Business context and reporting period
This Form 10-Q covers the quarter and six months ended June 30, 2021. The registrant identified in the filing is Creek Road Miners, Inc. (formerly Wizard Brands, Inc.); this differs from the company name in the request metadata. Before its July 2021 name change, the company focused on pop-culture events, virtual programming, e-commerce and Jevo products. It reported no in-person events during the period because of COVID-19.
Financial results and liquidity
| Metric | Three months ended June 30, 2021 | Six months ended June 30, 2021 |
|---|---|---|
| Revenue | $226,726 | $605,900 |
| Gross profit | $60,995 | $142,623 |
| Operating expenses | $1,675,405 | $4,830,332 |
| Loss from operations | $(1,614,410) | $(4,687,709) |
| Net loss attributable to common stockholders | $(1,840,251) | $(4,252,228) |
| Loss per common share | $(0.51) | $(1.20) |
Six-month operating cash flow was $(2,746,260), investing cash flow was $(23,906), and financing cash flow was $2,425,837. Cash declined by $344,326 to $1,553,377. The company reported current assets of $2,274,123, current liabilities of $6,615,342, a working-capital deficit of $4,341,219, total liabilities of $9,395,610 and stockholders’ deficit of $6,724,606 at June 30.
Reported debt-related balances included a $2.5 million related-party convertible note, a $2.112 million convertible debenture (net), and $545,162 of notes payable (net). The notes payable include PPP loans and an SBA loan. The company reported no income-tax provision and no interest paid during the six-month period.
Material changes versus prior comparable periods
Quarterly revenue fell $589,690 from $816,416 in Q2 2020; six-month revenue fell $2,812,935 from $3,418,835. Management attributed the declines to the absence of live events and lower demand for virtual events. For the first half, revenue consisted of $263,309 from virtual events, $244,865 from the Vault and eBay sales, and $97,726 from Jevo; convention revenue was zero.
Six-month operating expenses rose to $4.83 million from $1.19 million, chiefly due to consulting costs, Jevo integration, staffing, marketing and share-based compensation. The company’s six-month operating loss widened to $4.69 million from $271,517. Other income for the first half was $365,629, including an $835,140 write-off of payables; interest expense was $469,511. Six-month net loss increased to $4.32 million from $574,057. The filing reports gross profit of $60,995 for Q2 2021 and $335,378 for Q2 2020, but its stated 27% gross-margin figure for both quarters does not reconcile to those amounts.
Outlook, risks and unusual items
- Going concern: Management cited substantial doubt about the company’s ability to continue as a going concern, given operating losses, cash of about $1.6 million and a working-capital deficit of about $4.3 million. Continued operations depend on executing its plans, generating revenue, controlling expenses and obtaining additional financing; management said financing is not assured.
- Strategic shift: The company said it intends to develop natural-gas-powered bitcoin mining facilities, following NFT activity. It expected its first facility to be operational by year-end 2021 and described an agreement in principle to acquire two megawatts of miners. These are forward-looking plans, not reported operating results.
- Events and subsequent transactions: Management said it had postponed scheduled 2021 live shows and had no plans to resume in-person events in the foreseeable future. On August 6, 2021, a wholly owned subsidiary agreed to sell assets and rights associated with six Wizard World live events to Informa.
- Financing and dilution: The company issued Series B preferred stock and warrants to Leviston under a $5 million purchase agreement with staged payments. The filing also reports approximately $1.7 million of proceeds and a $170,000 commission; the exact amounts received and remaining conditions should be checked against the agreement and subsequent filings. A July 16 amendment established a variable conversion-price formula, creating potential dilution. Outstanding warrants and other potentially dilutive securities were substantial; the filing lists 11 million common-stock warrants and 12.6 million potentially issuable shares from warrants, options and convertible debt as excluded from diluted EPS.
- Debt terms: Convertible debt bears 12% interest; holders agreed to defer collection until December 31, 2022. Conversion and warrant exercise prices were reset to $0.25 under anti-dilution provisions. The 2019 debenture is secured by substantially all company assets, on equal footing with certain other creditors.
- Controls and contingencies: Management concluded disclosure controls and procedures were ineffective. It reported no litigation believed likely to have a material adverse effect, no defaults on senior securities, and no off-balance-sheet arrangements.
Important facts for investors to verify
- Reconcile the Q2 2020 gross-margin percentage stated in MD&A with reported revenue and gross profit.
- Confirm Leviston funding received, outstanding staged payments, amended conversion terms and potential dilution in later filings.
- Assess cash runway, the going-concern disclosure and the availability of additional financing.
- Verify progress and funding requirements for the proposed mining facilities, and the completed terms and accounting for the August event-asset sale.
- Review the ineffective disclosure controls, related-party arrangements, secured debt terms and the company’s significant warrant overhang.