Prairie Operating Co. - Quarter Report: 2021 September (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 000-33383
CREEK ROAD MINERS, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 98-0357690 | |
(State or other jurisdiction of incorporation) |
(IRS Employer Identification No.) |
2700 Homestead Road, Suite 50
Park City, UT 84098
(Address of principal executive offices)
435-900-1949
(Registrant’s telephone number, including area code)
n/a
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| n/a | n/a | n/a |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files. Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☐ | Smaller reporting company | ☒ |
| Emerging Growth Company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 12, 2021, there were shares outstanding of the registrant’s common stock.
TABLE OF CONTENTS
| PART I – FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements | F-1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 3 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 13 |
| Item 4. | Controls and Procedures | 13 |
| PART II – OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 14 |
| Item 1A. | Risk Factors | 14 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 14 |
| Item 3. | Defaults Upon Senior Securities | 14 |
| Item 4. | Mine Safety Disclosures | 14 |
| Item 5. | Other Information | 15 |
| Item 6. | Exhibits | 16 |
| Signatures | 17 | |
| 2 |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
Creek Road Miners, Inc.
September 30, 2021
Index to the Condensed Consolidated Financial Statements
| F-1 |
Creek Road Miners, Inc.
Condensed Consolidated Balance Sheets
| September 30, 2021 | December 31, 2020 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 3,866,417 | $ | 1,897,703 | ||||
| Accounts receivable, net | 1,641 | 33,452 | ||||||
| Inventory | 133,031 | 220,641 | ||||||
| Prepaid convention expenses | - | 3,625 | ||||||
| Prepaid expenses | 200,807 | 62,066 | ||||||
| Total Current Assets | 4,201,896 | 2,217,487 | ||||||
| Property and equipment, net | 1,146,231 | 58,501 | ||||||
| Intangibles, net | - | 132,000 | ||||||
| Operating lease right of use asset, net | 138,102 | 244,072 | ||||||
| Security deposits | 18,201 | 18,303 | ||||||
| Total Assets | $ | 5,504,430 | $ | 2,670,363 | ||||
| Liabilities and Stockholders’ Deficit | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 3,069,859 | $ | 3,474,061 | ||||
| Unearned revenue | 15,398 | 758,847 | ||||||
| Operating lease liability | 32,341 | 108,713 | ||||||
| Convertible promissory note – related party, net | 2,500,000 | 2,500,000 | ||||||
| Due to CONtv joint venture | - | 224,241 | ||||||
| Total Current Liabilities | 5,617,598 | 7,065,862 | ||||||
| Operating lease liability, net | 113,942 | 137,694 | ||||||
| Notes payable, net | 545,162 | 347,500 | ||||||
| Convertible debenture, net | 2,250,170 | 1,964,216 | ||||||
| Total Liabilities | 2,909,274 | 9,515,272 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders’ Deficit | ||||||||
| Preferred stock-Series A Cumulative and Convertible par value $: shares authorized; and shares issued and outstanding, respectively | 23 | 17 | ||||||
| Preferred stock-Series B Cumulative and Convertible par value $: shares authorized; and shares issued and outstanding, respectively | - | - | ||||||
| Common stock par value $0.0001: shares authorized; and shares issued and outstanding, respectively | 649 | 351 | ||||||
| Additional paid-in capital | 31,952,687 | 23,206,367 | ||||||
| Accumulated deficit | (34,963,303 | ) | (30,039,146 | ) | ||||
| Non-controlling interest | (12,498 | ) | (12,498 | ) | ||||
| Total Stockholders’ Deficit | (3,022,442 | ) | (6,844,909 | ) | ||||
| Total Liabilities and Stockholders’ Deficit | $ | 5,504,430 | $ | 2,670,363 | ||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| F-2 |
Creek Road Miners, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||
| Revenues | $ | 148,397 | $ | 601,042 | $ | 754,297 | $ | 4,019,838 | ||||||||
| Cost of revenues | 176,815 | 274,518 | 640,092 | 2,779,838 | ||||||||||||
| Gross margin | (28,418 | ) | 326,524 | 114,205 | 1,240,039 | |||||||||||
| Operating expenses | ||||||||||||||||
| Share-based compensation | 339,050 | 269,925 | 723,827 | 310,522 | ||||||||||||
| Salaries and benefits | 376,802 | 258,702 | 1,223,948 | 725,038 | ||||||||||||
| Consulting fees | 1,142,787 | 145,190 | 3,657,113 | 371,350 | ||||||||||||
| General and administrative | 305,719 | 254,196 | 1,389,802 | 706,135 | ||||||||||||
| Total operating expenses | 2,164,358 | 926,055 | 6,994,690 | 2,111,087 | ||||||||||||
| Loss from operations | (2,192,776 | ) | (599,531 | ) | (6,880,485 | ) | (871,048 | ) | ||||||||
| Other income (expenses) | ||||||||||||||||
| Interest expense | (294,498 | ) | (144,295 | ) | (764,009 | ) | (456,835 | ) | ||||||||
| Other income | 754,457 | 1,589,597 | 10,000 | |||||||||||||
| Gain on sale of assets | 1,130,740 | 1,130,740 | ||||||||||||||
| Total other income (expenses) | 1,590,699 | (144,295 | ) | 1,956,328 | (446,835 | ) | ||||||||||
| Loss before income tax provision | (602,077 | ) | (743,826 | ) | (4,924,157 | ) | (1,317,883 | ) | ||||||||
| Income tax provision | ||||||||||||||||
| Net loss | (602,077 | ) | (743,826 | ) | (4,924,157 | ) | (1,317,883 | ) | ||||||||
| Series A Preferred dividends | 209,196 | 33,174 | 266,094 | 33,174 | ||||||||||||
| Net loss attributable to common stockholders | $ | (392,881 | ) | $ | (710,652 | ) | $ | (4,658,063 | ) | $ | (1,284,709 | ) | ||||
| Loss per share - basic | $ | (0.07 | ) | $ | (0.20 | ) | $ | (1.21 | ) | $ | (0.37 | ) | ||||
| Loss per share - diluted | $ | (0.07 | ) | $ | (0.20 | ) | $ | (1.21 | ) | $ | (0.37 | ) | ||||
| Weighted average common shares outstanding - basic | 5,607,877 | 3,506,752 | 3,865,416 | 3,506,752 | ||||||||||||
| Weighted average common shares outstanding - diluted | 5,607,877 | 3,506,752 | 3,865,416 | 3,506,752 | ||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| F-3 |
Creek Road Miners, Inc.
Condensed Consolidated Statement of Stockholders’ Deficit
(unaudited)
For the Three Months Ended September 30, 2021
Series A Preferred Stock Par value $0.0001 | Series B Preferred Stock Par value $0.0001 | Common Stock Par value $0.0001 | Additional Paid In | Accumulated | Non-controlling | Stockholders’ | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Interest | Deficit | |||||||||||||||||||||||||||||||
| Balance, June 30, 2021 | 226,523 | $ | 22 | 2,500 | $ | 3,629,452 | $ | 363 | $ | 27,648,733 | $ | (34,361,226 | ) | $ | (12,498 | ) | $ | (6,724,606 | ) | |||||||||||||||||||||
| Share-based compensation | 9,249 | 1 | - | - | 436,487 | 436,488 | ||||||||||||||||||||||||||||||||||
| Issuance of common stock – net of offering costs | - | - | 2,433,340 | 243 | 3,249,757 | 3,250,000 | ||||||||||||||||||||||||||||||||||
| Issuance of Series B preferred shares – net of offering costs | - | 1,000 | - | 813,995 | 813,995 | |||||||||||||||||||||||||||||||||||
| Conversion of Series B preferred shares to common stock | - | (600 | ) | 432,000 | 43 | (43 | ) | |||||||||||||||||||||||||||||||||
| Series A Preferred declared dividends | - | - | - | (196,242 | ) | (196,242 | ) | |||||||||||||||||||||||||||||||||
| Net loss | - | - | - | (602,077 | ) | (602,077 | ) | |||||||||||||||||||||||||||||||||
| Balance, September 30, 2021 | 235,772 | $ | 23 | 2,900 | $ | 6,494,792 | $ | 649 | $ | 31,592,688 | $ | (34,963,303 | ) | $ | (12,498 | ) | $ | (3,022,442 | ) | |||||||||||||||||||||
For the Three Months Ended September 30, 2020
Series A Preferred Stock Par value $0.0001 | Preferred Stock Par value $0.0001 | Common Stock Par value $0.0001 | Additional Paid In | Accumulated | Non-controlling | Stockholders’ | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Interest | Deficit | |||||||||||||||||||||||||||||||
| Balance, June 30, 2020 | $ | 288,448 | $ | 29 | 3,506,752 | $ | 351 | $ | 21,894,731 | $ | (28,672,802 | ) | $ | (12,498 | ) | $ | (6,790,189 | ) | ||||||||||||||||||||||
| Share-based compensation | - | - | - | - | - | - | 269,826 | - | - | 269,826 | ||||||||||||||||||||||||||||||
| Cancellation of Preferred shares | - | - | (288,448 | ) | (29 | ) | - | - | (709,553 | ) | - | - | (709,582 | ) | ||||||||||||||||||||||||||
| Issuance of preferred stock for settlement of accrued liabilities | 173,974 | 17 | - | - | - | - | 1,739,726 | - | - | 1,739,743 | ||||||||||||||||||||||||||||||
| Deemed dividend | - | - | - | - | - | - | (33,174 | ) | - | - | (33,174 | ) | ||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | (743,826 | ) | - | (743,826 | ) | ||||||||||||||||||||||||||||
| Balance, September 30, 2020 | 173,974 | $ | 17 | $ | 3,506,752 | $ | 351 | $ | 23,161,556 | $ | (29,416,628 | ) | $ | (12,498 | ) | $ | (6,267,202 | ) | ||||||||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| F-4 |
Creek Road Miners, Inc.
Condensed Consolidated Statement of Stockholders’ Deficit
(unaudited)
For the Nine Months Ended September 30, 2021
Series A Preferred Stock Par value $0.0001 | Series B Preferred Stock Par value $0.0001 | Common Stock Par value $0.0001 | Additional Paid In | Accumulated | Non-controlling | Stockholders’ | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Interest | Deficit | |||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | 173,974 | $ | 17 | $ | 3,506,752 | $ | 351 | $ | 23,206,367 | $ | (30,039,146 | ) | $ | (12,498 | ) | $ | (6,844,909 | ) | ||||||||||||||||||||||
| Share-based compensation | 61,798 | 6 | - | - | 1,157,661 | 1,157,667 | ||||||||||||||||||||||||||||||||||
| Warrants issued for services | - | - | - | 1,562,881 | 1,562,881 | |||||||||||||||||||||||||||||||||||
| Issuance of common stock – net of offering costs | - | - | 2,556,040 | 255 | 3,292,920 | 3,293,175 | ||||||||||||||||||||||||||||||||||
| Issuance of Series B preferred shares and warrants – net of offering costs | - | 3,500 | - | 2,998,995 | 2,998,995 | |||||||||||||||||||||||||||||||||||
| Conversion of Series B preferred shares to common stock | - | (600 | ) | 432,000 | 43 | (43 | ) | |||||||||||||||||||||||||||||||||
| Series A Preferred declared dividends | - | - | - | (266,094 | ) | (266,094 | ) | |||||||||||||||||||||||||||||||||
| Net loss | - | - | - | (4,924,157 | ) | (4,924,157 | ) | |||||||||||||||||||||||||||||||||
| Balance, September 30, 2021 | 235,772 | $ | 23 | 2,900 | $ | 6,494,792 | $ | 649 | $ | 31,592,688 | $ | (34,963,303 | ) | $ | (12,498 | ) | $ | (3,022,442 | ) | |||||||||||||||||||||
For the Nine Months Ended September 30, 2020
Series A Preferred Stock Par value $0.0001 | Preferred Stock Par value $0.0001 | Common Stock Par value $0.0001 | Additional Paid In | Accumulated | Non-controlling | Stockholders’ | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Interest | Deficit | |||||||||||||||||||||||||||||||
| Balance, December 31, 2019 | $ | 288,448 | $ | 29 | 3,506,752 | $ | 351 | $ | 21,854,134 | $ | (28,098,745 | ) | $ | (12,498 | ) | $ | (6,256,729 | ) | ||||||||||||||||||||||
| Share-based compensation | - | - | - | - | - | - | 310,423 | - | - | 310,423 | ||||||||||||||||||||||||||||||
| Cancellation of Preferred shares | - | - | (288,448 | ) | (29 | ) | - | - | (709,553 | ) | - | - | (709,582 | ) | ||||||||||||||||||||||||||
| Issuance of preferred stock for settlement of accrued liabilities | 173,974 | 17 | - | - | - | - | 1,739,726 | - | - | 1,739,743 | ||||||||||||||||||||||||||||||
| Deemed dividend | - | - | - | - | - | - | (33,174 | ) | - | - | (33,174 | ) | ||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | (1,317,883 | ) | - | (1,317,883 | ) | ||||||||||||||||||||||||||||
| Balance, September 30, 2020 | 173,974 | $ | 17 | $ | 3,506,752 | $ | 351 | $ | 23,161,556 | $ | (29,416,628 | ) | $ | (12,498 | ) | $ | (6,267,202 | ) | ||||||||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| F-5 |
Creek Road Miners, Inc.
Condensed Consolidated Statements of Cash Flows
| For the Nine Months Ended | ||||||||
| September 30, 2021 | September 30, 2020 | |||||||
| (unaudited) | (unaudited) | |||||||
| Cash Flows From Operating Activities: | ||||||||
| Net loss | $ | (4,924,157 | ) | $ | (1,317,883 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 35,371 | 17,022 | ||||||
| Accretion of debt discount | 285,954 | 8,585 | ||||||
| Right-of-use asset amortization | 5,846 | 392 | ||||||
| Share-based compensation | 2,720,548 | 310,423 | ||||||
| Gain on write-off of CONtv joint venture | (224,241 | ) | ||||||
| Gain on sale of membership interest | (933,216 | ) | ||||||
| Gain on asset purchase agreement | (197,524 | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 5,550 | (5,489 | ) | |||||
| Inventory | (105,671 | ) | (220,641 | ) | ||||
| Prepaid convention expenses | 3,625 | 342,283 | ||||||
| Prepaid expenses | (138,741 | ) | (3,352 | ) | ||||
| Security deposits | (2,398 | ) | (9,029 | ) | ||||
| Accounts payable and accrued expenses | (678,273 | ) | 830,039 | |||||
| Unearned revenue | (743,449 | ) | (823,037 | ) | ||||
| Net Cash Used In Operating Activities | (4,890,776 | ) | (870,687 | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Purchase of intangibles | (139,124 | ) | ||||||
| Purchase of property and equipment | (1,130,342 | ) | (24,591 | ) | ||||
| Net Cash Used In Investing Activities | (1,130,342 | ) | (163,715 | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Proceeds from issuance of Series B preferred shares and warrants - net | 2,998,995 | |||||||
| Proceeds from issuance of common stock - net | 3,293,175 | |||||||
| Proceeds from notes payable | 347,500 | |||||||
| Proceeds from sale of membership interest | 1,500,000 | |||||||
| Net Cash Provided by Financing Activities | 7,989,832 | 347,500 | ||||||
| Net change in cash and cash equivalents | 1,968,714 | (686,902 | ) | |||||
| Cash and cash equivalents at beginning of reporting period | 1,897,703 | 2,777,654 | ||||||
| Cash and cash equivalents at end of reporting period | $ | 3,866,417 | 2,090,752 | |||||
| Supplemental disclosures of cash flow information: | ||||||||
| Interest paid | $ | $ | ||||||
| Income tax paid | $ | $ | ||||||
| Supplemental disclosure of noncash investing and financing activities: | ||||||||
| Deemed dividend | $ | 266,094 | $ | 33,074 | ||||
| Right-of-use assets obtained in exchange for lease obligations | $ | $ | 173,938 | |||||
See accompanying notes to the unaudited condensed financial statements.
| F-6 |
Creek Road Miners, Inc.
September 30, 2021
Notes to the Condensed Consolidated Financial Statements
Note 1 – Organization and Operations
Creek Road Miners, Inc.
Creek Road Miners, Inc., formerly known as Wizard Brands, Inc., formerly GoEnergy, Inc., Wizard World, Inc., and Wizard Entertainment, Inc. (“Creek Road” or the “Company”) was incorporated on May 2, 2001, under the laws of the State of Delaware. The Company, through its operating subsidiary, is a producer of pop culture and live multimedia conventions across North America. Effective October 5, 2018, the Company changed its name to Wizard Entertainment, Inc. On July 29, 2020, the Company changed its name to Wizard Brands, Inc. On July 9, 2021, the Company changed its name to Creek Road Miners, Inc.
Recent Developments
During the nine months ended September 30, 2021, the Company decided to enter the consumer category of digital products known as Non-Fungible Tokens (“NFTs”). NFTs are collectibles where various objects (including pictures, music and video) are digitized. The digital version of the object is sold as a unique, blockchain-authenticated collectible. As part of a move to expand the current NFT minting activities into mining cryptocurrencies, the Company changed its name from Wizard Brands, Inc. to Creek Road Miners, Inc. as noted above. The Company intends to develop and operate, “scaled-up,” bitcoin manufacturing facilities using natural gas to power operations. The first Creek Road Miners facility is expected to be completed and fully operational by the end of 2021 and followed by an aggressive schedule for developing additional sites.
On August 6, 2021, Kick The Can Corp. (“KTC”), a Nevada corporation, a wholly owned subsidiary of Company, entered into an Asset Purchase Agreement (the “Agreement”) with Informa Pop Culture Events, Inc., a Delaware corporation (“Informa”). Pursuant to the Agreement, KTC sold, transferred, and assigned certain assets, properties, and rights to Informa related to the business of operating and producing the following live pop culture events: 1) Wizard World Chicago; 2) Wizard World Cleveland; 3) Wizard World New Orleans; 4) Wizard World Philadelphia; 5) Wizard World Portland; and 6) Wizard World St. Louis. The Company released deferred revenue and other liabilities totaling $722,429 and recognized other income of this amount.
On September 15, 2021, we sold our wholly owned subsidiary which contained our Jevo assets and all rights to our Jevo operations for $1,500,000 and recognized a gain on the transaction of approximately $1,130,740. The following represents a summary of the assets and liabilities in the transaction:
| Current assets | $ | 39,000 | ||
| Inventory | 193,000 | |||
| Fixed assets, net | 18,000 | |||
| Intangible assets | 123,000 | |||
| Payable to Creek Road Miners Inc. | (1,305,000 | ) | ||
Note 2 – Going Concern Analysis
Going Concern Analysis
The Company had a loss of $4,924,157 and $1,317,883 for the nine months ended September 30, 2021 and 2020, respectively. On September 30, 2021, we had cash and cash equivalents of approximately $3.9 million and a working capital deficit of approximately $1.4 million. We have evaluated the significance of these conditions in relation to our ability to meet our obligations, which had previously raised doubts about the Company’s ability to continue as a going concern through November 2022. However, the Company believes that the effects of expansion into mining of cryptocurrencies will guide the Company in a positive direction as we continue to strive to attain profitability.
Because of the ongoing situation with the Covid-19 virus, the Company was unable to produce any live events after the First Quarter of 2020. The Company has indefinitely postponed all of the live shows. In the face of the impact of Covid-19 on live events generally, the Company had focused on producing virtual events. The first such virtual event was an interactive fan experience which took place on March 31, 2020 and since that time the Company has produced approximately 450 virtual events. Those have also been postponed indefinitely. In addition, the Company has moved into e-commerce with online sales of collectables and the creation of the “Wizard World Vault” as a site for consumers to purchase pop-culture memorabilia and collectables and is now moving to expand the current NFT minting activities into mining cryptocurrencies.
On March 29, 2021, the Company entered into a Securities Purchase Agreement (the “Leviston Purchase Agreement”) with Leviston Resources LLC (“Leviston”) dated March 26, 2021, pursuant to which the Company sold to Leviston, and the Leviston purchased from the Company, shares of the Company’s Series B Preferred Stock, par value $ per share Series B Preferred Stock with an aggregate stated value of $5,400,000, a Series B Preferred Stock Purchase Warrant to purchase 5,000 shares of Series B Preferred Stock, having a term expiring on March 26, 2023 and a per share exercise price (subject to adjustment for stock splits, reverse stock splits, mergers or reorganizations, and similar changes affecting shares of the Company’s common stock, par value $ per share and/or securities entitling the holder thereof to acquire shares of Common Stock, as applicable) of $1,000 (the “Series 1 Warrant”), and a Series B Preferred Stock Purchase Warrant to purchase 5,000 shares of Series B Preferred Stock, having a term expiring on March 26, 2024 and a per share exercise price (subject to adjustment for stock splits, reverse stock splits, mergers or reorganizations, and similar changes affecting shares of Common Stock and/or securities entitling the holder thereof to acquire shares of Common Stock, as applicable) of $1,000 (the “Series 2 Warrant” and together with the Series 1 Warrant, the “Warrants,” and together with the Closing Shares, the “Securities”). The aggregate purchase price for the Securities is $5,000,000, which Leviston will pay as follows: $2,000,000 on the Closing Date; $500,000 on or before the date that is three business days from the date that the Company files a registration statement relating to the shares of Common Stock issuable upon conversion of the Closing Shares and the shares of Series B Preferred Stock issuable upon exercise of the Warrants; and $2,500,000 on or before the date that is three business days from the date that such registration statement is declared effective in accordance with the terms and provisions of the Registration Rights Agreement.
| F-7 |
On July 16, 2021, the parties to the Leviston Purchase Agreement amended the agreements as necessary to achieve the following results: The Series B Preferred Stock is now convertible at a price (as adjusted, “Series B Conversion Price”) equal to the lesser of (x) $4.52 and (y) 85% of the lowest variable weighted average price (“VWAP”) of the Common Stock on a trading day during the 10 trading days prior to and ending on, and including, the date of conversion, subject to a conversion price floor of $1.00, but not to exceed $1.50, subject to further adjustment in the event that the Company, subject to certain exemptions, disposes of or issues any common stock or securities convertible into, exercisable, or exchangeable for common stock for no consideration or for consideration less than the applicable Series B Conversion Price in effect immediately prior to such issuance.
Between August 27, 2021, and October 4, 2021, the Company raised $4,400,000 for working capital purposes through the sale of its common stock in private placements.
In addition to its cost containment strategies, the Company identified opportunities to rapidly move into the areas of (i) retailing collectables, (ii) providing virtual opportunities to fans to interact with celebrities, (iii) creating live and virtual events and conferences focused on new subject matter and affinities, and (iv) engaging in M&A opportunities. The Company initiated these activities in 2020.
Additionally, if necessary, management believes that both related parties (management and members of the Board of Directors of the Company) and potential external sources of debt and/or equity financing may be obtained based on management’s history of being able to raise capital from both internal and external sources coupled with current favorable market conditions, It is understood however, that although there is a recent history of related-parties providing a source of financing, there is no absolute certainty that any such related-party financing can be obtained on a going-forward basis. Therefore, the accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
The condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the matters discussed herein. While the Company believes in the viability of management’s strategy to generate sufficient revenue, control costs and the ability to raise additional funds if necessary. There can be no assurances to that effect. The Company’s ability to continue as a going concern is dependent upon the ability to further implement the business plan, generate sufficient revenues and to control operating expenses.
Note 3 – Significant and Critical Accounting Policies and Practices
The management of the Company is responsible for the selection and use of appropriate accounting policies and their application. Critical accounting policies and practices are those that are both most important to the portrayal of the Company’s financial condition and results and require management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain. The Company’s significant and critical accounting policies and practices are disclosed below as required by generally accepted accounting principles.
Basis of Presentation - Unaudited Interim Financial Information
The accompanying unaudited condensed consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and in accordance with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) with respect to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited condensed consolidated financial statements furnished reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company for the year ended December 31, 2020 and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on March 29, 2021.
| F-8 |
Use of Estimates and Assumptions and Critical Accounting Estimates and Assumptions
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Principles of Consolidation
The condensed consolidated financial statements include all accounts of the entities as of the reporting period ending date(s) and for the reporting period(s).
All inter-company balances and transactions have been eliminated. Non–controlling interest represents the minority equity investment in the Company’s subsidiaries, plus the minority investors’ share of the net operating results and other components of equity relating to the non–controlling interest.
As of September 30, 2021 and December 31, 2020, the aggregate non-controlling interest in ButtaFyngas was ($12,498). The non-controlling interest is separately disclosed on the Condensed Consolidated Balance Sheet.
Cash and Cash Equivalents
The Company considers investments with original maturities of three months or less to be cash equivalents.
The Company minimizes its credit risk associated with cash by periodically evaluating the credit quality of its primary financial institution. The balance at times may exceed federally insured limits.
Fair Value of Financial Instruments
For purpose of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. The carrying amount of the Company’s short-term financial instruments approximates fair value due to the relatively short period to maturity for these instruments.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are stated at the amount management expects to collect from outstanding balances. The Company generally does not require collateral to support customer receivables. The Company provides an allowance for doubtful accounts based upon a review of the outstanding accounts receivable, historical collection information and existing economic conditions. The Company determines if receivables are past due based on days outstanding, and amounts are written off when determined to be uncollectible by management. The maximum accounting loss from the credit risk associated with accounts receivable is the amount of the receivable recorded, which is the face amount of the receivable net of the allowance for doubtful accounts. As of September 30, 2021 and December 31, 2020, the allowance for doubtful accounts was $0.
Inventories
Inventories are stated at average cost using the first-in, first-out (FIFO) valuation method. Inventory was comprised of the following:
| September 30, 2021 | December 31, 2020 | |||||||
| Finished goods | $ | 133,061 | $ | 220,641 | ||||
| F-9 |
Property and Equipment
Property and equipment are recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation is computed by the straight-line method (after taking into account their respective estimated residual values) over the estimated useful lives of the respective assets as follows:
| Estimated
Useful Life (Years) | ||
| Computer equipment | 3 | |
| Equipment | 2-5 | |
| Furniture and fixture | 7 | |
| Leasehold improvements | * |
| (*) | Amortized on a straight-line basis over the term of the lease or the estimated useful lives, whichever period is shorter. |
Upon sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the condensed consolidated statements of operations.
Intangible assets
Intangible assets represent intangible assets acquired in connection with the Company’s purchase of Jevo patents and technology. The transaction was not a business combination or acquisition of a business.
The intangible assets are amortized using a straight-line method consistent with the expected future cash flows related to the intangible asset, which has been determined to be ten (10) years. Amortized intangible assets are reviewed for impairment whenever events or changes in circumstances exist that indicate the carrying amount of an asset may not be recoverable. When indicators of impairment exist, an estimate of undiscounted net cash flows is used in measuring whether the carrying amount of the asset or related asset group is recoverable.
Measurement of the amount of impairment, if any, is based upon the difference between the asset or asset group’s carrying value and fair value. Fair value is determined through various valuation techniques, including market and income approaches as considered necessary. No impairment has been recorded as of September 30, 2021.
The Company sold the Jevo assets and liabilities including the intangible assets resulting in $0 balance of intangible assets at September 30, 2021.
Investments - Cost Method, Equity Method and Joint Venture
In accordance with sub-topic 323-10 of the FASB ASC (“Sub-topic 323-10”), the Company accounts for investments in common stock of an investee for which the Company has significant influence in the operating or financial policies even though the Company holds 50% or less of the common stock or in-substance common stock.
Method of Accounting
Investments held in stock of entities other than subsidiaries, namely corporate joint ventures and other non-controlled entities usually are accounted for by one of three methods: (i) the fair value method (addressed in Topic 320), (ii) the equity method (addressed in Topic 323), or (iii) the cost method (addressed in Subtopic 325-20). Pursuant to Paragraph 323-10-05-5, the equity method tends to be most appropriate if an investment enables the investor to influence the operating or financial policies of the investee.
| F-10 |
Investment in CONtv
The Company currently holds a limited and passive interest of 10% in CONtv, a joint venture with third parties and Bristol Capital, LLC (a related party controlled by a member of the Board). CONtv is a digital network devoted to fans of pop culture entertainment and is inactive.
For the three and nine months ended September 30, 2021 and 2020, the Company recognized $0 losses from this venture, respectively.
As of September 30, 2021 and December 31, 2020, the investment in CONtv was $0.
As of September 30, 2021 and December 31, 2020, the amount due to CONtv was $0 and $224,241, respectively.
Fair Value of Measurements
The Company follows ASC 820-10 of the FASB Accounting Standards Codification to measure the fair value of its financial instruments and disclosures about fair value of its financial instruments. ASC 820-10 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, ASC 820-10 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The three (3) levels of fair value hierarchy defined by ASC 820-10 are described below:
| Level 1 | Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. | |
| Level 2 | Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. | |
| Level 3 | Pricing inputs that are generally unobservable inputs and not corroborated by market data. |
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.
The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
The carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts receivable, inventory, prepaid expenses and other current assets, accounts payable and accrued expenses approximate their fair values because of the short maturity of these instruments.
Transactions involving related parties typically cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free-market dealings may not exist. However, in the case of the convertible promissory note discussed in Note 5, the Company obtained a fairness opinion from an independent third party which supports that the transaction was carried out at an arm’s length basis.
Revenue Recognition and Cost of Revenues
The Company follows the FASB Accounting Standards Codification ASC 606 for revenue recognition. The Company will recognize revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met:
| 1) | Identify the contract with a customer |
A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the services to be transferred and identifies the payment terms related to these services, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer, published credit and financial information pertaining to the customer.
| F-11 |
| 2) | Identify the performance obligations in the contract |
Performance obligations promised in a contract are identified based on the services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the services is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised services, the Company must apply judgment to determine whether promised services are capable of being distinct and distinct in the context of the contract. If these criteria are not met the promised services are accounted for as a combined performance obligation.
| 3) | Determine the transaction price |
The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring services to the customer. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. None of the Company’s contracts as of September 30, 2021 contained a significant financing component.
| 4) | Allocate the transaction price to performance obligations in the contract |
If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. However, if a series of distinct services that are substantially the same qualifies as a single performance obligation in a contract with variable consideration, the Company must determine if the variable consideration is attributable to the entire contract or to a specific part of the contract. For example, a bonus or penalty may be associated with one or more, but not all, distinct services promised in a series of distinct services that forms part of a single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct service that forms part of a single performance obligation. The Company determines standalone selling price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations.
| 5) | Recognize revenue when or as the Company satisfies a performance obligation |
The Company satisfies performance obligations either over time or at a point in time. Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised service to a customer.
Convention revenue is generally earned upon completion of the convention. Unearned convention revenue is deposits received for conventions that have not yet taken place, which are fully or partially refundable depending upon the terms and conditions of the agreements.
The Company recognizes cost of revenues in the period in which the revenues was earned. In the event the Company incurs cost of revenues for conventions that are yet to occur, the Company records such amounts as prepaid expenses and such prepaid expenses are expensed during the period the convention takes place.
| F-12 |
Disaggregation of Revenue from Contracts with Customers. The following table disaggregates gross revenue by significant revenue stream for the nine months ended September 30, 2021 and 2020:
| For the Nine Months Ended | ||||||||
| September 30, 2021 | September 30, 2020 | |||||||
| Conventions | $ | $ | 2,608,678 | |||||
| Virtual | 229,170 | 1,216,686 | ||||||
| Vault | 362,303 | 191,906 | ||||||
| Jevo | 162,824 | 2,607 | ||||||
| Total revenue | $ | 754,297 | $ | 4,019,877 | ||||
Shipping and Handling Costs
The Company accounts for shipping and handling fees in accordance with paragraph 605-45-45-19 of the FASB Accounting Standards Codification. While amounts charged to customers for shipping products are included in revenues, the related costs are classified in cost of revenue as incurred.
Shipping and handling costs were $70,673 and $0 for the nine months ended September 30, 2021 and 2020, respectively.
The Company recognizes compensation expense for all equity–based payments in accordance with ASC 718 “Compensation – Stock Compensation”. Under fair value recognition provisions, the Company recognizes equity–based compensation net of an estimated forfeiture rate and recognizes compensation cost only for those shares expected to vest over the requisite service period of the award.
Restricted stock awards are granted at the discretion of the Company. These awards are restricted as to the transfer of ownership and generally vest over the requisite service periods, typically over a four-year period (vesting on a straight–line basis). The fair value of a stock award is equal to the fair market value of a share of Company stock on the grant date.
The fair value of an option award is estimated on the date of grant using the Black–Scholes option valuation model. The Black–Scholes option valuation model requires the development of assumptions that are input into the model. These assumptions are the expected stock volatility, the risk–free interest rate, the expected life of the option, the dividend yield on the underlying stock and the expected forfeiture rate. Expected volatility is calculated based on the historical volatility of the Company’s Common stock over the expected option life and other appropriate factors. The expected option term is computed using the “simplified” method as permitted under the provisions of ASC 718-10-S99. The Company uses the simplified method to calculate expected term of share options and similar instruments as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. Risk–free interest rates are calculated based on continuously compounded risk–free rates for the appropriate term. The dividend yield is assumed to be zero as the Company has never paid or declared any cash dividends on the Common stock of the Company and does not intend to pay dividends on the Common stock in the foreseeable future. The expected forfeiture rate is estimated based on historical experience.
Determining the appropriate fair value model and calculating the fair value of equity–based payment awards require 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, the equity–based compensation could be materially different in the future. In addition, the Company is required to estimate the expected forfeiture rate and recognize expense only for those shares expected to vest. If the actual forfeiture rate is materially different from the Company’s estimate, the equity–based compensation could be significantly different from what the Company has recorded in the current period.
| F-13 |
Income Taxes
The Company follows the asset and liability method of accounting for income taxes under FASB ASC 740, “Income Taxes.” Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
FASB ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. There were no unrecognized tax benefits as of September 30, 2021 and December 31, 2020. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. No amounts were accrued for the payment of interest and penalties as of September 30, 2021 and December 31, 2020. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The Company is subject to income tax examinations by major taxing authorities since inception.
The Company may be subject to potential examination by federal, state, and city taxing authorities in the areas of income taxes. These potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions, and compliance with federal, state, and city tax laws. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.
The Company is no longer subject to tax examinations by tax authorities for years prior to 2018.
Earnings per share (“EPS”) is the amount of earnings attributable to each share of common stock. For convenience, the term is used to refer to either earnings or loss per share. EPS is computed pursuant to Section 260-10-45 of the FASB Accounting Standards Codification. Pursuant to ASC Paragraphs 260-10-45-10 through 260-10-45-16, basic EPS shall be computed by dividing income available to common stockholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) during the period. Income available to common stockholders shall be computed by deducting both the dividends declared in the period on preferred stock (whether or not paid) and the dividends accumulated for the period on cumulative preferred stock (whether or not earned) from income from continuing operations (if that amount appears in the income statement) and also from net income. The computation of diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued during the period to reflect the potential dilution that could occur from common shares issuable through contingent shares issuance arrangement, stock options or warrants.
The following table shows the outstanding dilutive common shares excluded from the diluted net income (loss) per share calculation as they were anti-dilutive:
| Contingent
shares issuance arrangement, stock options or warrants | ||||||||
| For
the Nine Months Ended September 30, 2021 | For
the Nine Months Ended September 30, 2020 | |||||||
| Convertible note | 833,333 | 833,333 | ||||||
| Common stock options | 546,750 | 792,750 | ||||||
| Common stock warrants | 11,000,000 | 1,133,333 | ||||||
| Total contingent shares issuance arrangement, stock options or warrants | 12,380,083 | 2,759,416 | ||||||
| F-14 |
Reclassification
Certain prior period amounts have been reclassified to conform to current period presentation.
Recently Adopted Accounting Guidance
In December 2019, the FASB issued ASU 2019-12, Income Taxes(Topic 740): “Simplifying the Accounting for Income Taxes”, which is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and by clarifying and amending existing guidance to improve consistent application. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. Certain amendments within this ASU are required to be applied on a retrospective basis, certain other amendments are required to be applied on a modified retrospective basis and all other amendments on a prospective basis. The adoption of ASU 2019-12 did not have a material impact on the Company’s financial statement presentation or disclosures.
Recently Issued Accounting Pronouncements
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU 2020-04 provides optional expedients and exceptions to account for contracts, hedging relationships and other transactions that reference LIBOR or another reference rate if certain criteria are met. The amendments of ASU No. 2020-04 are effective immediately, as of March 12, 2020, and may be applied prospectively to contract modifications made and hedging relationships entered into on or before December 31, 2022. The Company is evaluating the impact that the amendments of this standard would have on the Company’s consolidated financial statements.
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 will be effective for annual reporting periods after December 15, 2021 and interim periods within those annual periods and early adoption is permitted. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.
Management has evaluated all recent accounting pronouncements as issued by the FASB in the form of Accounting Standards Updates (“ASU”) through the date these financial statements were available to be issued and found no recent accounting pronouncements issued, but not yet effective accounting pronouncements, when adopted, will have a material impact on the financial statements of the Company.
Note 4 – Property and Equipment
Property and equipment stated at cost, less accumulated depreciation and amortization, consisted of the following:
| September 30, 2021 | September 30, 2020 | |||||||
| Computer Equipment | $ | 43,097 | $ | 36,526 | ||||
| Equipment | 1,590,662 | 474,068 | ||||||
| Furniture and Fixtures | 65,465 | 63,925 | ||||||
| Vehicles | - | 15,000 | ||||||
| Leasehold Improvements | 22,495 | 27,095 | ||||||
| 1,721,719 | 616,614 | |||||||
| Less: Accumulated depreciation | (575,488 | ) | (550,941 | ) | ||||
| $ | 1,146,231 | $ | 65,673 | |||||
Depreciation expense was $25,958 and $17,022 for the nine months ended September 30, 2021 and 2020, respectively.
| F-15 |
Note 5 – Related Party Transactions
Consulting Agreement
On December 29, 2016, the Company entered into a Consulting Services Agreement (the “Consulting Agreement”) with Bristol Capital, LLC, a Delaware limited liability company (“Bristol”) managed by Paul L. Kessler, the then Chairman of the Company. Pursuant to the Consulting Agreement, Mr. Kessler will serve as Executive Chairman of the Company. The initial term of the Agreement is from December 29, 2016 through March 28, 2017 (the “Initial Term”). The term of the Consulting Agreement will be automatically extended for additional terms of 90-day periods each (each a “Renewal Term” and together with the Initial Term, the “Term”), unless either the Company or Bristol gives prior written notice of non-renewal to the other party no later than thirty (30) days prior to the expiration of the then current Term.
During the Term, the Company will pay Bristol a monthly fee (the “Monthly Fee”) of Eighteen Thousand Seven Hundred Fifty and No/100 Dollars ($18,750). This agreement has been amended so that the monthly fee owed to Bristol may now, at the option of the Company, be paid in preferred stock.
In addition, upon execution of the Consulting Agreement, the Company granted to Bristol options to purchase up to an aggregate of shares of the Company’s common stock.
During the nine months ended September 30, 2021 and 2020, the Company incurred expenses of approximately $168,750 and $131,250 for each period for services provided by Bristol, respectively. On November 22, 2018, the Board of Directors of the Company decided to issue shares of Preferred stock (“2018 Bristol shares”) for settlement of the outstanding fees due to Bristol totaling $496,875. At September 30, 2021 and December 31, 2020, the Company accrued $168,750 and $0, respectively, of net monthly fees due to Bristol. On August 3, 2020, the Board of Directors resolved to convert the total amount of debt owed to Bristol of $384,375, as of July 31, 2020, into shares of Series A Preferred stock. In addition, on August 3, 2020, as ratified on August 21, 2020 the Board of Directors elected to cancel the 2018 Bristol shares and issue a new total of shares of Series A Preferred stock (see Note 8). The Company issued shares of Preferred series A stock for the services provided during the nine months ended September 30, 2021.
In addition to the above consulting agreement, Bristol assisted in the filing of Form S-1 on September 22, 2021 and received $200,000 for services rendered.
Operating Sublease
On June 16, 2016, the Company entered into a Standard Multi-Tenant Sublease (“Sublease”) with Bristol Capital Advisors, LLC (“Bristol Capital Advisors”), an entity controlled by the Company’s then Chairman of the Board. The leased premises are owned by an unrelated third party and Bristol Capital Advisors passes the lease costs down to the Company. The term of the Sublease is for beginning on July 1, 2016 commencing with monthly payments of $8,118. During the nine months ended September 30, 2021 and 2020, the Company paid lease obligations $78,055 and $80,635, respectively, under the Sublease. On September 30, 2021, the lease term ended and the Company vacated the premises. See Note 8.
Loan from officer
During the year ended December 31, 2019, the CEO made a non-interest bearing loan to the Company of $100,000. On August 3, 2020 the Board of Directors resolved to convert the total amount of debt (including loans made to the Company and deferred compensation) owed to John D. Maatta, as of July 31, 2020, into shares of Series A Preferred Stock. In addition, on August 3, 2020, as ratified on August 21, 2020 the Board of Directors elected to cancel the 2018 Maatta shares previously issued for outstanding deferred compensation and issue a new total of 85,868 shares of Series A Preferred stock. As of September 30, 2021 and December 31, 2020 the outstanding balance under the loan payable was $0.
| F-16 |
Securities Purchase Agreement
Effective December 1, 2016, the Company entered into the Purchase Agreement with Bristol Investment Fund, Ltd. (the “Purchaser”), an entity controlled by the then Chairman of the Company’s Board of Directors, pursuant to which the Company sold to the Purchaser, for a cash purchase price of $2,500,000, securities comprising: (i) the Debenture, (ii) Series A Warrants, and (iii) Series B Warrants. Pursuant to the Purchase Agreement, the Company paid $25,000 to the Purchaser and issued to the Purchaser shares of Common Stock with a grant date fair value of $85,000 to cover the Purchaser’s legal fees. The Company recorded as a debt discount of $25,791 related to the cash paid and the relative fair value of the shares issued to Purchaser for legal fees.
(i) Debenture
The Debenture with an initial principal balance of $2,500,000, due December 30, 2018 (the “Maturity Date”), will accrue interest on the aggregate unconverted and then outstanding principal amount of the Debenture at the rate of 12% per annum. Interest is payable quarterly on (i) January 1, April 1, July 1 and October 1, beginning on January 1, 2017, (ii) on each date the Purchaser converts, in whole or in part, the Debenture into Common Stock (as to that principal amount then being converted), and (iii) on the day that is 20 days following the Company’s notice to redeem some or all of the of the outstanding principal of the Debenture (only as to that principal amount then being redeemed) and on the Maturity Date. The Debenture is convertible into shares of the Company’s Common Stock at any time at the option of the holder, at an initial conversion price of $3.00 (as converted) per share, subject to adjustment. In the event of default occurs, the conversion price shall be the lesser of (i) the initial conversion price of $3.00 and (ii) 50% of the average of the 3 lowest trading prices during the 20 trading days immediately prior to the applicable conversion date. The debenture contains a “ratchet” provisions that adjusts the conversion rate of the debenture to the lowest rate the Company has agreed to issue stock. The effect of repricing board and employee options to $0.25 reset the conversion rates of the debenture to $0.25. In light of the financial stress Covid-19 has placed on the Company the holder of the debenture has agreed to not require payment due under each of the outstanding debenture until December 31, 2022.
(ii) Series A Warrants
The Series A Warrants to acquire up to 833,333 shares of Common Stock at the Series A Initial Exercise Price of $3.00 and expiring on December 1, 2021. The Warrants may be exercised immediately upon the issuance date, upon the option of the holder. The exercise price has now been adjusted to $0.25 and the exercise date has been extended.
(iii) Series B Warrants
The Series B Warrants to acquire up to 833,333 shares of Common Stock at the Series B Initial Exercise Price of $0.0001 and expiring on December 1, 2021. The Series B Warrants were exercised immediately upon the issuance date. The Company received gross proceeds of $1,667 upon exercise of the warrants.
Upon issuance of the note, the Company valued the warrants using the Black-Scholes Option Pricing model and accounted for it using the relative fair value of $1,448,293 as debt discount on the condensed consolidated balance sheet. The debt discount is amortized over the earlier of (i) the term of the debt or (ii) conversion of the debt, using the effective interest method which approximates the interest method. The amortization of debt discount is included as a component of interest expense in the condensed consolidated statements of operations. There was unamortized debt discount of $0 as of September 30, 2021 and December 31, 2020, which includes the debt discount recorded upon execution of the Securities Purchase Agreement discussed above.
Securities Purchase Agreement
Effective December 19, 2019, the Company entered into the Purchase Agreement with Barlock 2019 Fund, LP ( the “Purchaser”), an entity managed by the CEO, Scott Kaufman, pursuant to which the Company sold to the Purchaser and an affiliated entity, for a cash purchase price of $2,500,000, securities comprising: (i) the Debenture and (ii) Series A Warrants. Pursuant to the Purchase Agreement, the Company paid $25,400 to the Purchaser to cover the Purchaser’s legal fees. The Company recorded as a debt discount of $25,400 related to the cash paid and the relative fair value of the shares issued to Purchaser for legal fees.
(i) Debenture
The Debenture with an initial principal balance of $2,500,000, due December 30, 2021 (the “Maturity Date”), will accrue interest on the aggregate unconverted and then outstanding principal amount of the Debenture at the rate of 12% per annum. Interest is payable quarterly on (i) January 1, April 1, July 1 and October 1, beginning on January 1, 2020, (ii) on each date the Purchaser converts, in whole or in part, the Debenture into Common Stock (as to that principal amount then being converted), and (iii) on the day that is 20 days following the Company’s notice to redeem some or all of the of the outstanding principal of the Debenture (only as to that principal amount then being redeemed) and on the Maturity Date. The Debenture is convertible into shares of the Company’s Common Stock at any time at the option of the holder, at an initial conversion price of $2.50 (as converted) per share, subject to adjustment. In the event of default occurs, the conversion price shall be the lesser of (i) the initial conversion price of $2.50 and (ii) 50% of the average of the 3 lowest trading prices during the 20 trading days immediately prior to the applicable conversion date. In July 2020, the Purchaser agreed to extend the debenture a year as well as forbear any collection on the debenture up to December 30, 2022. The subject debenture contains a “ratchet” provisions that adjusts the conversion rates of the notes to the lowest rate the Company has agreed to issue stock. The effect of repricing board and employee options to $0.25 reset the conversion rates of the note to $0.25. In light of the financial stress Covid-19 has placed on the Company the holder of the debenture has agreed to not require payment due under the outstanding debenture until December 31, 2022.
(ii) Warrants
The Series A Warrants to acquire up to 3,000,000 shares of Common Stock at the Series A Initial Exercise Price of $2.50 and expiring on December 1, 2024. The Warrants may be exercised immediately upon the issuance date, upon the option of the holder. The exercise price has now been adjusted to $0.25.
Upon issuance of the note, the Company valued the warrants using the Black-Scholes Option Pricing model and accounted for it using the relative fair value of $545,336 as debt discount on the condensed consolidated balance sheet. The debt discount is amortized over the earlier of (i) the term of the debt or (ii) conversion of the debt, using the effective interest method which approximates the interest method. The amortization of debt discount is included as a component of interest expense in the condensed consolidated statements of operations. There was unamortized debt discount of $246,981 and $510,384 as of September 30, 2021 and December 31, 2020, respectively, which includes the debt discount and debt issuance costs recorded upon execution of the Securities Purchase Agreement discussed above.
Investment in CONtv
The Company currently holds a limited and passive interest of 10% in CONtv, a joint venture with third parties and Bristol Capital, LLC (a related party controlled by a member of the Board). CONtv is a digital network devoted to fans of pop culture entertainment and is inactive.
For the nine months ended September 30, 2021 and 2020, the Company recognized $0 losses from this venture, respectively.
As of September 30, 2021 and December 31, 2020, the investment in CONtv was $0.
As of September 30, 2021 and December 31, 2020, the amount due to CONtv was $0 and $224,241, respectively.
Scott Kaufman
In relation to the filing of Form S-1 on September 22, 2021, Scott Kaufman, the Company’s CEO, received $200,000 for services rendered.
| F-17 |
Note 6 – Notes Payable
Paycheck Protection Program
On March 27, 2020 the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted and included a provision for the Small Business Administration (“SBA”) to implement its Paycheck Protection Program (“PPP”). The PPP provides small businesses with funds to pay payroll costs, including some benefits over a covered period of up to 24 weeks. Funds received under the PPP may also be used to pay interest on mortgages, rent, and utilities. Subject to certain criteria being met, all or a portion of the loan may be forgiven. The loans bear interest at an annual rate of one percent (1%), are due two (2) years from the date of issuance, and all payments are deferred for the first six (6) months of the loan. Any unforgiven balance of loan principal and accrued interest at the end of the six (6) month loan deferral period is amortized in equal monthly installments over the remaining 18-months of the loan term. On April 30, 2020, the Company closed a $197,600 SBA guaranteed PPP loan. The Company used the loan proceeds as permitted. The Company applied for forgiveness and the application is pending with the SBA. The Company expects to receive forgiveness for the entire loan amount. As of September 30, 2021, the outstanding balance under the loan was $197,600.
On February 25, 2021, the Company closed on a $197,662 SBA guaranteed PPP2 loan. The Company used the loan proceeds as permitted. The Company applied for forgiveness and the application is pending with the SBA. The Company expects to receive forgiveness for the entire loan amount. As of September 30, 2021, the outstanding balance under the loan was $197,662.
Small Business Administration Loan
On June 9, 2020, the Company executed a loan agreement with the SBA. The Company received aggregate proceeds of $149,900 under the loan which shall accrue interest at a rate of 3.75% and will mature in June 2050. As of September 30, 2021 and December 31, 2020, the outstanding balance under the loan was $149,900.
| F-18 |
Note 7 – Commitments and Contingencies
Separation and Consulting Agreement
On February 20, 2021, the Company entered into a Separation and Consulting Agreement with Mr. John D. Maatta, the former President and Chief Executive Officer. Pursuant to the agreement, Mr. Maatta resigned from his position within the Company and will provide services on behalf of the Company and be paid a monthly fee of $10,000. In addition, the Company granted shares series A preferred stock for accrued and unpaid salary and vacation time.
Appointment of Chief Executive Officer
On March 1, 2021, the Board of Directors approved the Employment Agreement, effective as of November 24, 2020 (the “Effective Date”), with Scott D. Kaufman to serve as the Company’s Chief Executive Officer for a term of two years, subject to automatic renewal for additional terms of one year unless either party gives prior written notice of non-renewal to the other party no later than 60 days prior to the expiration of the then-current term. Mr. Kaufman will receive an annual base salary of $250,000, provided that until such time as the Company has positive net income on a consolidated basis with its subsidiaries for a period of six months, the Company, in its sole discretion, may elect to pay Mr. Kaufman his Base Salary, in whole or in part, in the form of the Company’s Series A Preferred Stock. Mr. Kaufman is also eligible to receive an annual bonus as determined by the Compensation Committee of the Board and as approved by the Board. The Board also agreed, during the term of Mr. Kaufman’s employment, to take reasonable steps to appoint him to the Board, to maintain such appointment, and to nominate him as a director for the purposes of any meeting or consent of the Company’s stockholders electing directors during the term of his employment.
| F-19 |
Appointment of Chief Financial Officer
On March 1, 2021, the Board of Directors also approved the Employment Agreement, effective as of November 24, 2020 (the “Effective Date”), with Heidi C. Bowman to serve as the Company’s Chief Financial Officer for a term of two years, subject to automatic renewal for additional terms of one year unless either party gives prior written notice of non-renewal to the other party no later than 60 days prior to the expiration of the then-current term. Ms. Bowman will receive an annual base salary of $120,000, provided that until such time as the Company has positive net income on a consolidated basis with its subsidiaries for a period of six months, the Company in its sole discretion, may elect to pay Ms. Bowman her Base Salary, in whole or in part, in the form of the Company’s Series A Preferred Stock. Ms. Bowman is also eligible to receive an annual bonus as determined by the Compensation Committee of the Board and as approved by the Board.
Financial Advisory Agreement
On March 24, 2021, the Company entered into an agreement with Kingswood Capital Markets (“Kingswood”), a division of Benchmark Investments, Inc. in connection with providing general financial advisory to the Company. Kingswood is a broker-dealer registered under Section 15 of the US Securities Exchange Act of 1934 and state law and a member of the Financial Industry Regulatory Authority (“FINRA”). The Company issued 300,000 warrants to Kingswood exercisable at $1.00 for a period of . The fair value so the warrants issued was determined by using the Black-Scholes-Merton method of valuation and resulted in the Company recording $1,592,517 of consulting expense on its books.
Legal proceedings
The Company is from time to time involved in legal proceedings in the ordinary course of business. It is not involved in any disputes and does not have any litigation matters pending which the Company believes could have a materially adverse effect on the Company’s financial condition or results of operations.
Note 8 – Operating Leases
On June 16, 2016, the Company entered into a Standard Multi-Tenant Sublease (“Sublease”) with Bristol Capital Advisors, an entity controlled by the Company’s then Chairman of the Board. The leased premises are owned by an unrelated third party and Bristol Capital Advisors passes the lease costs down to the Company. The term of the Sublease is for beginning on July 1, 2016 commencing with monthly payments of $8,118. During the nine months ended September 30, 2021 and 2020, the Company paid lease obligations $78,055 and $80,635, respectively, under the Sublease. On September 30, 2021, the lease term ended and the Company vacated the premises.
On April 28, 2020, upon acquisition of the Jevo assets, the Company entered into a lease agreement with a third party. The term of the lease is for years beginning on May 1, 2020 commencing with a three-month rent holiday followed by monthly payments of $3,900 with an approximate 2% escalation clause. During the nine months ended September 30, 2021 and 2020, the Company paid lease obligations $12,096 and $7,800, respectively, under the lease.
We determine if an arrangement contains a lease at inception. Right of use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.
Our leases consist of leaseholds on office space. We utilized a portfolio approach in determining our discount rate. The portfolio approach takes into consideration the range of the term, the range of the lease payments, the category of the underlying asset and our estimated incremental borrowing rate, which is derived from information available at the lease commencement date, in determining the present value of lease payments. We also give consideration to our recent debt issuances as well as publicly available data for instruments with similar characteristics when calculating our incremental borrowing rates.
| F-20 |
Our lease term includes options to extend the lease when it is reasonably certain that we will exercise that option. Leases with a term of 12 months or less are not recorded on the balance sheet, per the election of the practical expedient noted above.
We recognize lease expense for these leases on a straight-line basis over the lease term. We recognize variable lease payments in the period in which the obligation for those payments is incurred. Variable lease payments that depend on an index or a rate are initially measured using the index or rate at the commencement date, otherwise variable lease payments are recognized in the period incurred.
The components of lease expense were as follows:
| For
the Nine Months Ended | For
the Nine Months Ended | |||||||
| September 30, 2021 | September 30, 2020 | |||||||
| Operating lease | $ | 78,055 | $ | 88,435 | ||||
| Sublease income | - | (12,900 | ) | |||||
| Total net lease cost | $ | 78,055 | $ | 75,535 | ||||
Supplemental cash flow and other information related to leases was as follows:
| For
the Nine Months Ended | For
the Nine Months Ended | |||||||
| September 30, 2021 | September 30, 2020 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows from operating leases | $ | $ | (69,307 | ) | ||||
| ROU assets obtained in exchange for lease liabilities: | ||||||||
| Operating leases | $ | $ | 173,938 | |||||
| Weighted average remaining lease term (in years): | ||||||||
| Operating leases | 3.83 | 3.20 | ||||||
| Weighted average discount rate: | ||||||||
| Operating leases | 12 | % | 12 | % | ||||
The following table presents the maturity of the Company’s lease liabilities as of September 30, 2021:
| For the twelve months ending September 30: | ||||
| 2022 | $ | 48,054 | ||
| 2023 | 49,015 | |||
| 2024 | 49,996 | |||
| 2025 | 34,711 | |||
| 2026 | - | |||
| 181,776 | ||||
| Less: Imputed interest | (35,493 | ) | ||
| Present value | $ | 146,283 | ||
Note 9 – Stockholders’ Equity (Deficit)
Reverse Stock Split
Following the board of directors’ approval, the Company filed a Certificate of Change to its Articles of Incorporation (the “Amendment”), with the Secretary of State of the State of Delaware to effectuate a one-for-twenty (1:20) reverse stock split (the “Reverse Stock Split”) for all classes of its stock, par value $ per share, without any change to its par value. The Amendment became effective on January 23, 2020. No fractional shares were issued in connection with the Reverse Stock Split as all fractional shares were “rounded up” to the next whole share.
| F-21 |
All share and per share amounts for the common stock have been stated to give effect to the reverse split.
The Company’s authorized capital stock consists of 105,000,000 shares, of which 100,000,000 are for shares of common stock, par value $per share, and 5,000,000 are for shares of preferred stock, par value $per share, of which 500,000 have been designated as Series A Cumulative Convertible Preferred Stock (“Series A”). A portion of the Series A has been allocated and will be issued upon the occurrence of an uplisting to a major stock exchange and subject to minimum volume requirement and any required underwriter lockup.
As of September 30, 2021 and December 31, 2020, there were and shares of Series A preferred stock issued and outstanding, respectively.
As of September 30, 2021 and December 31, 2020, there were and shares of Series B preferred stock issued and outstanding, respectively.
As of September 30, 2021 and December 31, 2020, there were and shares of common stock issued and outstanding, respectively. Each share of the common stock entitles its holder to one vote on each matter submitted to the shareholders.
The following is a summary of the Company’s option activity:
| Options | Weighted Average Exercise Price | |||||||
| (as converted) | ||||||||
| Outstanding – December 31, 2020 | 789,250 | $ | 1.75 | |||||
| Exercisable – December 31, 2020 | 451,448 | $ | 2.69 | |||||
| Granted | 300,000 | $ | 0.25 | |||||
| Exercised | $ | |||||||
| Forfeited/Cancelled | (242,500 | ) | $ | |||||
| Outstanding – September 30, 2021 | 846,750 | $ | 1.54 | |||||
| Exercisable – September 30, 2021 | 846,750 | $ | 1.54 | |||||
| Options Outstanding | Options Exercisable | |||||||||||||||||
| Exercise Price | Number Outstanding | Weighted Average Remaining Contractual
Life | Weighted Average Exercise Price |
Number Exercisable | Weighted Average Exercise Price |
|||||||||||||
| $ | – | 846,750 | years | $ | 1.54 | 846,750 | $ | 1.54 | ||||||||||
At September 30, 2021, the total intrinsic value of options outstanding and exercisable was $
During the nine months ended September 30, 2021 and 2020, the Company recorded total stock-based compensation expense related to options of approximately $and $, respectively. The unrecognized compensation expense at September 30, 2021 was approximately $.
| F-22 |
Stock Warrants
The following is a summary of the Company’s warrant activity:
| Warrants | Weighted Average Exercise Price | |||||||
| (as converted) | ||||||||
| Outstanding – December 31, 2020 | 10,300,000 | $ | 3.00 | |||||
| Exercisable – December 31, 2020 | 10,300,000 | $ | 3.00 | |||||
| Granted | 700,000 | $ | 0.86 | |||||
| Exercised | $ | |||||||
| Forfeited/Cancelled | $ | |||||||
| Outstanding – September 30, 2021 | 11,000,000 | $ | 2.92 | |||||
| Exercisable – September 30, 2021 | 10,600,000 | $ | 2.94 | |||||
| Warrants Outstanding | Warrants Exercisable | |||||||||||||||||
| Exercise Price | Number Outstanding | Weighted Average Remaining Contractual Life (in years) | Weighted Average Exercise Price |
Number Exercisable | Weighted Average Exercise Price |
|||||||||||||
| $ | – | 11,000,000 | years | $ | 2.92 | 10,600,000 | $ | 2.94 | ||||||||||
At September 30, 2021 the total intrinsic value of warrants outstanding and exercisable was $
On March 24, 2021 the Company entered into an agreement with Kingswood Capital Markets (“Kingswood”), a division of Benchmark Investments, Inc. in connection with providing general financial advisory to the Company. The Company issued 300,000 warrants to Kingswood exercisable at $1.00 for a period of . The fair value so the warrants issued was determined by using the Black-Scholes-Merton method of valuation and resulted in the Company recording $1,592,517 of expense on its books.
On March 29, 2021 the Company filed a Form D – Notice of Exempt Offerings of Securities with the Securities and Exchange Commission. The total offering amount was $5,000,000. The Company received proceeds of approximately $1,700,000 and paid a commission to Kingswood of $170,000.
On March 29, 2021, the Company entered into a Securities Purchase Agreement (the “Leviston Purchase Agreement”) with Leviston Resources LLC (“Leviston”) dated March 26, 2021, pursuant to which the Company sold to Leviston, and the Leviston purchased from the Company, shares of the Company’s Series B Preferred Stock, par value $ per share Series B Preferred Stock with an aggregate stated value of $5,400,000, a Series B Preferred Stock Purchase Warrant to purchase shares of Series B Preferred Stock, having a term expiring on March 26, 2023 and a per share exercise price (subject to adjustment for stock splits, reverse stock splits, mergers or reorganizations, and similar changes affecting shares of the Company’s common stock, par value $ per share and/or securities entitling the holder thereof to acquire shares of Common Stock, as applicable) of $1,000 (the “Series 1 Warrant”), and a Series B Preferred Stock Purchase Warrant to purchase 5,000 shares of Series B Preferred Stock, having a term expiring on March 26, 2024 and a per share exercise price (subject to adjustment for stock splits, reverse stock splits, mergers or reorganizations, and similar changes affecting shares of Common Stock and/or securities entitling the holder thereof to acquire shares of Common Stock, as applicable) of $1,000 (the “Series 2 Warrant” and together with the Series 1 Warrant, the “Warrants,” and together with the Closing Shares, the “Securities”). The aggregate purchase price for the Securities is $5,000,000, which Leviston will pay as follows: $2,000,000 on the Closing Date; $500,000 on or before the date that is three business days from the date that the Company files a registration statement relating to the shares of Common Stock issuable upon conversion of the Closing Shares and the shares of Series B Preferred Stock issuable upon exercise of the Warrants; and $2,500,000 on or before the date that is three business days from the date that such registration statement is declared effective in accordance with the terms and provisions of the Registration Rights Agreement.
| F-23 |
On July 16, 2021, the parties to the Leviston Purchase Agreement amended the agreements as necessary to achieve the following results: The Series B Preferred Stock is now convertible at a price (as adjusted, “Series B Conversion Price”) equal to the lesser of (x) $4.52 and (y) 85% of the lowest variable weighted average price (“VWAP”) of the Common Stock on a trading day during the 10 trading days prior to and ending on, and including, the date of conversion, subject to a conversion price floor of $1.00, but not to exceed $1.50, subject to further adjustment in the event that the Company, subject to certain exemptions, disposes of or issues any common stock or securities convertible into, exercisable, or exchangeable for common stock for no consideration or for consideration less than the applicable Series B Conversion Price in effect immediately prior to such issuance.
On March 29, 2021, the Registrant filed with the Delaware Secretary of State a Certificate of Designation of Preferences, Rights and Limitations of Series B Preferred Stock (the “Series B Certificate of Designation”) pursuant to which the Registrant’s Board of Directors, pursuant to authority granted under the Registrant’s Amended and Restated Certificate of Incorporation, designated shares of the authorized shares of the Registrant’s preferred stock as Series B Preferred Stock.
Each share of Series B Preferred Stock has a stated value of $, is entitled to receive cumulative dividends in cash, or at the holder’s option, in shares of Series B Preferred Stock (with one share of Series B Preferred Stock issued for each $993 in accrued dividends), at the rate of 5% per annum, payable quarterly on January 1, April 1, July 1 and October 1 (beginning on the first such date after the original issue date), on each conversion date (with respect to the shares of Series B Preferred Stock being converted), and on each optional redemption date (with respect to the shares of Series B Preferred Stock being redeemed), and is entitled to participate in any dividend or other distribution to holders of Common Stock to the same extent that the holder of Series B Preferred Stock would have participated therein if such holder had held the number of shares of Common Stock issuable upon complete conversion of such holder’s shares of Series B Preferred Stock (without regard to any limitations on exercise thereof, including any beneficial ownership limitations) immediately before the record date for such distribution or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined to receive the distribution, provided that if the distribution would result in the holder exceeding then-applicable beneficial ownership limitation, the holder shall not be entitled to participate in such distribution to such extent and such distribution to such extent shall be held in abeyance until such time, if ever, as the holder’s right thereto would not result in the holder exceeding the then-applicable beneficial ownership limitation.
Note 10 – Credit Risk
Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash and cash equivalents. As of September 30, 2021 and December 31, 2020, substantially all of the Company’s cash and cash equivalents were held by major financial institutions and the balance in certain accounts exceeded the maximum amount insured by the Federal Deposits Insurance Corporation (“FDIC”). However, the Company has not experienced losses on these accounts and management believes that the Company is not exposed to significant risks on such accounts.
Note 11 – Subsequent Events
On October 25, 2021, Creek Road Miners officially pivoted its business to cryptocurrency mining, with the completion of its first facility, start of operations, and recognition of its first revenue from Bitcoin.
| F-24 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
THE FOLLOWING DISCUSSION OF OUR PLAN OF OPERATION AND RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND RELATED NOTES TO THE FINANCIAL STATEMENTS INCLUDED ELSEWHERE IN THIS REPORT. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT RELATE TO FUTURE EVENTS OR OUR FUTURE FINANCIAL PERFORMANCE. THESE STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE OUR ACTUAL RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY THESE FORWARD-LOOKING STATEMENTS. THESE RISKS AND OTHER FACTORS INCLUDE, AMONG OTHERS, THOSE LISTED UNDER “FORWARD-LOOKING STATEMENTS” AND “RISK FACTORS” AND THOSE INCLUDED ELSEWHERE IN THIS REPORT.
We intend that this discussion will 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 quarters and nine-month periods ended September 30, 2021 and 2020, included elsewhere in this report.
Prior to the onset of COVID-19, we produced live pop culture conventions (“Comic Conventions”) across the United States. However, due to the ongoing COVID-19 pandemic, we have not produced an in-person live event since March 8, 2020 and we currently have no plans to continue producing in-person live events in the foreseeable future. Following our last live event, we transitioned nimbly to a virtual event Format that went from concept to execution in three weeks. To augment our move into digital programming, in the first quarter of 2020, we launched an e-commerce site, Wizard World Vault (the “Vault”), which features the best in pop culture memorabilia from the Wizard World Live and virtual events, along with items from the top artists and exhibitors in the memorabilia world.
There has recently been considerable interest in a consumer category of digital products known as NFTs (Non-Fungible Tokens). NFTs are collectibles where various objects (including pictures, music and video) are digitized. The digital version of the object is sold as a unique, blockchain-authenticated collectible. Although the NFT market is currently gaining considerable attention in the press and achieving traction with consumers, it is impossible to know the ultimate size and significance of the NFT marketplace. The fan base that comprises our largest constituency is already active in the digital space and the brand extension into digital collectibles is a natural progression into a new and vibrant marketplace. Possessing an extensive collection of celebrity collectables and our current market position in the pop-culture consumer products, we entered this sector in Q1 of 2021.
| 3 |
As part of a move to expand the current NFT minting activities into mining cryptocurrencies, we changed our name to Creek Road Miners, Inc. on July 9, 2021. As part of this transition, we sold the bulk of our live events business on August 6, 2021. On September 15, 2021, we sold our wholly owned subsidiary, Jevo Holdings, LLC, in a Membership Interest sale. With the disposition of our non-core assets, our objective shifted completely to building out a diversified cryptocurrency portfolio from the Company’s own mining operations. To achieve this objective, the Company has developed a unique five-cornerstone approach. The Five Cornerstones are:
| 1. | Vertical Integration: By implementing the purest and stringiest form of vertical integration, the Company will own its energy sources and use the energy directly at the source. The Company will benefit from increased profits by eliminating middlemen, reduced transportation costs, and ensuring continuity in energy supply. |
| 2. | Energy Diversification: By diversifying its energy sources at each power generation facility, the Company will mitigate supply and interruption risks. |
| 3. | Geographic Diversification: By geographically distributing its mining facilitates, the Company will further mitigate potential supply and interruption risks. |
| 4. | Cryptocurrency Mining Diversification: The Company will build out and balance its portfolio by mining for different cryptocurrencies. |
| 5. | Revenue Diversification: Having multiple non-correlated revenue streams across different commodities will diversify the Company’s revenue while providing a means for the Company to maintain treasury status of its mined cryptocurrency. |
Results of Operations
Summary of Statements of Operations for the Three Months Ended September 30, 2021 and 2020:
| Three Months Ended | ||||||||
| September 30, 2021 | September 30, 2020 | |||||||
| Revenues | $ | 148,397 | $ | 601,042 | ||||
| Cost of revenues | $ | 176,815 | $ | 274,518 | ||||
| Gross margin | $ | (28,418 | ) | $ | 326,524 | |||
| Operating expenses | $ | 2,164,358 | $ | 926,055 | ||||
| Loss from operations | $ | (2,192,776 | ) | $ | (599,531 | ) | ||
| Other income (expenses) | $ | 1,590,699 | $ | (144,295 | ) | |||
| Net loss attributable to common shareholder | $ | (392,881 | ) | $ | (710,652 | ) | ||
| Loss per common share – basic | $ | (0.07 | ) | $ | (0.21 | ) | ||
| Loss per common share – diluted | $ | (0.07 | ) | $ | (0.21 | ) | ||
Revenue
Revenue was $148,397 for the three months ended September 30, 2021, as compared to $601,042 for the comparable period ended September 30, 2020, a decrease of $452,645. The decrease in revenue was a result of the ongoing impact of Covid-19, the inability of the Company to produce live events and a decrease in demand for virtual events.
Because of the uncertainties surrounding the Covid-19 pandemic the Company produced no live events during the quarter ended September 30, 2021. Rather, the Company focused on the production of virtual events and growing its store front awareness. During the quarter ended September 30, 2021, the Company produced $117,438 of e-commerce through the Wizard World Vault and the eBay Platform. During the quarter ended September 30, 2020, the Company generated $459,428 of revenue from virtual events and an additional $78,323 of e-commerce through the Wizard World Vault and the eBay Platform.
Revenue was $65,098, during the three months ended September 30, 2021 as compared to $2,607 for the comparable period ended September 30, 2020 for Jevo. As some Covid-19 restrictions began to lift, sales of Jevo products increased.
As mentioned earlier, the Company has now divested itself of most if not all of its live event assets and all of its Jevo assets and operations. Accordingly, moving forward, the Company is now focused on producing and selling NFT’s and the mining of cryptocurrencies.
Gross Profit
Gross profit percentage, after considering cost of revenues, was (19)% for the three months ended September 30, 2021 and 54% for the three months ended September 30, 2020.
Operating Expenses
Operating expenses for the three months ended September 30, 2021, were $2,164,358, as compared to $926,055 for the three months ended September 30, 2020. The increase is primarily attributable to the integration of the Jevo operations which increased the consulting fees and general and administrative expenses in addition to an increase of stock-based compensation.
| 4 |
Loss from Operations
Loss from operations for the three months ended September 30, 2021, was $2,192,776 as compared to a loss from operations of $599,531 for the three months ended September 30, 2020. The variance was primarily attributable to a significant decrease in revenue as well as the integration of the Jevo operations and an increase in consulting fees recorded as stock-based compensation.
Other Income (Expenses)
Other income (expenses) for the three months ended September 30, 2021 was $1,590,699, as compared to $(144,295) for the three months ended September 30, 2020. During the three months ended September 30, 2021, the Company sold its interests in Jevo thereby creating a gain on sale of $1,130,740. In addition, with the sale of the bulk of the live events and the write-off of ConTv payables, the Company incurred other income of $1,589,597. In each case, the expense was interest expense related to convertible notes and corresponding debt discount.
Net Loss Attributable to Common Stockholder
Net loss attributable to common stockholders for the three months ended September 30, 2021, was $392,881 or loss per basic share of $0.07, compared to a net loss of $710,652 or loss per basic share of $0.20 for the three months ended September 30, 2020.
Inflation did not have a material impact on the Company’s operations for the applicable period. Other than the foregoing, management knows of no trends, demands, or uncertainties that are reasonably likely to have a material impact on the Company’s results of operations.
Summary of Statements of Operations for the Nine Months Ended September 30, 2021 and 2020:
| Nine Months Ended | ||||||||
| September 30, 2021 | September 30, 2020 | |||||||
| Revenues | $ | 754,297 | $ | 4,019,877 | ||||
| Cost of revenues | $ | 640,092 | $ | 2,779,838 | ||||
| Gross margin | $ | 114,205 | $ | 1,240,039 | ||||
| Operating expenses | $ | 6,994,690 | $ | 2,111,087 | ||||
| Loss from operations | $ | (6,880,485 | ) | $ | (871,048 | ) | ||
| Other income (expenses) | $ | 1,956,328 | $ | (446,835 | ) | |||
| Net loss attributable to common shareholder | $ | (4,658,063 | ) | $ | (1,284,709 | ) | ||
| Loss per common share – basic | $ | (1.21 | ) | $ | (0.37 | ) | ||
| Loss per common share – diluted | $ | (1.21 | ) | $ | (0.37 | ) | ||
Revenue
Revenue was $754,297 for the nine months ended September 30, 2021, as compared to $4,019,877 for the comparable period ended September 30, 2020, a decrease of $3,265,580. The decrease in revenue was a result of the ongoing impact of Covid-19, the inability of the Company to produce live events and a decrease in demand for virtual events.
Because of the uncertainties surrounding the Covid-19 pandemic the Company produced no live events during the nine months ended September 30, 2021. Rather, the Company focused on the production of virtual events and growing its store front awareness. During the nine months ended September 30, 2020, the Company was able to produce 3 live events which generated revenue of $2,608,678. During the nine-month period ended September 30, 2021, the Company produced approximately 450 virtual events which generated $229,170 of revenue and an additional $362,303 through its e-commerce website Wizard World Vault and the eBay platform. During the nine months ended September 30, 2020, the Company generated $1,216,686 of revenue from virtual events and an additional $191,906 of e-commerce through the Wizard World Vault and the eBay Platform.
During the nine-month period ended September 30, 2021, the revenue contributed by Jevo was $162,824. As Covid-19 restrictions began to lift, sales of Jevo products increased.
As mentioned earlier, the Company has now divested itself of most if not all of its live event assets and all of its Jevo assets and operations. Accordingly, moving forward, the Company is now focused on producing and selling NFT’s and the mining of cryptocurrencies.
Gross Profit
Gross profit percentage, after considering cost of revenues, was 15% for the nine months ended September 30, 2021 and 31% for the nine months ended September 30, 2020.
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Operating Expenses
Operating expenses for the nine months ended September 30, 2021, were $6,994,690, as compared to $2,111,087 for the nine months ended September 30, 2020. The increase is primarily attributable to the integration of the Jevo operations which increased the consulting fees and general and administrative expenses in addition to an increase of stock-based compensation. General and administrative expenses increased by $683,667 from the comparative period of the prior year due to increased staffing and marketing for Wizard World virtual events and Jevo activities.
Loss from Operations
Loss from operations for the nine months ended September 30, 2021, was $6,880,485 as compared to a loss from operations of $871,048 for the nine months ended September 30, 2020. The variance was primarily attributable to primarily attributable to a significant decrease in revenue as well as the integration of the Jevo operations and an increase in consulting fees recorded as stock-based compensation.
Other Income (Expenses)
Other income (expenses) for the nine months ended September 30, 2021 was $1,956,328, as compared to $(446,835) for the nine months ended September 30, 2020. During the nine months ended September 30, 2021, the Company sold its interests in Jevo thereby creating a gain on sale of $1,130,740. In addition, with the sale of the bulk of the live events and the write-off of ConTv payables, the Company incurred other income of $1,589,597. In each case, the expense was interest expense related to convertible notes and corresponding debt discount.
Net Loss Attributable to Common Stockholder
Net loss attributable to common stockholders for the nine months ended September 30, 2021, was $4,658,063 or loss per basic share of $1.21, compared to a net loss of $1,317,883 or loss per basic share of $0.37 for the nine months ended September 30, 2020.
Liquidity and Capital Resources
The following table summarizes total current assets, liabilities and working capital at September 30, 2021 compared to December 31, 2020:
| September 30, 2021 | December 31, 2020 | Increase/(Decrease) | ||||||||||
| Current Assets | $ | 4,201,896 | $ | 2,217,487 | $ | 1,984,409 | ||||||
| Current Liabilities | $ | 5,617,598 | $ | 7,065,862 | $ | (1,448,264 | ) | |||||
| Working Capital (Deficit) | $ | (1,415,702 | ) | $ | (4,848,375 | ) | $ | 3,432,673 | ||||
At September 30, 2021, we had a working capital deficit of $1,415,702 as compared to working capital deficit of $4,307,242 at September 30, 2020, a change of $3,432,673. The change in working capital is primarily attributable to increases in cash and prepaid expenses and decreases in accounts payable and accrued expenses, operating lease liability, unearned revenue and due to CONtv joint venture offset primarily by decreases in accounts receivable and inventory.
Net Cash
Net cash used in operating activities for the nine months ended September 30, 2021 and 2020 was $4,890,776 and $870,687, respectively. The net loss for the nine-month period ended September 30, 2021 and 2020, was $4,924,157 and $1,317,883, respectively.
Going Concern Analysis
The Company had a loss from operations of $6,880,485 and $871,048 for the nine months ended September 30, 2021 and 2020, respectively. On September 30, 2021, we had cash and cash equivalents of approximately $3.9 million and a working capital deficit of approximately $1.4 million. We have evaluated the significance of these conditions in relation to our ability to meet our obligations, which had previously raised doubts about the Company’s ability to continue as a going concern through November 2022. However, the Company believes that the effects of its cost savings efforts with regard to corporate overhead together with the initiation of virtual activities, e-commerce, and move to expand the current NFT minting activities into mining cryptocurrencies will guide the Company in a positive direction as we continue to strive to attain profitability.
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However, because of the current situation with the Covid-19 virus, the Company was unable to produce any live events after the First Quarter of 2020. At present it is unclear how many live events will actually be produced by the Company in 2021. It is presently unknowable how long the current situation with Covid-19 will continue and what impact the Covid-19 situation will ultimately have upon the Company in 2021. At this point, the Company has postponed all of the live shows that it has scheduled for 2021. In the face of the impact of Covid-19 on live events generally, the Company has focused on producing virtual events. The first such virtual event was an interactive fan experience which took place on March 31, 2020 and since that time the Company has produced approximately ____ virtual events. In addition, the Company has moved into e-commerce with online sales of collectables and the creation of the “Wizard World Vault” as a site for consumers to purchase pop-culture memorabilia and collectables and is now moving to expand the current NFT minting activities into mining cryptocurrencies.
On December 19, 2019, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with Barlock 2019 Fund, LP (the “Purchaser”), for the sale of the Company’s securities, comprised of (I) a $2,500,000 convertible debenture, convertible at a price of $2.50 per share, and (ii) warrants to acquire 300,000 shares of the Company’s common stock at an exercise price of $2.50 per share. The warrants are now exercisable at $0.25 per share due to anti-dilution protections contained in the securities. As a condition to Purchaser entering into the Purchase Agreement, the Company entered into a security agreement in favor of the Purchaser, granting a security interest in substantially all of the property of the Company, whether presently owned or existing or hereafter acquired or coming into existence, including but not limited to, its ownership interests in its subsidiaries, to secure the prompt payment, performance and discharge in full of all of the Company’s obligations under the debenture. The security interest is on equal footing with certain other creditors of the Company. The Company received $2,500,000 in cash from the offering of the securities but was required to pay out of the closing proceeds Purchaser’s attorney’s fees in the amount of $25,000. The Company has agreed with the Purchaser that the funds received will be restricted and utilized only for M&A opportunities, new business ventures, brand extensions and the creation of new vertical opportunities by the Company. The subject debenture contains a “ratchet” provision that adjusts the conversion rates of the notes to the lowest rate the Company has agreed to issue stock. The effect of repricing board and employee options to $0.25 reset the conversion rates the note to $0.25. In light of the financial stress Covid-19 has placed on the Company the holder of the note has agreed to not require payment due under the outstanding notes until December 31, 2022. The debenture contains a “ratchet” provision that adjusts the conversion rate of the debenture to the lowest rate the Company has agreed to issue stock. The effect of repricing board and employee options to $0.25 reset the conversion rates of the debenture to $0.25. In light of the financial stress Covid-19 has placed on the Company the holder of the debenture has agreed to not require payment due under each of the outstanding debenture until December 31, 2022.
On March 29, 2021, the Company entered into a Securities Purchase Agreement (the “Leviston Purchase Agreement”) with Leviston Resources LLC (“Leviston”) dated March 26, 2021, pursuant to which the Company sold to Leviston, and the Leviston purchased from the Company, 5,000 shares of the Company’s Series B Preferred Stock, par value $0.0001 per share Series B Preferred Stock with an aggregate stated value of $5,400,000, a Series B Preferred Stock Purchase Warrant to purchase 5,000 shares of Series B Preferred Stock, having a term expiring on March 26, 2023 and a per share exercise price (subject to adjustment for stock splits, reverse stock splits, mergers or reorganizations, and similar changes affecting shares of the Company’s common stock, par value $0.0001 per share and/or securities entitling the holder thereof to acquire shares of Common Stock, as applicable) of $1,000 (the “Series 1 Warrant”), and a Series B Preferred Stock Purchase Warrant to purchase 5,000 shares of Series B Preferred Stock, having a term expiring on March 26, 2024 and a per share exercise price (subject to adjustment for stock splits, reverse stock splits, mergers or reorganizations, and similar changes affecting shares of Common Stock and/or securities entitling the holder thereof to acquire shares of Common Stock, as applicable) of $1,000 (the “Series 2 Warrant” and together with the Series 1 Warrant, the “Warrants,” and together with the Closing Shares, the “Securities”). The aggregate purchase price for the Securities is $5,000,000, which Leviston will pay as follows: $2,000,000 on the Closing Date; $500,000 on or before the date that is three business days from the date that the Company files a registration statement relating to the shares of Common Stock issuable upon conversion of the Closing Shares and the shares of Series B Preferred Stock issuable upon exercise of the Warrants; and $2,500,000 on or before the date that is three business days from the date that such registration statement is declared effective in accordance with the terms and provisions of the Registration Rights Agreement.
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On July 16, 2021, the parties to the Leviston Purchase Agreement amended the agreements as necessary to achieve the following results: The Series B Preferred Stock is now convertible at a price (as adjusted, “Series B Conversion Price”) equal to the lesser of (x) $4.52 and (y) 85% of the lowest variable weighted average price (“VWAP”) of the Common Stock on a trading day during the 10 trading days prior to and ending on, and including, the date of conversion, subject to a conversion price floor of $1.00, but not to exceed $1.50, subject to further adjustment in the event that the Company, subject to certain exemptions, disposes of or issues any common stock or securities convertible into, exercisable, or exchangeable for common stock for no consideration or for consideration less than the applicable Series B Conversion Price in effect immediately prior to such issuance.
On March 24, 2021 the Company entered into an agreement with Kingswood Capital Markets (“Kingswood”), a division of Benchmark Investments, Inc. in connection with providing general financial advisory to the Company. The Company issued 300,000 warrants to Kingswood exercisable at $1.00 for a period of three years. The fair value so the warrants issued was determined by using the Black-Scholes-Merton method of valuation and resulted in the Company recording $1,592,517 of expense on its books.
On March 29, 2021 the Company filed a Form D – Notice of Exempt Offerings of Securities with the Securities and Exchange Commission. The total offering amount was $5,000,000. The Company received proceeds of approximately $1,700,000 and paid a commission to Kingswood of $170,000.
Between August 27, 2021, and October 4, 2021, the Company raised $4,400,000 for working capital purposes through the sale of its common stock in private placements.
Additionally, if necessary, management believes that both related parties (management and members of the Board of Directors of the Company) and potential external sources of debt and/or equity financing may be obtained based on management’s history of being able to raise capital from both internal and external sources coupled with current favorable market conditions, It is understood however, that although there is a recent history of related-parties providing a source of financing, there is no absolute certainty that any such related-party financing can be obtained on a going-forward basis. Therefore, the accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
The condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the matters discussed herein. While the Company believes in the viability of management’s strategy to generate sufficient revenue, control costs and the ability to raise additional funds, if necessary, there can be no assurances to that effect. The Company’s ability to continue as a going concern is dependent upon the ability to further implement the business plan, generate sufficient revenues and to control operating expenses.
Off-Balance Sheet Arrangements
As of September 30, 2021, the Company had no off-balance sheet arrangements.
Critical Accounting Policies
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.” Critical accounting policies and practices are those that are both most important to the portrayal of the Company’s financial condition and results and require management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain. The Company’s significant and critical accounting policies and practices are disclosed below as required by generally accepted accounting principles.
Basis of Presentation
The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
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Use of Estimates and Assumptions and Critical Accounting Estimates and Assumptions
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include all accounts of the entities as of the reporting period ending date(s) and for the reporting period(s).
Property and Equipment
Property and equipment is stated at historical cost less accumulated depreciation and amortization. Depreciation and amortization is computed on a straight-line basis over the estimated useful lives of the assets, varying from 2 to 7 years or, when applicable, the life of the lease, whichever is shorter.
The impairment charges, if any, are included in operating expenses in the accompanying statements of operations.
Intangible assets
Intangible assets represent intangible assets acquired in connection with the Company’s purchase of Jevo patents and technology. The transaction was not a business combination or acquisition of a business.
The intangible assets are expected to be amortized using a straight-line method consistent with the expected future cash flows related to the intangible asset. Amortized intangible assets are reviewed for impairment whenever events or changes in circumstances exist that indicate the carrying amount of an asset may not be recoverable. When indicators of impairment exist, an estimate of undiscounted net cash flows is used in measuring whether the carrying amount of the asset or related asset group is recoverable.
Measurement of the amount of impairment, if any, is based upon the difference between the asset or asset group’s carrying value and fair value. Fair value is determined through various valuation techniques, including market and income approaches as considered necessary.
Impairment of Long-Lived Assets
Long-lived assets are comprised of intangible assets and property and equipment. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. An estimate of undiscounted future cash flows produced by the asset, or the appropriate grouping of assets, is compared to the carrying value to determine whether an impairment exists, pursuant to the provisions of FASB ASC 360-10 “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of”. If an asset is determined to be impaired, the loss is measured based on quoted market prices in active markets, if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including a discounted value of estimated future cash flows and fundamental analysis. The Company reports an asset to be disposed of at the lower of its carrying value or its estimated net realizable value. The Company did not record any impairment for the quarters ended September 30, 2021 and 2020, as there were no triggering events or changes in circumstances that indicate that the carrying amount of an asset may not be recoverable.
Leases
On January 1, 2019, the Company adopted ASC 842 using the modified retrospective approach and recognized a right of use (“ROU”) asset and liability in the condensed consolidated balance sheet in the amount of $252,980 related to the operating lease for office space. Results for the nine months ended September 30, 2021 and 2020 are presented under ASC 842, while prior period amounts were not adjusted and continue to be reported in accordance with the legacy accounting guidance under ASC Topic 840, Leases.
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As part of the adoption, we elected the practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to:
| 1. | Continue applying our current policy for accounting for land easements that existed as of, or expired before, January 1, 2019. | |
| 2. | Not separate non-lease components from lease components and instead to account for each separate lease component and the non-lease components associated with that lease component as a single lease component. | |
| 3. | Not to apply the recognition requirements in ASC 842 to short-term leases. | |
| 4. | Not record a right of use asset or right of use liability for leases with an asset or liability balance that would be considered immaterial. |
Revenue Recognition
The Company follows the FASB Accounting Standards Codification ASC 606 for revenue recognition. The Company will recognize revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met:
| 1) | Identify the contract with a customer |
A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the services to be transferred and identifies the payment terms related to these services, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer, published credit and financial information pertaining to the customer.
| 2) | Identify the performance obligations in the contract |
Performance obligations promised in a contract are identified based on the services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the services is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised services, the Company must apply judgment to determine whether promised services are capable of being distinct and distinct in the context of the contract. If these criteria are not met the promised services are accounted for as a combined performance obligation.
| 3) | Determine the transaction price |
The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring services to the customer. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. None of the Company’s contracts as of September 30, 2021 contained a significant financing component.
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| 4) | Allocate the transaction price to performance obligations in the contract |
If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. However, if a series of distinct services that are substantially the same qualifies as a single performance obligation in a contract with variable consideration, the Company must determine if the variable consideration is attributable to the entire contract or to a specific part of the contract. For example, a bonus or penalty may be associated with one or more, but not all, distinct services promised in a series of distinct services that forms part of a single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct service that forms part of a single performance obligation. The Company determines standalone selling price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations.
| 5) | Recognize revenue when or as the Company satisfies a performance obligation |
The Company satisfies performance obligations either over time or at a point in time. Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised service to a customer.
Convention revenue is generally earned upon completion of the convention. Unearned convention revenue is deposits received for conventions that have not yet taken place, which are fully or partially refundable depending upon the terms and conditions of the agreements.
The Company recognizes cost of revenues in the period in which the revenues was earned. In the event the Company incurs cost of revenues for conventions that are yet to occur, the Company records such amounts as prepaid expenses and such prepaid expenses are expensed during the period the convention takes place.
Equity–based compensation
The Company recognizes compensation expense for all equity–based payments in accordance with ASC 718 “Compensation – Stock Compensation”. Under fair value recognition provisions, the Company recognizes equity–based compensation net of an estimated forfeiture rate and recognizes compensation cost only for those shares expected to vest over the requisite service period of the award.
Restricted stock awards are granted at the discretion of the Company. These awards are restricted as to the transfer of ownership and generally vest over the requisite service periods, typically over a four-year period (vesting on a straight–line basis). The fair value of a stock award is equal to the fair market value of a share of Company stock on the grant date.
The fair value of option award is estimated on the date of grant using the Black–Scholes option valuation model. The Black–Scholes option valuation model requires the development of assumptions that are input into the model. These assumptions are the expected stock volatility, the risk–free interest rate, the expected life of the option, the dividend yield on the underlying stock and the expected forfeiture rate. Expected volatility is calculated based on the historical volatility of the Company’s Common stock over the expected option life and other appropriate factors. Risk–free interest rates are calculated based on continuously compounded risk–free rates for the appropriate term. The dividend yield is assumed to be zero as the Company has never paid or declared any cash dividends on our Common stock and does not intend to pay dividends on our Common stock in the foreseeable future. The expected forfeiture rate is estimated based on historical experience.
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. In addition, the Company is required to estimate the expected forfeiture rate and recognize expense only for those shares expected to vest. If our actual forfeiture rate is materially different from our estimate, the equity–based compensation could be significantly different from what the Company has recorded in the current period.
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Fair Value Measurements
The Company follows ASC 820-10 of the FASB Accounting Standards Codification to measure the fair value of its financial instruments and disclosures about fair value of its financial instruments. ASC 820-10 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, ASC 820-10 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The three (3) levels of fair value hierarchy defined by ASC 820-10 are described below:
| Level 1 | Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. | |
| Level 2 | Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. | |
| Level 3 | Pricing inputs that are generally unobservable inputs and not corroborated by market data. |
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.
The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
The carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts receivable, inventory, prepaid expenses and other current assets, accounts payable and accrued expenses approximate their fair values because of the short maturity of these instruments.
Transactions involving related parties typically cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free-market dealings may not exist. However, in the case of the convertible promissory note discussed in Note 5, the Company obtained a fairness opinion from an independent third party which supports that the transaction was carried out at an arm’s length basis.
Income Taxes
The Company follows the asset and liability method of accounting for income taxes under FASB ASC 740, “Income Taxes.” Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
FASB ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. There were no unrecognized tax benefits as of September 30, 2021 and December 31, 2020. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. No amounts were accrued for the payment of interest and penalties at September 30, 2021 and December 31, 2020. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The Company is subject to income tax examinations by major taxing authorities since inception.
The Company may be subject to potential examination by federal, state, and city taxing authorities in the areas of income taxes. These potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions, and compliance with federal, state, and city tax laws. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.
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The Company is no longer subject to tax examinations by tax authorities for years prior to 2018.
Recently Adopted Accounting Guidance
In December 2019, the FASB issued ASU 2019-12, Income Taxes(Topic 740): “Simplifying the Accounting for Income Taxes”, which is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and by clarifying and amending existing guidance to improve consistent application. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. Certain amendments within this ASU are required to be applied on a retrospective basis, certain other amendments are required to be applied on a modified retrospective basis and all other amendments on a prospective basis. The adoption of ASU 2019-12 did not have a material impact on the Company’s financial statement presentation or disclosures.
Recently Issued Accounting Pronouncements
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU 2020-04 provides optional expedients and exceptions to account for contracts, hedging relationships and other transactions that reference LIBOR or another reference rate if certain criteria are met. The amendments of ASU No. 2020-04 are effective immediately, as of March 12, 2020, and may be applied prospectively to contract modifications made and hedging relationships entered into on or before December 31, 2022. The Company is evaluating the impact that the amendments of this standard would have on the Company’s consolidated financial statements.
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 will be effective for annual reporting periods after December 15, 2021 and interim periods within those annual periods and early adoption is permitted. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.
Management has evaluated all recent accounting pronouncements as issued by the FASB in the form of Accounting Standards Updates (“ASU”) through the date these financial statements were available to be issued and found no recent accounting pronouncements issued, but not yet effective accounting pronouncements, when adopted, will have a material impact on the financial statements of the Company.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We do not hold any derivative instruments and do not engage in any hedging activities.
Item 4. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures.
Pursuant to Rule 13a- 15(b) under the Exchange Act, the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Principal Executive Officer (“PEO”) and Principal Financial Officer (“PFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s PEO and PFO concluded that the Company’s disclosure controls and procedures were not effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s PEO and PFO, as appropriate, to allow timely decisions regarding required disclosure.
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(b) Changes in Internal Control over Financial Reporting.
There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
The Company is committed to improving financial organization. As part of this commitment, management and the Board perform reviews of the Company’s policies and procedures as they relate to financial reporting in an effort to mitigate future risks of potential misstatements. The Company will continue to focus on developing and documenting internal controls and procedures surrounding the financial reporting process, primarily through the use of account reconciliations, and supervision.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is not involved in any disputes and does not have any litigation matters pending which the Company believes could have a materially adverse effect on the Company’s financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our Company or any of our subsidiaries, threatened against or affecting our Company, our common stock, any of our subsidiaries or of our Company’s or our Company’s subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
However, from time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.
Item 1A. Risk Factors.
We believe there are no changes that constitute material changes from the risk factors previously disclosed in our Annual Report on Form 10-K, filed with the SEC on March 29, 2021. However, at present, because of the substantial uncertainties concerning the course and scope of the current situation with the Covid-19 virus, it is currently unclear how many live events will actually be produced by the Company in 2021. It is presently unknowable how long the current situation with Covid-19 will continue and what impact the Covid-19 situation will ultimately have upon the Company in 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
There were no unregistered sales of the Company’s equity securities during the quarter ended September 30, 2021, that were not otherwise disclosed in a Current Report on Form 8-K.
Item 3. Defaults Upon Senior Securities.
There has been no default in the payment of principal, interest, sinking or purchase fund installment, or any other material default, with respect to any indebtedness of the Company.
Item 4. Mine Safety Disclosures.
Not applicable.
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Item 5. Other Information.
Up until the age of Covid-19, the Company had a single revenue stream rooted in the sale of exhibitor booths, sponsorships, and tickets for public mass events. The virus has interrupted that revenue stream and it is uncertain when the situation will get back to normal. The Company’s work force has been reduced to a handful of employees who have continued to provide services while, at times, receiving only a portion of their salaries. In recognition of this fact, the Company’s board of directors repriced options that had been previously authorized (including those grants of 1/23/19 and 4/4/20) to $0.25 per share. Options previously granted to board members (including those grants of 9/5/18, 9/12/19 and 4/4/20, as well as the preferred conversion price for the conversion of all of the existing debt held by Mr. Kessler and Mr. Maatta into preferred stock, for which preferred shares have or will be issued) were like wise priced at $0.25 per share.
On March 1, 2021, we issued shares of our Series A Preferred Stock as follows: 8,500 shares to Mr. Maatta in satisfaction of an aggregate of $84,947.55 due and owing to Mr. Maatta under his Separation Agreement; 22,500 shares to Bristol Capital, LLC in satisfaction of $225,000 due and owing to Bristol Capital, LLC for additional consulting services rendered and to be rendered by Mr. Kessler from July 1, 2020 through April 1, 2021; 8,300 shares to Scott D. Kaufman, our Chief Executive Officer, in satisfaction of $83,333 of compensation payable to Mr. Kaufman under his Employment Agreement through April 1, 2021; and 4,000 shares to Heidi C. Bowman, our Chief Financial Officer, in satisfaction of $40,000 of compensation payable to Ms. Bowman under her Employment Agreement through April 1, 2021. During the three months ended September 30, 2021, the Company issued 8,300 shares to Scott D. Kaufman, our Chief Executive Officer, in satisfaction of $83,333 of compensation payable to Mr. Kaufman under his Employment Agreement and 4,000 shares to Heidi C. Bowman, our Chief Financial Officer, in satisfaction of $40,000 of compensation payable to Ms. Bowman under her Employment Agreement. Each share of our Series A Preferred Stock is convertible into a number of shares of our Common Stock determined by dividing the aggregate stated value for the Series A Preferred Stock being converted (initially $10.00 per share, subject to adjustment as set forth in the currently effective Series A Certificate of Designation) by the then-applicable conversion price (initially $0.25 per share, subject to adjustment as set forth in the currently effective Series A Certificate of Designation). We issued the foregoing securities in reliance on the exemption from registration provided under Section 4(a)(2) of the Securities Act.
On March 1, 2021, we issued warrants to purchase shares of Common Stock to our advisors and consultants as follows: two warrants to purchase 100,000 shares vesting 50% per year over two years from and after March 1, 2021, with an exercise price of $0.50 per share and a term of five years; and two warrants to purchase 100,000 shares vesting 50% per year over two years from and after March 1, 2021, with an exercise price of $1.00 per share and a term of five years. We issued the foregoing securities in reliance on the exemption from registration provided under Section 4(a)(2) of the Securities Act.
On March 29, 2021, we consummated the transactions contemplated by the securities purchase agreement with Leviston Resources LLC, pursuant to which, we issued in a private placement: (i) 5,000 shares of Series B Preferred Stock, convertible at the Series B Conversion Price, subject to conversion price floor of $1.00; and (ii) a warrant to acquire 5,000 shares of the Series B Preferred Stock at an exercise price of $1,000 per share of Series B Preferred Stock, which became exercisable immediately upon issuance and which expires on March 26, 2023; and (iii) a warrant to acquire 5,000 shares of the Series B Preferred Stock at an exercise price of $1,000 per share of Series B Preferred Stock, which became exercisable immediately upon issuance and which expires on March 26, 2024. Pursuant to the terms of the 2021 Warrants, the Series B Preferred Stock issuable upon exercise of the 2021 Warrants are automatically convertible into shares of Common Stock at the Series B Conversion Price. These securities were issued and sold in reliance upon the exemption from registration contained in Section 4(a)(2) of the Securities Act and Regulation D promulgated thereunder.
Rule 10b5-1 Sales Trading Plans
Stock of the Company held, and/or managed by, Bristol Capital Advisors, LLC and Bristol Investment Fund, Ltd., of which Paul L. Kessler, a director and 10% shareholder of the Company, is the beneficial owner, is subject to a Rule 10b5-1 Sales Trading Plan attached as Exhibit 99.1. Under the 10b5-1 plan, shares that are sold are subject to the discretion of the plan administrator.
Stock of the Company held, and/or managed by, Barlock Capital Management LLC and Barlock 2019 Fund L.P., of which Scott D. Kaufman, our Chairman, CEO and 10% shareholder is the beneficial owner, is subject to a Rule 10b5-1 Sales Trading Plan attached as Exhibit 99.2. Under the 10b5-1 plan, shares that are sold are subject to the discretion of the plan administrator.
Business Awareness Campaign
Since 2011, the Company has been in the live pop culture convention industry. With the advent of COVID 19 and the curtailment of the convention industry, our board of directors determined it was in the best interest of our shareholders to repurpose the business direction of the Company. Accordingly, we are now engaged in mining cryptocurrencies and have changed the name of the Company from Wizard Brands, Inc. to Creek Road Miners, Inc. to reflect this new direction.
To keep the investment markets informed of the direction of our business enterprise, we have determined to implement a business awareness campaign with the assistance of CDMG, Inc. and Retro Wall Street Consulting, LLC. Our engagement contracts with CDMG, Inc. are attached as Exhibits 10.13 and 10.14. Our engagement contract with Retro Wall Street Consulting, LLC is attached as 10.15. The Company will pay all expenses in connection with the campaign.
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Item 6. Exhibits.
* Filed herewith.
++ Indicates management contract or compensatory plan.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| CREEK ROAD MINERS, INC. | ||
| Date: November 12, 2021 | By: | /s/ Scott D. Kaufman |
| Name: | Scott D. Kaufman | |
| Title: | Chief Executive Officer and President | |
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