Creatd, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. This Form 10-Q and other reports filed by Creatd, Inc. (the “Company”), from time to time with the SEC (collectively, the “Filings”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the Filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks relating to the Company’s business, industry, and the Company’s operations and results of operations. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results. Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. The following discussion should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this Form 10-Q. We intend for this discussion to provide information that will assist in understanding our financial statements, the changes in certain key items in those financial statements, and the primary factors that accounted for those changes, as well as how certain accounting principles affect our financial statements. This discussion should be read in conjunction with our financial statements and accompanying notes for the year ended December 31, 2021, which are included in the Company’s Annual Report on Form 10-K that was filed with the SEC on April 6, 2022. Overview Creatd, Inc. is a company whose mission is to provide economic opportunities to creators and brands by multiplying the impact of platforms, people, and technology. We operate four main business segments, or ‘pillars’: Creatd Labs, Creatd Partners, Creatd Ventures, and Creatd Studios. Together, Creatd’s pillars work together to create a flywheel effect, supporting our core vision of creating a viable ecosystem for all stakeholders in the creator economy. 40 Creator-Centric Strategy Our purpose is to empower creators to prosper through exceptional tools, built-in communities, and opportunities for monetization and audience expansion. This creator-first approach is the foundation of our culture and mission, and how we choose to allocate our resources. Creatd Labs Creatd Labs is dedicated to the development of technology products that support the creator economy. This pillar houses Creatd’s proprietary technology platforms, including Creatd’s flagship product, Vocal. Vocal Vocal was built to serve as a home base for digital creators. This robust, proprietary technology platform provides best-in-class tools, safe and curated communities, and monetization opportunities that enable creators to find a receptive audience and get rewarded. Creators of all types call Vocal their home, from bloggers to social media influencers, to podcasters, founders, musicians, photographers, and more. Since its initial launch in 2016, Vocal has grown to be one of the fastest-growing communities for content creators of all shapes and sizes. Creators can opt to use Vocal for free, or upgrade to the premium membership tier, Vocal+. Upon joining Vocal, either as a freemium or premium member, creators can immediately begin to utilize Vocal’s storytelling tools to create and publish their stories, as well as benefit from Vocal’s monetization features. Creatd facilitates creators’ monetization on Vocal in numerous different ways, including i) by rewarding creators for each ‘read’ their story receives; ii) via Vocal Challenges, or writing contests through which creators can win cash and other rewards; iii) by awarding Bonuses; iv) by connecting creators with brands for opportunities to collaborate on Vocal for Brands branded content campaigns; v) through ‘Subscribe,’ which enables creators to receive payment directly from their audience via monthly subscriptions and one-off microtransactions; vi) via Vocal’s Ambassador Program, which enables creators to receive additional rewards whenever they refer a new Vocal+ member. In July 2022, Creatd released the first iteration of the new Vocal app for iOS, giving its premium Vocal+ members exclusive first access to the app ahead of its full release, expected in mid-August 2022. The app, which was designed based on Vocal audience insights, is focused on optimizing Vocal’s readership; the app works to increase audience’s ability to easily discover curated stories, thereby widening creators' distribution of content, and opening up new opportunities for monetization to creators. Vocal+ Vocal+ is Vocal’s premium membership program. Subscribers pay a membership fee to access additional premium features on the platform, including: a higher rate of earnings per read, reduced platform processing fees on tips received, eligibility to participate in exclusive Vocal+ Challenges, access to Vocal’s ‘Quick Edit’ feature for published stories, and more. The current cost of a Vocal+ membership is either $9.99 per month or $99 annually. Moderation and Compliance One of the key differentiating factors between Vocal and most other user-generated content platforms is the fact that each story submitted to Vocal is run through the Company’s proprietary moderation process before it goes live on the platform. The decision to implement moderation into the submission process was in direct response to the rise of misinformation and bad actors on many social platforms. In response to these inherent pitfalls within the content landscape, Vocal’s proprietary moderation system combines the algorithmic detection of copyrighted material, hate speech, graphic violence, and nudity, and human-led curation to ensure the quality and safety of each story published on Vocal, thus fostering a safe and trustworthy environment for creators, audiences, and brands. During the second quarter 2022, Creatd announced Vocal’s new integration partnership with Two Hat, a Microsoft acquiree and a leading provider of AI-assisted content moderation and protection solutions for digital communities. Through the partnership, the Company further updated its proprietary moderation technology, with the aim of ensuring that the Vocal platform remains a safe place for its creators, brand partners, and audiences. Trust and safety are paramount to the Vocal ecosystem. We follow best practices when handling personally identifiable information, with guidance from the European Union’s General Data Protection Regulation (GDPR), the California Consumer Privacy Act (CCPA), and the Digital Millennium Copyright Act (DMCA). 41 Platform Compliance Policies include: ● Human-led, technology-assisted moderation of every story submitted; ● Algorithmic detection of hate speech, nudity, and copyright infringement; ● Brand, creator, and audience safety enforced through community watch; and ● The rejection of what we consider toxic content, with the understanding that diverse opinions are encouraged. Technology Development Vocal’s proprietary technology is built on Keystone, the same underlying open-source framework used by industry leaders such as Atlassian, a $43-billion Australian technology company. Some of the key differentiating elements of Vocal’s technology are speed, sustainability, and scalability. The Company continues to invest heavily in research and development to continuously improve and innovate its platform, with the goal of optimizing the user experience for creators. Additionally, the Vocal platform and its underlying technology allow us to maintain an advantageous capital-light infrastructure. By using cloud service providers, we are able to focus on platform and revenue growth rather than building and maintaining the costly internal infrastructures that have materially affected so many legacy media platforms. Vocal’s technology has been specifically designed and built to scale without a material corresponding increase in operational costs. While our users can embed rich media, such as video, audio, and product links, into their Vocal stories, the rich media content is hosted elsewhere (such as YouTube, Instagram, Vimeo, Shopify, Spotify, etc.). Thus, our platform can accommodate rich media content of all kinds without bearing the financial or operational costs associated with hosting the rich media itself. In addition to the benefits this framework affords to the Company, it provides the additional benefit to our content creators, in that a creator can increase their monetization; for example, a creator can embed their YouTube video into a Vocal story and thus derive earnings from both platforms when their video is viewed. Creatd Partners Creatd Partners houses the Company’s agency businesses, with the goal of fostering partnerships between creators and brands. Creatd Partners’ offerings include: Vocal for Brands (content marketing), WHE Agency (influencer marketing), and Seller’s Choice (performance marketing). Vocal for Brands All brands have a story to tell, and we leverage Vocal’s creator community to help them tell it. Vocal for Brands, Creatd’s content marketing studio, specializes in pairing leading brands with Vocal creators as well as WHE influencers to produce marketing campaigns that are non-interruptive, engaging, and direct-response driven. Additionally, brands can opt to collaborate with Vocal on a sponsored Challenge, prompting the creation of high-quality stories that are centered around the brand’s mission and further disseminated through creators’ respective social channels and promotional outlets. All Vocal for Brands campaigns leverage Vocal’s first-party audience insights, which enables the creation of highly targeted and segmented audiences and optimized campaign results. 42 WHE Agency The WHE Agency (“WHE”), acquired by Creatd in 2021, was founded with the goal of supporting top creators and influencers, by connecting them with leading brands and global audiences. Today, WHE manages a talent roster comprising over 100 creators across numerous verticals, including family and lifestyle, music, entertainment, and celebrity categories. Since acquiring WHE, the Company has helped WHE expand into new verticals, as well as facilitated partnerships on influencers’ behalf with leading brands including CBS, Amazon, Target, Disney, Warby Parker, CVS, Kay Jewelers, Walmart, Gerber, Masterclass, Procter & Gamble, Nike, and NFL, among others. Seller’s Choice Seller’s Choice is Creatd Partners’ performance marketing agency specializing in DTC (direct-to-consumer) and e-commerce clientele. Seller’s Choice provides direct-to-consumer brands with design, development, strategy, and sales optimization services. Creatd Ventures Creatd Ventures houses Creatd’s portfolio of e-commerce businesses, both majority and minority-owned as well as associated e-commerce technology and infrastructure. The Company supports founders by providing capital, as well as a host of services including design and development, marketing and distribution, and go-to-market strategy. While working to scale Creatd Ventures’ existing portfolio brands, including through the introduction of new product offerings, Creatd continues to actively explore new potential additions to the Creatd Ventures portfolio. Specifically, the Company expects to broaden Creatd Ventures’ portfolio through the acquisition of brands that are aligned and that can be easily consolidated into its supply chain and infrastructure. Currently, the Creatd Ventures portfolio includes: ● Camp , a direct-to-consumer (DTC) food brand which creates healthy upgrades to classic comfort food favorites. Each of Camp’s products are created with hidden servings of vegetables and contain Vitamins A, C, D, E, B1 + B6. Since its launch in 2020, Camp continues to add new products to its line of healthy, veggie-based, family-friendly foods, with flavors including Classic Cheddar Mac ‘N’ Cheese, White Cheddar Mac ‘N’ Cheese, Vegan Cheezy Mac, and Twist Veggie Pasta. ● Dune Glow Remedy (“Dune”), which the Company purchased and brought to market in 2021, is a beverage brand focused on promoting wellness and beauty from within. Each beverage in Dune’s product line is meticulously crafted with functional ingredients that nourish skin from the inside out and enhance one’s natural glow. During 2022, Dune has continued to advance its retail and wholesale distribution strategy, securing numerous partnerships including with lifestyle retailer Urban Outfitters and the Los Angeles-based Erewhon Market. Further, Creatd Ventures continues to leverage these and other successful partnerships to create similar opportunities for the other brands in its portfolio. ● Basis , a hydrating electrolyte drink mix formulated using rehydration therapies developed by the World Health Organization. Acquired by the Company in first quarter 2022, Basis has a history of strong sales volume both on the brand’s website as well as through third-party distribution channels such as Amazon. Creatd’s acquisition of 100% ownership in Basis marks its third majority ownership acquisition for Creatd Ventures. Creatd Studios The goal of Creatd Studio s is to partner with creators to produce stories for TV, film, podcasts, and print. With millions of compelling stories in its midst, Creatd’s Vocal technology surfaces the best candidates for transmedia adaptations, through a deep analysis of community, creator, and audience insights. Then, Creatd Studios helps creators tell their existing stories in new ways, by partnering them with entertainment and publishing studios to create unique content experiences that accelerate earnings, discoverability, and foster new opportunities. ● In 2022, Creatd Studios announced a series of newly released and upcoming production projects, including: “Write Here, Write Now,” the Company’s first-ever podcast showcasing select Vocal creators and stories; a partnership with UK-based publisher, Unbound, for the publication of books featuring stories sourced from Vocal; the formation of a new graphic novel development arm which in Fall 2022 will release its first title, Steam Wars , created by artist and independent filmmaker Larry Blamire. ● OG Gallery: The OG Collection is an extensive library of original artwork and imagery from the archives of some of the most ic onic magazines of the 20th century. OG Gallery is an exploratory initiative aimed at identifying opportunities to propel the OG Collection into a new technological sphere: the NFT marketplace. 43 Application of First-Party Data Creatd’s business intelligence and marketing teams identify and target individual creators, communities, and brands, utilizing empirical data harnessed from the Vocal platform. The team’s ability to apply its proprietary first-party data works to reduce acquisition costs for new creators and to help provide brands with conversions and an ideal targeted audience. In this way, our ability to apply first-party data is one of the value-drivers for the Company across its four business pillars. Importantly, we do not sell the collected data, that being a common monetization opportunity for many other businesses. Instead, we use our collected first party data for the purposes of bettering the platform. Specifically, our data helps us understand the behaviors and attributes that are common among the creators, brands, and audiences within our ecosystem. We then pair our first-party Vocal data with third-party data from distribution platforms such as Facebook and Snapchat to provide a more granular profile of our creators, brands, and audiences. It is through generating this valuable first-party data that we can continually enrich and refine our targeting capabilities for branded content promotion and creator acquisition, and specifically, to reduce our creator acquisition costs (CAC) and subscriber acquisition costs (SAC). Competition The idea for Vocal came as a response to what Creatd’s founders recognized as systemic flaws inherent to the digital media industry and its operational infrastructures. The depreciating value of digital media business models built on legacy technology platforms created a unique opportunity for the development of a creator-centric platform that could appeal to a global community and, at the same time, be capable of acquiring undervalued complimentary technology assets. Creatd’s founders built the Vocal platform upon the general thesis that a closed and safe ecosystem utilizing first-party data to increase efficiencies could create a sustainable and defensible business model. Vocal was strategically developed to provide value for content creators, readers, and brands, and to serve as a home for the ever-increasing amount of digital content being produced and the libraries of digital assets lying dormant. Vocal is most commonly discussed as a combination of: ● Medium, a platform for writers built by former Twitter founder Ev Williams; ● Reddit, a social news aggregation, web content rating, and discussion website; and ● Patreon, a membership platform that provides business tools for content creators to run a subscription service. Creatd does not view Vocal as a substitute or competitor to segment-specific content platforms, such as Vimeo, YouTube, Instagram, Pinterest, TikTok, Spotify, or SoundCloud. We don’t want to replace anyone; we built Vocal to be accretive to the entire digital ecosystem. In fact, one of the most powerful components of our technology is the fact that Vocal makes it easy for creators to embed their existing published content, including videos, songs, podcasts, photographs, and more, directly into Vocal. We see this as a growth opportunity by building partnerships with the world’s greatest technology companies and to further spread our roots deeper into the digital landscape 44 Acquisition Strategy Creatd’s hybrid finance and design culture is key to its acquisition strategy. Acquisition targets are companies that meet a set of opportunistic or financial standards or that are part of specific digital environments that are accretive and can seamlessly integrate into Creatd’s existing revenue lines. Creatd will continue to make strategic acquisitions when presented with opportunities that are in the interest of shareholder value. Recent Developments Nasdaq - Continued Listing On March 1, 2022, the Company received a letter from the staff of The Nasdaq Capital Market (the “Exchange”) notifying the Company that the Exchange has determined to delist the Company’s common stock from the Exchange based on the Company’s Market Value of Listed Securities for the 30-consecutive day period between January 15, 2022 and February 25, 2022 falling short of the requirements under Listing Rule 5550(b)(2) (the “Rule”). Although a 180-day period is typically allowed for an issuer to regain compliance, the Company was not eligible to use such compliance period, as the Exchange had instituted a Panel Monitor through March 9, 2022. The Company pursued an appeal to the Nasdaq Hearings Panel (the “Panel”) of such determination, in accordance with the Exchange’s rules and, pursuant to such request by the Company to appeal, the delisting of the Company’s securities and the Form 25 Notification of Delisting filing was stayed pending the Panel’s decision. On April 22, 2022, the Exchange notified the Company that the Panel has determined to continue the listing of the Company on the Exchange, subject to the following conditions: (i) on or before May 16, 2022, the Company will file its Quarterly Report on Form 10-Q for the period ended March 31, 2022 demonstrating compliance with Nasdaq Listing Rule 550(b)(1) requiring shareholders’ equity of $2.5 million and (ii) on or before August 29, 2022, the Company will file a Form 8-K documenting the successful completion of any fund-raising activity that has taken place since April 14, 2022 and the Company’s long-term compliance with the continued listing requirements of the Nasdaq Capital Market. The Panel has advised that August 29, 2022 represents the full extent of the Panel’s discretion to grant continued listing during the time the Company is non-compliant and should the Company fail to demonstrate compliance by such date, the Panel will issue a final delist determination and the Company will be suspended from trading on the Exchange. Securities Purchase Agreement On May 31, 2022, the Company entered into and closed securities purchase agreements (each, a “Purchase Agreement”) with eight accredited investors (the “Investors”), whereby the Investors purchased from the Company for an aggregate of $3,600,036 in subscription amount (i) debentures in the principal amount of $4,000,000 (the “Debentures”); (ii) 2,000,000 Series C Common Stock Purchase Warrants to purchase shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”) (the “Series C Warrants”); and (iii) 2,000,000 Series D Common Stock Purchase Warrants to purchase shares of Common Stock (the “Series D Warrants”, and collectively with the Series C Warrants, the “Warrants”). The Company and the Investors also entered into registration rights agreements (each, a “Registration Rights Agreement”) pursuant to the Purchase Agreement. The Debentures have an original issue discount of 10%, have a term of six months with a maturity date of November 30, 2022, may be extended by six months at the Company’s option subject to certain conditions, and are convertible into shares of Common Stock at a conversion price of $2.00 per share, subject to adjustment upon certain events including a one-time adjustment to the price of the Common Stock offered in the Rights Offering (as defined therein), with such adjusted conversion price not to be lower than $1.00. The Warrants are exercisable for a term of five years from the initial exercise date of November 30, 2022, until November 30, 2027. The Series C Warrants are exercisable at an exercise price of $3.00, subject to adjustment upon certain events including a one-time adjustment to the price of the Common Stock offered in the Rights Offering, with such adjusted exercise price not to be lower than $0.96. The Series D Warrants are exercisable at an exercise price of $6.00 subject to adjustment upon certain events including a one-time adjustment to the price of the Common Stock offered in the Rights Offering, with such adjusted exercise price not to be lower than $0.96. The Warrants provide for cashless exercise to the extent that there is no registration statement available for the underlying shares of Common Stock. The shares underlying the Debentures, the Series C Warrants and the Series D Warrants are to be registered within 90 days of the Effective Date. Additionally, in connection with the Purchase Agreements, the subsidiaries of the Company delivered a guarantee (the “Guarantee”) in favor of the Investors whereby each such subsidiary guaranteed the full payment and performance of all obligations of the Company pursuant to the Purchase Agreement. The Debentures, Warrants, Common Stock underlying the Debentures and the Common Stock underlying the Warrants were not registered under the Securities Act, but qualified for exemption under Section 4(a)(2) and Rule 506 promulgated thereunder. The Company is relying on this exemption from registration for private placements based in part on the representations made by Investors, including representations with respect to each Investor’s status as an accredited investor, as such term is defined in Rule 501(a) of the Securities Act, and each Investor’s investment intent. 45 Results of Operations Liquidity and Capital Resources The following table summarizes total current assets, liabilities and working capital at June 30, 2022 compared to December 31, 2021: June 30, 2022 December 31, 2021 Increase / (Decrease) Current Assets $ 2,601,258 $ 4,475,242 $ (1,873,984 ) Current Liabilities $ 9,497,442 $ 5,421,015 $ 4,076,427 Working Capital (Deficit) $ (6,896,184 ) $ (945,773 ) $ (5,950,411 ) At June 30, 2022, we had a working capital deficit of $6,896,184as compared to a working capital deficit of $945,773 at December 31, 2021, an increase in working capital deficit of $5,950,411. The increase is primarily attributable to a reduction in cash, prepaid expenses and other current assets, an increase in accounts payable and notes payable, as well as an increase in deferred revenue resulting primarily from an increase in Vocal+ customers opting for annual subscriptions, whose revenues are amortized over a 12-month period. This was offset by an increase in accounts receivable. On January 30, 2020, the World Health Organization declared the COVID-19 novel coronavirus outbreak a “Public Health Emergency of International Concern” and on March 10, 2020, declared it to be a pandemic. Actions taken around the world to help mitigate the spread of the coronavirus include restrictions on travel, and quarantines in certain areas, and forced closures for certain types of public places and businesses. The COVID-19 coronavirus and actions taken to mitigate it have had and are expected to continue to have an adverse impact on the economies and financial markets of many countries, including the geographical area in which the Company operates. While it is unknown how long these conditions will last and what the complete financial impact will be to the Company, capital raising efforts and our operations may be negatively affected. Net Cash Net cash used in operating activities for the six months ended June 30, 2022, and 2021, was $(10,620,156) and $(10,996,578), respectively. The net loss for the six months ended June 30, 2022, and 2021 was $(15,585,986) and $(15,205,713), respectively. The decrease in net cash used in operating activities reflects a decrease in cash paid for marketing expenditures, research and development, legal fees, and accounting & audit fees. Net cash used in investing activities for the six months ended June 30, 2022, was $367,240. This is primarily attributable to the purchase of digital assets, including Metaverse plots in Decentraland, the OG Gallery NFT portfolio and cryptocurrencies Ethereum, Polygon and Mana, as well as physical property and equipment. Net cash provided by financing activities for the six months ended June 30, 2022, and 2021 was $8,778,934 and $5,967,733, respectively. During the six months ended June 30, 2022, the Company’s operations were predominantly financed by net proceeds of $4,997,301 from the sale of common stock and warrants and $5,152,350 from the proceeds of notes payable, which were partially offset by the repayments of notes payable. Similarly, the Company’s financing activity for the six months ended June 30, 2021, generated $1,312,672 from the exercises of warrants, the proceeds of which were partially offset by repayment of notes of $1,218,718. Summary of Statements of Operations for the Three Months Ended June 30, 2022, and 2021: Three Months Ended June 30, 2022 2021 Revenue $ 1,625,901 $ 970,857 Cost of revenue $ (1,794,419 ) $ (731,309 ) Operating expenses $ (7,824,906 ) $ (8,620,343 ) Loss from operations $ (7,993,424 ) $ (8,380,795 ) Other income (expenses) $ (711,514 ) $ (181,681 ) Net loss $ (8,704,938 ) $ (8,562,476 ) Loss per common share - basic and diluted $ (0.41 ) $ (0.81 ) 46 Revenue Revenue totaled $1,625,901 for the three months ended June 30, 2022, as compared to $970,857 for the comparable three months ended June 30, 2021, an increase of $655,044. The 67% increase in revenue is attributable to the steady growth of Creatd Partners (influencer and content marketing) which increased 19% year-over-year, as well as Creatd Ventures (e-Commerce), which generated sales totaling $634,966 across its portfolio of CPG brands, including Basis, which the Company acquired in the previous quarter, and continues to demonstrate revenue momentum. This growth was offset by a decrease in total revenues generated from Creatd Labs (Vocal and technology development), which comes as a result of the Company’s strategic shift in Vocal+ marketing toward driving annual versyus monthly subscriptions, with annual subscriptions being amortized over a 12-month period; the Company’s efforts continue to result in a steady increase in annual subscriptions. Going forward, the Company anticipates continued momentum as Creatd Ventures continues to grow sales and introduce new product SKUs for its portfolio of brands, continues to expand its retail and wholesale distribution partnerships, and completes additional direct-to-consumer brand acquisitions; as Creatd Partners expands its influencer and content marketing offerings and methodically increases its average revenue per brand campaign; as Creatd Labs increases conversion from freemium to Vocal+ subscriptions, supported by the recent launch of the new Vocal app as well as the introduction of new and upcoming Vocal features aimed at increasing creator audience growth, engagement, and monetization. In addition, during 2022, Creatd anticipates its first material revenue contribution from its fourth business segment Creatd Studios (Transmedia production). Cost of Revenue Cost of revenue for the three months ended June 30, 2022, were $1,794,419 as compared to $731,309 for the three months ended June 30, 2021. The increase of $1,063,110 in cost of revenue is related to an increase in payouts to Vocal creators, whose earnings are generated through content reads, winning Challenges, and other means. Additionally, the increase in cost of revenue is correlated with continued growth within the Creatd Ventures business segment, including sales growth for existing brands as well as the acquisition and integration of additional brands, which results in increases in inventory-related and other costs. Going forward, the Company expects the gross margin to continue to improve over time as Creatd Ventures continues to consolidate operations across its portfolio of e-commerce brands and, more broadly, as the Company continues to grow and scale a self-sustaining, organically driven revenue model across its business segments. Operating Expenses Operating expenses for the three months ended June 30, 2022, were $7,824,906 as compared to $8,620,343 for the three months ended June 30, 2021. The decrease of $795,437 in operating expenses is primarily attributable to the Company’s decrease in marketing expenses. This was offset by an increase in research and development, stock-based compensation, and general and administrative accounts, including office rent, employee compensation and productivity enhancing software & tools. During the second quarter of 2022, the company’s non-cash charges totaled $2,814,980, a $457,798 increase from second quarter 2021. This increase primarily represents an increase in stock-based compensation to employees and consultants during the quarter. The Company expects expenditures to decrease over coming quarters, as the Company continues to optimize and reduce its marketing expenditure and scrutinize many of the contributing expenses within G&A. Already, the Company has, subsequent to the second quarter, taken steps to reduce headcount materially to gain efficiencies, integrate acquired operations, reduce future expenses and other market factors. Loss from Operations Loss from operations for the three months ended June 30, 2022, was $7,993,424 as compared to $8,380,795 for the three months ended June 30, 2021. The $387,371 decrease in the loss from operations this quarter primarily reflects the decrease from total operating expenses. This was offset by the decrease from gross loss. Other Income and (Expenses) Other income (expenses) for the three months ended June 30, 2022, were $(711,514) as compared to $(181,681) for the three months ended June 30, 2021. The increase in second quarter 2022 other income was predominantly due to the increase in accretion of debt discount and issuance cost and a decrease from the gain on extinguishment of debt. This was offset by a decrease in interest expense and impairment of investment. 47 Net Loss Net loss for the three months ended June 30, 2022, was $8,704,938, as compared to a net loss of $8,562,476 for the three months ended June 30, 2021. Net loss attributable to common shareholders for the three months ended June 30, 2022, was $8,337,066, or loss per share of $0.41, as compared to a net loss attributable to common shareholders of $8,972,794, or loss per share of $0.81, for the three months ended June 30, 2021. Summary of Statements of Operations for the Six Months Ended June 30, 2022, and 2021: Six Months Ended June 30, 2022 2021 Revenue $ 2,974,639 $ 1,714,770 Cost of revenue $ (3,366,589 ) $ (1,940,715 Operating expenses $ (14,610,758 ) $ (14,100,847 ) Loss from operations $ (15,002,708 ) $ (14,326,792 ) Other income (expenses) $ (583,278 ) $ (878,921 ) Net loss $ (15,585,986 ) $ (15,205,713 ) Loss per common share - basic and diluted $ (0.77 ) $ (1.49 ) Revenue Revenue totaled $2,974,639 for the six months ended June 30, 2022, as compared to $1,714,770 for the comparable six months ended June 30, 2021, an increase of $1,259,869. The 73% year-over-year increase in revenue is attributable to overall growth across the Company’s business segments, including growth in creator subscriptions, e-commerce sales, and brand and influencer marketing partnerships. Cost of Revenue Cost of revenue for the six months ended June 30, 2022, were $3,366,589 as compared to $1,940,715 for the six months ended June 30, 2021. The increase of $1,425,874 in cost of revenue is related to an increase in challenge- and read-related payouts to Vocal creators, as well as Company’s first-quarter 2022 acquisition of Basis and an increase in inventory related cost of revenues correlating with revenue growth within Ventures. The Company expects the gross margin to continue to improve over time as it continues to grow and improve upon a self-sustaining, organically driven revenue model across its business segments. Operating Expenses Operating expenses for the six months ended June 30, 2022, were $14,610,758 as compared to $14,100,847 for the six months ended June 30, 2021. The increase of $509,911 in operating expenses is mainly related to an increase in general and administrative expenses, including office rent, travel and entertainment, software and tools, and compensation. This increase was partially offset by a decrease in marketing expenses. The Company expects expenditures to decrease as the Company normalizes its marketing costs and scrutinizes many of the contributing expenses within G&A. 48 Loss from Operations Loss from operations for the six months ended June 30, 2022, was $15,002,708 as compared to $14,326,792 for the six months ended June 30, 2021. The $675,916 increase in the loss from operations primarily reflects an increase in general and administrative expenses, including office rent, travel and entertainment, software and tools, and compensation, as well as a decrease in gross margin. Going forward, the Company expects the loss from operations to decrease as revenues continue to increase and expenses achieve normalcy levels. Other Income and (Expenses) Other income (expenses) for the six months ended June 30, 2022, were $(583,278) as compared to $(878,921) for the six months ended June 30, 2021. The decrease in other income was predominantly due to a decrease in interest expense, accretion of debt discount and issuance cost, derivative expense, market to market of derivative liability, and Impairment of investment. This was offset by a decrease in gain on forgiveness of debt and gain on settlement of vendor liabilities. Net Loss Net loss for the six months ended June 30, 2022, was $15,585,986, as compared to a net loss of $15,205,713 for the six months ended June 30, 2021. Net loss attributable to common shareholders for the six months ended June 30, 2022, was $14,681,956, or loss per share of $0.77, as compared to a net loss attributable to common shareholders of $15,616,031, or loss per share of $1.49, for the six months ended June 30, 2021. Off-Balance Sheet Arrangements As of June 30, 2022, we had no off-balance sheet arrangements. Significant Accounting Policies Our significant accounting policies are described in Note 2 of the Financial Statements. If we complete an acquisition, we will be required to make estimates and assumptions typical of other companies. For example, we will be required to make critical accounting estimates related to valuation and accounting for business combinations. The estimates will require us to rely upon assumptions that were highly uncertain at the time the accounting estimates are made, and changes in them are reasonably likely to occur from period to period. Changes in estimates used in these and other items could have a material impact on our financial statements in the future. Our estimates will be based on our experience and our interpretation of economic, political, regulatory, and other factors that affect our business prospects. Actual results may differ significantly from our estimates. For detailed information regarding our critical accounting policies and estimates, see our financial statements and notes thereto included in this Report and in our Annual Report on Form 10-K for the year ended December 31, 2021. There have been no material changes to our critical accounting policies and estimates from those disclosed in our most recent Annual Report on Form 10-K. Item 3. Quantitative and Qualitative Disclosures About Market Risk. There have been no material changes in our exposures to market risk since December 31, 2021. For details on the Company’s interest rate, foreign currency exchange, and credit risks, see “Item 7A. Quantitative and Qualitative Information About Market Risks” in our 2021 Annual Report.