UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended:
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____________ to _____________
Commission
File No.
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
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 preceding 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.
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).
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 ☐ |
| 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
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Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.
| Title of Class | Number of Shares Outstanding on November 7, 2022 | |
| Common Stock, $0.0001 par value |
TABLE OF CONTENTS
| PART I | FINANCIAL INFORMATION | |
| Item 1. | Condensed Consolidated Financial Statements | 2 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
36 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 47 |
| Item 4. | Controls and Procedures | 47 |
| PART II | OTHER INFORMATION | |
| Item 1. | Legal Proceedings | 48 |
| Item 1A. | Risk Factors | 48 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 48 |
| Item 3. | Defaults Upon Senior Securities | 48 |
| Item 4. | Mine Safety Disclosures | 48 |
| Item 6. | Exhibits | 49 |
| SIGNATURES | 50 | |
| 1 |
PART 1 — FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Creek Road Miners, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Prepaid expenses | ||||||||
| Deposits on mining equipment | ||||||||
| Cryptocurrency | ||||||||
| Current assets associated with discontinued operations | ||||||||
| Total current assets | ||||||||
| Other assets: | ||||||||
| Property
and equipment, net of accumulated depreciation of $ | ||||||||
| Right
of use asset, net of accumulated amortization of $ | ||||||||
| Investment | ||||||||
| Deposits and other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Deficit | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accrued interest and expenses – related parties | ||||||||
| Convertible notes payable | ||||||||
| Lease liability, current portion | ||||||||
| Secured convertible debenture – related party | ||||||||
| Current liabilities associated with discontinued operations | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities: | ||||||||
| Lease liability, long term portion | ||||||||
| Secured convertible debenture – related party | ||||||||
| SBA/PPP loans payable | ||||||||
| Total non-current liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock; shares authorized: | ||||||||
| Series A convertible preferred stock; $ par value; shares authorized; and shares issued and outstanding, respectively | ||||||||
| Series
B convertible preferred stock; $ par value; shares authorized; and shares issued and outstanding, respectively | ||||||||
| Series
C convertible preferred stock; $ par value; shares authorized; shares issued and outstanding, respectively | ||||||||
| Common
stock; $ par value; shares authorized; and shares issued and outstanding, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ( | ) | ||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See notes to unaudited condensed consolidated financial statements
| 2 |
Creek Road Miners, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue: | ||||||||||||||||
| Cryptocurrency mining | $ | $ | $ | $ | ||||||||||||
| Operating costs and expenses: | ||||||||||||||||
| Cryptocurrency mining costs (exclusive of depreciation and amortization shown below) | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Stock based compensation | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Impairment of mined cryptocurrency | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Realized loss on sale of cryptocurrency | ( | ) | ||||||||||||||
| PPP loan forgiveness | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income (expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss from operations before provision for income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income taxes | ||||||||||||||||
| Loss from continuing operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Discontinued operations: | ||||||||||||||||
| Income (loss) from discontinued operations | ( | ) | ( | ) | ( | ) | ||||||||||
| Gain on sale of discontinued operations | ||||||||||||||||
| Net income (loss) from discontinued ops. | ( | ) | ( | ) | ||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Dividends on preferred stock | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Earnings attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Earnings (loss) per common share: | ||||||||||||||||
| Earnings (loss) per share from continuing operations, basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Earnings per share from discontinued operations, basic and diluted | $ | $ | $ | $ | ||||||||||||
| Earnings (loss) per share, basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average common shares outstanding, basic and diluted | ||||||||||||||||
See notes to unaudited condensed consolidated financial statements
| 3 |
Creek Road Miners, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
For the Three Months Ended September 30, 2022
(Unaudited)
| Series A Preferred Stock Par value $0.0001 | Series B Preferred Stock Par value $0.0001 | Series C 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 | Shares | Amount | Capital | Deficit | Interest | Deficit | |||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Warrants issued for services | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Exercise of warrants | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance
of series A preferred stock to settle compensation | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance
of series B preferred stock to settle liabilities | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Conversion of series C preferred stock to common | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Exchange of warrant shares for convertible note | - | - | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Dividend on series A preferred stock | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Dividend on series B preferred stock | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||||||||||||||||
See notes to unaudited condensed consolidated financial statements
| 4 |
Creek Road Miners, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
For the Nine Months Ended September 30, 2022
(Unaudited)
| Series
A Preferred Stock Par value $0.0001 | Series B Preferred Stock Par value $0.0001 | Series C 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 | Shares | Amount | Capital | Deficit | Interest | Deficit | |||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Warrants issued for services | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Exercise of warrants | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Replacement warrants issued | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for services | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for investment | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of series A preferred stock to settle compensation | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of series B preferred stock to settle liabilities | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Conversion of series A preferred stock to common | ( | ) | ( | ) | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Conversion of series B preferred stock to common | - | ( | ) | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Conversion of series C preferred stock to common | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Conversion of secured convertible debenture to Common stock | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Exchange of warrant shares for convertible note | - | - | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Dividend on series A preferred stock | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Dividend on series B preferred stock | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||||||||||||||||
See notes to unaudited condensed consolidated financial statements
| 5 |
Creek Road Miners, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
For the Three and Nine Months Ended September 30, 2021
(Unaudited)
| Series
A Preferred Stock Par value $0.0001 | Series
B Preferred Stock Par value $0.0001 | Series
C 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 | Shares | Amount | Capital | Deficit | Interest | Deficit | |||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||
| Stock based compensation | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of series A preferred stock to settle accrued liabilities and compensation | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of series B preferred stock and warrants, net | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock and warrants, net | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Conversion of series B preferred stock to common | - | ( | ) | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Dividend on Series A preferred stock | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||
| Series
A Preferred Stock Par value $0.0001 | Series
B Preferred Stock Par value $0.0001 | Series
C 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 | Shares | Amount | Capital | Deficit | Interest | Deficit | |||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||
| Stock based compensation | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Warrants issued for services | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of series A preferred stock to settle accrued liabilities and compensation | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of series B preferred stock and warrants, net | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock and warrants, net | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Conversion of series B preferred stock to common | - | ( | ) | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Dividend on Series A preferred stock | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||
See notes to unaudited condensed consolidated financial statements
| 6 |
Creek Road Miners, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash flow from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustment to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Accretion of debt discount | ||||||||
| Amortization of lease right | ( | ) | ||||||
| Stock based compensation | ||||||||
| Impairment of cryptocurrency | ||||||||
| PPP loan forgiveness | ( | ) | ||||||
| Realized loss on the sale of cryptocurrency | ||||||||
| Gain on the sale of discontinued operations | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Prepaid expenses | ( | ) | ( | ) | ||||
| Inventory | ||||||||
| Cryptocurrency, net of mining fees | ( | ) | ||||||
| Current assets associated with discontinued operations | ||||||||
| Security deposits | ( | ) | ||||||
| Assets associated with discontinued operations | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Accrued and unpaid dividends on preferred stock | ( | ) | ( | ) | ||||
| Liabilities associated with discontinued operations | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flow from investing activities: | ||||||||
| Proceeds from the sale of cryptocurrency | ||||||||
| Purchase of investment | ( | ) | ||||||
| Deposits on mining equipment, net | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flow from financing activities: | ||||||||
| Proceeds from the issuance of series B preferred stock and warrants, net | ||||||||
| Proceeds from the issuance of common stock and warrants, net | ||||||||
| Proceeds from the exercise of warrants | ||||||||
| Proceeds from the exercise of stock options | ||||||||
| Proceeds from the sale of discontinued operations | ||||||||
| Proceeds (paydown) of SBA/PPP loans payable | ( | ) | ||||||
| Proceeds from note payable | ||||||||
| Net cash provided by financing activities | ||||||||
| Net increase (decrease) in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
See notes to unaudited condensed consolidated financial statements
| 7 |
Creek Road Miners, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (continued)
(Unaudited)
| Condensed Consolidated Statements of Cash Flows (Unaudited) | ||||||||
Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for income taxes | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
| Supplemental disclosures of noncash investing and financing activity: | ||||||||
| Issuance of series A preferred stock to settle accrued liabilities and compensation | $ | $ | ||||||
| Issuance of series B preferred stock to settle accrued liabilities | $ | $ | ||||||
| Issuance of common stock for investment | $ | $ | ||||||
| Conversion of preferred stock to common stock | $ | $ | ||||||
| Conversion of secured convertible debentures to common stock | $ | $ | ||||||
| Exchange of warrant shares for convertible note | $ | $ | ||||||
See notes to unaudited condensed consolidated financial statements
| 8 |
Creek Road Miners, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Nine Months Ended September 30, 2022
(Unaudited)
Note 1. Organization, Nature of Business and Basis of Presentation
Organization
Creek Road Miners, Inc. (formerly known as Wizard Brands, Inc., Wizard Entertainment, Inc., Wizard World, Inc., and GoEnergy, Inc.) was incorporated in Delaware on May 2, 2001. Prior to cryptocurrency mining operations that began in October 2021, the Company produced live and virtual pop culture conventions and events and sold a gelatin machine and related consumables that were discontinued in 2021. In addition, the Company operated an eCommerce site selling pop culture memorabilia that was discontinued on June 30, 2022 (known collectively as “legacy operations”).
Merger Agreement
On October 24, 2022, the Company, Creek Road Merger Sub, LLC, a Delaware limited liability company and wholly-owned subsidiary of the Company, and Prairie Operating Co., LLC, a Delaware limited liability company (“Prairie”), entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which Merger Sub will merge with and into Prairie (the “Merger”), with Prairie surviving and continuing to exist as a Delaware limited liability company and a wholly-owned subsidiary of the Company.
At
the effective time of the Merger (the “Effective Time”), the Company will (a) deliver the greater of (A) shares
of its common stock, par value $ per share (“common stock”), and
In connection with the Merger, the Company will cause the following restructuring transactions (the “Restructuring Transactions”): (1) all holders of the Company’s outstanding shares of Series A preferred stock, Series B preferred stock, Series C preferred stock, and 12% senior secured convertible debentures (the “Convertible Debentures”), and holders of certain warrants, certain convertible promissory notes and certain other accrued liabilities, will convert their respective shares of Series A preferred stock, Series B preferred stock, Series C preferred stock and Convertible Debentures, and respective warrants, convertible promissory notes and accrued liabilities into shares of common stock and (2) thereafter, the Company shall effect a reverse stock split of the common stock at a ratio between 1-23 and 1-30 (the “Reverse Stock Split”).
Nature of Business
Cryptocurrency Mining
We generate substantially all our revenue through cryptocurrency we earn through our mining activities. We have historically mined and held Bitcoin exclusively, which we may sell to fund our operating and capital expenditures. While we do not have the intention of mining any other cryptocurrencies in the near future, we may expand our mining operations to include additional crypto assets if, after evaluation of the financial merits of such crypto assets based on a number of factors, including the anticipated profitability and price stability of such crypto assets and the ability and cost of our existing miners to mine for such digital assets, we determine that such additional crypto assets are reasonably likely to result in better margin than Bitcoin. Our mining operations commenced on October 24, 2021. We use special cryptocurrency mining computers (known as “miners”) to solve complex cryptographic algorithms to support the Bitcoin blockchain and, in return, receive Bitcoin as our reward. Miners measure their processing power, which is known as “hashing” power, in terms of the number of hashing algorithms solved (or “hashes”) per second, which is the miner’s “hash rate.” We participate in mining pools that pool the resources of groups of miners and split cryptocurrency rewards earned according to the “hashing” capacity each miner contributes to the mining pool.
Our Bitcoin mining operations require significant amounts of power. On May 30, 2022, the Company entered into a binding memorandum of understanding with Highwire Energy Partners, Inc. (“Highwire”) to acquire certain energy assets, including natural gas production opportunities in South Dakota, North Dakota and Wyoming as well as an opportunity for fixed-price electricity generation in Wyoming. In mid-June 2022, the Company relocated 240 Bitmain S19J Pro miners with 24 Ph/s of hashing capacity from Louisiana to a facility operated by Highwire in Colorado. The Company’s miners have currently not been placed in operational service pending resolution of gas supply start-up issues at the Highwire site and other operational issues. As a result, since June 30, 2022 the Company is neither receiving meaningful cryptocurrency awards nor generating meaningful revenue from cryptocurrency mining.
Mining Equipment
All
of our miners were manufactured by Bitmain, and incorporate application-specific integrated circuit (“ASIC”) chips specialized
to solve blocks on the Bitcoin blockchains using the 256-bit secure hashing algorithm (“SHA-256”) in return for Bitcoin cryptocurrency
rewards. As of September 30, 2022,
On
December 17, 2021 the Company entered into a Non-Fixed Price Sales and Purchase Agreement (the “Bitmain Agreement”) with
Bitmain Technologies Limited (“Bitmain”) for 600 Bitmain S19XP miners with a reference price of approximately $
| 9 |
The
remaining amount due under the Bitmain Agreement based on the initial total reference price is $
Market Price per Miner | Total Amount | |||||||
| July 2022 batch (100 miners) | $ | $ | ||||||
| August 2022 batch (100 miners) | ||||||||
| September 2022 batch (100 miners) | ||||||||
| October 2022 batch (100 miners) | ||||||||
| November 2022 batch (100 miners) | ||||||||
| December 2022 batch (100 miners) | (1) | |||||||
| Estimated total amount due | ||||||||
| Less: Payments made | ||||||||
| Estimated remaining amount due (2) | $ | |||||||
| (1) | ||
| (2) |
Mobile Data Centers
We historically utilize mobile data centers to house our miners. Our mobile data centers are located close to natural gas wellheads. We use natural gas to power a mobile turbine that produces electricity that, in turn, is used to power our miners.
Mining Results
The Company measures its operations by the number and U.S. Dollar (US$) value of the cryptocurrency rewards it earns from its cryptocurrency mining activities. The following table presents additional information regarding our cryptocurrency mining operations:
| Quantity of Bitcoin | US$ Amounts | |||||||
| Balance September 30, 2021 | $ | |||||||
| Revenue recognized from cryptocurrency mined | ||||||||
| Mining pool operating fees | ( | ) | ( | ) | ||||
| Impairment of cryptocurrencies | ( | ) | ||||||
| Balance December 31, 2021 | $ | |||||||
| Revenue recognized from cryptocurrency mined | ||||||||
| Mining pool operating fees | ( | ) | ( | ) | ||||
| Impairment of cryptocurrencies | ( | ) | ||||||
| Balance March 31, 2022 | $ | |||||||
| Revenue recognized from cryptocurrency mined | ||||||||
| Mining pool operating fees | ( | ) | ( | ) | ||||
| Proceeds from the sale of cryptocurrency | ( | ) | ( | ) | ||||
| Realized loss on the sale of cryptocurrency | ( | ) | ||||||
| Impairment of cryptocurrencies | ( | ) | ||||||
| Balance June 30, 2022 (1) | $ | |||||||
| Revenue recognized from cryptocurrency mined | ||||||||
| Mining pool operating fees | ( | ) | ||||||
| Impairment of cryptocurrencies | ( | ) | ||||||
| Balance September 30, 2022 (1) | $ | |||||||
| (1) |
| 10 |
Factors Affecting Profitability
Our business is heavily dependent on the market price of Bitcoin. The prices of cryptocurrencies, specifically Bitcoin, have experienced substantial volatility. Further affecting the industry, and particularly for the Bitcoin blockchain, the cryptocurrency reward for solving a block is subject to periodic incremental halving. Halving is a process designed to control the overall supply and reduce the risk of inflation in cryptocurrencies using a Proof-of-Work consensus algorithm. At a predetermined block, the mining reward is cut in half, hence the term “halving”. For Bitcoin the reward was initially set at 50 Bitcoin currency rewards per block. The Bitcoin blockchain has undergone halving three times since its inception as follows: (1) on November 28, 2012 at block 210,000; (2) on July 9, 2016 at block 420,000; and (3) on May 11, 2020 at block 630,000, when the reward was reduced to its current level of 6.25 Bitcoin per block. The next halving for the Bitcoin blockchain is anticipated to occur in March 2024 at block 840,000, when the reward will be reduced to 3.125 Bitcoin per block. This process will reoccur until the total amount of Bitcoin currency rewards issued reaches 21 million and the theoretical supply of new Bitcoin is exhausted. Many factors influence the price of Bitcoin, and potential increases or decreases in prices in advance of, or following, a future halving is unknown.
We have historically mined and held Bitcoin exclusively, which we may sell to fund our operating and capital expenditures. Since June 30, 2022 the Company is neither receiving meaningful cryptocurrency awards nor generating meaningful revenue from cryptocurrency mining.
Our
business is heavily dependent on the market price of Bitcoin, which has experienced substantial volatility and has recently dropped to
its lowest price since December 2020. As of September 30, 2022
Government Regulation
Cryptocurrency is increasingly becoming subject to governmental regulation, both in the U.S. and internationally. State and local regulations also may apply to our activities and other activities in which we may participate in the future. Numerous regulatory bodies have shown an interest in regulating blockchain or cryptocurrency activities. For example, on March 9, 2022 President Biden signed an executive order on cryptocurrencies. While the executive order does not mandate any specific regulations, it instructs various federal agencies to consider potential regulatory measures, including the evaluation of the creation of a U.S. Central Bank digital currency. Future changes to existing regulations or entirely new regulations may affect our business in ways it is not presently possible for us to predict with any reasonable degree of reliability. As the regulatory and legal environment evolves, we may become subject to new laws and regulation which may affect our mining and other activities. For additional discussion regarding our belief about the potential risks existing and future regulation pose to our business, see the Section entitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Basis of Presentation
The accompanying condensed consolidated financial statements are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the SEC. The condensed consolidated balance sheet as of December 31, 2021 included herein was derived from the audited consolidated financial statements as of that date, but does not include all disclosures, including notes, required by GAAP.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to fairly present the Company’s financial position and results of operations for the interim periods reflected. Except as noted, all adjustments contained herein are of a normal recurring nature. Results of operations for the fiscal periods presented herein are not necessarily indicative of fiscal year-end results.
| 11 |
Note 2. Going Concern Analysis
Historically,
we have relied upon cash from financing activities to fund substantially all of the cash requirements of our activities and have
incurred significant losses and experienced negative cash flow. The Company had net losses from continuing operations of $
We have evaluated the significance of the uncertainty regarding the Company’s financial condition in relation to our ability to meet our obligations, which has raised substantial doubts about the Company’s ability to continue as a going concern. While it is very difficult to estimate our future liquidity requirements the Company believes that if it is unable close the Merger, or obtain debt and/or equity financing, existing cash resources will be depleted in early 2023 or late 2022. The Company can generate cash through the sale of fixed assets, specifically cryptocurrency miners. However, the total cash generated would be significantly less that the total of the Company’s liabilities. There are no assurances that the Merger will close, that debt and/or equity financing can be obtained, or that the sale of fixed assets, specifically cryptocurrency miners can be achieved.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The 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.
The Company’s ability to continue as a going concern is dependent upon the Company’s ability to close the merger with Prairie, or obtain debt and/or equity financing, and there are no assurances that either can occur.
Note 3. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying financial statements are consolidated and include the accounts of the Company and its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
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 disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates.
These estimates and assumptions include estimates for reserves of uncollectible accounts, accruals for potential liabilities, assumptions made in valuing equity instruments issued for services or acquisitions, and realization of deferred tax assets.
Reclassification
Certain prior period amounts may have been reclassified to conform to current period presentation.
Concentration of Credit Risk
Financial
instruments, which potentially subject the Company to concentrations of credit risk, consist of cash and cash equivalents. The Company
places its cash with high quality financial institutions and at times may exceed the FDIC $
| 12 |
Cryptocurrency
Cryptocurrency (Bitcoin) is included in current assets in the accompanying consolidated balance sheets. The classification of cryptocurrencies as a current asset has been made after the Company’s consideration of the significant consistent daily trading volume on readily available cryptocurrency exchanges and the absence of limitations or restrictions on Company’s ability to sell Bitcoin. Cryptocurrencies awarded to the Company through its mining activities are accounted for in connection with the Company’s revenue recognition policy disclosed below. Cryptocurrencies held are accounted for as intangible assets with indefinite useful lives. An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value, which is measured using the quoted price of the cryptocurrency at the time its fair value is being measured. In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted. Cryptocurrencies awarded to the Company through its mining activities are included within operating activities on the accompanying consolidated statements of cash flows.
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.
Property and equipment
Property
and equipment are stated at cost and are depreciated using the straight-line method over their estimated useful lives of
Management assesses the carrying value of property and equipment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If there is indication of impairment, management prepares an estimate of future cash flows expected to result from the use of the asset and its eventual disposition. If these cash flows are less than the carrying amount of the asset, an impairment loss is recognized to write down the asset to its estimated fair value.
Leases
The Company accounts for leases in accordance with the provisions of ASC 842, Leases. This standard requires lessees to recognize on the balance sheet assets and liabilities for leases with lease terms of more than 12 months. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will depend primarily on its classification as a finance or operating 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.
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.
| 13 |
Revenue Recognition
The Company accounts for revenue in accordance with ASC 606, Revenue from Contracts with Customers. The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected.
Revenues are recognized when control of the promised goods or services are transferred to a customer, in an amount that reflects the consideration that we expect to receive in exchange for those goods or services. The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as we fulfill our obligations under each of our agreements:
| ● | identify the contract with a customer; | |
| ● | identify the performance obligations in the contract; | |
| ● | determine the transaction price; | |
| ● | allocate the transaction price to performance obligations in the contract; and | |
| ● | recognize revenue as the performance obligation is satisfied. |
The Company has entered into digital asset mining pools by executing contracts with the mining pool operators to provide computing power to the mining pool. The contracts are terminable at any time by either party and the Company’s enforceable right to compensation only begins when the Company provides computing power to the mining pool operator. In exchange for providing computing power, the Company is entitled to a fractional share of the fixed cryptocurrency award the mining pool operator receives (less digital asset transaction fees to the mining pool operator which are recorded as a component of cost of revenues) for successfully adding a block to the blockchain. The Company’s fractional share is based on the proportion of computing power the Company contributed to the mining pool operator to the total computing power contributed by all mining pool participants in solving the current algorithm.
Providing computing power in digital asset transaction verification services is an output of the Company’s ordinary activities. The provision of providing such computing power is the only performance obligation in the Company’s contracts with mining pool operators. The transaction consideration the Company receives, if any, is noncash consideration, which the Company measures at fair value on the date received, which is not materially different than the fair value at contract inception or the time the Company has earned the award from the pools. The consideration is all variable. Because it is not probable that a significant reversal of cumulative revenue will not occur, the consideration is constrained until the mining pool operator successfully places a block (by being the first to solve an algorithm) and the Company receives confirmation of the consideration it will receive, at which time revenue is recognized. There is no significant financing component in these transactions.
Fair value of the cryptocurrency award received is determined using the market rate of the related cryptocurrency at the time of receipt. There is currently no specific definitive guidance under GAAP or alternative accounting framework for the accounting for cryptocurrencies recognized as revenue or held, and management has exercised significant judgment in determining the appropriate accounting treatment. In the event authoritative guidance is enacted by the FASB, the Company may be required to change its policies, which could have an effect on the Company’s consolidated financial position and results from operations.
Cryptocurrency Mining Costs
The Company’s cryptocurrency mining costs consist primarily of direct costs of earning Bitcoin related to mining operations, including mining pool fees, natural gas costs, turbine rental costs, and mobile data center rental costs, but exclude depreciation and amortization, which are separately stated in the Company’s consolidated statements of operations.
Reverse Stock Split
We
implemented a
| 14 |
Stock-Based Compensation
The Company periodically issues stock options, warrants and restricted stock to employees and non-employees for services, in capital raising transactions, and for financing costs. The Company accounts for share-based payments under the guidance as set forth in the Share-Based Payment Topic 718 of the FASB Accounting Standards Codification, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees, officers, directors, and consultants, including employee stock options, based on estimated fair values. The Company estimates the fair value of stock option and warrant awards to employees and directors on the date of grant using an option-pricing model, and the value of the portion of the award that is ultimately expected to vest is recognized as expense over the required service period in our Statements of Operations. We estimate the fair value of restricted stock awards to employees and directors using the market price of our common stock on the date of grant, and the value of the portion of the award that is ultimately expected to vest is recognized as expense over the required service period in our Statements of Operations.
Discontinued Operations
On
August 6, 2021, the Company entered into an Asset Purchase Agreement (the “Informa Agreement”) with Informa. Pursuant to
the Informa Agreement, Creek Road Miners Corp. (fka Kick the Can Corp.) sold, transferred, and assigned certain assets, properties,
and rights to Informa related to the business of operating and producing live pop culture events. The
Company released deferred revenue and other liabilities totaling $
On
September 15, 2021, the Company sold our wholly owned subsidiary which contained our Jevo assets and all rights to our Jevo operations
for $
On June 30, 2022, the Company discontinued operations of an eCommerce site selling pop culture memorabilia.
The related assets and liabilities associated with the discontinued operations in our consolidated balance sheets for the periods ending September 30, 2022, and December 31, 2021, are classified as discontinued operations. Additionally, the financial results associated with discontinued operations in our consolidated statement of operations for the periods ending September 30, 2022 and 2021, are classified as discontinued operations.
Basic earnings (loss) per share is computed by dividing earnings (loss) attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing earnings (loss) attributable to common stockholders by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued, using the treasury stock method. The dilutive effect of potentially dilutive securities is reflected in diluted net income per share if the exercise prices were lower than the average fair market value of common shares during the reporting period. Potential common shares are excluded from the computation when their effect is antidilutive. Basic and diluted earnings (loss) attributable to common stockholders is the same for the three and nine months ended September 30, 2022 and 2021, because the Company has only incurred losses and all potentially dilutive securities are anti-dilutive. Potentially dilutive securities that were not included in the computation of diluted earnings (loss) attributable to common stockholders at September 30, 2022 because their inclusion would be anti-dilutive are as follows:
| Potentially Dilutive Security | Quantity | Stated Value Per Share (1) | Total Value or Stated Value | Assumed Conversion Price (1) | Resulting Common Shares | |||||||||||||||
| Common stock options | $ | $ | ||||||||||||||||||
| Common stock warrants | ||||||||||||||||||||
| Series A preferred stock | ||||||||||||||||||||
| Series B preferred stock | ||||||||||||||||||||
| Series C preferred stock | ||||||||||||||||||||
| Series B preferred stock warrants | ||||||||||||||||||||
| Secured convertible debentures – related parties | ||||||||||||||||||||
| Convertible notes payable | ||||||||||||||||||||
| Total | ||||||||||||||||||||
| (1) |
| 15 |
Related Parties
The Company follows ASC 850-10, Related Parties, for the identification of related parties and disclosure of related party transactions. Pursuant to Section 850-10-20, the related parties include: (a) affiliates of the Company (“Affiliate” means, with respect to any specified person, any other person that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such person, as such terms are used in and construed under Rule 405 under the Securities Act); (b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825-10-15, to be accounted for by the equity method by the investing entity; (c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; (d) principal owners of the Company; (e) management of the Company; (f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and (g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
Recently Issued Accounting Pronouncements
Recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements.
Note 4. Deposits on Mining Equipment
Deposits on mining equipment, consisted of the following:
Cryptocurrency Miners | Mobile Data Centers |
Total | ||||||||||
| Balance December 31, 2020 | $ | $ | $ | |||||||||
| Deposits on equipment during the period | ||||||||||||
| Equipment delivered during the period | ||||||||||||
| Balance December 31, 2021 | $ | $ | $ | |||||||||
| Deposits on equipment during the period | ||||||||||||
| Equipment delivered during the period | ( | ) | ( | ) | ||||||||
| Balance March 31, 2022 | $ | $ | $ | |||||||||
| Deposits on equipment during the period | ||||||||||||
| Equipment delivered during the period | ( | ) | ( | ) | ( | ) | ||||||
| Balance June 30, 2022 | $ | $ | $ | |||||||||
| Deposits on equipment during the period | ||||||||||||
| Equipment delivered during the period | ||||||||||||
| Balance September 30, 2022 | $ | $ | $ | |||||||||
All
of our miners were manufactured by Bitmain, and incorporate application-specific integrated circuit (“ASIC”) chips specialized
to solve blocks on the Bitcoin blockchains using the 256-bit secure hashing algorithm (“SHA-256”) in return for Bitcoin cryptocurrency
rewards. As of September 30, 2022,
On
December 17, 2021 the Company entered into the Bitmain Agreement with Bitmain for 600 Bitmain S19XP miners with a reference price of
approximately $
| 16 |
The
remaining amount due under the Bitmain Agreement based on the initial total reference price is $
Market Price per Miner | Total Amount | |||||||
| July 2022 batch (100 miners) | $ | $ | ||||||
| August 2022 batch (100 miners) | ||||||||
| September 2022 batch (100 miners) | ||||||||
| October 2022 batch (100 miners) | ||||||||
| November 2022 batch (100 miners) | ||||||||
| December 2022 batch (100 miners) | (1) | |||||||
| Estimated total amount due | ||||||||
| Less: Payments made | ||||||||
| Estimated remaining amount due (2) | $ | |||||||
| (1) | ||
| (2) |
Note 5. Cryptocurrency
The
Company measures its operations by the number and U.S. Dollar (US$) value of the cryptocurrency rewards it earns from its cryptocurrency
mining activities. The Company recognized an impairment, or write down, of cryptocurrency (Bitcoin) rewards to the lowest fair market
value of Bitcoin from the time the reward was earned through September 30, 2022. The impairment amounted to $
On
May 10, 2022 and June 25, 2022, the Company liquidated all of its then-current Bitcoin holdings. Approximately 19 Bitcoin were
liquidated resulting in cash proceeds of $
The following table presents additional information regarding our cryptocurrency mining operations:
| Quantity of Bitcoin | US$ Amounts | |||||||
| Balance September 30, 2021 | $ | |||||||
| Revenue recognized from cryptocurrency mined | ||||||||
| Mining pool operating fees | ( | ) | ( | ) | ||||
| Impairment of cryptocurrencies (1) | ( | ) | ||||||
| Balance December 31, 2021 | $ | |||||||
| Revenue recognized from cryptocurrency mined | ||||||||
| Mining pool operating fees | ( | ) | ( | ) | ||||
| Impairment of cryptocurrencies (1) | ( | ) | ||||||
| Balance March 31, 2022 | $ | |||||||
| Revenue recognized from cryptocurrency mined | ||||||||
| Mining pool operating fees | ( | ) | ( | ) | ||||
| Proceeds from the sale of cryptocurrency | ( | ) | ( | ) | ||||
| Realized loss on the sale of cryptocurrency | ( | ) | ||||||
| Impairment of cryptocurrencies (1) | ( | ) | ||||||
| Balance June 30, 2022 (2) | $ | |||||||
| Revenue recognized from cryptocurrency mined (2) | ||||||||
| Mining pool operating fees | ( | ) | ||||||
| Impairment of cryptocurrencies (1) | ( | ) | ||||||
| Balance September 30, 2022 (2) | $ | |||||||
| (1) | ||
| (2) |
| 17 |
Note 6. Property and Equipment
Property and equipment, excluding those associated with discontinued operations, stated at cost, less accumulated depreciation and amortization, consisted of the following:
September 30, 2022 | December 31, 2021 | |||||||
| Cryptocurrency miners | $ | $ | ||||||
| Mobile data center | ||||||||
| Computer equipment | ||||||||
| Software | ||||||||
| Equipment | ||||||||
| Total | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Net, Property and equipment | $ | $ | ||||||
Depreciation
expense, excluding that associated with discontinued operations, for the nine months ended September 30, 2022 and 2021 amounted to $
All of our miners were manufactured by Bitmain, and incorporate application-specific integrated circuit (“ASIC”) chips specialized to solve blocks on the Bitcoin blockchains using the 256-bit secure hashing algorithm (“SHA-256”) in return for Bitcoin cryptocurrency rewards. As of September 30, 2022, we had 510 Bitmain S19J Pro miners with 51.0 Ph/s of hashing capacity and 270 Bitmain S19 miners with 24.3 Ph/s of hashing capacity, none of which were in service.
Note 7. Investment
On
May 28, 2022, the Company entered into a Binding Memorandum of Understanding for a Proposed Transaction with Highwire to acquire
certain energy assets including natural gas production opportunities in South Dakota, North Dakota, and Wyoming as well as an
opportunity for fixed-price electricity generation in Wyoming.
As
of September 30, 2022 the Company paid Highwire $
In mid-June 2022, the Company relocated 240 Bitmain S19J Pro miners with 24 Ph/s of hashing capacity from Louisiana to a facility operated by Highwire in Colorado. The Company’s miners have currently not been placed in operational service pending resolution of gas supply start-up issues at the Highwire site and other operational issues. As a result, since June 30, 2022 the Company is neither receiving meaningful cryptocurrency awards nor generating meaningful revenue from cryptocurrency mining.
| 18 |
Note 8. Amounts Due to Related Parties
Amounts due to related parties as of September 30, 2022 consisted of the following:
Bristol Capital, LLC | Bristol Investment Fund, Ltd. |
Barlock 2019 Fund, LP | Total | |||||||||||||
| Accrued Interest and expenses | $ | $ | $ | $ | ||||||||||||
| Current secured convertible debenture | ||||||||||||||||
| Non-current secured convertible debenture | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Amounts due to related parties as of December 31, 2021 consisted of the following:
Bristol Capital, LLC | Bristol Investment Fund, Ltd. |
Barlock 2019 Fund, LP | Total | |||||||||||||
| Accrued Interest and expenses | $ | $ | $ | $ | ||||||||||||
| Current secured convertible debenture | ||||||||||||||||
| Non-current secured convertible debenture | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
As
of September 30, 2022, the Convertible Debentures with an aggregate principal amount of $
Note 9. Related Party Transactions
The Company has entered into transactions with the following related parties:
Related Party: Bristol Capital, LLC
Bristol Capital, LLC (“Bristol Capital”) is managed by Paul L. Kessler. Mr. Kessler served as Executive Chairman of the Company from December 29, 2016, through November 24, 2020, when Mr. Kessler resigned his position, but continued to serve as member of the Board of Directors. On December 1, 2021, Mr. Kessler was again appointed Executive Chairman of the Company.
Consulting Agreement
On December 29, 2016, the Company entered into a Consulting Services Agreement with Bristol Capital (the “Consulting Agreement”). Pursuant to the Consulting Agreement, Mr. Kessler agreed to serve as Executive Chairman of the Company. The initial term of the Consulting Agreement was from December 29, 2016 through March 28, 2017. The term of the Consulting Agreement will be automatically extended for additional terms of 90-day periods, unless either the Company or Bristol Capital 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. Upon the execution of the agreement the Company granted Bristol Capital options to purchase up to an aggregate of shares of the Company’s common stock at an exercise price of $ per share, as amended.
During
the term, the Company will pay Bristol Capital, as amended, a monthly fee $
On
November 22, 2018, the Company agreed to issue shares of preferred stock for settlement of $
| 19 |
On
August 3, 2020, the Company cancelled the shares of preferred stock previously determined to be issued, and issued
On
March 1, 2021, the Company issued shares of Series A preferred stock to Bristol Capital for the settlement of $
During
the nine months ended September 30, 2022 and 2021, the Company incurred expenses of approximately $
Non-Accountable Expense Reimbursement
On
September 7, 2021, Bristol Capital received a one-time non-accountable expense reimbursement of $
Reimbursement of Legal Fees
In
January 2022, Bristol Capital was reimbursed for $
Related Party: Bristol Capital Advisors, LLC
Bristol Capital Advisors, LLC (“Bristol Capital Advisors”) is managed by Paul L. Kessler.
Operating Sublease
On
June 16, 2016, the Company entered into a Standard Multi-Tenant Sublease with Bristol Capital Advisors. 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
Related Party: Bristol Investment Fund, Ltd.
Bristol Investment Fund, Ltd. (“Bristol Investment Fund”) is managed by Bristol Capital Advisors, which in turn is managed by Paul L. Kessler.
Securities Purchase Agreement – December 2016
On
December 1, 2016, the Company entered into the Purchase Agreement with Bristol Investment Fund, pursuant to which the Company sold
to Bristol Investment Fund, for a cash purchase price of $
i) Secured Convertible Debenture
On
December 1, 2016, the Company issued the Bristol Convertible Debenture with an initial principal balance of $
| 20 |
The
Bristol Convertible Debenture is convertible into shares of the Company’s common stock at any time at the option of the
holder. The initial conversion price was $(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 $
and (ii)
The Bristol Convertible Debenture contains anti-dilution provisions where, if the Company, at any time while the Bristol Convertible Debenture is outstanding, sells or grants any option to purchase, right to reprice, or otherwise dispose of or issue any common stock or common stock equivalents, at an effective price per share less that is lower than the conversion price then in effect, the conversion price shall be reduced to the lower effective price per share.
On
December 19, 2019, the maturity date of the Bristol Convertible Debenture was amended to
On May 1, 2020, the maturity date of the Bristol Convertible Debenture was amended to December 31, 2022.
On
August 3, 2020, as a result of the anti-dilution provisions, the effect of repricing stock options held by directors and employees
to $
On
October 31, 2021, in consideration for the release of senior security interest in certain of the assets, properties, and rights of
discontinued operations that were sold during the year, the Bristol Convertible Debenture was amended to reduce the conversion price
to $
During
March 2022, Bristol Convertible Debenture principal in the amount of $
As
of September 30, 2022, the Bristol Convertible Debenture with a principal amount of $
As
of September 30, 2022 and December 31, 2021, the amount of accrued interest payable to Bristol Investment Fund under the Bristol
Convertible Debenture was $
(ii) Series A Common Stock Purchase Warrants
On
December 1, 2016, the Company issued series A common stock purchase warrants to acquire up to
On
December 19, 2019, as a result of the anti-dilution provisions, the issuance of the Barlock Convertible Debenture with a conversion
price of $
On
December 19, 2019, Bristol Investment Fund assigned
On
August 3, 2020, as a result of the anti-dilution provisions, the effect of repricing stock options held by directors and employees to
$
On
October 31, 2021, as a result of the anti-dilution provisions, the effect of reducing the conversion price of the Convertible
Debentures to $
| 21 |
On
September 9, 2022, Bristol Investment Fund assigned
As
of September 30, 2022, Bristol Investment Fund held series A common stock purchase warrants to acquire
In addition, the warrants may be exercised, in whole or in part, at any time until they expire. If at any time after the 6-month anniversary of the closing date there is no effective registration statement, or no current prospectus available for the resale of the warrant shares, then the warrants may be exercised, in whole or in part, on a cashless basis at any time until they expire.
(iii) Series B Common Stock Purchase Warrants
On
December 1, 2016, the Company issued series B common stock purchase warrants to acquire up to
Upon
issuance of the Bristol Convertible Debenture, the Company valued the warrants using the Black-Scholes Option Pricing model and
accounted for it using the relative fair value of $
Related Party: Barlock 2019 Fund, LP
Barlock 2019 Fund, LP (“Barlock”), is managed by Scott D. Kaufman, who has served as Chief Executive Officer of the Company from November 24, 2020, through May 11, 2022, and as co-Chief Executive Officer from May 12, 2022 through August 8, 2022, and a former Director from November 4, 2019, through August 8, 2022, and former Chairman of the Board of Directors from November 24, 2020, through December 1, 2021.
Securities Purchase Agreement – December 2019
On
December 19, 2019, the Company entered into the purchase agreement with Barlock, pursuant to which the Company sold to Barlock, for a
cash purchase price of $
(i) Secured Convertible Debenture
On
December 19, 2019, the Company entered issued a Barlock Convertible Debenture with an initial principal balance of $
The
Barlock Convertible Debenture is convertible into shares of the Company’s common stock at any time at the option of the
holder. The initial conversion price was $
The Barlock Convertible Debenture contains anti-dilution provisions where, if the Company, at any time while the Barlock Convertible Debenture is outstanding, sells or grants any option to purchase, right to reprice, or otherwise dispose of or issue any common stock or common stock equivalents, at an effective price per share less that is lower than the conversion price then in effect, the conversion price shall be reduced to the lower effective price per share.
| 22 |
On
August 3, 2020, as a result of the anti-dilution provisions, the effect of repricing stock options held by directors and employees
to $
On
October 31, 2021, in consideration for the release of senior security interest in certain of the assets, properties, and rights of
discontinued operations that were sold during the year, the Barlock Convertible Debenture was amended to reduce the conversion price
to $
During
March 2022, the principal amount of $
As
of September 30, 2022, the Barlock Convertible Debenture with a principal amount of $
As
of September 30, 2022 and December 31, 2021, the amount of accrued interest payable to Barlock under the Barlock Convertible Debenture
was $
| 23 |
(ii) Series A Common Stock Purchase Warrants
On
December 19, 2019, Bristol Investment Fund assigned to Barlock Capital Management, LLC series A common stock purchase warrants to acquire
up to
On
August 3, 2020, as a result of the anti-dilution provisions, the effect of repricing stock options held by directors and employees to
$
On
October 31, 2021, as a result of the anti-dilution provisions, the effect of reducing the conversion price of the secured convertible
debenture to $
As
of September 30, 2022, Barlock Capital Management, LLC held series A common stock purchase warrants to acquire
In addition, the warrants may be exercised, in whole or in part, at any time until they expire. If at any time after the six-month anniversary of the closing date there is no effective registration statement, or no current prospectus available for the resale of the warrant shares, then the warrants may be exercised, in whole or in part, on a cashless basis at any time until they expire. Shares of common stock issuable upon exercise of warrants are subject to a 4.99% beneficial ownership limitation, which may increase to 9.99% upon notice to the Company.
Upon
issuance of the secured convertible debenture, the Company valued the warrants using the Black-Scholes Option Pricing model and accounted
for it using the relative fair value of $
Related Party: Barlock Capital Management, LLC
Barlock
Capital Management, LLC, is managed by Scott D. Kaufman, who served as Chief Executive Officer of the Company from November 24,
2020, through May 11, 2022, and as co-Chief Executive Officer from May 12, 2022 through August 8, 2022, and a former Director from November
4, 2019, through August 8, 2022, and former Chairman of the Board of Directors from November 24, 2020, through December 1, 2021. From September 2021 through
December 2021, the Company rented executive office space located at 2700 Homestead Road, Park City, UT 84098, for approximately
$
In
addition, the Company paid management fees to Barlock Capital Management, LLC in the amount of $
Related Party: American Natural Energy Corporation
Scott
D. Kaufman is a director and shareholder of American Natural Energy Corporation (“ANEC”). In addition, Richard G. Boyce
is a former director of the Company who resigned from the Board on July 22, 2022, is also a director of ANEC. On October 22, 2021, the Company entered into an agreement
with ANEC, where ANEC would: (i) allow the Company to moor a barge on the ANEC operations site with the Company’s mobile data
center that houses cryptocurrency miners and a mobile turbine, and, (ii) supply natural gas to power a mobile turbine that produces
electricity that, in turn, is used to power the miners. ANEC charges the Company for the amount of natural gas used based on the
daily spot price of an unaffiliated third party, and a daily fee of $
| 24 |
In
addition, in January 2022, the Company began renting executive office space located at 2700 Homestead Road, Park City, UT 84098, for
approximately $
Related Party: Scott D. Kaufman, former Chief Executive Officer
On
September 7, 2021, Scott D. Kaufman received a one-time non-accountable expense reimbursement
of $
Related Party: K2PC Consulting, LLC
K2PC
Consulting, LLC is managed by the spouse of Scott D. Kaufman. The company paid marketing
fees to K2PC Consulting, LLC in the amount of $
Related Party: John D. Maatta, Director and Chief Executive Officer
John D. Maatta is a current director, and served as Chief Executive Officer of the Company until November 24, 2020, as co-Chief Executive Officer from May 12, 2022 through July 8, 2022, and again as Chief Executive Officer beginning on July 9, 2022. On November 22, 2018, the Company agreed to issue shares of preferred stock for settlement of the outstanding compensation due to Mr. Maatta of $, for the period June 17, 2017 through November 15, 2018.
On
August 3, 2020, the Company cancelled the shares of preferred stock previously determined to be issued, and issued shares
of Series A preferred stock for the settlement of the previous outstanding amount due. In addition, on August 3, 2020, the Company issued
shares of Series A preferred stock for the settlement of $
On
March 1, 2021, shares of Series A preferred stock were issued to Mr. Maatta in satisfaction of an aggregate of $
Related Party: CONtv
CONtv
is a joint venture with third parties and Bristol Capital, LLC. The Company holds a limited and passive interest of
Note 10. Convertible Notes Payable
Creecal Holdings LLC (Assigned from Leviston Resources LLC)
In
connection with a loan in the principal amount of $
The Creecal Note is convertible at the holder’s option at the conversion price of the Company’s Series C preferred stock then in effect (the “Creecal Note Conversion Price”), provided that so long as an event of default has not occurred under the Note and the Company’s Series B preferred stock remains outstanding, the Creecal Note Conversion Price shall not be lower than the conversion price of the Series B preferred stock. Unless the holder opts to convert the Creecal Note contemporaneously with the Merger, the Creecal Note will be immediately due and paid at the closing of the Merger. In the event the Merger is abandoned or cancelled the Creecal Note will be due 30 days after such event.
| 25 |
Alpha Capital Anstalt
On
August 24, 2022, the Company entered into an Agreement (the “Settlement”) with Alpha Capital Anstalt (“Alpha”).
The Settlement relates to a dispute with the Company’s then-CEO in connection with Alpha’s partial exercise on March 20,
2022 of warrants to purchase
Pursuant
to the Settlement, Alpha agreed to exchange the Warrant
Shares for a convertible promissory note in the principal amount of $
The Alpha Note is convertible at Alpha’s option at the conversion price of the Company’s Series C preferred stock then in effect (the “Alpha Note Conversion Price”). Upon notice that the Merger is imminent, Alpha will convert the Alpha Note at a 10% discount of the amounts owed thereunder into shares of common stock at the lower of: (i) the Alpha Note Conversion Price; or (ii) the lowest per share valuation attributed to the common stock in the Merger and any capital raise completed by the Company in connection with the Merger.
Note 11. SBA/PPP Notes Payable
Small Business Administration Paycheck Protection Program Loans
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.
SBA Guaranteed PPP Loan
On
April 30, 2020, the Company entered into an SBA guaranteed PPP loan. The Company received aggregate proceeds of $
SBA Loan
On
May 31, 2020, the Company entered into a loan agreement with the SBA. The Company received aggregate proceeds of $
Second Draw SBA Guaranteed PPP Loan
On
February 24, 2021, the Company entered into a Second Draw SBA guaranteed PPP loan. The Company received aggregate proceeds of $
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The following table summarizes PPP/SBA loans payable:
| As of | ||||||||
September 30, 2022 | December 31, 2021 | |||||||
| SBA Guaranteed PPP Loan | $ | $ | ||||||
| SBA Loan | ||||||||
| Second Draw SBA Guaranteed PPP Loan | ||||||||
| Total | $ | $ | ||||||
Note 12. Contingencies and Commitments
COVID-19
The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on the Company’s business is highly uncertain and difficult to predict, as the responses that the Company, other businesses and governments are taking continue to evolve. Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is possible that it could cause a local and/or global economic recession. Policymakers around the globe have responded with fiscal policy actions to support the healthcare industry and economy as a whole. The magnitude and overall effectiveness of these actions remain uncertain.
The severity of the impact of the COVID-19 pandemic on the Company’s business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company’s customers, service providers and suppliers, all of which are uncertain and cannot be predicted. As of the date of issuance of Company’s financial statements, the extent to which the COVID-19 pandemic may in the future materially impact the Company’s financial condition, liquidity or results of operations is uncertain.
Russia – Ukraine Conflict
The Russia – Ukraine conflict is a global concern. The Company does not have any direct exposure to Russia or Ukraine through its operations, employee base, investments or sanctions. The Company does not receive goods or services sourced from those countries, does not anticipate any disruption in its supply chain and has no business relationships, connections to or assets in Russia, Belarus or Ukraine. No impairments to assets have been made due to the conflict. We are unable at this time to know the full ramifications of the Russia – Ukraine conflict and its effects on our business.
On May 9, 2011, the Company adopted the 2016 Incentive Stock Award Plan (the “2011 Plan”), on August 12, 2016, the Company adopted the 2016 Incentive Stock Award Plan (the “2016 Plan”), on August 3, 2020, the Company adopted the 2020 Stock Plan (the “2020 Plan”), and on December 1, 2021, the Company adopted the 2021 Incentive Stock Award Plan (the “2021 Plan”), collectively (the “Plans”). The purpose of the Plans is to grant options to purchase our common stock, and other incentive awards, to our employees, directors and key consultants.
The maximum number of shares of common stock that may be issued pursuant to awards granted under the 2020 Plan was . On December 1, 2021, all prior stock award plans were retired, and the 2021 Plan was adopted. The maximum number of shares of common stock that may be issued pursuant to awards granted under the 2021 Plan is . The shares of our common stock underlying cancelled and forfeited awards issued under the 2021 Plan may again become available for grant under the 2021 Plan. As of September 30, 2022, there were shares available for grant under the 2021 Plan, and no shares were available for grant under the 2020 Plan, 2016 Plan, or 2011 Plan.
On
August 21, 2020 the Board approved the repricing of the exercise price of outstanding stock options that had been issued to directors
and employees to $
Stock-based compensation cost is measured at the grant date, based on the fair value of the awards that are ultimately expected to vest, and recognized on a straight-line basis over the requisite service period, which is generally the vesting period.
| 27 |
| Weighted | ||||||||
| Average | ||||||||
| Exercise | ||||||||
| Options | Price | |||||||
| Outstanding at December 31, 2021 | $ | |||||||
| Granted | ||||||||
| Exercised | ( | ) | ||||||
| Forfeited/Cancelled | ( | ) | ||||||
| Outstanding at September 30, 2022 | $ | |||||||
| Exercisable at December 31, 2021 | $ | |||||||
| Exercisable at September 30, 2022 | $ | |||||||
The weighted average remaining contractual life of all options outstanding as of September 30, 2022 was years. The weighted average remaining contractual life for options vested and exercisable at September 30, 2022 was years. Furthermore, the aggregate intrinsic value of options outstanding as of September 30, 2022 was $, based on the fair value of the Company’s common stock on September 30, 2022.
During the three months ended March 31, 2022, the Company issued net shares of common stock upon the cashless exercise of options underlying shares of common stock.
During the three months ended September 30, 2022, option holders cancelled options to purchase shares of common stock.
| Option | Remaining | |||||||||||||
| Exercise | Options | Contractual | Options | |||||||||||
| Price | Outstanding | Life (in years) | Exercisable | |||||||||||
| $ | ||||||||||||||
Note 14. Common Stock Warrants
On
January 1, 2022, the Company granted warrants to purchase shares of the Company’s common stock to a consultant in connection with
the issuance of Series C preferred stock as follows: a warrant to purchase
On
March 29, 2022, the Company offered 16 warrant holders replacement warrants with an exercise price of $
In
late-August and early-September 2022, the Company and holders of Series B and Series C preferred stock entered into Support
Agreements (the “Support Agreements”) relating to the Merger. Pursuant to the Support Agreements, the holders of Series
B and Series C preferred stock agreed to use its reasonable best efforts to cooperate with the Company in connection with the
Merger. The Support Agreement amends the exercise
price of all outstanding warrants held by Series B and Series C Preferred Stockholders to
$
On
March 30, 2022, warrants to purchase
During
the three months ended September 30, 2022, warrants to purchase
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The following table summarizes common stock warrant activity during the nine months ended September 30, 2022:
Common Stock Warrants | Weighted Average Exercise Price | |||||||
| Outstanding at December 31, 2021 | $ | |||||||
| Granted | ||||||||
| Exercised | ( | ) | ||||||
| Forfeited/Cancelled | ( | ) | ||||||
| Outstanding at September 30, 2022 | $ | (1) | ||||||
| Exercisable at December 31, 2021 | $ | |||||||
| Exercisable at September 30, 2022 | $ | |||||||
| (1) |
The following table presents the assumptions used to estimate the fair values based upon a Black-Scholes calculation for the common stock warrants granted during the nine months ended September 30, 2022:
| Assumptions | ||||
| Expected dividend yield | % | |||
| Risk-free interest rate | % | |||
| Expected life (in years) | ||||
| Expected volatility | % | |||
The weighted average remaining contractual life of all common stock warrants outstanding as of September 30, 2022 was years. Furthermore, the aggregate intrinsic value of common stock warrants outstanding as of September 30, 2022 was $ based on the fair value of the Company’s common stock on September 30, 2022.
| 29 |
| Warrant | Remaining | |||||||||||||
| Exercise | Warrants | Contractual | Warrants | |||||||||||
| Price | Outstanding | Life (in years) | Exercisable | |||||||||||
| $ | ||||||||||||||
| Total | ||||||||||||||
Note 15. Series B Preferred Stock Warrants
From
March 2021 through December 2021, in connection with the issuance of Series B preferred stock, the Company issued (i) a warrant to acquire
The
Series B preferred stock issuable upon exercise of the Series B preferred stock warrants are automatically convertible into shares of
common stock at the Series B conversion price.
In
late-August and early-September 2022, the Company and holders of Series B and Series C preferred stock entered into the Support
Agreements. Pursuant to the Support Agreements, the holders of Series B and Series C preferred stock agreed to use its reasonable
best efforts to cooperate with the Company in connection with the Merger. The Support Agreements amend the exercise
price of all outstanding warrants held by Series B and Series C Preferred Stockholders to
$
As
of September 30, 2022, in connection with the issuance of Series B preferred stock, there were outstanding warrants to acquire
The following table summarizes Series B preferred stock warrant activity during the nine months ended September 30, 2022:
Series B Preferred Stock Warrants | Weighted Average Exercise Price | |||||||
| Outstanding at December 31, 2021 | $ | |||||||
| Granted | ||||||||
| Exercised | ||||||||
| Forfeited/Cancelled | ||||||||
| Outstanding at September 30, 2022 | $ | |||||||
| Exercisable at September 30, 2022 | $ | |||||||
The weighted average remaining contractual life of all Series B preferred stock warrants outstanding as of September 30, 2022 was year.
| 30 |
Note 16. Common Stock
Holders of our common stock are entitled to one vote per share. Our Certificate of Incorporation does not provide for cumulative voting. Holders of our common stock are entitled to receive ratably such dividends, if any, as may be declared by our Board out of legally available funds. However, the current policy of our Board is to retain earnings, if any, for our operations and expansion. Upon liquidation, dissolution or winding-up, the holders of our common stock are entitled to share ratably in all of our assets which are legally available for distribution, after payment of or provision for all liabilities. The holders of our common stock have no preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of our common stock are subject to and may be adversely affected by the rights of the holders of shares of any series of preferred stock that we may designate and issue.
From
August 2021 through October 2021, we consummated the transactions contemplated by the securities purchase agreement with the investors
party thereto, pursuant to which, we generated net cash proceeds of $
On January 25, 2022, the Company granted an officer shares of common stock as compensation under his employment agreement for services provided through December 31, 2021.
On May 31, 2022, the Company issued shares of common stock to Highwire under the terms of the Binding Memorandum of Understanding for a Proposed Transaction.
On August 24, 2022, the Company entered into the Settlement with Alpha. The Settlement relates to a dispute with the Company’s then-CEO in connection with Alpha’s partial exercise on March 20, 2022 of the Warrant Shares. Pursuant to the Settlement, Alpha agreed to exchange the Warrant Shares for the Alpha Note. As of September 30, 2022 Alpha had returned shares of common stock in connection with the Settlement, and the remaining shares were returned on October 25, 2022.
Note 17. Preferred Stock
Under the terms of the Certificate of Incorporation, our Board is expressly granted authority to authorize the issuance from time to time of shares of preferred stock in one or more series, for such consideration and for such corporate purposes as our Board may from time to time determines, and by filing a certificate pursuant to applicable law of the State of Delaware to establish from time to time for each such series the number of shares to be included in each such series and to fix the designations, powers, rights and preferences of the shares of each such series, and the qualifications, limitations and restrictions thereof to the fullest extent permitted by the Certificate of Incorporation and the laws of the State of Delaware, including, without limitation, voting rights (if any), dividend rights, dissolution rights, conversion rights, exchange rights and redemption rights thereof.
Series A Preferred Stock
Holders
of our Series A preferred stock are entitled to the number of votes per share equal to shares of common stock. Holders of our Series
A preferred stock are entitled to receive a cumulative dividend on each share of Series A preferred stock issued and outstanding at the
rate of twelve percent (
| 31 |
On
January 1, 2022, the Company granted an officer shares Series A preferred stock for settlement of $
On
March 31, 2022, we issued shares of our Series A preferred stock to Scott D. Kaufman, our former co-Chief Executive Officer, for
settlement of $
On
June 30, 2022, we issued shares of our Series A preferred stock to Scott D. Kaufman, our former co-Chief Executive Officer, for
settlement of $
On
September 30, 2022, we issued: shares of our Series A preferred stock to Scott D. Kaufman, our former co-Chief Executive Officer,
for settlement of $
During the nine months ended September 30, 2022, shares of Series A preferred stock were converted into shares of common stock.
As
of September 30, 2022, there were shares of Series A preferred stock outstanding resulting in Series A preferred stock with a
stated value of $
Series B Preferred Stock
Holders
of our Series B preferred stock have no voting rights. Holders of our Series B preferred stock are entitled to receive a cumulative dividend
on each share of Series B preferred stock issued and outstanding at the rate of five percent (
| 32 |
From
March 2021 through December 2021, we consummated the transactions contemplated by the securities purchase agreement with Leviston Resources
LLC, pursuant to which, we generated net cash proceeds of $
During the nine months ended September 30, 2022, shares of Series B preferred stock had been converted into shares of common stock.
In
late-August and early-September 2022, the Company and holders of Series B and Series C preferred stock entered into Support
Agreements. Pursuant to the Support Agreements, the holders of Series B and Series C preferred stock agreed to use its reasonable
best efforts to cooperate with the Company in connection with the Merger. The Support Agreements amend the conversion price of the
Series B and Series C preferred stock to $
As
of September 30, 2022, there were shares of Series B preferred stock outstanding resulting in Series B preferred stock with a stated
value of $
Series C Preferred Stock
Holders of our Series C preferred stock have no voting rights. Holders of our Series C preferred stock are entitled to receive dividends on Series C preferred stock equal (on an as-if-converted-to-Common-Stock basis) to any dividends paid on common stock. In the event of any liquidation, dissolution or winding up of our company, whether voluntary or involuntary, holders of our Series C preferred stock are entitled to receive, prior and in preference to any distribution of any of our assets to the holders of common stock and common stock Equivalents (as defined in the Certificate of Designation) by reason of their ownership thereof, for each share held an amount equal to the Stated Value (as defined in the Certificate of Designation), plus fees, if any. The Series C preferred stock is convertible, at the option of the holder thereof, into such number of fully paid and nonassessable shares of common stock as is determined by dividing the Stated Value, currently $1,111, by the Series C Conversion Price, 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 C Conversion Price in effect immediately prior to such issuance. We are entitled to redeem some or all of the outstanding shares of Series C preferred stock for cash in an amount equal to the Optional Redemption Amount (as defined in the Certificate of Designation). The Series C preferred stock is entitled to certain protective provisions and, without the written consent of at least 50.1% in Stated Value of the outstanding shares of the Series C preferred stock, we may not (or permit any of our subsidiaries to) enter into, create, incur, assume, guarantee or suffer to exist any indebtedness, other than Permitted Indebtedness (as defined in the Certificate of Designation). Shares of common stock issuable upon the conversion of Series C preferred stock are subject to a 4.99% beneficial ownership limitation, which may increase to 9.99% upon notice to the Company.
During
December 2021, we consummated the transactions contemplated by the securities purchase agreement with the investors party thereto, pursuant
to which we generated net cash proceeds of $
On
March 29, 2022, the Company offered 16 warrant holders replacement warrants with an exercise price of $
On July 7, 2022, shares of Series C preferred stock were converted into shares of common stock.
In
late-August and early-September 2022, the Company and holders of Series B and Series C preferred stock entered into Support
Agreements. Pursuant to the Support Agreements, the holders of Series B and Series C preferred stock agreed to use its reasonable
best efforts to cooperate with the Company in connection with the Merger. The Support Agreements amend the conversion price of the
Series B and Series C preferred stock to $
As
of September 30, 2022, there were shares of Series C preferred stock outstanding resulting in Series C preferred stock with a stated
value of $
Note 18. Discontinued Operations
Prior to cryptocurrency mining operations that began in October 2021, the Company produced live and virtual pop culture conventions and events and sold a gelatin machine and related consumables that were discontinued in 2021. In addition, the Company operated an eCommerce site selling pop culture memorabilia that was discontinued on June 30, 2022 (known collectively as “legacy operations”).
On
August 6, 2021, the Company entered into the Informa Agreement. Pursuant to the Informa Agreement,
Creek Road Miners Corp. (fka Kick the Can Corp.) sold, transferred, and assigned certain assets, properties, and rights to Informa related
to the business of operating and producing live pop culture events. The Company released deferred
revenue and other liabilities totaling $
| 33 |
On
September 15, 2021, the Company sold our wholly owned subsidiary which contained our Jevo assets and all rights to our Jevo operations
for $
| Description | Amount | |||
| Net cash paid on the closing date | $ | |||
| Less: | ||||
| Current assets | ||||
| Inventory | ||||
| Fixed assets, net | ||||
| Intangible assets, net | ||||
| Total | ||||
| Gain from sale | $ | |||
CONtv
is a joint venture with third parties and Bristol Capital, LLC. The Company holds a limited and passive interest of
The related assets and liabilities associated with the discontinued operations in our consolidated balance sheets for the periods ending September 30, 2022 and December 31, 2021, are classified as discontinued operations. Additionally, the financial results associated with discontinued operations in our consolidated statement of operations for the three and nine months ending September 30, 2022 and 2021, are classified as discontinued operations.
The assets and liabilities related to discontinued operations consists of the following:
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Prepaid expenses | $ | $ | ||||||
| Inventory | ||||||||
| Total current assets | ||||||||
| Other assets: | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Deferred revenue | ||||||||
| Due to CONtv | ||||||||
| Total liabilities | $ | $ | ||||||
| 34 |
In addition, revenue and expenses from discontinued operations were as follows:
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2022 | 2021 | |||||||
| Revenue | $ | $ | ||||||
| Operating costs and expenses: | ||||||||
| Cost of revenue | ||||||||
| General and administrative | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income (expense): | ||||||||
| Other income | ( | ) | ||||||
| Interest income | ||||||||
| Gain (loss) on disposal of fixed assets | ||||||||
| Total other income (expense) | ( | ) | ||||||
| Income (loss) from discontinued operations | $ | ( | ) | $ | ||||
Note 19. Subsequent Events
Decrease in Market Price of Bitcoin, and Increase in Cost of Natural Gas
Our
business is heavily dependent on the market price of Bitcoin, which has experienced substantial volatility and has recently dropped to
its lowest price since December 2020. As of September 30, 2022
Merger Agreement
On October 24, 2022, the Company, Creek Road Merger Sub, LLC, a Delaware limited liability company and wholly-owned subsidiary of the Company, and Prairie entered into the Merger Agreement, pursuant to which Merger Sub will merge with and into Prairie, with Prairie surviving and continuing to exist as a Delaware limited liability company and a wholly-owned subsidiary of the Company.
At
the Effective Time, the Company will (a) deliver the greater of (A) shares of its common stock, and
| 35 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Notice Regarding Forward-Looking Statements
The following discussion and analysis of our financial condition and results of operations for the three months ended March 31, 2022 and 2021 should be read in conjunction with our consolidated financial statements and related notes to those financial statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements. All forward-looking statements included in this report are based on information available to us on the date hereof and, except as required by law, we assume no obligation to update any such forward-looking statements.
Company Overview
Creek Road Miners, Inc. (formerly known as Wizard Brands, Inc., Wizard Entertainment, Inc., Wizard World, Inc., and GoEnergy, Inc.) was incorporated in Delaware on May 2, 2001. Prior to cryptocurrency mining operations that began in October 2021, the Company produced live and virtual pop culture conventions and events, and sold a gelatin machine and related consumables that were discontinued in 2021 In addition, the Company operated an eCommerce site selling pop culture memorabilia that was discontinued on June 30, 2022 (collectively known as “legacy operations”).
On August 6, 2021, we entered into an Asset Purchase Agreement (the “Informa Agreement”) with Informa Pop Culture Events, Inc., a Delaware corporation (“Informa”). Pursuant to the Informa Agreement, Creek Road Miners Corp. (fka Kick the Can Corp.) sold, transferred, and assigned certain assets, properties, and rights to Informa related to the business of operating and producing live pop culture events. 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.
On October 24, 2022, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Creek Road Merger Sub, LLC, a Delaware limited liability company and our wholly-owned subsidiary (“Merger Sub”), and Prairie Operating Co., LLC, a Delaware limited liability company (“Prairie”), pursuant to which Merger Sub will merge with and into Prairie (the “Merger”), with Prairie surviving and continuing to exist as a Delaware limited liability company and our wholly-owned subsidiary.
Cryptocurrency Mining
We generate substantially all our revenue through cryptocurrency we earn through our mining activities. We have historically mined and held Bitcoin exclusively, which we may sell to fund our operating and capital expenditures. While we do not have the intention of mining any other cryptocurrencies in the near future, we may expand our mining operations to include additional crypto assets if, after evaluation of the financial merits of such crypto assets based on a number of factors, including the anticipated profitability and price stability of such crypto assets and the ability and cost of our existing miners to mine for such digital assets, we determine that such additional crypto assets are reasonably likely to result in better margin than Bitcoin. Our mining operations commenced on October 24, 2021. We use special cryptocurrency mining computers (known as “miners”) to solve complex cryptographic algorithms to support the Bitcoin blockchain and, in return, receive Bitcoin as our reward. Miners measure their processing power, which is known as “hashing” power, in terms of the number of hashing algorithms solved (or “hashes”) per second, which is the miner’s “hash rate.” We participate in mining pools that pool the resources of groups of miners and split cryptocurrency rewards earned according to the “hashing” capacity each miner contributes to the mining pool.
All of our miners were manufactured by Bitmain, and incorporate application-specific integrated circuit (“ASIC”) chips specialized to solve blocks on the Bitcoin blockchains using the 256-bit secure hashing algorithm (“SHA-256”) in return for Bitcoin cryptocurrency rewards. As of September 30, 2022, we had 510 Bitmain S19J Pro miners with 51.0 Ph/s of hashing capacity and 270 Bitmain S19 miners with 24.3 Ph/s of hashing capacity, none of which were in service.
Our Bitcoin mining operations require significant amounts of power. On May 30, 2022, the Company entered into a binding memorandum of understanding with Highwire Energy Partners, Inc. (“Highwire”) to acquire certain energy assets, including natural gas production opportunities in South Dakota, North Dakota and Wyoming as well as an opportunity for fixed-price electricity generation in Wyoming. In mid-June 2022, the Company relocated 240 Bitmain S19J Pro miners with 24 Ph/s of hashing capacity from Louisiana to a facility operated by Highwire in Colorado. The Company’s miners have currently not been placed in operational service pending resolution of gas supply start-up issues at the Highwire site and other operational issues. As a result, since June 30, 2022 the Company is neither receiving meaningful cryptocurrency awards nor generating meaningful revenue from cryptocurrency mining.
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Mobile Data Centers
We historically utilize mobile data centers to house our miners. Our mobile data centers are located close to natural gas wellheads. We use natural gas to power a mobile turbine that produces electricity that, in turn, is used to power our miners.
Mining Results
The Company measures its operations by the number and U.S. Dollar (US$) value of the cryptocurrency rewards it earns from its cryptocurrency mining activities. The following table presents additional information regarding our cryptocurrency mining operations:
| Quantity of Bitcoin | US$ Amounts | |||||||
| Balance September 30, 2021 | — | $ | — | |||||
| Revenue recognized from cryptocurrency mined | 6.7 | 369,804 | ||||||
| Mining pool operating fees | (0.1 | ) | (7,398 | ) | ||||
| Impairment of cryptocurrencies | — | (59,752 | ) | |||||
| Balance December 31, 2021 | 6.6 | $ | 302,654 | |||||
| Revenue recognized from cryptocurrency mined | 8.3 | 343,055 | ||||||
| Mining pool operating fees | (0.2 | ) | (6,868 | ) | ||||
| Impairment of cryptocurrencies | — | (106,105 | ) | |||||
| Balance March 31, 2022 | 14.7 | $ | 532,736 | |||||
| Revenue recognized from cryptocurrency mined | 4.6 | 166,592 | ||||||
| Mining pool operating fees | (0.1 | ) | (3,428 | ) | ||||
| Proceeds from the sale of cryptocurrency | (18.9 | ) | (564,205 | ) | ||||
| Realized loss on the sale of cryptocurrency | — | (131,075 | ) | |||||
| Impairment of cryptocurrencies | — | (34 | ) | |||||
| Balance June 30, 2022 (1) | 0.3 | $ | 586 | |||||
| Revenue recognized from cryptocurrency mined | 0.3 | 7,955 | ||||||
| Mining pool operating fees | — | (156 | ) | |||||
| Impairment of cryptocurrencies | — | (1,035 | ) | |||||
| Balance September 30, 2022 (1) | 0.6 | $ | 7,350 | |||||
| (1) | Since June 30, 2022 the Company is neither receiving meaningful cryptocurrency awards nor generating meaningful revenue from cryptocurrency mining. |
Factors Affecting Profitability
Our business is heavily dependent on the market price of Bitcoin. The prices of cryptocurrencies, specifically Bitcoin, have experienced substantial volatility. Further affecting the industry, and particularly for the Bitcoin blockchain, the cryptocurrency reward for solving a block is subject to periodic incremental halving. Halving is a process designed to control the overall supply and reduce the risk of inflation in cryptocurrencies using a Proof-of-Work consensus algorithm. At a predetermined block, the mining reward is cut in half, hence the term “halving”. For Bitcoin the reward was initially set at 50 Bitcoin currency rewards per block. The Bitcoin blockchain has undergone halving three times since its inception as follows: (1) on November 28, 2012 at block 210,000; (2) on July 9, 2016 at block 420,000; and (3) on May 11, 2020 at block 630,000, when the reward was reduced to its current level of 6.25 Bitcoin per block. The next halving for the Bitcoin blockchain is anticipated to occur in March 2024 at block 840,000, when the reward will be reduced to 3.125 Bitcoin per block. This process will reoccur until the total amount of Bitcoin currency rewards issued reaches 21 million and the theoretical supply of new Bitcoin is exhausted. Many factors influence the price of Bitcoin, and potential increases or decreases in prices in advance of, or following, a future halving is unknown.
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We have historically mined and held Bitcoin exclusively, which we may sell to fund our operating and capital expenditures. Since June 30, 2022 the Company is neither receiving meaningful cryptocurrency awards nor generating meaningful revenue from cryptocurrency mining
Our business is heavily dependent on the market price of Bitcoin, which has experienced substantial volatility and has recently dropped to its lowest price since December 2020. As of September 30, 2022 the market price of Bitcoin was $19,432, which reflects a decrease of approximately 60% since the beginning of 2022, and of approximately 70% from its all-time high of approximately $67,000. In addition, the cost of natural gas that we use to produce electricity to power our miners has increased substantially. The cost of natural gas in the United States has increased by as much as approximately 260% since the beginning of 2022. These price movements result in decreased cryptocurrency mining revenue and increased cryptocurrency mining costs, both of which have a material adverse effect on our business and financial results.
Contingencies and Commitments
On September 13, 2022, Barlock Capital Management LLC, which is co-managed by Scott Kaufman, the Company’s former Co-Chief Executive Officer and director, and is also an affiliate of Barlock 2019 Fund, LP (“Barlock”), delivered a notice of an alleged event of default of the secured convertible debenture in the principal amount of $2,496,850 (the “Debenture”) and a demand for payment of $5,004,978.76 (the “Notice”) to the Company. The Notice alleged that (i) the Company’s issuance of a convertible note in the principal amount of $900,000 on August 24, 2022 (the “Alpha Note”) and (ii) Mr. Kaufman’s resignation as the Company’s Co-Chief Executive Officer and a director on August 8, 2022, each constituted events of default under the Debenture.
The Company strongly disagrees with the assertion that an event of default has occurred under the Debenture and notified Mr. Kaufman and Barlock that they had previously delegated the exclusive authority to exercise remedies under the Debenture and the related security agreement to the agent for Barlock and all other holders of such debentures as defined in such security agreement. Accordingly, the Company has demanded a withdrawal of the Notice. In addition, the Company has notified Mr. Kaufman and certain other persons acting in concert with him of its intent to pursue several causes of action against him and others acting in concert with him for intentional fraud, self-dealing, conspiracy to commit fraud, breaches of fiduciary duties and aiding and abetting breaches of fiduciary duties. The Company maintains that the issuance of the Alpha Note in exchange for 600,000 shares of the Company’s common stock pursuant to Section 3(a)(9) of the Securities Act of 1933, as amended, does not constitute the incurrence of “indebtedness for borrowed money” and cannot be an event of default. The Company also maintains that Mr. Kaufman’s voluntary resignation from his positions with the Company in the face of an investigation into potential wrongdoing, breaches of fiduciary duties and other objectionable conduct cannot be the basis for an event of default under the Debenture and that Barlock lacks the authority under the Debenture and the related transaction documents to declare events of default.
If it is ultimately determined that an event of default exists under the Debenture and that the Notice was properly provided on behalf of Barlock, the outstanding principal amount of the Debenture, plus accrued but unpaid interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration will be due and payable at the (a) greater of (i) the outstanding principal amount of the Debenture, plus all accrued and unpaid interest thereon, divided by the conversion price on the date of Barlock’s demand for acceleration multiplied by the volume weighted average price of the Company’s shares of common stock on such date on the date, or (ii) 130% of the outstanding principal amount of the Debenture, plus 100% of accrued and unpaid interest thereon, and (b) all other amounts, costs, expenses and liquidated damages due in respect of the Debenture. Commencing five days after the occurrence of any event of default that results in the eventual acceleration of the Debenture, the interest rate on the Debenture accrues at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted under applicable law.
Competition
Our business environment is constantly evolving, and cryptocurrency miners can range from individuals to large-scale commercial mining operations. We compete with other companies that focus all or a portion of their activities on mining activities at scale, including several public and private companies. We face significant competition in every aspect of our business, including, but not limited to, the acquisition of mining equipment, the ability to raise capital, and the ability to obtain the lowest cost energy to power our mining operations.
Government Regulation
Cryptocurrency is increasingly becoming subject to governmental regulation, both in the U.S. and internationally. State and local regulations also may apply to our activities and other activities in which we may participate in the future. Numerous regulatory bodies have shown an interest in regulating blockchain or cryptocurrency activities. For example, on March 9, 2022 President Biden signed an executive order on cryptocurrencies. While the executive order does not mandate any specific regulations, it instructs various federal agencies to consider potential regulatory measures, including the evaluation of the creation of a U.S. Central Bank digital currency. Future changes to existing regulations or entirely new regulations may affect our business in ways it is not presently possible for us to predict with any reasonable degree of reliability. As the regulatory and legal environment evolves, we may become subject to new laws and regulation which may affect our mining and other activities. For additional discussion regarding our belief about the potential risks existing and future regulation pose to our business, see the Section entitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
COVID-19
We are subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on our business is highly uncertain and difficult to predict, as the responses that we, other businesses and governments are taking continue to evolve. Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is possible that it could cause a local and/or global economic recession. Policymakers around the globe have responded with fiscal policy actions to support the healthcare industry and economy as a whole. The magnitude and overall effectiveness of these actions remain uncertain.
The severity of the impact of the COVID-19 pandemic on our business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on our customers, service providers and suppliers, all of which are uncertain and cannot be predicted. As of the date of issuance of our financial statements, the extent to which the COVID-19 pandemic may in the future materially impact our financial condition, liquidity or results of operations is uncertain.
Russia – Ukraine Conflict
The Russia – Ukraine conflict is a global concern. The Company does not have any direct exposure to Russia or Ukraine through its operations, employee base, investments or sanctions. The Company does not receive goods or services sourced from those countries, does not anticipate any disruption in its supply chain and has no business relationships, connections to or assets in Russia, Belarus or Ukraine. No impairments to assets have been made due to the conflict. We are unable at this time to know the full ramifications of the Russia – Ukraine conflict and its effects on our business.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States, or U.S. GAAP, requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. When making these estimates and assumptions, we consider our historical experience, our knowledge of economic and market factors and various other factors that we believe to be reasonable under the circumstances. Actual results may differ under different estimates and assumptions. The accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an understanding of our financial statements because they inherently involve significant judgments and uncertainties.
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Principles of Consolidation
The accompanying financial statements are consolidated and include the accounts of the Company and its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
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 disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates.
Reclassification
Certain prior period amounts have been reclassified to conform to current period presentation.
Cash and cash equivalents
For purposes of the statements of cash flows, the Company defines cash equivalents as all highly liquid debt instruments purchased with an original maturity of three months or less. In all periods presented, cash equivalents consist primarily of money market funds.
Fair value of financial instruments
Under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures, fair value is defined as the price at which an asset could be exchanged or a liability transferred in a transaction between knowledgeable, willing parties in the principal or most advantageous market for the asset or liability. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or parameters are not available, valuation models are applied. A fair value hierarchy prioritizes the inputs used in measuring fair value into three broad levels as follows:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Inputs, other than the quoted prices in active markets, are observable either directly or indirectly.
Level 3 – Unobservable inputs based on the Company’s assumptions.
The Company is required to use observable market data if such data is available without undue cost and effort. The Company has no fair value items required to be disclosed as of December 31, 2021 or 2020 under these requirements. The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, accounts receivable and accounts payable, 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 secured convertible debentures due to related parties, 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.
Cryptocurrency
Cryptocurrency (Bitcoin) is included in current assets in the accompanying consolidated balance sheets. The classification of cryptocurrencies as a current asset has been made after the Company’s consideration of the significant consistent daily trading volume on readily available cryptocurrency exchanges and the absence of limitations or restrictions on Company’s ability to sell Bitcoin. Cryptocurrencies awarded to the Company through its mining activities are accounted for in connection with the Company’s revenue recognition policy disclosed below. Cryptocurrencies held are accounted for as intangible assets with indefinite useful lives. An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value, which is measured using the quoted price of the cryptocurrency at the time its fair value is being measured. In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted. Cryptocurrencies awarded to the Company through its mining activities are included within operating activities on the accompanying consolidated statements of cash flows.
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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.
Property and equipment
Property and equipment are stated at cost and are depreciated using the straight-line method over their estimated useful lives of 3 to 9 years. No depreciation is recorded until the property or equipment is placed into service. Leasehold improvements are amortized over the shorter of the useful lives of the related assets, or the lease term. Expenditures for maintenance and repairs are charged to operations as incurred while renewals and betterments are capitalized. Gains and losses on disposals are included in the consolidated statements of operations.
Management assesses the carrying value of property and equipment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If there is indication of impairment, management prepares an estimate of future cash flows expected to result from the use of the asset and its eventual disposition. If these cash flows are less than the carrying amount of the asset, an impairment loss is recognized to write down the asset to its estimated fair value.
Revenue Recognition
We account for revenue in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606), (“ASC 606”). The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected.
Revenues are recognized when control of the promised goods or services are transferred to a customer, in an amount that reflects the consideration that we expect to receive in exchange for those goods or services. We apply the following five steps in order to determine the appropriate amount of revenue to be recognized as we fulfill our obligations under each of our agreements:
| ● | identify the contract with a customer; | |
| ● | identify the performance obligations in the contract; | |
| ● | determine the transaction price; | |
| ● | allocate the transaction price to performance obligations in the contract; and | |
| ● | recognize revenue as the performance obligation is satisfied. |
The Company has entered into digital asset mining pools by executing contracts with the mining pool operators to provide computing power to the mining pool. The contracts are terminable at any time by either party and the Company’s enforceable right to compensation only begins when the Company provides computing power to the mining pool operator. In exchange for providing computing power, the Company is entitled to a fractional share of the fixed cryptocurrency award the mining pool operator receives (less digital asset transaction fees to the mining pool operator which are recorded as a component of cost of revenues), for successfully adding a block to the blockchain. The Company’s fractional share is based on the proportion of computing power the Company contributed to the mining pool operator to the total computing power contributed by all mining pool participants in solving the current algorithm.
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Providing computing power in digital asset transaction verification services is an output of the Company’s ordinary activities. The provision of providing such computing power is the only performance obligation in the Company’s contracts with mining pool operators. The transaction consideration the Company receives, if any, is noncash consideration, which the Company measures at fair value on the date received, which is not materially different than the fair value at contract inception or the time the Company has earned the award from the pools. The consideration is all variable. Because it is not probable that a significant reversal of cumulative revenue will not occur, the consideration is constrained until the mining pool operator successfully places a block (by being the first to solve an algorithm) and the Company receives confirmation of the consideration it will receive, at which time revenue is recognized. There is no significant financing component in these transactions.
Fair value of the cryptocurrency award received is determined using the market rate of the related cryptocurrency at the time of receipt. There is currently no specific definitive guidance under GAAP or alternative accounting framework for the accounting for cryptocurrencies recognized as revenue or held, and management has exercised significant judgment in determining the appropriate accounting treatment. In the event authoritative guidance is enacted by the FASB, the Company may be required to change its policies, which could have an effect on the Company’s consolidated financial position and results from operations.
Cryptocurrency Mining Costs
The Company’s cryptocurrency mining costs consist primarily of direct costs of earning Bitcoin related to mining operations, including mining pool fees, natural gas costs, turbine rental costs, and mobile data center rental costs, but exclude depreciation and amortization, which are separately stated in the Company’s consolidated statements of operations.
Reverse Stock Split
We implemented a 1-for-20 reverse stock split of our outstanding shares of common stock that was effective on January 23, 2020. Unless otherwise noted, all share and related option, warrant, and convertible security information presented has been retroactively adjusted to reflect the reduced number of shares, and the increase in the share price which resulted from this action.
Stock-Based Compensation
We periodically issue stock options, warrants and restricted stock to employees and non-employees for services, in capital raising transactions, and for financing costs. We account for share-based payments under the guidance as set forth in the Share-Based Payment Topic 718 of the FASB Accounting Standards Codification, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees, officers, directors, and consultants, including employee stock options, based on estimated fair values. We estimate the fair value of stock option and warrant awards to employees and directors on the date of grant using an option-pricing model, and the value of the portion of the award that is ultimately expected to vest is recognized as expense over the required service period in our Statements of Operations. We estimate the fair value of restricted stock awards to employees and directors using the market price of our common stock on the date of grant, and the value of the portion of the award that is ultimately expected to vest is recognized as expense over the required service period in our Statements of Operations.
Income taxes
We account for income taxes using the asset and liability method whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Discontinued Operations
Prior to cryptocurrency mining operations that began in October 2021, the Company produced live and virtual pop culture conventions and events and sold a gelatin machine and related consumables that were discontinued in 2021. In addition, the Company operated an eCommerce site selling pop culture memorabilia that was discontinued on June 30, 2022 (known collectively as “legacy operations”).
On August 6, 2021, we entered into the Informa Agreement. Pursuant to the Informa Agreement, Creek Road Miners Corp (fka Kick the Can Corp.) sold, transferred, and assigned certain assets, properties, and rights to Informa related to the business of operating and producing live pop culture events. The Company released deferred revenue and other liabilities totaling $722,429 and recognized other income of this amount.
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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 related assets and liabilities associated with the discontinued operations in our consolidated balance sheets for the periods ending September 30, 2022, and December 31, 2021, are classified as discontinued operations. Additionally, the financial results associated with discontinued operations in our consolidated statement of operations for the three and nine months ending September 30, 2022 and 2021, are classified as discontinued operations.
Results of Operations
Comparison of the Three and Nine Months Ended September 30, 2022 and 2021
| Three Months Ended September 30, | ||||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||
| Revenue: | ||||||||||||||||
| Cryptocurrency mining | $ | 7,955 | $ | — | $ | 7,955 | — | % | ||||||||
| Operating costs and expenses: | ||||||||||||||||
| Cryptocurrency mining costs (exclusive of depreciation and amortization shown below) | 284,700 | — | 284,700 | — | % | |||||||||||
| Depreciation and amortization | 164,520 | 12,154 | 152,366 | 1,254 | % | |||||||||||
| Stock based compensation | 156,190 | 436,479 | (280,289 | ) | (64 | )% | ||||||||||
| General and administrative | 1,127,503 | 1,503,738 | (376,235 | ) | (25 | )% | ||||||||||
| Impairment of mined cryptocurrency | 1,035 | — | 1,035 | — | % | |||||||||||
| Total operating expenses | 1,733,948 | 1,952,371 | (218,423 | ) | (11 | )% | ||||||||||
| Loss from operations | (1,725,993 | ) | (1,952,371 | ) | 226,378 | 12 | % | |||||||||
| Other income (expense): | ||||||||||||||||
| Realized loss on sale of cryptocurrency | — | — | — | — | % | |||||||||||
| PPP loan forgiveness | — | — | — | — | % | |||||||||||
| Interest expense | (64,139 | ) | (294,498 | ) | 230,395 | 78 | % | |||||||||
| Total other income (expense) | (64,139 | ) | (294,498 | ) | 230,395 | 78 | % | |||||||||
| Net loss from continuing operations | (1,790,132 | ) | (2,246,869 | ) | 456,737 | 20 | % | |||||||||
| Discontinued operations: | ||||||||||||||||
| Income (loss) from discontinued operations | (6 | ) | (208,377 | ) | 218,371 | 100 | % | |||||||||
| Gain from sale of discontinued operations | — | 1,853,169 | (1,853,169 | ) | — | % | ||||||||||
| Net income from discontinued operations | (6 | ) | 1,639,832 | (1,644,798 | ) | (100 | )% | |||||||||
| Net loss | $ | (1,790,138 | ) | $ | (602,077 | ) | $ | (1,188,061 | ) | (197 | )% | |||||
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| Nine Months Ended September 30, | ||||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||
| Revenue: | ||||||||||||||||
| Cryptocurrency mining | $ | 517,602 | $ | — | $ | 517,602 | — | % | ||||||||
| Operating costs and expenses: | ||||||||||||||||
| Cryptocurrency mining costs (exclusive of depreciation and amortization shown below) | 1,071,458 | — | 1,071,458 | — | % | |||||||||||
| Depreciation and amortization | 493,560 | 24,503 | 469,057 | 1,914 | % | |||||||||||
| Stock based compensation | 2,545,431 | 2,473,954 | 71,477 | 3 | % | |||||||||||
| General and administrative | 2,825,272 | 3,715,015 | (889,743 | ) | (24 | )% | ||||||||||
| Impairment of mined cryptocurrency | 107,174 | — | 107,174 | — | % | |||||||||||
| Total operating expenses | 7,042,895 | 6,213,472 | 829,423 | 13 | % | |||||||||||
| Loss from operations | (6,525,293 | ) | (6,213,472 | ) | (311,821 | ) | (5 | )% | ||||||||
| Other income (expense): | ||||||||||||||||
| Realized loss on sale of cryptocurrency | (131,075 | ) | — | (131,075 | ) | — | % | |||||||||
| PPP loan forgiveness | 197,662 | — | 197,662 | — | % | |||||||||||
| Interest expense | (454,833 | ) | (764,009 | ) | 309,176 | 40 | % | |||||||||
| Total other income (expense) | (388,246 | ) | (764,009 | ) | 375,763 | 49 | % | |||||||||
| Net loss from continuing operations | (6,913,539 | ) | (6,977,481 | ) | 63,942 | 1 | % | |||||||||
| Discontinued operations: | ||||||||||||||||
| Income (loss) from discontinued operations | (17,738 | ) | 200,155 | (217,893 | ) | (109 | )% | |||||||||
| Gain from sale of discontinued operations | — | 1,853,169 | (1,853,169 | ) | — | % | ||||||||||
| Net income from discontinued operations | (17,738 | ) | 2,053,324 | (2,071,062 | ) | (101 | )% | |||||||||
| Net loss | $ | (6,931,277 | ) | $ | (4,924,157 | ) | $ | (2,007,120 | ) | (41 | )% | |||||
Revenue
| Three Months Ended September 30, | ||||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||
| Revenue: | ||||||||||||||||
| Cryptocurrency mining | $ | 7,955 | $ | — | $ | 7,955 | — | % | ||||||||
| Nine Months Ended September 30, | ||||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||
| Revenue: | ||||||||||||||||
| Cryptocurrency mining | $ | 517,602 | $ | — | $ | 517,602 | — | % | ||||||||
All revenue associated with discontinued operations is classified accordingly on our consolidated statement of operations for the three and nine months ending September 30, 2022 and 2021.
Revenue from cryptocurrency mining began in late 2021. Our Bitcoin mining operations require significant amounts of power. On May 30, 2022, the Company entered into a binding memorandum of understanding with Highwire to acquire certain energy assets, including natural gas production opportunities in South Dakota, North Dakota and Wyoming as well as an opportunity for fixed-price electricity generation in Wyoming. In mid-June 2022, the Company relocated 240 Bitmain S19J Pro miners with 24 Ph/s of hashing capacity from Louisiana to a facility operated by Highwire in Colorado. The Company’s miners have currently not been placed in operational service pending resolution of gas supply start-up issues at the Highwire site and other operational issues. As a result, since June 30, 2022 the Company is neither receiving meaningful cryptocurrency awards nor generating meaningful revenue from cryptocurrency mining.
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Operating Costs and Expenses
| Three Months Ended September 30, | ||||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||
| Operating Costs and Expenses: | ||||||||||||||||
| Cryptocurrency
mining costs (exclusive of depreciation and amortization shown below) | $ | 284,700 | — | 284,700 | — | % | ||||||||||
| Depreciation and amortization | 164,520 | 12,154 | 152,366 | 1,254 | % | |||||||||||
| Stock based compensation | 156,190 | 436,479 | (280,289 | ) | (64 | )% | ||||||||||
| General and administrative | 1,127,503 | 1,503,738 | (376,235 | ) | (25 | )% | ||||||||||
| Impairment of mined cryptocurrency | 1,035 | — | 1,035 | — | % | |||||||||||
| Total operating expenses | $ | 1,733,948 | 1,952,371 | (218,423 | ) | (11 | )% | |||||||||
Operating costs and expenses decreased $218,423 or 11%, for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily due to lower stock based compensation of $280,289 and general and administrative costs of $376,235, partially offset by greater cryptocurrency mining costs of $284,700 and depreciation of $152,366.
| Nine Months Ended September 30, | ||||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||
| Operating Costs and Expenses: | ||||||||||||||||
| Cryptocurrency
mining costs (exclusive of depreciation and amortization shown below) | $ | 1,071,458 | — | 1,071,458 | — | % | ||||||||||
| Depreciation and amortization | 496,057 | 24,503 | 469,057 | 1,914 | % | |||||||||||
| Stock based compensation | 2,545,431 | 2,473,954 | 74,477 | 3 | % | |||||||||||
| General and administrative | 2,825,272 | 3,715,015 | (889,743 | ) | (24 | )% | ||||||||||
| Impairment of mined cryptocurrency | 107,174 | — | 107,174 | — | % | |||||||||||
| Total operating expenses | $ | 7,042,895 | 6,213,472 | 829,423 | 13 | % | ||||||||||
Operating costs and expenses increased $829,423 or 13%, for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily due to greater cryptocurrency mining costs of $1,071,458, and depreciation of $469,057, both of which were not present in the prior year period, and partially offset by lower general and administrative expenses of $889,743.
Net Income (Loss)
| Three Months Ended September 30, | ||||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||
| Net Income (Loss): | ||||||||||||||||
| Net loss from continuing operations | $ | (1,790,132 | ) | (2,246,869 | ) | 456,737 | 20 | % | ||||||||
| Net income from discontinued operations | (6 | ) | 1,644,792 | (1,644,792 | ) | (100 | )% | |||||||||
| Total net loss | $ | (1,790,138 | ) | $ | (602,077 | ) | $ | (1,188,061 | ) | (197 | )% | |||||
Net loss from continuing operations decreased $456,737 or 20%, for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily due to lesser interest expense and decreased operating costs and expenses as described above.
| Nine Months Ended September 30, | ||||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||
| Net Income (Loss): | ||||||||||||||||
| Net loss from continuing operations | $ | (6,913,539 | ) | (6,977,481 | ) | 63,942 | 1 | % | ||||||||
| Net income from discontinued operations | (17,732 | ) | 2,053,324 | (2,071,062 | ) | (101 | )% | |||||||||
| Total net loss | $ | (6,931,277 | ) | $ | (4,924,157 | ) | $ | (2,007,120 | ) | (41 | )% | |||||
Net loss from continuing operations decreased $63,942 or 1%, for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily due to lesser interest expense, offset by increased operating costs and expenses as described above.
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Going Concern Analysis
Historically, we have relied upon cash from financing activities to fund substantially all of the cash requirements of our activities and have incurred significant losses and experienced negative cash flow. The Company had net losses from continuing operations of $6,913,539, and $6,977,481, for the nine months ended September 30, 2022 and 2021, respectively. We cannot predict if we will be profitable. We may continue to incur losses for an indeterminate period of time and may be unable to achieve profitability. An extended period of losses and negative cash flow may prevent us from successfully operating and expanding our business. We may be unable to achieve or sustain profitability on a quarterly or annual basis. On September 30, 2022, we had cash and cash equivalents of $451,212, a working capital deficit of approximately $4.8 million, and an accumulated deficit of approximately $54 million.
We have evaluated the significance of the uncertainty regarding the Company’s financial condition in relation to our ability to meet our obligations, which has raised substantial doubts about the Company’s ability to continue as a going concern. While it is very difficult to estimate our future liquidity requirements the Company believes that if it is unable close the Merger, or obtain debt and/or equity financing, existing cash resources will be depleted in early 2023 or late 2022. The Company can generate cash through the sale of fixed assets, specifically cryptocurrency miners. However, the total cash generated would be significantly less than the total of the Company’s liabilities. There are no assurances that the Merger will close, that debt and/or equity financing can be obtained, or that the sale of fixed assets, specifically cryptocurrency miners can be achieved.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The 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.
The Company’s ability to continue as a going concern is dependent upon the Company’s ability to close the merger with Prairie, or obtain debt and/or equity financing, and there are no assurances that either can occur.
Liquidity and Capital Resources
Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Consolidated Statements of Cash Flow Data: | ||||||||
| Net cash used in operating activities | $ | (1,886,548 | ) | $ | (6,015,689 | ) | ||
| Net cash used in investing activities | (1,916,723 | ) | (1,129,366 | ) | ||||
| Net cash provided by financing activities | 1,469,297 | 7,989,831 | ||||||
| Net increase (decrease) in cash and cash equivalents | (2,333,974 | ) | 844,776 | |||||
| Cash and cash equivalents, beginning of period | 2,785,188 | 1,897,703 | ||||||
| Cash and cash equivalents, end of period | $ | 451,214 | $ | 2,742,479 | ||||
Liquidity
As of September 30, 2022, we had cash and cash equivalents of $451,214, compared to $2,785,188 as of December 31, 2021, a decrease of $2,333,974. This decrease was primarily due to cash of $1,916,723 used in investing activities, cash of $1,886,548 used in operating activities, and partially offset by cash of $1,469,297 provided by financing activities.
Operating Activities
Net cash used in operating activities was $1,886,548 for the nine months ended September 30, 2022 and resulted primarily from a net loss of $6,931,277, partially offset by stock based compensation of $2,715,733 and an increase in accounts payable and accrued expenses of $2,691,738.
Net cash used in operating activities was $6,015,689 for the nine months ended September 30, 2021 and resulted primarily from a net loss of $4,924,157, a decrease in liabilities associated with discontinued operations of $2,539,125, and a gain on sale of discontinued operations of $1,853,169, partially offset by stock based compensation of $2,720,548.
Investing Activities
Net cash used in investing activities was $1,916,723 for the nine months ended September 30, 2022 and resulted primarily from an increase in property and equipment, specifically mining equipment, of $5,295,478, partially offset by a decrease in net deposits on mining equipment of $2,939,550 and proceeds from the sale of cryptocurrency of $564,205.
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As of September 30, 2022, we had 510 Bitmain S19J Pro miners with 51.0 Ph/s of hashing capacity and 270 Bitmain S19 miners with 24.3 Ph/s of hashing capacity, none of which were in service.
On December 17, 2021 the Company entered into a Non-Fixed Price Sales and Purchase Agreement (the “Bitmain Agreement”) with Bitmain Technologies Limited (“Bitmain”) for 600 Bitmain S19XP miners with a reference price of approximately $11,250 per miner. The miners have a total of 84 Ph/s of hashing capacity and an initial estimated purchase commitment of $6,762,000 (the “total reference price”), subject to price adjustments and related offsets, including potential adjustments related to the market price of miners. The Company has made payments of $3,969,000 (classified as deposits on mining equipment) to Bitmain pursuant to the Bitmain Agreement.
The remaining amount due under the Bitmain Agreement based on the initial total reference price is $2,793,000, however, as of September 30, 2022, the market price of miners has dropped significantly from $11,250 to approximately $5,810 per miner. The estimated remaining amount due under the Bitmain Agreement based on the current market price of miners (assuming no contract interpretation disputes are asserted by, and no liquidated damaged or penalties are assessed by, Bitmain) is presented below:
Market Price per Miner | Total Amount | |||||||
| July 2022 batch (100 miners) | $ | 7,756 | $ | 775,600 | ||||
| August 2022 batch (100 miners) | 7,140 | 714,000 | ||||||
| September 2022 batch (100 miners) | 7,140 | 714,000 | ||||||
| October 2022 batch (100 miners) | 6,510 | 651,000 | ||||||
| November 2022 batch (100 miners) | 5,810 | 581,000 | ||||||
| December 2022 batch (100 miners) | 5,810 | (1) | 581,000 | |||||
| Estimated total amount due | 4,016,600 | |||||||
| Less: Payments made | 3,969,000 | |||||||
| Estimated remaining amount due (2) | $ | 47,600 | ||||||
| (1) | Estimate based on the November 2022 market price. |
| (2) | Assuming no contract interpretation disputes are asserted by, and no liquidated damaged or penalties are assessed by, Bitmain |
Net cash used in investing activities was $1,129,366 for the nine months ended September 30, 2021 and resulted primarily from an increase in property and equipment, specifically mining equipment, of $1,129,366.
Financing Activities
Net cash provided by financing activities was $1,469,297 for the nine months ended September 30, 2022 and resulted primarily from proceeds from the exercise of warrants for $983,330 and proceeds from a convertible note payable of $500,000.
Net cash provided by financing activities was $7,989,831 for the nine months ended September, 2021 and resulted primarily from proceeds from the issuance of common stock and warrants of $3,250,000, Series B preferred stock and warrants of $2,998,994, and proceeds from the sale of discontinued operations of $1,500,000.
Working Capital (Deficit)
The following table summarizes total current assets, liabilities, and working capital for the periods ended September 30, 2022 and December 31, 2021:
| As of | ||||||||||||
September 30, 2022 | December 31, 2021 | Increase/(Decrease) | ||||||||||
| Current assets | $ | 5,290,258 | $ | 10,827,973 | $ | (5,537,715 | ) | |||||
| Current liabilities | $ | 10,107,602 | $ | 6,039,311 | $ | 4,068,291 | ||||||
| Working capital (deficit) | $ | (4,817,344 | ) | $ | 4,788,662 | $ | (9,606,006 | ) | ||||
As of September 30, 2022, we had working capital deficit of $4,817,244, compared to working capital of $4,788,662 as of December 31, 2021, a decrease of 9,606,006. The decrease was primarily due to a decrease in cash and deposits on mining equipment, and an increase in accounts payable and accrued expenses and convertible notes payable.
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We do not have any off-balance sheet arrangements
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not required.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. For purposes of this section, the term disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2022, the end of the period covered by this report, our disclosure controls and procedures were effective at a reasonable assurance level.
Inherent Limitations on the Effectiveness of Controls
Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no evaluation of internal control over financial reporting can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been or will be detected.
These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
Changes in Internal Control Over Financial Reporting
In addition, our management with the participation of our principal executive officer and principal financial officer have determined that no change in our internal control over financial reporting (as that term is defined in Rules 13(a)-15(f) and 15(d)-15(f) of the Exchange Act) occurred during the quarter ended September 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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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.
Informa Lawsuit and Dismissal
On May 6, 2022, Informa filed an action in the Delaware Court of Chancery asserting breach of contract in regards to the August 6, 2021 Asset Purchase Agreement, pursuant to which the Company sold, transferred, and assigned certain assets, properties, and rights to Informa related to the business of operating and producing live pop culture events. On July 29, 2022, Informa and the Company entered into a Settlement Agreement pursuant to which Company assigned certain social media accounts and a domain name to Informa. On September 8, 2022 Informa filed a notice of dismissal to dismiss the action with prejudice.
Item 1A. Risk Factors
The Merger is subject to closing conditions and may not be completed and the Merger Agreement may be terminated in accordance with its terms.
The Merger is subject to closing conditions that must be satisfied or waived prior to the completion of the Merger. Many of the closing conditions are not within our control. No assurance can be given that the required conditions to the closing of the Merger will be satisfied in a timely manner or at all. Any delay in completing the Merger could cause the combined company not to realize, or to be delayed in realizing, some or all of the benefits that we expect to achieve if the Merger is successfully completed within its expected time frame.
Additionally, either party may terminate the Merger Agreement under certain circumstances. Moreover, if the Merger is not completed for any reason, our ongoing business may be adversely affected and, without realizing any of the expected benefits of having completed the Merger, we would be subject to a number of risks, including the following:
| ● | we may experience negative reactions from the financial markets, including negative impacts on our stock price; | |
| ● | we may experience negative reactions from our customers, suppliers, distributors and employees; | |
| ● | we will be required to pay our costs relating to the Merger, such as financial advisory, legal, financing and accounting costs and associated fees and expenses, whether or not the Merger is completed; | |
| ● | the market price of our common stock could decline to the extent that the current market price reflects a market assumption that the Merger will not be completed; | |
| ● | the Merger Agreement places certain restrictions on the conduct of our business prior to completion of the Transactions and such restrictions, the waiver of which are subject to the consent of Prairie, may prevent us from taking actions during the pendency of the Merger that would be beneficial; and | |
| ● | matters relating to the Merger will require substantial commitments of time and resources by management, which could otherwise have been devoted to day-to-day operations or to other opportunities that may have been beneficial to us as an independent company. |
We may waive one or more of the conditions to the Merger.
We may agree to waive, in whole or in part, one or more of the conditions to our obligations to complete the Merger, to the extent permitted by our Amended and Restated Certificate of Incorporation, bylaws and applicable laws. For example, it is a condition to our obligation to close the Merger that certain of Prairie’s representations and warranties be true and correct to the standards applicable to such representations and warranties. However, if the Board determines that it is in our best interests to proceed with the Merger, then the Board may elect to waive that condition and close the Merger.
We may not achieve the perceived benefits of the Transactions and the market price of our Common Stock following the Transactions may decline.
The market price of our common stock may decline as a result of the Merger for a number of reasons, including if: investors react negatively to the prospects of the Company’s business; the effect of the Merger on the Company’s business and prospects is not consistent with the expectations of our management or of financial or industry analysts; or the Company does not achieve the perceived benefits of the Merger as rapidly or to the extent anticipated by our management or financial or industry analysts.
Our stockholders may not realize a benefit from the Merger commensurate with the ownership dilution they will experience in connection with the Merger.
If the Company is unable to realize the strategic and financial benefits currently anticipated from the Merger, our pre-closing stockholders will have experienced substantial dilution of their ownership interests without receiving the expected commensurate benefit, or only receiving part of the commensurate benefit to the extent the Company is able to realize only part of the expected strategic and financial benefits currently anticipated from the Merger.
Our ability to continue as a going concern is contingent on the completion of the Merger or obtaining debt and/or equity financing, and if the Merger is not completed or any reason, we may not be able to obtain sufficient financing and may be forced to sell our cryptocurrency miners.
We do not have sufficient capital to fund our future operations without significant additional capital investments. If the Merger is not completed and adequate additional financing is not available on reasonable terms or at all, we may be forced to sell our fixed assets, specifically cryptocurrency miners, which would adversely affect our business and prospects. Such sales would materially adversely affect our ability to compete.
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, 2022, that were not otherwise disclosed in a Current Report on Form 8-.
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 6. Exhibits
EXHIBIT INDEX
* Filed herewith
# Schedules have been omitted pursuant to Items 601(a)(5) of Regulation S-K. The Company hereby undertakes to furnish supplemental copies of any of the omitted schedules upon request by the U.S. Securities and Exchange Commission. The Company may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any schedules so furnished.
+ Management contract or compensatory plan, contract or arrangement.
† Users of this data are advised pursuant to Rule 406T of Regulation S-T that this interactive data file is deemed not filed or part of a registration statement for purposes of Section 11 or 12 of the Securities Act, is deemed not filed for purposes of Section 18 of the Exchange Act, and otherwise is not subject to liability under these section
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SIGNATURES
Pursuant to the requirements 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. | ||
| By: | /s/ John D. Maatta | |
| John D. Maatta | ||
| Date: November 14, 2022 | President and Chief Executive Officer (Principal Executive Officer) | |
| By: | /s/ Alan L. Urban | |
| Alan L. Urban | ||
| Date: November 14, 2022 | Chief Financial Officer | |
| (Principal Financial and Accounting Officer) | ||
| 50 |