocal users. This can lead to higher retention rates, increased user loyalty, and improved user satisfaction. Finally, our business
intelligence team pairs first-party Vocal data with third-party data from distribution platforms such as Instagram, TikTok, Twitter, and
Snapchat providing a more granular profile of creators, brands, and audiences. By generating this valuable first-party data, the Company
can continually enrich and refine its targeting capabilities for branded content marketing and creator acquisition, specifically, to reduce
creator acquisition costs (CAC) and subscriber acquisition costs (SAC).
Competitive Advantage
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, and the
competitive advantage that a closed and safe platform ecosystem would provide. First-party data is widely understood as a tool for companies
to collect and analyze data about their users directly from the source, providing valuable insights into their behaviors, preferences,
and interests. Importantly, by leveraging this data within a closed and safe platform ecosystem, companies can create more personalized
experiences for their users, deliver more relevant content and advertising, and increase user engagement and retention.
A secondary, and crucial, advantage of a closed
ecosystem is that it allows companies to control the user experience and ensure a high level of safety and security. By controlling the
data that is shared and the interactions that take place within the ecosystem, companies can minimize the risk of fraud, abuse, and other
harmful behaviors that can undermine user trust and loyalty. This can be particularly important in industries where user safety and privacy
are paramount, such as social networking, e-commerce, and financial services.
Finally, the existence of Vocal and its ecosystem
enables the Company to optimize our operations and increase efficiencies, effectively creating a more defensible business model by reducing
the risk of competition and disintermediation. By controlling the data and interactions within the ecosystem, we create barriers to entry
for competitors and reduce the risk of users migrating to other platforms. This can be particularly important in an industry such as Creatd’s,
in which network effects and economies of scale are critical to success, such as social networking, e-commerce, and digital advertising.
Leveraging these advantages has enabled the Company
to differentiate itself in the market, attract and retain users, and drive sustainable growth and profitability.
Acquisition Strategy
Creatd’s strategic business line expansion
has led to the acquisition of several complementary businesses. These acquisitions have allowed Creatd to expand its reach and diversify
its revenue streams, enabling the company to leverage its internal resources and expertise to drive continued growth. In addition, the
acquisitions have provided opportunities for cost synergies and operational efficiencies, further enhancing the company’s profitability
and positioning it for long-term success.
Revenue Model
Creatd’s revenues are primarily generated through:
Platform: Creatd’s flagship
technology product, Vocal, generates revenues through subscription fees from premium Vocal creators, a membership program known as Vocal+.
The Vocal+ subscription offering provides creators with increased monetization and access to premium tools and features. At approximately
$10 per month, Vocal+ offers creators a strong value proposition for freemium users to upgrade, while providing a scalable source of monthly
recurring gross revenue for Creatd. Additional platform-based revenues are generated from Tipping and other transactions that occur on
the platform. For each such transaction, which are designed to enable Vocal audiences to engage and support their favorite creators, Vocal
takes platform processing fees ranging from approximately 3% to 7%.
E-commerce: The majority of the Company’s
e-commerce revenues comes from sales associated with Creatd’s portfolio of internally owned and operated e-commerce businesses,
Camp, Dune, Basis, and Brave. Additionally, the Company’s e-commerce strategy involves revitalizing archival imagery and media content
in dormant legacy portfolios. Creatd maintains an exclusive license to leverage the stories housed on Vocal, reimagining them for films,
episodic shows, games, graphic novels, collectibles, books, and more.
Agency: The Company derives revenues
from marketing partnerships through its internal branded content studio, Vocal for Brands, which specializes in pairing leading brands
with select Vocal creators to produce content marketing campaigns, including sponsored Challenges, that leverage the power of Vocal. Branded
stories and Challenges are distributed to a targeted audience based on Vocal’s first-party data, and are optimized for conversions
to maximize revenue growth.
Corporate History and Information
We were 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.
On February 5, 2016 (the “Merger Closing
Date”), we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with GPH Merger Sub, Inc., a Nevada
corporation and our wholly-owned subsidiary (“Merger Sub”), and Jerrick Ventures, Inc., a privately-held Nevada corporation
headquartered in New Jersey (“Jerrick”), pursuant to which the Merger Sub was merged with and into Jerrick, with Jerrick surviving
as our wholly-owned subsidiary (the “Merger”). Pursuant to the terms of the Merger Agreement, we acquired, through a reverse
triangular merger, all of the outstanding capital stock of Jerrick in exchange for issuing Jerrick’s shareholders (the “Jerrick
Shareholders”), pro-rata, a total of 475,000 shares of our common stock, par value $0.001 per share (“Common Stock”).
Additionally, we assumed 33,415 shares of Jerrick’s Series A Convertible Preferred Stock (the “Jerrick Series A Preferred”)
and 8,064 shares of Series B Convertible Preferred Stock (the “Jerrick Series B Preferred”).
Upon closing of the Merger on February 5, 2016,
the Company changed its business plan to our current plan.
In connection with the Merger, on the Merger Closing
Date, we entered into a Spin-Off Agreement with Kent Campbell (the “Spin-Off Agreement”), pursuant to which Mr. Campbell purchased
(i) all of our interest in Ashland Holdings, LLC, a Florida limited liability company, and (ii) all of our interest in Lil Marc, Inc.,
a Utah corporation, in exchange for the cancellation of 13,030 shares of our common stock held by Mr. Campbell. In addition, Mr. Campbell
assumed all of our debts, obligations and liabilities, including any existing prior to the Merger, pursuant to the terms and conditions
of the Spin-Off Agreement.
Effective February 28, 2016, we entered into an
Agreement and Plan of Merger (the “Statutory Merger Agreement”), pursuant to which we became the parent company of Jerrick
Ventures, LLC, our wholly-owned operating subsidiary (the “Statutory Merger”).
On February 28, 2016, we changed our name to Jerrick
Media Holdings, Inc. to better reflect our new business strategy.
On July 25, 2019, we filed a certificate of amendment
to our articles of incorporation, as amended (the “Amendment”), with the Secretary of State of the State of Nevada to effectuate
a one-for-twenty (1:20) reverse stock split (the “Reverse Stock Split”) of our common stock without any change to its par
value. The Amendment became effective on July 30, 2019. The number of shares of authorized common stock was proportionately reduced as
a result of the Reverse Stock Split. The number of shares of authorized preferred stock was not affected by the Reverse Stock Split. No
fractional shares were issued in connection with the Reverse Stock Split as all fractional shares were “rounded up” to the
next whole share.
On September 11, 2019, the Company acquired 100%
of the membership interests of Seller’s Choice, LLC, a New Jersey limited liability company (“Seller’s Choice”).
Seller’s Choice is digital e-commerce agency based in New Jersey. On March 3, 2022, the Company settled the Seller’s Choice
Note for a cash payment of $799,000.
On July 13, 2020, upon approval from our board
of directors and stockholders, we filed Second Amended and Restated Articles of Incorporation with the Secretary of State of the State
of Nevada for the purpose of increasing our authorized shares of Common Stock to 100,000,000.
On August 13, 2020, we filed a certificate of
amendment to our second amended and restated articles of incorporation (the “Amendment”), with the Secretary of State of the
State of Nevada to effectuate a one-for-three (1:3) reverse stock split (the “August 2020 Reverse Stock Split”) of our common
stock without any change to its par value. The Amendment became effective on August 17, 2020. No fractional shares were issued in connection
with the August 2020 Reverse Stock Split as all fractional shares were rounded down to the next whole share. All share and per share amounts
of our common stock listed in this Form 10-K have been adjusted to give effect to the August 2020 Reverse Stock Split.
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.
Between October 21, 2020, and August 16, 2021,
the Company acquired 21% of the membership interests of Dune, Inc. Dune, Inc. is a direct-to-consumer brand focused on promoting wellness
through its range of health-oriented beverages.
On June 4, 2021, the Company acquired 89% of the
membership interests of Plant Camp, LLC, a Delaware limited liability company (“Plant Camp”), which the Company subsequently
rebranded as Camp. Camp is a direct-to-consumer (DTC) food brand which creates healthy upgrades to classic comfort food favorites. The
results of Plant Camp’s operations have been included since the date of acquisition in the Statements of Operations.
On July 20, 2021, the Company acquired 44% of
the membership interests of WHE Agency, Inc. WHE Agency, Inc, is a talent management and public relations agency based in New York (“WHE”).
On October 3, 2021, the Company acquired an additional
29% of the membership interests of Dune, Inc., bringing our total membership interests to 50%.
CRTD insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 0 Form 4 filings and open-market sales in 0 filings. Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
No Form 4 stock transactions in this period.
Well-known investors holding CRTD (13F)
None of the 59 investors we track reported a position in their latest 13F.